Enron Attorney Says FBI Is Probing Shredding at Company's Headquarters
Dow Jones Business News, 01/22/2002

WSJ: Enron Says FBI Invited To Probe Document Shredding
Dow Jones News Service, 01/22/2002

Paper Trail:
Shredded Documents Taken to Court
ABC News.com, 01/22/2002

Paper Chase:
Congress to Probe Destruction of Enron Documents
ABC News.com, 01/22/2002

Judge to hear request to halt shredding
Associated Press Newswires, 01/22/2002

Lawyers Ask Houston Crt Order To Stop Enron `Tampering'
Dow Jones Energy Service, 01/22/2002

ENRON PROBES ALLEGED SHREDDING DOCUMENT DESTRUCTION REPORTEDLY CONTINUED TO AT LEAST START OF JAN.
The Boston Globe, 01/22/2002

REPORT: ENRON KEPT ON SHREDDING ; FORMER EXECUTIVE: SUBPOENAS IGNORED
Orlando Sentinel, 01/22/2002

Manager Says Enron Shredded Documents; Probe Allegedly Was Already Underway
The Washington Post, 01/22/2002

Enron Ex-Executive: Previous Warnings Fell On `Deaf Ears'
Dow Jones International News, 01/02/2002

New Accusations of Document Shredding at Enron
American Morning with Paula Zahn, 01/22/2002

USA: Enron says ordered staff to preserve all papers.
Reuters English News Service, 01/21/2002

Enron Notified Employees to Retain Documents
PR Newswire, 01/21/2002

Enron says it checking shredding report
The Globe and Mail, 01/22/2002

Enron Claims to Fire Andersen as Auditor.
The Oil Daily, 01/22/2002

SMARTMONEY.COM: Special Report: The Enron Papers
Dow Jones News Service, 01/21/2002

SMARTMONEY.COM: The Spreading Enron Stain
Dow Jones News Service, 01/21/2002

Worker's concerns about Enron accounting brushed aside
Associated Press Newswires, 01/21/2002

Enron Raised Funds In Private Offering; Shareholders in Dark, Documents Show
The Washington Post, 01/22/2002

Jesse Jackson to hold rally for laid off Enron workers
Associated Press Newswires, 01/21/2002

USA: Profiles of major figures in Enron saga.
Reuters English News Service, 01/21/2002

The Fall of Ken Lay
CNN: The Point with Greta Van Susteren, 01/21/2002

Role of Andersen lawyer probed.
Financial Times - FT.com, 01/22/2002

Enron's Law Firm Is in the Crosshairs; Vinson & Elkins' heavy reliance on the work it did for the energy giant is now a potential liability for the law firm
BusinessWeek Online, 01/22/2002

Enron a Boon to Short-Sellers / Skeptics correctly read signs of sudden collapse
Newsday, 01/22/2002

Andersen says Enron failed on business merits.
The Saigon Times Daily, 01/22/2002

ENRON SPURS TEXAS-SIZE LEGAL QUAGMIRE ; MORE THAN 150 LAWSUITS HAVE ALREADY BEEN FILED IN HOUSTON AGAINST THREE OF THE COMPANY'S TOP EXECUTIVES.
Orlando Sentinel, 01/22/2002

Federal Judge Approves Sale Of Enron's Energy Trading Ops
Dow Jones News Service, 01/22/2002

UBS Pumps Life Into New Enron Unit
Newsday, 01/22/2002

Enron Creditors Express Skepticism About Proposed Sale of Trading Arm to UBS.
The Oil Daily, 01/22/2002

Enron To Pay GE Capital $138,474/Mo For Furniture Leases
Dow Jones News Service, 01/22/2002
Enron Trying To Keep $7.92M In Funds From Some Creditors
Dow Jones International News, 01/22/2002

USA: Lawmaker says set to subpeona Andersen in Enron case.
Reuters English News Service, 01/22/2002

Enron auditor says Andersen shares blame Congressional subcommittee rejects bid to delay public testimony set for Thursday
The Globe and Mail, 01/22/2002

New US Judge In Enron Cases No Stranger To Controversy
Dow Jones Energy Service, 01/22/2002

UK: UPDATE 1-Enron Europe creditors face $900 mln trading loss.
Reuters English News Service, 01/22/2002

Two More Enron Units File Chapter 11, Total Reaches 37
Dow Jones Energy Service, 01/22/2002

Dark humour and a line in T-shirts from Enron victim - Ex-employees' website reveals the real losses.
The Guardian, 01/22/2002

US Treasury Responds To Waxman Request For Enron Info
Dow Jones Capital Markets Report, 01/22/2002

SMARTMONEY.COM: Special Report: Enron Vs. Investors
Dow Jones News Service, 01/22/2002

Tractebel bids for Enron's SKorean assets - report
AFX News, 01/22/2002

Electrabel In Talks With Enron Over Spanish Power Plant
Dow Jones International News, 01/21/2002

New BG Bid Soon For Enron's India Pete Fields' Stake -PTI
Dow Jones Energy Service, 01/21/2002

Gov't hopes to close Enron deal this month.
BusinessWorld (Philippines), 01/22/2002

INDIA PRESS: Dabhol May Be Sold In Two Parts
Dow Jones International News, 01/21/2002

INDIA'S TROUBLED DPC READY TO HAND OVER EVIDENCE TO HIGH COURT
Asia Pulse, 01/22/2002

Enron points to need for independent analysts
The Globe and Mail, 01/22/2002

Where are market cops when we need them?
The Globe and Mail, 01/22/2002

U.S. push on for independent auditors: Enron fallout
National Post, 01/22/2002

Enron case steals Bush limelight
Belfast News Letter, 01/22/2002

Politically Sensitive Enron Items Pulled Off EBay Friday
Dow Jones News Service, 01/22/2002

ComPsych(R) Reports Rapidly Increasing Employee Stress Levels Caused by Recent Financial Events
PR Newswire, 01/21/2002

GETTING PERSONAL: 401(k) Woes? Might Be Your Own Fault
Dow Jones News Service, 01/22/2002

Enron: No Taxes . . .
The Washington Post, 01/22/2002

GEORGE W. CLINTON? IT SOUNDS CRAZY, BUT BUSH'S ENRON DEFENSE IS `BILL DID IT, TOO'
Pittsburgh Post-Gazette, 01/22/2002

Corruption festered in the dark
Kitchener-Waterloo Record, 01/22/2002

Putting the `public' back in CPA
Chicago Tribune, 01/22/2002

Bush Better See Enron Case as a Threat
Newsday, 01/22/2002

WHITE HOUSE NOTEBOOK Dana Milbank
Wrapping Up Tough Questions With Foil
The Washington Post, 01/22/2002

Enron's Fatal Arrogance
Australian Financial Review, 01/22/2002

Get Tough On Corporate Crime
The Washington Post, 01/22/2002

...Poisonous Enron
The News & Observer Raleigh, NC, 01/22/2002

What a fall!
Business Standard, 01/22/2002

____________________________________________________________________


Enron Attorney Says FBI Is Probing Shredding at Company's Headquarters
By John R. Emshwiller

01/22/2002
Dow Jones Business News
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Staff Reporter of The Wall Street Journal 
HOUSTON-- An attorney for Enron Corp. says Federal Bureau of Investigation agents have been dispatched to the company's Houston headquarters to begin interviews Tuesday about possible document shredding.
The attorney said that following news reports of document shredding on the 19th floor of the building, where some of the accounting operations are, Enron (ENRNQ) contacted the Justice Department and Securities and Exchange Commission and invited them to investigate what happened. 
He added that Enron officials last night went to the 19th floor to look for any evidence of shredding and located a "single trash can with shredded material." He said the material was secured and bagged. Security guards have now been placed on the 19th and 20th floor of the building. 
Three former Enron employees said Monday that they'd seen shredded documents in the accounting department after federal investigators had begun a probe into possible illegalities at the energy giant. 
Write to John R. Emshwiller at john.emshwiller@wsj.com 
Copyright (c) 2002 Dow Jones & Company, Inc. 
All Rights Reserved.

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

WSJ: Enron Says FBI Invited To Probe Document Shredding
By John R. Emshwiller

01/22/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of The Wall Street Journal 

HOUSTON -(Dow Jones)- An attorney for Enron Corp. (ENRNQ) says Federal Bureau of Investigation agents have been dispatched to the company's Houston headquarters to begin interviews Tuesday about possible document shredding.
The attorney said that following news reports of document shredding on the 19th floor of the building, where some of the accounting operations are located, Enron contacted the Justice Department and Securities and Exchange Commission and invited them to investigate what happened. 
(This report and related background will be available at the Journal's Web site, WSJ.com.) 
He added that Enron officials last night went to the 19th floor to look for any evidence of shredding and located a "single trash can with shredded material." He said the material was secured and bagged. Security guards have now been placed on the 19th and 20th floor of the building. 
Three former Enron employees said yesterday that they'd seen shredded documents in the accounting department after federal investigators had begun a probe into possible illegalities at the energy giant. -Jonathan Friedland; The Wall Street Journal; 323-658-3820

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

Paper Trail
Shredded Documents Taken to Court
 

Jan. 22 - An attorney handed over shredded Enron documents to a federal court in Houston today, claiming they were important papers company workers had attempted to destroy as recently as last week. 


The attorney, William Lerach, who has filed a class-action suit against the failed energy firm on behalf of employees and stockholders, said he thought the court should begin to take physical possession of evidence from the firm and its now-fired auditor Arthur Andersen, and appoint independent experts to try to restore deleted e-mail. 
"It may be necessary that we put a U.S. marshal or someone on the premises there at Enron to make sure these people behave themselves," argued Lerach on ABCNEWS' Good Morning America today. 
Shredders Were 'Working Overtime' 
Document-shredding continued at Enron's headquarters up until at least last week, former Enron executive Maureen Castaneda told ABCNEWS, despite federal subpoenas and court orders since last October forbidding the destruction of documents. 
Castaneda, the former director of Enron's foreign investments section, said the shredding was done in an accounting office on the 19th floor of the company's Houston headquarters. 
"I left the second week of January and the shredding was going on until the day I left, and I have no idea if it continues," said Castaneda, who worked across the hall from the accounting office. 
"After Thanksgiving, there was great interest in the accounting documents stored," she said. "They pulled out all the boxes and people had to go through every box." 
Castaneda added in a Good Morning America interview this morning: "I think the accountants were probably working a lot of overtime. You could tell by the pizza boxes and trash cans." 
The former executive says she had no idea what was going on - even used the shreddings to pack up her belongings - until she received an e-mail from the corporate attorney reiterating company policy forbidding document shredding. 
"That's when the light bulb went on," recalled Castaneda, "And I said, 'Well, wait a minute, if they're not supposed to destroy them, why are they destroyed?' " 
'It Will Not Be Tolerated' 
Enron attorney Bob Bennett said that all employees had been forbidden to shred any documents as of Oct. 25. 
"At a very early time, the legal team made all employees aware of the pending litigation and that all documents should be retained," Bennett told ABCNEWS. "If anyone has disobeyed that policy or if anyone is discovered to have shredded documents, it will not be tolerated and severe action will be taken." 
He also said the company was investigating the reports. 
Castaneda said she discovered the shredded documents when she was cleaning out her office and looking for packing material. She showed ABCNEWS boxes full of shredded documents dated from November and December, which she found in the hallway. 
"I got these when I was leaving work, to basically use for packing material," she said. "I only took one box." 
The word "confidential" can be seen on the shredded papers, which were densely packed into the box she showed ABCNEWS. 
"A lot are accounting documents," said Castaneda. "You can tell because of the colors yellow and pink." 
Also, she said she found shreds with references to some of Enron's off-the-books partnerships, which the company used to mask its financial problems. Lawyers in the case regard this as likely evidence of a criminal act: Destroying documents in the middle of a federal investigation is potential obstruction of justice. 
Enron's accounting practices have come under heightened scrutiny since the company's stunning October announcement that it lost $638 million in the third quarter of 2001 and was worth $1.2 billion less than it had previously claimed. 
ABCNEWS' Brian Ross contributed to this report.

Paper Chase
Congress to Probe Destruction of Enron Documents

By Pete Yost
The Associated Press

W A S H I N G T O N, Jan. 21 - A House panel plans to issue subpoenas if necessary to compel testimony from Enron's accounting firm and the auditor it fired for the destruction of thousands of documents.


Arthur Andersen LLP chief executive Joseph Berardino criticized his firm's lead auditor on the Enron account, David Duncan, saying he displayed "at the least ... extremely poor judgment" for his part in discarding documents in October and November. Enron filed for bankruptcy Dec. 2. 
Duncan has told investigators he was simply following the advice of Andersen's legal department when he directed the shredding. The House Energy and Commerce subcommittee on oversight and investigations has scheduled a hearing for Thursday. 
The tentative witness list includes Duncan, Andersen attorney Nancy Temple and Berardino or another top-ranking Andersen official. 
It was uncertain whether Duncan would appear voluntarily. 
"We have made it clear that we'll be prepared to subpoena any reluctant witnesses," said committee spokesman Ken Johnson. 
Johnson said "a number of people have approached the committee about immunity" from prosecution, "but we have not offered it to anyone, nor have we seriously considered it up to this point." 
"We're very interested in finding out where Andersen is, in its internal investigation" of the Enron controversy, "and we want to examine administrative and disciplinary actions taken in the wake of the disclosure that documents were destroyed," Johnson said. 
Focus on Stock Sales 
A variety of federal law enforcement agencies and congressional investigators are looking into Enron's sudden collapse, the largest bankruptcy in U.S. history and one that cost many employees their retirement savings. 
Among the avenues of interest: actions taken by Enron managers to sell some of their own stock in the company even as employees were encouraged to continue investing. 
A lawyer for Kenneth L. Lay, Enron's chairman and chief executive, said Lay disposed of millions of dollars in Enron stock because he needed to raise cash to repay loans, not because of concerns about the health of his company, The New York Times reported today. 
Attorney Earl J. Silbert said Lay had put up shares of his Enron stock as collateral for other investments. On at least 15 occasions between February and October of last year, Silbert told the Times, Lay returned shares in Enron to the company to repay $4 million he had received through a credit line. 
The House panel meeting Thursday hoped to get to the bottom of Andersen's shredding of the documents. 
Temple, a lawyer at Andersen headquarters in Chicago, e-mailed a copy of the firm's document destruction policy to the Houston office where Duncan and other accountants worked on the Enron account. 
Temple sent the e-mail just four days before Enron announced more than $600 million in third-quarter losses. At the same time, the energy company took the first step to fully disclose details of partnerships that had kept hundreds of millions of dollars in Enron debt off the company's balance sheet. 
E-mail Defended 
Appearing Sunday on NBC's "Meet the Press," Berardino defended Temple's sending of the e-mail, saying "Nancy just told people to use their judgment. She did not instruct them to do anything, to my knowledge." 
According to congressional investigators, Duncan said last week that general discussions began at Andersen in September about what Enron-related documents to discard. 
"It was unusual" to emphasize the document-destruction policy, Duncan told the investigators, according to congressional sources familiar with what he said. The sources spoke on condition of anonymity. 
Asked why Temple reminded the Houston office of the policy to do away with some documents, Berardino replied, "Because accountants are pack rats ... We save lots of stuff that's not relevant." 
Asked about the timing of Temple's e-mail, Berardino said "we were in the process of putting our files together to make sure that all of the third-quarter events were properly documented in our work papers."
Copyright 2002 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. 


Judge to hear request to halt shredding
By KRISTEN HAYS
Associated Press Writer

01/22/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

HOUSTON (AP) - An attorney representing shareholders suing 29 current and former Enron Corp. executives and directors carried a box of shredded documents into federal court Tuesday, claiming employees of the fallen energy trading giant were destroying records through at least mid-January. 
"This is the shredded evidence that we got out of Enron," attorney William Lerach said as he hurried into the downtown Houston courthouse, where he was prepared to ask a judge to ban any shredding by Enron or its former auditor, Arthur Andersen.
A state judge's order already prohibits Andersen's Houston office from shredding Enron-related documents. Chicago-based Andersen acknowledged earlier this month its Houston office had destroyed a significant but undetermined amount of audit-related work. 
Lerach's law partner, Paul Howes, released a court brief late Monday in which a former Enron executive saw staffers in the accounting and finance department review and shred thousands of documents. 
Maureen Raymond Castaneda, who was laid off as Enron's director of foreign exchange and sovereign risk, told Howes the "gather-review-shred" process started Oct. 31, when the Securities and Exchange Commission announced a formal investigation into Enron finances, and continued through at least Jan. 14. 
In a statement released Monday, Enron reiterated that it has had a strict anti-shredding policy in place since last autumn. 
"Since Oct. 25, Enron has notified employees in no uncertain terms that they are to preserve all documents and materials. The company has sent out four e-mails to that effect from Oct. 25, 2001, through Jan. 14, 2002," said the statement. 
Castaneda confirmed she saw at least two such e-mails from Enron general counsel James Derrick. 
Houston-based Enron cited Andersen's shredding issues when it fired the venerable accounting firm last week. 
Neil Rothstein, attorney for another plaintiff, the Archdiocese of Milwaukee Support Fund, said Tuesday morning that justice can be served only with intact evidence. 
"We are entitled to see what they have," Rothstein said, referring to anyone with pertinent Enron documentation. "No one should have destroyed documents." 
Lerach said Castaneda took some boxes of shredded documents home, intending to use them as packing material in a move to a more affordable house. She gave Lerach's team the spindly documents, which Howes said were clearly marked as related to debt-laden partnerships that fueled the company's downfall. 
"Enron's communications with its employees were very clear on the destruction of documents, and any breach of the company's policy will be dealt with swiftly and severely," the company said. "Enron has been cooperating fully with congressional investigators and handed over to various government investigators 41 boxes of documents and materials." 
Drowning in a sea of exposed questionable accounting methods, massive third-quarter losses and elimination of millions in profits since 1997 with restated earnings, Enron on Dec. 2 filed the largest bankruptcy in history. 
Lerach's firm last month sued current and former top Enron executives and board members who sold $1.1 billion in stock from October 1998 through November last year, just before the company imploded. 
The lawsuit differs from more than 60 filed on behalf of shareholders and investors across the country because it names only the individuals as defendants, not Enron Corp. Suits targeting the company are on hold until the bankruptcy is resolved in a Manhattan court. 
The suit alleges the defendants, including Enron chairman Ken Lay and Texas Sen. Phil Gramm's wife, Enron board member Wendy Gramm, engaged in a three-year pattern of fraud and deception that caused Enron shares to fall from a high of about $80 a year ago to less than a dollar. 
Amalgamated Bank, the lead plaintiff, claims it lost more than $10 million in the meltdown, and the suit is seeking $25 billion in damages. Pension funds for several states have joined the suit since it was filed.

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

Lawyers Ask Houston Crt Order To Stop Enron `Tampering'

01/22/2002
Dow Jones Energy Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON (AP)--Lawyers suing Enron Corp. (ENRNQ) say a massive number of company documents were shredded in the face of a federal investigation and want a court to step in to prevent more tampering. 
"It was a major accounting fraud and now they have been caught destroying the evidence," attorney William Lerach said Tuesday on NBC's "Today." "I'd say they've got trouble on their hands."
Robert Bennett, a Washington lawyer representing Enron, said the company told employees after coming under investigation that they were not to destroy relevant documents. He said the company is looking into charges papers were destroyed despite that directive. 
Lerach told the Associated Press the shredding was "open and notorious and widespread," consuming "hundreds of thousands of documents" and taking place even on Christmas Day. 
Former Enron executive Maureen Castaneda said on morning talk shows Tuesday that the shredding began after Thanksgiving on the 19th floor accounting office of the company's Houston headquarters and continued at least until the middle of this month. 
Lerach was bringing some of the shredded documents to federal court Tuesday to seek court custody of relevant Enron papers, as part of a class-action lawsuit against the company by aggrieved investors. 
"We're going to ask the court to take extraordinary measures...to prevent any further tampering or destruction," he said on ABC's "Good Morning America." 
"It may be necessary that we put a U.S. marshal or someone on the premises." 
The reported shredding follows revelations over the past two weeks about document destruction at Arthur Andersen LLP, Enron's auditor. 
Another attorney in the lawsuit, G. Paul Howes, said in court papers that some of papers destroyed at Enron headquarters were marked Jedi II and Chewco - partnerships through which the energy giant concealed hundreds of millions of dollars in debts. 
The partnerships, described by lawmakers as slick financial gimmicks, helped drive the company into the largest bankruptcy in U.S. history. 
The Securities and Exchange Commission began looking into Enron's accounting practices in mid-October, after the company reported more than $600 million in third-quarter losses, and a congressional committee began asking for documents in mid-December. The SEC opened a formal investigation at the end of October, including demands for financial documents from Enron and Andersen. 
Enron said in a statement late Monday that it had issued four e-mails from Oct. 25 to Jan. 14 warning employees against destroying documents, specifically those related to Enron's complex web of partnerships. 
"We are investigating the circumstances of the reported destruction of documents," Bennett said. 
Bennett said anyone who violated directives against destroying documents "will be dealt with appropriately." 
Castaneda, who was laid off last week, said she did not know who ordered employees to do the shredding. "I think they were just doing what they were told," she said. 
She said she brought shredded paper home to use as packing material. 
The Justice Department announced on Jan. 9 that it was pursuing a criminal investigation of Enron, which entered the biggest bankruptcy in U.S. history on Dec. 2 following a six-week downward spiral. 
Andersen last week fired its lead Enron auditor for destroying Enron-related documents. The auditor, David Duncan, has told congressional investigators he was just following the advice of Andersen's legal department when he directed the shredding. 
Lawyers for Duncan have been seeking to delay his public testimony, scheduled for Thursday before the investigative panel of the House Energy and Commerce Committee, saying Duncan needs more time to prepare. 
But Rep. Jim Greenwood, R-Pa., the subcommittee's chairman, rejected the request, arguing that Duncan "doesn't really need to recall every detail of what he did for Enron. We're focused on the destruction of documents. We'll subpoena him if we have to." 
Said Ken Johnson, spokesman for the House Energy and Commerce Committee: "This whole sorry affair keeps getting uglier by the minute, and we're determined to get to the bottom of it. ... Making bad business decisions is one thing, but trying to cover up bad business decisions is another."

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

Business
ENRON PROBES ALLEGED SHREDDING DOCUMENT DESTRUCTION REPORTEDLY CONTINUED TO AT LEAST START OF JAN.
Pete Yost, Associated Press

01/22/2002
The Boston Globe
THIRD
F.1
(Copyright 2002)

WASHINGTON - Enron is looking into the reported destruction of documents that allegedly took place at its Houston headquarters after the federal government began investigating the company, an attorney for the bankrupt energy giant said last night. 
In an on-air interview with ABC News, a former Enron executive, identified as Maureen Castaneda, said the shredding of documents took place in an accounting office on the 19th floor.
Castaneda displayed one box of the shredded material which "I got . . . when I was leaving work to basically use . . . for packing material. 
"There were . . . a lot more than this," she said, standing next to the box. 
Castaneda said the destruction began after Thanksgiving. "I left the second week of January and the shredding was going on until I left. And I have no idea if it continues." Castaneda was identified as a director in the foreign investments section at Enron's Houston headquarters. 
"They even shredded on Christmas Day," Bill Lerach, an attorney who is suing Enron's board and officers, said in an interview. He said he was taking some of the shredded documents to court today where he will demand court custody of all relevant Enron documents. 
"From what we have learned, destruction of evidence at Enron was open and notorious and widespread," Lerach said. 
The Securities and Exchange Commission began looking into Enron in mid-October. 
"We are investigating the circumstances of the reported destruction of documents," Washington attorney Robert Bennett, who is representing Enron, said in a statement. 
"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," Bennett added. "If anyone violated those directives, they will be dealt with appropriately." 
The reported shredding at Enron follows revelations over the past week and a half about document destruction at Arthur Andersen, Enron's accounting firm. 
Some of the shredded Enron paper displayed in the ABC story contained the word "Jedi," one of the entities involved in an array of off-the-books partnerships which kept millions of dollars in Enron debt off the firm's balance sheet for several years. 
Enron's inquiry into shredding at its headquarters came as congressional investigators pressed for public testimony by an Andersen auditor fired over the destruction at the accounting firm. 
"This whole sorry affair keeps getting uglier by the minute, and we're determined to get to the bottom of it," said Ken Johnson, spokesman for the House Energy and Commerce Committee, which has been investigating the destruction of papers at Andersen. 
Fired Andersen auditor David Duncan told investigators that Andersen had ample information when it evaluated the controversial partnership arrangements at Enron that were a big factor in its bankruptcy. 
Duncan's lawyers sought to delay his public testimony, scheduled for Thursday before the House Oversight and Investigations Subcommittee, arguing that Duncan needs more time to prepare. 
But Representative Jim Greenwood, a Pennsylvanian Republican who chairs the subcommittee, rejected the request, saying Duncan "doesn't really need to recall every detail of what he did for Enron. We're focused on the destruction of documents." 
In other developments: 
Consumer advocate Ralph Nader said a special counsel should investigate Enron rather than the Justice Department's criminal division. Nader also said Bush administration officials should have alerted the Justice Department and the Securities and Exchange Commission last fall when contacted by Enron chairman Kenneth Lay about the company's growing problems. 
The State Department disclosed that Secretary of State Colin Powell referred to Enron's problems regarding a power plant in India in a discussion with India's foreign minister last April 6.

Caption: Ralph Nader said yesterday a special counsel should investigate Enron. / AP PHOTO 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

A SECTION
REPORT: ENRON KEPT ON SHREDDING ; FORMER EXECUTIVE: SUBPOENAS IGNORED
William Neikirk, Washington Bureau

01/22/2002
Orlando Sentinel
METRO
A1
(Copyright 2002 by The Orlando Sentinel)

WASHINGTON -- A former Enron Corp. executive said Monday that company documents were destroyed at its Houston headquarters even after the federal government issued subpoenas for the bankrupt company's records last fall. 
The startling accusation of document shredding prompted Enron's attorney, Robert Bennett, to say that the company would immediately look into the allegation made by former executive Maureen Castaneda in an ABC News interview.
Displaying a box of shredded material, Castaneda, identified by ABC as the former director of Enron's foreign-investments section, said the document destruction began after Thanksgiving and continued as late as last week in the 19th-floor accounting office of the company's Houston headquarters. 
She said she got the box of paper to use for packing material and that there were "a lot more" boxes like the one she showed on the air. 
Federal authorities and congressional committees are already investigating the shredding of documents by Enron's auditor, Arthur Andersen LLP, in connection with Enron's failure. The revelations that Enron may have done the same thing added a new dimension to the burgeoning scandal. 
"It's one thing to make bad business decisions; it's another thing to cover up bad business decisions," said Ken Johnson, spokesman for Rep. Billy Tauzin, R-La., chairman of the House Energy and Commerce Committee, one of the panels investigating the firm. "If it's true, this is an even bigger mess than we thought." 
Johnson said the committee undoubtedly would look into the new allegation and probably call Castaneda to testify. Meanwhile, the panel will hold a session Thursday to hear evidence on the shredding of documents at Andersen, and is threatening to force a former Andersen auditor, David Duncan, to testify. Duncan has sought a postponement. 
Castaneda told ABC she found shredded paper with references to some of Enron's controversial businesses partnerships, such as "Jedi," which the firm used to hide millions of dollars in debt. 
"A lot are accounting documents," she added. "You can tell because of the colors yellow and pink." 
"I left the second week of January, and the shredding was going on until the day I left, and I have no idea if it continues," said Castaneda. 
Bennett issued a statement after the broadcast, saying that "we are investigating the circumstances of the reported destruction of documents. In October, the company issued several directives to all Enron employees worldwide that all relevant documents should be preserved in light of pending litigation. If anyone violated these directives, they will be dealt with appropriately." 
The Securities and Exchange Commission began investigating Enron in mid-October and this month the Justice Department said it had opened a criminal investigation. Other federal agencies are looking into various aspects of Enron's collapse. 
The shredding of documents also is becoming a major issue in a suit against Enron's board and its officers. William Lerach, attorney for plaintiffs who have sued the firm's board and its officers, said he plans to take the box of shredded documents to federal court, according to The Associated Press. 
"They even shredded on Christmas Day," Lerach said.

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

A Section
Manager Says Enron Shredded Documents; Probe Allegedly Was Already Underway
Peter Behr
Washington Post Staff Writer

01/22/2002
The Washington Post
FINAL
A01
Copyright 2002, The Washington Post Co. All Rights Reserved

An Enron project manager has told attorneys suing the company that she saw evidence of widespread shredding of documents at Enron Corp.'s Houston headquarters, beginning after the start of a former federal securities investigation was announced Oct. 31 last year. 
Maureen Castenada, a manager in Enron's foreign-investments section who was laid off in mid-January, said the names of outside partnerships that are at the center of ongoing investigations of Enron are legible on scraps of shredded paper. The shredding took place inside offices on the 19th floor of the headquarters building, where she worked, she said.
Castenada's allegations are contained in a sworn affidavit by attorney G. Paul Howes, whose firm is suing Enron's top officials and directors on behalf of Enron shareholders and investors whose retirement savings were devastated by the company collapse and bankruptcy filing in December. She repeated the allegations in an interview yesterday on ABC News. 
Howes said that according to Castenada, boxes of documents from throughout Enron's headquarters were gathered on the 19th floor beginning about Thanksgiving. She said she saw Enron employees going through the boxes' contents page by page and removing documents, Howes's account states. 
At the end of the day, trash bags and boxes full of shredded documents were stacked up in the hallway, she said, adding that the shredding was continuing as recently as the second week of January. 
One scrap described a division of revenue between Enron and one of the off-balance-sheet entities the company created named Raptor, attorneys said. 
"We are investigating the circumstances of the reported destruction of documents," Washington attorney Robert S. Bennett, who is representing Enron, said in a statement. 
"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," Bennett added. "If anyone violated those directives, they will be dealt with appropriately." 
Enron reported on Oct. 22 that the Securities and Exchange Commission had begun an inquiry into the company's financial dealings. A week later, the SEC upgraded the probe to a formal investigation. 
The destruction of documents by Enron's outside accounting firm, Arthur Andersen, already is a key issue for investigators. Andersen fired David B. Duncan, its top Houston auditor on the Enron account, last week after learning he ordered the shredding of documents related to the Enron audit. 
Attorney William Lerach, a senior partner in Howes' firm, said last night that he will take a box of shredded material obtained by Castenada into federal court in Houston today to back up his demand that relevant Enron documents be put under the court's control. 
"You just have to conclude, based on what we know to date, this was a deliberate, coordinated effort to destroy evidence," Lerach said. 
Castenada told ABC News she could tell that a lot of the shredded papers were once accounting documents. "You can tell because of the colors -- yellow and pink," she said. She took one box of shredded paper away with her to give to attorneys. "There were . . . a lot more than this," she said. 
Congressional investigators said yesterday that they are still negotiating with Duncan's attorney to secure his testimony at a hearing on the document destruction at Andersen scheduled for Thursday before the House Energy and Commerce Committee's oversight and investigations subcommittee. 
Duncan's lawyers sought to delay his public testimony, arguing that Duncan needs more time to prepare. 
The subcommittee chairman, Rep. James C. Greenwood (R-Pa.), turned down that request. He said the committee will subpoena Duncan if necessary. 
Andersen's chief executive, Joseph F. Berardino, appearing Sunday on NBC's "Meet the Press," criticized Duncan and defended Andersen attorney Nancy Temple, who sent an Oct. 12 e-mail to Andersen's Houston office as a reminder of the firm's document-destruction policy. 
Berardino said Duncan displayed "at the least . . . extremely poor judgment" for his part in destroying the documents in October and November. He said Temple sent the reminder "because accountants are pack rats. . . . We save lots of stuff that's not relevant." 
Staff writer David S. Hilzenrath contributed to this report.


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

Enron Ex-Executive: Previous Warnings Fell On `Deaf Ears'

01/22/2002
Dow Jones International News
(Copyright (c) 2002, Dow Jones & Company, Inc.)

NEW YORK -(Dow Jones)- The former executive who first disclosed document-shredding at Enron Corp. (ENRNQ) said Tuesday that she hadn't informed her superiors because her previous warnings about risky deals had fallen on "deaf ears." 
Interviewed on ABC's "Good Morning America," Maureen Castaneda said she didn't know the names of those who had shredded the documents and didn't know who had ordered the shredding.
Castaneda, former Enron director for foreign exchange and risk management, said she wasn't surprised by the destruction of documents because she had "seen a lot" over the past three years - "things that weren't forthright." 
She referred to deals that she called "incredibly risky," citing countries that she said "nobody in the world would lend capital to" but where Enron developers wanted to go into. 
Castaneda, who was separated from Enron earlier this month, said she had seen "accountants" looking through documents after Thanksgiving on her way to her office on the 19th floor, which housed the accounting and research departments. 
Repeating remarks to ABC on Monday evening, Castaneda said she realized what had happened when she took home shredding to use as packing material after being separated.

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

News; Domestic
New Accusations of Document Shredding at Enron
Jack Cafferty, Ed Lavandera

01/22/2002
American Morning with Paula Zahn
(c) Copyright eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.). All Rights Reserved.

new accusations of document shredding at Enron have surfaced just as a federal judge in Houston is set to hold hearings this morning on an injunction to get accounting firm Arthur Andersen to stop destroying Enron related documents. 
JACK CAFFERTY, CNN CORRESPONDENT: The other big story, of course, new accusations of document shredding at Enron have surfaced just as a federal judge in Houston is set to hold hearings this morning on an injunction to get accounting firm Arthur Andersen to stop destroying Enron related documents.
According to a former Enron employee, documents were being systematically shredded at the company as late as last week. Maureen Castaneda, who's part of a shareholder lawsuit against Enron, told ABC News the shredding began in late October after the SEC began their investigation into the company's accounting practices. 
CNN's Ed Lavandera joins us now with more in a live report from Houston -- Ed. 
ED LAVANDERA, CNN CORRESPONDENT: Good morning, Jack. 
The attorneys in this case sat down with reporters late last night inside a 19th floor posh downtown Houston hotel room, showing off what they say are those shredded documents that Maureen Castaneda witnessed being shredded inside the Enron building. They say that over the last 12 weeks they've talked with several dozen witnesses here at Enron who say that they did witness this shredding of documents in the finance and accounting department. Maureen Castaneda worked in an office just across the hallway from this department. 
They say the shredding started heavily after Thanksgiving and it continued in through Christmas and into, as you said, last week. And this, of course, if this indeed is true, happened well after the federal investigators started taking over in this case and issued subpoenas in efforts to claim much of these documents. 
Enron spokespeople say that they have issued several e-mails telling all employees not to tamper with any documents whatsoever and to preserve every material that they can get their hands on, as well. But the attorneys in this case aren't convinced by what Enron is saying. 
(BEGIN VIDEO CLIP) 
UNIDENTIFIED MALE: It is an absolute smoking gun. You've got, the auditor said we destroyed thousands of pages of documents. They've admitted that. The company now can't get around the fact that in the face of three directives not to do it, personnel were directed to do it because the personnel that were doing this clearly wouldn't have acted unilaterally. 
(END VIDEO CLIP) 
LAVANDERA: We spent some time last night looking at some of those shredded documents and trying to find any kind of evidence ourselves. The attorneys say that in many of these slices of paper that you can see the names of Raptor and Jedi, which, of course, are the names of these partnerships that have become infamous for bringing down Enron. 
We were only able to find one slip of paper that had Raptor on it, but they, indeed, say that this is the only box that they do have but that they do fear that hundreds of thousands of documents, there are witnesses that say that they saw this as a systematic shredding of documents over the course of the last month and a half and they say that they're, even though this is the only box that they do have, that there is much more out there that has been shredded -- Jack, back to you. 
CAFFERTY: Ed, thank you. 
Ed Lavandera live in Houston this morning. 
Coming up in the next hour of AMERICAN MORNING, the woman who blew the whistle on Enron. Maureen Castaneda says the company was shredding documents right up until last week. Also, a family struggling to survive after Enron left them out in the cold. 
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Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

USA: Enron says ordered staff to preserve all papers.

01/21/2002
Reuters English News Service
(C) Reuters Limited 2002.

NEW YORK, Jan 21 (Reuters) - Bankrupt energy trader Enron Corporation said on Monday it had repeatedly ordered all its employees since October 25, 2001 to refrain from destruction of any official documents. 
The company said this after a Monday news report on ABC Television quoted a former employee as saying that she saw shredded documents in an accounts office at the company's Houston headquarters.
A company spokesman said Enron, which is facing a string of investigations into its demise, would probe into the interview given by the former employee identified as Maureen Castaneda. 
Enron, which has already handed over 41 boxes of documents and materials to federal investigators said it had sent four emails to all employees between October 25 and January 14 asking them to preserve all documents regarding Enron's activities and also with regard to the partnerships which Enron had set up outside the company's main operations.

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

Enron Notified Employees to Retain Documents

01/21/2002
PR Newswire
(Copyright (c) 2002, PR Newswire)

HOUSTON, Jan. 21 /PRNewswire-FirstCall/ -- Enron Corp. released the following statement in response to an ABC News story broadcast today: 
Since October 25th Enron has notified employees in no uncertain terms that they are to preserve all documents and materials. The company has sent out four emails to that effect from Oct. 25, 2001 through January 14, 2002.
Specifically, Enron employees were warned on October 25th to "Please retain all documents (which include handwritten notes, recordings, emails, and any other method of information recording) that in any way relate to the Company's related party transactions with LJM1 and LJM2 ... 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." 
In subsequent messages sent on October 26 and October 31, 2001, employees were specifically instructed that the requirement to preserve and retain all documents extended not only to LJM documents but included all documents relating to: the Broadband Services Division, Chewco, Azurix, New Power, the accounting for any Enron investments, and Enron public statements to investors, the Securities and Exchange Commission or other regulatory bodies. 
Enron's communications with its employees were very clear on the destruction of documents, and any breach of the company's policy will be dealt with swiftly and severely. Enron has been cooperating fully with congressional investigators and handed over to various government investigators 41 boxes of documents and materials. 
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http://tbutton.prnewswire.com/prn/11690X24687138


/CONTACT: Mark Palmer, +1-713-853-4738, or Steve Lipin of Brunswick, +1-212-333-3810, both for Enron/ 21:37 EST 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

International News
Briefing
Enron says it checking shredding report
Associated Press

01/22/2002
The Globe and Mail
Metro
A12
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."

Washington -- Enron is looking into the reported destruction of documents that allegedly took place at its Houston headquarters after the federal government began investigating the company, a lawyer for the bankrupt energy giant said last night. 
In an on-air interview with ABC News, a former Enron executive identified as Maureen Castaneda said the shredding of documents took place in an accounting office on the 19th floor.
"We are investigating the circumstances of the reported destruction of documents," Washington lawyer Robert Bennett, who is representing Enron, said in a statement. AP

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

Enron Claims to Fire Andersen as Auditor.

01/22/2002
The Oil Daily
(c) 2002 Energy Intelligence Group. All rights reserved.

Enron tried to restore some of its badly tarnished image late last week by claiming to fire outside auditor Andersen for destroying Enron financial documents. 
The firing, however, is about as credible as Capt. Louis Renault's statement in the classic movie Casablanca that he was "shocked" to learn that gambling was taking place in Rick's Cafe Americain, just as he was handed his evening's winnings.
In fact, the relationship with Andersen terminated last month after Enron made its Chapter 11 filing in the US Bankruptcy Court (OD Dec.4,p1). Bankruptcy rules require that a new auditor be named, so Andersen has been out for more than a month. 
Still, Enron Chairman and Chief Executive Kenneth Lay indicated that the problems at Andersen were news to him and that action on the matter couldn't await the outcome of an internal investigation the company initiated in late October. 
"While we had been willing to give Andersen the benefit of the doubt until the completion of that investigation, we can't afford to wait any longer in light of recent events," he said in a statement. 
Andersen disclosed on Tuesday that employees had shredded some paper documents and deleted electronic files after it was aware of a Securities and Exchange Commission investigation of Enron (OD Jan.16,p1). The company fired the head of the Enron account in its Houston office, put three others on administrative leave, and demoted another four executives. 
The fired auditor, David Duncan, apparently doesn't plan to fall on his sword to protect others. He was already talking to the US House Committee on Energy and Commerce before his termination by Andersen and continued his testimony in what a committee spokesman described as a cooperative manner. 
Enron's shares continue to be traded actively in the over-the-counter market since going off the New York Stock Exchange last week. Shares now are listed in the National Quotation Bureau "Pink Sheets." The price has ranged between 22? and 57.5? since making the move. 
"This is purely a penny stock now," said analyst John Olson of Sanders, Morris, Harris in Houston. He said he is becoming less confident that UBS Warburg can resurrect the company's trading business soon enough to satisfy Enron's multitude of creditors and salvage any vestige of the company. 
Olson noted that Enron owes about $15 billion just to banks and has another $19 billion in derivative exposure - and creditors will want whatever they can get as soon as possible. 
Another regulatory figure walked the plank last Friday after admitting to an Enron taint. Max Yzaguirre, who once headed Enron's operations in Mexico and served in other Enron jobs, resigned as chair of the Texas Public Utility Commission. 
Yzaguirre succeeded Pat Wood, now chair of the Federal Energy Regulatory Commission, last summer. 
Barbara Shook. 
(c) Copyright 2002. The Oil Daily Co. 
For more infomation, call 800-999-2718 (in U.S.) or 
202-662-0700 (outside U.S.).

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

SMARTMONEY.COM: Special Report: The Enron Papers
By Matthew Goldstein

01/21/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of SMARTMONEY.COM 
(This report was first published late Friday.) 

MANY VOICES on Wall Street have professed bafflement at the sudden collapse of Enron (ENRNQ). According to the many investment bankers and trading partners who did business with the company, the commercial banks that lent it money, and the securities analysts who followed it, the accounting maneuvers Enron allegedly used to inflate its profits and hide its debts were so complex and so hidden from view that no one could have foreseen the outcome.
It turns out, however, that some of the biggest names in American finance were active participants in Enron's strategy. SmartMoney.com has obtained a number of financial documents and partnership records related to LJM2 Co-Investment partnership, one of the key entities relied on by Enron. The documents - four books altogether measuring more than two inches high - reveal that a virtual Who's Who of financial institutions invested in the $394 million fund established in 1999 by former Enron Chief Financial Officer Andrew Fastow. The documents provide a breakout of the estimated rates of return on the more than a dozen investments made by LJM2. They even offer an explanation for how those mysterious Raptors worked - the subsidiaries LJM2 established to carry on hedging activities with Enron. We're making selections from the documents available for download in PDF format. 
The documents make one thing clear: LJM2 was anything but an arm's-length entity for Enron - as it would've had to be for Enron's accounting treatment of it to have been legitimate. "The Partnership expects that Enron will be the Partnership's primary source of investment opportunities and that the Partnership will co-invest with Enron," according to one document. As the documents state, the partnership was created and managed by then-CFO Fastow and was "focused on acquiring energy and communications assets primarily owned by Enron." And while Jeffrey Skilling, Enron's former chief executive who suddenly resigned last August, told the New York Times in December that he didn't have many details about partnerships like LJM2, the records show Skilling was a guest speaker at LJM2's annual partnership meeting on Oct. 26, 2000. 
Some highlights from the documents: 
"LJM Rationale": LJM2 was formed in October 1999 with the stated goal of acquiring assets primarily owned by Enron and generating a 30% average annual return for its limited-partner investors. Why focus on Enron assets? The documents explain that some of those assets were diluting Enron's earnings and harming the ratios on which its credit ratings were based. It wanted to "deconsolidate" those assets and "create structures which accelerate projected earnings and cash flows." 
A selling point to potential investors in LJM2: "The Partnership expects to benefit from having the opportunity to invest in Enron-generated investment opportunities that would not be available otherwise to outside investors." 
Investors: The papers contain a partial list of the biggest companies and financial institutions that are known to have invested in LJM2, either directly, through subsidiaries or on behalf of third parties: American International Group (AIG), AON (AOC), Citigroup (C), CIBC, Credit Suisse First Boston, Dresdner Bank, General Electric (GE), J.P. Morgan Chase (JPM), Lehman Brothers (LEH), Morgan Stanley (MWD), Merrill Lynch (MER) and Wachovia Bank (WB). 
Smaller institutional investors were also involved, including pension funds and private equity funds. These included Aero Capital, Alpine Investment Partners, C&I Partners, Cramer Rosenthal McGlynn, Fort Washington Private Equity, Freidenrich Family Trust (associated with Bay Partners, a big California venture-capital firm), Lakeview Capital Management, Mousse Partners, Rho Management, the State of Arkansas Teachers Retirement Fund, Ulysses Partners and Weyerhaeuser Employee Retirement Trust (WY). 
LJM2 Key Employees: As of early 2000, LJM2 was being managed by Fastow; Michael Kopper, former managing director of Enron's Global Equity Markets Group; and Kathy Lynn, a former Enron vice president. Fastow, during his tenure at LJM2, earned roughly $30 million in management fees. 
Advisers: The partnership employed Big Five accounting firm PricewaterhouseCoopers and Chicago-based law firm Kirkland & Ellis, where Whitewater prosecutor Kenneth Starr is a partner. 
Bankers: Two banks were LJM2's main lenders: Chase Manhattan Bank, part of J.P. Morgan Chase, and Germany's Dresdner Bank, a division of Dresdner Kleinwort Wasserstein. On Nov. 30, 2001, just days before Enron would file for bankruptcy, Dresdner Bank sent LJM2 a letter informing it that it had defaulted on a provision of its loan agreement. 
Working Capital: As of April 2000, LJM2 had raised $394 million. Of that amount, 42% came from top-rated financial institutions and insurance companies, 36% was invested by individuals and private equity funds and the remaining 22% came from employee pension funds. The value of the assets held by the partnership as of Sept. 30, was $156 million, down 39% from Dec. 31, 2000. 
Investments: LJM2 invested in a total of 23 investments - most of them involving Enron-related entities - with odd-sounding names like Bobcat, Osprey Trust, Apex, Rawhide and Talon. The five biggest investments were: NewPower Holdings (NPW), $50 million; Bobcat I, $30 million; Osprey Trust, $26 million; Apex, $25 million and Zenith Telecom Trust, $21 million. 
NewPower is a deregulated electrical power company that Enron spun off in October 2000. Bobcat is a so-called special entity, like the Raptors that Enron and LJM2 used to hedge investments. Osprey Trust is an investment vehicle set up by Enron and another limited partnership, Whitewing, which sold $1.4 billion in corporate bonds. Apex is a collaterized loan obligation - a derivative security whose underlying instrument is a commercial loan - that LJM2 has with First Union, which since has been acquired by Wachovia Bank. Zenith is one of the few non-Enron investments made by LJM2. It was an investment in an off-balance-sheet partnership established by TXU (TXU) called Pinnacle One Partners. 
The Raptors: These are a structured finance vehicle - usually capitalized with Enron stock and an investment from LJM2 - that enters into derivative, or hedging, transactions all designed to reduce the risk associated with Enron's own investment portfolio. There were at least six Raptors created by LJM2. The Raptors helped manage the impact of price volatility of Enron's stock investments by purchasing put and call options on those shares. (A call option is a bet a stock will rise in price, while a put option is a bet it will fall.) But the Raptors posed a problem if Enron's stock dropped below $48 a share - something that first occurred in early August, around the time Skilling suddenly resigned. In the event of such a drop, Enron would have to give the Raptors more of its stock in an attempt to keep them solvent, and this would be potentially dilutive to the stock. 
For more information and analysis of companies and mutual funds, visit SmartMoney.com at http://www.smartmoney.com/

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

SMARTMONEY.COM: The Spreading Enron Stain
By Robert Hunter

01/21/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of SMARTMONEY.COM 
(This report was first published late Friday.) 

ON WEDNESDAY AFTERNOON, my editor and I got together to think of a fresh way to approach the Enron (ENRNQ) scandal for my column this week. We wanted to try to offer investors some guidance as the sordid details of Enron's off-balance-sheet activities continue to unfold.
I decided that I would argue that while the Enron blowup is a shocking example of greed, cunning and guile, it was an isolated incident. The underpinnings of our financial system are still fundamentally sound. 
Now, I'm not so sure. 
It's true that Enron was unlike any company that makes its living - or a big chunk of it - in the derivatives markets. Derivatives? Wasn't Enron primarily an energy trader? Yes, but many energy trades involve forward sales (akin to futures) and options. And Enron dealt in dozens of other, more exotic derivatives markets, from credit to weather to advertising. Derivatives were a bigger part of Enron's revenue stream than they are at any other publicly traded company that deals in them, even powerhouses like Goldman Sachs (GS), Lehman Brothers (LEH) and Morgan Stanley (MWD). 
Yet Enron didn't resemble other derivatives dealers in the least. Wall Street firms that are active in these highly sophisticated, highly lucrative and highly risky markets have elaborate risk-management systems in place to prevent Enron-like disasters from happening. Ever notice that most of the derivatives blowups you've heard about in the past - from Orange County to Procter & Gamble (PG) to Gibson Greetings - involved relatively unsophisticated investors being burned by Wall Street bandits? (The delicate term for that on the Street is ripping someone's face off.) Yes, Barings Bank and Kidder Peabody were brought down by derivatives - but those cases involved rogue traders circumventing their company's risk-management systems for fun and profit. Because derivatives can blow up in their faces, dealers pay slavish attention to the risk they undertake. Risk managers are some of the best-paid people on Wall Street. Their job is to keep their companies from going boom - and by and large, they succeed. 
Some years ago, as scandals started becoming more common, derivatives became something of a four-letter word. Wall Street came up with an ingenious fix, one that just happened to add some safety to the derivatives world: In the early 1990s, dealers began creating AAA-rated offshore subsidiaries that do some of their bidding for them. (No big investment bank carries that rating, or anything close.) To get those ratings, the subs had to be incredibly well capitalized and maintain impeccable books. That helped allay certain nervous counterparties, as well as institutional investors permitted to deal only with triple-A-rated entities. Even in the unlikely event that, say, Goldman Sachs imploded, its triple-A sub would still have the cash on hand to settle its bets, which often mature far into the future. Nowadays, big banks and insurers often have several of these entities. And that helps them lower their overall risk profiles. Everyone wins: The corporate trader gets to deal with a safer partner, while the bank's positions, on an aggregate level, are less risky. In the derivatives world, subsidiaries exist solely in the service of the corporate parent. 
Enron was an entirely different story. While many of the infamous LJM partnerships engineered and managed by Andrew Fastow, Enron's then-chief financial officer, were set up to help Enron manage its risk, they were woefully undercapitalized, and ended up adding to Enron's aggregate risk rather than mitigating it. Many of the special-purpose vehicles Enron created were capitalized largely through Enron's own equity. When Enron's stock price fell below certain levels, that triggered huge equity payments to the private entities. The result: The entities that were set up to help Enron manage its risk exposed Enron's shareholders to even more risk because of the trigger mechanisms. Rather than serving the company proper, they ultimately destroyed it. Credit-rating agency Standard & Poor's calls such trigger deals "insidious." 
The question is, was Enron so unique? On Dec. 20, S&P said that four energy traders in particular - NRG Energy (NRG), PG&E National Energy Group (PCG), TXU (TXU) and Williams (WMB) - faced the possibility of damaging trigger deals. Dynegy (DYN) and Calpine (CPN) decided to raise cash to shore up their balance sheets after Enron blew up. Were they frightened by what newly skeptical investors might find in their income statements? While there's no evidence of Enron-like shenanigans at any of these companies, the existence of equity-diluting trigger deals is troubling. 
Before Friday, I thought it unfair to tar other companies because of what happened at Enron. Then I saw a document obtained by Staff Editor Matthew Goldstein that undermined many of my assumptions about the case. When Enron was unraveling, the story being told on Wall Street was that no one knew what was going on, and that, in any event, Enron's depravity existed in a vacuum. Now I know that isn't true. 
According to LJM2 partnership documents from 2000, the cast of characters involved in Enron's off-balance-sheet activities is much bigger than previously thought. Limited partners included Chase Capital, G.E. Capital, J.P. Morgan Capital, Merrill Lynch (MER), Dresdner Bank, AON, Credit Suisse First Boston, Morgan Stanley and First Union Investors, an all-star list of Wall Street insiders. Given the porous walls separating equity research from investment-banking operations, the suggestion that analysts at these firms knew nothing about the LJM partnerships before they blew up simply isn't credible. On Oct. 22, the day Enron announced that the Securities and Exchange Commission was inquiring about its third-party transactions, CSFB maintained its Strong Buy rating. Were analysts trying to keep Enron's stock high enough to prevent other trigger events? 
Equally troubling, those documents revealed that LJM2's auditor was PricewaterhouseCoopers. That means that at least two of the Big Five accounting firms had intimate knowledge of the goings on inside Enron or its outside partnerships. (Arthur Andersen was Enron's auditor.) The implications of all of this for the U.S. accounting system are staggering. Enron's off-balance-sheet activities weren't the mystery they've been portrayed to be. 
And that, unfortunately, leads me to wonder how many other Enron-like disasters are lurking in the shadows of corporate America. What's striking is how long Enron was able to get away with these transgressions without someone blowing the whistle. People at Wall Street's biggest firms had intimate knowledge of these dealings, yet no one said a word. When Jeffrey Skilling, Enron's then-CEO, resigned in early August once Enron's stock fell below the trigger level for at least two LJM2 entities - Raptor and Osprey - no one said a word. When Enron wrote down shareholder equity by $1.2 billion in October, no one said a word. Wall Street can keep a secret far better than anyone could have imagined. 
How many other secrets is it keeping? 
For more information and analysis of companies and mutual funds, visit SmartMoney.com at http://www.smartmoney.com/

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

Worker's concerns about Enron accounting brushed aside
By KRISTEN HAYS
Associated Press Writer

01/21/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

HOUSTON (AP) - A former Enron Corp. manager fired for using a company computer to post negative messages about his employer on the Internet believed he and his colleagues were misled when Chairman Kenneth Lay touted the stock three weeks before the company began to implode, an attorney representing laid off workers said. 
Eli Gottesdiener, a Washington attorney who is representing employees in a class-action lawsuit against Enron, said the former manager, Clayton Vernon of Houston, "deeply regrets the circumstances of his departure from Enron.
"He was a loyal employee who believed he and his fellow employees were misled by the company's top executives and its outside accountants and outside legal counsel," Gottesdiener said Monday. 
Vernon joined Enron in 1999 as a designer of computer-based models to help gauge value of Enron's energy trades. During an in-house online chat on Sept. 26 last year, Lay brushed aside Vernon's question about the company's aggressive accounting practices. 
Vernon inquired about partnerships that allowed Enron to keep millions of dollars in debt off its books while paying millions in fees to executives who ran them. 
Lay assured employees participating in the electronic discussion that he or Enron's board of directors wouldn't approve such partnerships or other financial vehicles unless convinced by internal officers and then-outside auditor, Arthur Andersen, that they were legal and appropriate. 
Lay encouraged employees to buy Enron stock and assured them that the company's finances and books were in solid shape. 
"The third quarter is looking great," Lay said. Three weeks later, Enron announced a $618 million third-quarter loss and a $1.2 billion reduction in shareholder equity. 
Vernon told the New York Times in Monday's editions that he was fired Nov. 20, the day after posting a message on a Yahoo! message board that criticized Lay, calling the chairman "the sorriest sack of garbage I have ever been associated with." He was at work and posted the message using an Enron computer. 
Vernon told the Times that he had no argument over his termination because it violated company policy. 
Vernon, through Gottesdiener, declined to talk to The Associated Press on Monday. The attorney said Vernon had a positive annual evaluation last October in which his supervisors called him a dedicated employee who was serious about making Enron a successful company. 
"Clayton Vernon strove to be a model employee," Gottesdiener said. 
Enron spokesman Mark Palmer declined comment on Vernon's firing because it was a personnel issue. He said Enron "absolutely" has a strict policy prohibiting personal use of company computers. 
Palmer said Enron hasn't held any similar internal online discussions since 4,500 of 7,500 employees were laid off from the company's Houston headquarters on Dec. 3, the day after Enron filed the largest bankruptcy in history. No one among the remaining 3,000 workers is available to operate the electronic platform used for those chats, Palmer said. 
"We've also been very busy trying to bring the company out of bankruptcy," he said.

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

A Section
Enron Raised Funds In Private Offering; Shareholders in Dark, Documents Show
Peter Behr
Washington Post Staff Writer

01/22/2002
The Washington Post
FINAL
A01
Copyright 2002, The Washington Post Co. All Rights Reserved

Attorneys for Enron Corp. shareholders and workers, who lost billions of dollars when the company collapsed late last year, allege that Enron created complex, largely hidden financing structures to inflate its revenue and profit, hide debt from view, delay reporting losses and enrich some executives who ran them. 
Documents describing one of the largest such structures -- a partnership called Whitewing, established by Enron and a still-unidentified party -- illustrate how Enron favored outside investors while not fully informing shareholders of billions of dollars of potential liabilities.
The Whitewing arrangement is disclosed in a confidential, 100-page offering to private investors in September 2000 obtained by The Washington Post. The document describes a process that Enron regularly used to finance growth without adding directly to the corporate debt shown on its books. In November, Enron valued Whitewing's assets at $4.7 billion, but some Enron officials say that figure is significantly exaggerated. 
Off-balance-sheet transactions are used by many companies. Federal and congressional investigations into Enron's collapse are trying to determine whether Enron used its labyrinth of partnership structures to hide key information about its financial condition. 
Whitewing's role was to buy an assortment of power plants, pipelines and water projects in India, Turkey, Spain and Latin America that Enron had snapped up through the mid-1990s, when the Houston company was set on becoming a global energy supplier. 
By 1999, Enron President Jeffrey K. Skilling was refocusing the company as a global broker of energy, a trader of financial contracts rather than an operator of energy facilities. 
Whitewing was responsible for reselling the assets. But Enron also guaranteed Whitewing's investors that if the power plants and other assets were sold at a loss, Enron would make up the difference with shares of its common stock, or cash if necessary. As of November, that requirement stood at more than $2 billion -- a $2 billion obligation that shareholders didn't know about. 
A part of that hidden guarantee to Whitewing investors surfaced suddenly in October, after Enron's credit rating was dropped to near junk-bond level by rating agencies. That triggered a requirement that Enron immediately pay $690 million of its obligations to Whitewing. Enron was able to delay the payment but had to disclose the problem, stunning investors and feeding the loss of confidence that led to the company's bankruptcy filing. 
Such arrangements were "designed to give the safer return to the outside investors and put substantially more risk on the [Enron] shareholders," said Clayton Vernon, an economist and manager at Enron who was fired by Enron after he wrote an e-mail criticizing Enron Chairman Kenneth L. Lay in October. 
From an accounting and a public-disclosure standpoint, the arrangement was "indefensible," said Vernon, who is among the former employees suing Enron. 
Whitewing was the center of an aviary of entities with bird names -- Osprey, Condor, Egret, Peregrine and Blue Heron were all linked to Whitewing. 
Many of the hundreds of other Enron-related partnerships were clustered together to carry out different parts of billion-dollar financing deals and given colorful but unrevealing names. Jedi, Chewco, Obi and Kenobi Inc. followed a Star Wars theme. Rawhide, Cactus, Sundance, Ponderosa and Mojave had a Western flavor. 
Whitewing was formed in 1997 as an Enron subsidiary. In 1999 Enron decided to move Whitewing off its books, which it accomplished by giving half of the partnership's control to an unnamed investor. 
The arrangement allowed Enron to escape reporting losses on some assets that were no longer worth what Enron had originally paid for them, according to some company officials. Such losses would have hurt Enron's stock price, which soared to as high as $90 a share when investors believed Enron was succeeding in its shift to becoming a trading firm. 
In her August letter warning Lay about "accounting scandals," Enron Vice President Sherron Watkins cited "valuation issues with our international assets" that could be written down in future financial reports. 
Enron will have to "pony up stock" to Whitewing in 2003, she said, "and that won't go unnoticed." 
Chuck Watson, chairman and chief executive of Dynegy Inc., whose executives had a brief inside view of Enron during the time his company was considering purchasing its Houston rival in November, said in an interview, "All their trouble was on [the] assets they had gotten into. There were 11 major businesses or assets around the world, none of which were performing at the level that they bought the asset [for]. 
"Then trying to finance those, get them off the balance sheet with some creative financial tools -- that's come into question." 
The benefits Enron officials sometimes received from the outside entities disturbed Watson. "You have individuals [at Enron] who actually profit from doing these things. That's another level of being out of bounds," Watson said. 
Enron officials have declined to discuss specifics about Whitewing beyond what was disclosed in a filing to regulators in November. 
The September 2000 partnership document was distributed to U.S. and foreign investors to raise an additional $1.1 billion for Whitewing. 
The outline of the structure was this: 
Whitewing was owned jointly by Enron and an unnamed partner. Whitewing borrowed the $1.1 billion from private investors in the United States and Europe. The investors received interest-bearing notes from a trust named Osprey, controlled by Whitewing. 
Whitewing split its revenue between Enron and the other unnamed Whitewing partner. Enron received revenue of $632 million in 2000 and $192 million in 1999 from Whitewing, Enron's recent filings show. 
To protect the Osprey investors, whose notes had to be repaid in 2003, the offering memo said Enron would contribute shares of common stock to make up a shortfall if Whitewing assets dropped in value. 
If the Enron shares could not be sold because of stock market conditions or regulatory delays, Enron promised to cover the investors' losses with cash. 
Adding another layer of complexity, Enron created an entity called Condor, under Whitewing, to hold a special kind of Enron security that would be converted into shares of Enron common stock if needed to cover the obligation to Osprey investors. 
The most Enron disclosed about Whitewing was in a footnote in its 1999 annual report. It said Enron "could be obligated" to issue shares of common stock under certain circumstances, which it did not explain. 
The private-offering memo "prohibits" prospective investors from copying the document or disclosing its terms. The offering was managed by the New York firm Donaldson, Lufkin & Jenrette Securities -- now part of Credit Suisse First Boston -- Lehman Brothers, Deutsche Bank and UBS Warburg LLC as co-managers. 
Credit Suisse spokesman Pen Pendleton said he could not comment on the transaction because of confidentiality commitments to clients. "This transaction was a private placement," he said. The other three institutions also declined comment. 
Investment officials of these firms could not share the offering contents with analysts at their firms who were advising the public on whether to buy or sell Enron stock. 
Enron advised the Osprey investors -- but not its public shareholders -- that Enron indirectly controlled Whitewing and thus its executives had "significant influence" over Whitewing, including decisions on which projects to buy from Enron and how much Whitewing would pay. 
Some of Enron's directors and officers may serve as directors of Whitewing Management LLC, the private corporation that controlled Whitewing, the document said, and these individuals, not identified in the document, may have a conflict of interest. "In addition, certain other conflicts of interest may exist and may arise" because of the linkages between Enron and Whitewing, the document said. 
In one case, Enron acknowledged such a conflict of interest but said its board had approved it. Enron's former chief financial officer, Andrew S. Fastow, received $30 million in fees and profits from his participation in a group of Enron-created outside entities known as LJM, which also invested in Osprey. 
Now, Enron is reevaluating the fair value of Whitewing's assets, and the outcome of the transactions for shareholders and investors lies in bankruptcy court.


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

Jesse Jackson to hold rally for laid off Enron workers

01/21/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

HOUSTON (AP) - The Rev. Jesse Jackson says he will try to pump up laid of Enron Corp. employees at a church rally Friday across the street from the former energy giant's downtown Houston headquarters. 
Jackson said he will gather ministers and members of his Rainbow Coalition at Antioch Missionary Baptist Church for a lunchtime rally to press for financial help to employees left jobless with decimated 401(k) accounts loaded with company stock.
"What's happened at Enron is symptomatic of how vulnerable workers are everywhere," he said Monday. 
Jackson said Enron reported inflated profits despite a system of checks and balances, including Securities and Exchange Commission oversight, that led to its demise and shares that dwindled to less than a dollar after trading near $80 a year ago. 
Asked whether he, like many other politicians, had ever received campaign donations from Enron, Jackson said, "to my knowledge, no. I have not and neither have any of our entities." 
But if records show Jackson ever received money from Enron, it would not compromise his desire to help former workers, he said.

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

USA: Profiles of major figures in Enron saga.

01/21/2002
Reuters English News Service
(C) Reuters Limited 2002.

WASHINGTON, Jan 21 (Reuters) - Following are profiles of some of the major figures involved in the growing political and financial saga revolving around the collapse of energy trading giant Enron Corp., and ensuing criticism of its auditors, accounting giant Andersen. 
ENRON
KENNETH LAY - Age 59. Chairman and chief executive officer of Enron since its creation from merger of Houston Natural Gas and Internorth in 1986, except for six months when he turned CEO duties over to protege Jeffrey Skilling. Credited, along with Skilling, with transforming Enron from pipeline company to world's dominant trader of gas and power. A Missouri native who holds a PhD in economics, Lay worked in Washington for the Federal Energy Regulatory Commission and was deputy undersecretary for energy at the Interior Department in the Nixon administration. He is a friend of President George W. Bush and advised the White House on its energy policy. 
JEFFREY SKILLING - Age 48. Former CEO who resigned in August 2001, just six months after taking helm of the company he worked 14 years to build. Joined Enron in 1990 after working alongside Lay for four years as a consultant from McKinsey and Co. A Harvard Business School graduate, Skilling worked as a banker prior to joining McKinsey. Credited with creating first natural gas futures contracts, on which Enron built its empire in the deregulated energy markets. Long seen as heir apparent to Lay and power behind the throne. His stated explanation for abrupt departure was personal reasons, but later acknowledged he felt pressure over stock price, which fell throughout his tenure. Denies any wrongdoing and says he considered Enron to be in excellent shape when he left. 
ANDREW FASTOW - Age 39. Chief financial officer who was ousted in October after disclosures he had managed off-balance-sheet partnerships that led to a $1.2 billion reduction in shareholder equity. He earned about $30 million as managing partner, in addition to his Enron salary. His acumen at creating the off-book deals that kept debts off Enron's balance sheet won him awards and accolades in financial community but also the attention of SEC investigators looking at potential conflict-of-interest issues. Is also subject of Justice Department investigation. 
JEFFREY MCMAHON - Age 41. Chief financial officer who replaced Fastow and has since been Enron's main public face. A certified public accountant, he joined Enron in 1994 as CFO of Enron's European operations. Returned to United States in 1997 and became treasurer under Fastow. Asked to be reassigned in 1999, after reportedly complaining to Skilling about Fastow's partnership arrangements and being rebuffed. Headed Enron e-commerce business unit, then Industrial Markets unit until being named CFO. Started his career with Arthur Andersen & Co. in Houston, and worked at a midsized natural gas company before joining Enron. 
WASHINGTON 
JOSEPH LIEBERMAN - Sen. Joseph Lieberman has taken the lead in the Senate on criticizing the Bush administration's links to Enron and is holding a hearing on the energy company's collapse. The Democrat from Connecticut is best known for being chosen in 2000 election as Al Gore's running mate, becoming the first Jew nominated for vice president by a major party. With his reputation for sincerity and integrity, he quickly established himself as a key asset for Gore's Democratic presidential campaign. Before then, Lieberman was perhaps best known for denouncing President Bill Clinton's affair with White House intern Monica Lewinsky as morally wrong. 
HARVEY PITT - Former Wall Street lawyer Harvey Pitt is in charge of the Securities and Exchange Commission, which is Wall Street's top regulator and which has launched an investigation into Enron. Pitt is a controversial figure because as a private lawyer he once represented major accounting firms, including former Enron auditor Arthur Andersen. Since taking the helm at the SEC, critics have accused him of being less aggressive in regulating the financial services industry - a charge he denies. He previously had a host of high-powered Wall Street clients and once represented Ivan Boesky, who paid a record $100 million settlement to the SEC in 1986 and later pleaded guilty to criminal charges of insider trading. 
HENRY WAXMAN - Rep. Henry Waxman has been the most active House of Representatives Democrat in attacking the Bush administration on the Enron case. The California lawmaker has accused the Enron chairman, Lay, of misleading employees by telling them he expected the company's stock price to go up just weeks before it started to collapse. Waxman has been a major figure in the House for more than 20 years. In 1981 and 1982, he helped stop the Reagan administration from revising the Clean Air Act. He also worked to expand Medicaid for the poor and has been a vocal critic of the tobacco industry. Waxman sits on the Commerce, Health and Environment, Oversight and Investigations and Government Reform committees. 
BILLY TAUZIN - Rep. Billy Tauzin of Louisiana has been one of the most aggressive Republicans in investigating the Enron case. He was first elected to Congress in 1980, as a Democrat, before switching sides in August 1995. Throughout his career on Capitol Hill, Tauzin has been intensely involved in telecommunications issues. He strongly supported the Telecommunications Act of 1996, has criticized the government for blocking the regional Bells from the long-distance business and along with his Senate counterpart John McCain wants to allow satellite TV to compete with cable. Tauzin chairs the House Energy and Commerce Committee and the Trade and Consumer Protection Committee. 
JOHN ASHCROFT - Attorney General John Ashcroft is in charge of the Department of Justice, which has launched a criminal probe of Enron. But the conservative Midwest Republican has recused himself from the investigation because he received campaign money from the firm. Ashcroft, a former senator and a governor of Missouri, was the most controversial of President George W. Bush's appointments. He was fiercely criticized in his Senate nomination hearing for his anti-abortion and pro-gun holders' rights views. Since the Sept. 11 attacks, he has ordered the detention of thousands of terror suspects, which has brought complaints from civil rights advocates. 
ROBERT BENNETT - Enron's main lawyer in Washington is Robert Bennett, best known for defending former President Bill Clinton in the Paula Jones sexual harassment lawsuit. A combative infighter, Bennett has combined formidable courtroom skills, considerable media savvy and finely honed political instincts to become one of a handful of widely acknowledged Washington "superlawyers." A graduate of Georgetown University and Harvard law schools, he is also known for winning a controversial pardon from former President George Bush for former Defense Secretary Caspar Weinberger in the Iran-Contra affair. 
PAUL SARBANES - Sen. Paul Sarbanes chairs the Senate Banking Committee, which is probing Enron's collapse. Arguing that "in recent years costly accounting irregularities have proliferated," the Democrat from Maryland has asked the General Accounting Office, Congress' investigative arm, to look into laws governing employee stock ownership in retirement funds such as 401k plans as well as how corporations report their finances. Sarbanes was first elected to the House in 1970 and to the Senate in 1976. Despite liberal positions on the economy, he has worked on bipartisan financial services reform and on the housing reform legislation in 1998. He was often described by Republicans as a "stealth senator," because he sponsors few bills and puts out few press releases. Sarbanes chairs the Senate Committee on Banking, Housing and Urban Affairs, and sits on the Joint Economic Committee, the Senate Foreign Relations Committee and the Senate Committee on the Budget. 
ANDERSEN 
JOSEPH BERARDINO - Joseph Berardino was named the chief executive at Andersen in January 2001 soon after the firm completed a bitter separation from its consulting arm. He has been at the forefront of the accounting firm's attempts to restore its battered credibility and testified before Congress in December. Recently, he has conveyed his message aimed at restoring confidence among clients and observers in a letter that appears in Andersen's latest ad campaign. He has cast Enron's collapse as an economic debacle devoid of illegal practices. 
DAVID DUNCAN - David Duncan was Andersen's lead partner on the Enron account. The accounting firm said on Jan. 15 it was firing Duncan, alleging he ordered the rapid destruction of documents once he learned of a request by the SEC for information on Enron's financial reporting. An attorney for Duncan said Duncan did no wrong and was simply following the instructions of an Andersen lawyer.

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

News; Domestic
The Fall of Ken Lay
Keith Olbermann, Ed Lavandera

01/21/2002
CNN: The Point with Greta Van Susteren
(c) Copyright eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.). All Rights Reserved.

--excerpt only--
Enron workers saw CEO Kenneth Lay as a hero and corporate savior, but that has quickly changed during Enron's collapse. Keith Olberman interviews former Enron employee Deborah Defforge. Julie Posey is a 37-year-old homemaker from Colorado, and she helps the FBI track down child predators on the Internet. 
ANNOUNCER: THE POINT with Keith Olbermann.
From hero to zero. He actually had the nerve to tell them to buy more stock. This was a buying opportunity he said. The stock was an incredible bargain. 
When Enron's big boss told his workers to keep buying the company stock, did he know the meltdown was coming? Tonight, revealing details of what went on behind closed doors. 
Is this the riskiest job in New York? Some insurance companies say yes, and they won't pay. Flash Point, high risk, no coverage. 
Who is your child really chatting with on the Internet? We'll talk to a mom who could be a sex predator's worst nightmare. 
THE POINT, now from New York, Keith Olbermann. 
KEITH OLBERMANN, CNN ANCHOR: Good evening. You heard the phrase the fall guy. Do you know where that comes from? It is the last message of the last great American energy scandal, the one before Enron, Teapot Dome. The man who went to prison was President Harding's Secretary of the Interior, Albert J. Fall, the fall guy. 
This brings us to Enron Chairman Ken Lay and whether he's one of those fall guys or if he made all of Enron's employees into them. Today's latest jaw-dropping developments from Houston, Ken Lay's personal magnetism may be why so many Enron employees believed things were OK when their own eyes told them otherwise. CNN's Ed Lavandera now, with the story of two meetings and two different Ken Lays. 
(BEGIN VIDEOTAPE) 
ED LAVANDERA, CNN CORRESPONDENT (voice over): When Ken Lay walked into a room, he was usually the center of attention. Many Enron workers saw him as a hero and corporate savior. But during a two-month stretch last year, Lay's popularity crumbled. In several dozen interviews with former and current Enron employees, we've learned how quickly public opinion turns. 
In August, when Chief Financial Officer Jeff Skilling left Enron, Ken Lay called everyone into a hotel banquet hall to talk about the future. UNIDENTIFIED MALE: The minute he started walking up on the stage, everybody got up and applauded, because they already knew Skilling had resigned. 
LAVANDERA: Most people thought that day would mark Enron's return to glory. 
UNIDENTIFIED MALE: I'd have to say that when they did come out, they were very direct and very promising, tried to keep the spirits high, and in some cases probably even misleading. 
LAVANDERA: One month later, as Federal investigators started asking more pointed questions and earnings reports hinted at bigger problems, Ken Lay called everyone together again, but this time there would be no standing ovation. 
UNIDENTIFIED MALE: People were just generally concerned about the status of the company, where it was going and what the management was basically going to do about it. 
LAVANDERA: As the meeting dragged on, some Enron workers grew impatient and the meeting's tone changed. 
UNIDENTIFIED MALE: We actually had one gentleman who was almost like a heckler. I mean, he kept standing up and asking question after question. 
LAVANDERA: Then Ken Lay read a question that had been submitted anonymously. 
UNIDENTIFIED MALE: And I was surprised he actually read it, but he asked Ken Lay literally, are you on crack. 
UNIDENTIFIED MALE: I could see that he was getting rather irritated at the gentleman. 
UNIDENTIFIED MALE: All of us standing around my computer were like going - our jaws just hit the floor, you know. 
UNIDENTIFIED MALE: He read the question and said "no, I'm not" and he got some laughter. 
UNIDENTIFIED MALE: Ken Lay replied, continued reading the card and said "do you think we'll ever trust you again?" And I thought that was - I couldn't believe a person would do that. I figured, oh good thing it's anonymous, you know, because he's going to be fired. 
LAVANDERA: This tale of two meetings has created quite a buzz among Enron workers, as each person struggles to make sense of how one man, one company can go from hero to villain almost overnight. 
UNIDENTIFIED MALE: The unfortunate thing is that everyone's looking for a scapegoat, and whether there is one or not, I don't know. The biggest or the saddest perspective on it is the loss of all the dollars. UNIDENTIFIED MALE: If they're going to mess around with the company, you know, maybe we should be there telling them, "I don't agree with what you're doing. Why are you doing that?" Or leave and go to another company. 
(END VIDEOTAPE) 
LAVANDERA (on camera): We've made several attempts to speak with Enron representatives about these meetings, but they haven't responded to the calls. One employee also tells us that usually these meetings were taped for people to watch later. But as almost everyone tells us, those tapes were never made available to everyone. Ed Lavanadera, CNN, Houston. 
OLBERMANN: And another set of eyes and ears at the Enron employee meetings that Ed described, belonged to an ex-Enron employee. Of course, they're all ex-Enron employees now. Deborah Defforge, she has now lost her job and her stock option. She's working to get severance pay to laid off Enron workers and she joins us now from Houston. Thank you for your time this evening. 
DEBORAH DEFFORGE, FORMER ENRON EMPLOYEE: Thank you, Keith. It's good to be here. 
OLBERMANN: Is the story that Ed Lavandera just reported, correct? Were you at these two separate meetings? At the first of them, was the entire company convinced that Ken Lay was Enron's savior? 
DEFFORGE: Absolutely. 
OLBERMANN: And what happened by the time of the second one? How much time intervened between these two meetings? 
DEFFORGE: The first meeting in August, when Jeff Skilling announced that he was resigning. We did a total standing ovation when Ken Lay came back on board. The next meeting happened in last September, and at that point everything was falling apart. 
OLBERMANN: So, Ms. Defforge, I guess the thing that makes the headlines out of that story was the report that Mr. Lay actually read this anonymous question, are you on crack? That actually happened? 
DEFFORGE: That actually happened. 
OLBERMANN: What was the response within the company, within the room? I mean, I would imagine that there must have been some emotional visceral response to that? 
DEFFORGE: I think a few people pretty much applauded it. A lot of other people were taken aback, and he handled it quite well. He made a joke of it and said "maybe I should be" and kind of went on to respond to the question. 
OLBERMANN: This question came in the environment of what we're reading in a couple of newspapers, particularly the New York Times today, that at basically the same moment that that question would have been asked, there were Enron employees being dismissed for negative postings on Internet chat room sites about the company. Was a sense of bravery required to make any kind of criticism of Enron during the time we're talking about? 
DEFFORGE: I'm not sure that anyone knew about those people being let go. I know that there were some comments earlier, prior to that, early in the year that people posting jobs on monster.com or hotjobs.com were being let go because of that. So perhaps, that had some tie in to that. 
OLBERMANN: You have used a horrifying but perfectly accurate word I guess, to describe how all of you behaved within the company, lemmings. Were you all led off the cliff because you believed in Ken Lay? I mean, was it that much? It sounds like a borderline apple white heavens gate off the cliff, you know here comes the Haley's Comet, we're all going to get on board kind of thing. Was it that strong a belief in this man? 
DEFFORGE: Absolutely. Absolutely. I don't know of any other cult that had that kind of following, maybe Jim Jones or Reverend Moon. But absolutely, we thought he was the best thing there was. 
OLBERMANN: When did you know that was not the case? When did it really sink in? I mean, people were still buying the stock in the middle of November, so the public was certainly behind the curve. How far behind the curve were you personally? 
DEFFORGE: Probably further than that. There were some questions, of course, and the people that stood up in the October meeting that heckled and they weren't really heckling. They were asking honest questions. He just wasn't answering them honestly. Probably there was some concern then. Unfortunately, that was about the same time we were locked out of our 401 (k), so we couldn't do a whole lot beyond that. 
OLBERMANN: You were in the 401 (k)? 
DEFFORGE: Yes. 
OLBERMANN: What are you left with? 
DEFFORGE: Better than most. I have about 30 or 40 percent of mine still left. 
OLBERMANN: And whose fault, in your opinion, is all this? I mean, Washington, the rest of the country seem to be in full-fledged blame assignment mode, people pointing at the SEC, the administration, Arthur Andersen accounting. Where does that finger belong pointed in your opinion? 
DEFFORGE: First of all, I think it should rest with the top people at Enron. I mean, they were the ones that were bilking and lying and cheating and telling everyone, falsifying all the books. Secondly, I think Arthur Andersen is a huge player in here. Vincent and Elkins (ph) is a huge player. The analysts, the SEC, I mean no one is without fault in this. 
OLBERMANN: Do you blame yourself for being credulous, for going along with the dive off the cliff? 
DEFFORGE: Absolutely. Absolutely. 
OLBERMANN: Is that a sense that you have from other of your former co-employees? 
DEFFORGE: Yes I think so, Keith. But unfortunately the thing is that you want to believe in the person you're working for. You don't want to have second guesses about everything you do. You spend 14 hours of your day in this job. There's no reason why you should have to second-guess everything. 
OLBERMANN: And now you have to go and sue them. How is that going? 
DEFFORGE: That's worse. That's even worse. I feel horrible about it. The point is that if they had given us what they promised us in terms of severance, I don't think any of this would be happening. 
OLBERMANN: Deborah Defforge, all the best in your efforts. 
DEFFORGE: Thank you. 
OLBERMANN: Thank you for being with us and sharing this extraordinary trip in and out of a cult. 
DEFFORGE: Thank you, Keith. 
OLBERMANN: Thank you. Good night. 
DEFFORGE: Good night. 
OLBERMANN: Tomorrow night, please join CNN for a full hour look at the financial, political, and legal aftershocks of Enron's fall. Watch Lou Dobbs "LIVE FROM HOUSTON" at 8:00 p.m. Eastern. 
____

Role of Andersen lawyer probed.
By PETER SPIEGEL IN WASHINGTON AND ADRIAN MICHAELS IN NEW YORK.

01/22/2002
Financial Times - FT.com
(c) 2002 Financial Times Limited . All Rights Reserved

A senior lawyer from Andersen's Chicago headquarters was in the firm's Houston office at the same time that the company's auditors were shredding crucial Enron-related documents, an Andersen official has told congressional investigators. 
The lawyer, Nancy Temple, has become a new focus for congressional investigators probing the collapse of Enron, once the seventh largest company in the US.
Andersen's corporate leadership has maintained that the two-week concerted shredding campaign in late October and early November, when thousands of documents and e-mails were destroyed or deleted, was limited to officials in the company's Houston office "without consultation with others in the firm". 
The investigators have now been told that Ms Temple, who is in charge of Enron-related litigation for Andersen, arrived in Houston on October 16, four days after she sent out an e-mail reminding Houston auditors of the company's document shredding policy. She sent a similar e-mail to other Chicago-based officials of Andersen on October 19, according to a copy of the e-mail obtained by the Financial Times. 
Although congressional investigators do not know the exact dates of Ms Temple's stay, they have been told she was in Andersen's Houston office "very regularly" from October 23, when Enron lead auditor David Duncan called a meeting to begin the shredding campaign, to November 9, when the destruction stopped. Andersen received a subpoena from the Securities and Exchange Commission on November 8. 
Congressional investigators do not know whether Ms Temple was directly involved in the document destruction. One Capitol Hill aide said "she appeared to be on a different floor but she was there [in Houston]. 
"That's why you don't see any more new e-mails" from Ms Temple in late October and early November, the aide said. 
Andersen has disciplined eight Houston-based employees, including Mr Duncan, but to date no one from its Chicago office has been implicated by Andersen, a move widely regarded as an attempt by the firm to limit the damage to Houston. Mr Duncan was fired last week. 
Ms Temple was scheduled to give a deposition to lawyers from the House energy and commerce committee on Tuesday in her attorney's Washington office. 
Andersen repeated on Tuesday that no one from its head office had given the go-ahead or helped Houston shred or delete thousands of Enron documents. "Based on what we have today, we have no evidence that anyone from Chicago authorised or was complicit in David Duncan's large document disposal effort," an Andersen official said. 
The revelation of Ms Temple's stay in Houston came during questioning of Michael Odom, who was Andersen's head of risk management in Houston, by committee lawyers on Friday. Mr Odom, who was one of the employees disciplined last week, had his management responsibilities stripped but remains with Andersen. 
(c) Copyright Financial Times Group. 
http://www.ft.com.

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

Investing
Enron's Law Firm Is in the Crosshairs; Vinson & Elkins' heavy reliance on the work it did for the energy giant is now a potential liability for the law firm
By Mike France in New York, with Wendy Zellner in Dallas and Christopher Palmeri in Los Angeles

01/22/2002
BusinessWeek Online
(Copyright 2002 McGraw-Hill, Inc.)

Aftershocks from the collapse of Enron (ENE) have rocked the energy giant's auditors, bankers -- and now its attorneys. Houston law firm Vinson & Elkins was the latest to be hit when news broke that it had shrugged off allegations of accounting fraud by whistle-blower Sherron S. Watkins. 
That's an incendiary revelation, for certain. But it may not pose nearly as much of a threat to V&E as some of the other work the firm may have done for Enron -- namely, helping to construct the web of partnerships the company used to move debt off the balance sheet and providing advice on what executives should disclose to the Securities & Exchange Commission.
Why are these activities such a big potential problem? Under the law, it is hard to pin the blame on lawyers for financial fiascos. They would have had to play a role nearly equal to that of the primary perpetrators. 
Most experts agree that V&E's seemingly dismissive attitude about the Watkins allegations -- months after the transactions she complained about took place -- probably does not meet the standard for either criminal or civil liability. But that verdict might be different if it turns out that the firm's attorneys also helped Enron devise some of the complex deals that wound up sinking the company in the first place. 
A CREATIVE ROLE. There are growing indications that may just be the case. In her missive to Enron Chairman and CEO Kenneth L. Lay, Watkins suggested the law firm wrote so-called opinion letters vouching for the legality of some of the deals now under scrutiny. And according to two ex-Enron executives contacted by BusinessWeek, Vinson & Elkins played a creative role in structuring and managing some of the company's controversial "special purpose" partnerships. 
One former executive in the company's Houston office says employees would approach V&E lawyers "and say, 'this thing needs to work. How do we make it work?'" This source adds that the firm also gave Enron advice on how much information it had to disclose about its financial machinations in its 10K and 10Q reports to the SEC. 
Legally speaking, the key issue will be whether V&E blessed activities it knew to be fraudulent. If so, it could be in trouble, says University of Illinois law professor Ronald D. Rotunda, an expert in legal ethics. "Under those fact scenarios, they could have real problems," he says. 
"COMPLETELY PROFESSIONAL." The law firm denies it has done anything wrong. Because Vinson & Elkins' conduct is under federal scrutiny, Managing Partner Joseph Dilg declined to discuss the firm's investigation of the letter written by Watkins, citing attorney-client privilege, and was only willing to offer a few details about the firm's other work for Enron. He said V&E's professional responsibility committee reviewed its work for Enron in October and November and found no improprieties. "Everything that the firm's lawyers who have represented Enron have done has been [accomplished] in a completely professional, competent, and ethical manner," says Dilg, who is also a key contact for the Enron account. 
He and fellow partners will undoubtedly find themselves called upon to prove that point. Enron and V&E have enjoyed one of the closest lawyer-client relationships in Corporate America. Both Enron's general counsel, James V. Derrick Jr., and his top lieutenant, Deputy General Counsel Robert H. Walls Jr., are former partners at the law firm. An additional 20 or so V&E attorneys have taken jobs at Enron's legal department over the past decade, Dilg estimates. 
Enron is V&E's single largest customer. In 2001, Enron accounted for more than 7% of V&E's $450 million in revenue. The law firm had several lawyers working virtually full-time on company business, including some permanently stationed in its offices. By contrast, Enron contributed less than 1% to auditor Arthur Andersen's revenues. 
TRUE SALE OPINIONS. The exact details of V&E's work for Enron are still sketchy. In her letter, Watkins claimed the firm "provided some true sale opinions on some of the deals" related to the so-called Condor and Raptor deals. She could not be reached for elaboration. According to one New York corporate finance attorney, true sale opinions are letters that law firms write vouching for the fact that business transactions meet particular legal requirements. 
So, for example, they might certify that title has passed in a particular deal or that it was conducted between two legally independent parties. Such documents would have been important to Enron, since many of its deals took place with partnerships in which it held a large stake. V&E declined to discuss the opinion letters. 
True sale opinions in the energy sector are always requested by auditors before they are willing to sign off on the accounting treatment for a particular deal, according to finance lawyers. They are also requested by rating agencies, which need to assure lenders that both of the participants in a particular related-party transaction would be treated independently in the event one of them went bankrupt. Otherwise, one party could be left unfairly holding the bag for the failure of a company or partnership with which it has no ties. 
CRUCIAL WORK? According to one former Enron employee, the company might not have been able to pull off many of the transactions now under investigation without Vinson & Elkins' opinion letters. The company "opinion-shopped for what it needed," says this source. "If it hadn't gotten the opinion letters, it couldn't have done the deals." 
Accusations by embittered ex-employees obviously have to be taken with a grain of salt. There's still little hard evidence about what V&E did or didn't do for Enron. But if the firm turns out to have worked hand in hand with top management, it could be finding itself in the same hot water as the energy giant's auditors and bankers.

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

BUSINESS & TECHNOLOGY
Enron a Boon to Short-Sellers / Skeptics correctly read signs of sudden collapse
Tom Petruno. LOS ANGELES TIMES. The Los Angeles Times is a Tribune Co. newspaper.

01/22/2002
Newsday
ALL EDITIONS
A41
(Copyright Newsday Inc., 2002)

Enron Corp. may be the best friend Wall Street's "short-sellers" ever had. 
Some of these professional bears bet against the energy company's stock early last year, smelling a fraud. Yet any monetary gain they reaped could be of modest value compared with the long-term benefit to their image thanks to Enron's demise.
That's because the principal lessons Enron has taught investors are about the need to question glowing corporate forecasts of sales and earnings, to dig deeper into companies' financial statements, and to think twice before affording sky-high price-to-earnings ratios to stocks of businesses heavy on hype and light on specifics. 
Those are the hallmarks of professional short-sellers. "Shorting" of stocks means borrowing and selling shares, hoping the price declines so the loaned shares can be replaced at lower cost in the future. Although often reviled for the end product of their work, short-sellers may be the last bastion of hard-nosed research left on Wall Street. 
"It's a lot of work to short a stock," said Bill Fleckenstein, a veteran short-seller who heads Fleckenstein Capital in Issaquah, Wash. "You have to be right." 
They aren't always right, of course, but Enron is a prime example of how short-sellers' questioning of the conventional wisdom can prove to be spectacularly on target. 
One of the few voices raised against Enron a year ago was that of James Chanos, a well-known research-intensive short-seller who heads Kynikos Associates in New York. Chanos publicly questioned other analysts' assumptions about Enron's true profitability, and he made the argument that the company was merely a disguised "hedge fund," a high-risk trading operation that didn't deserve the huge valuation investors had given it. 
Chanos got little publicity, and most institutional money managers were far more interested in hearing the upbeat pronouncements coming from then-Enron CEO Jeffrey Skilling and from the army of analysts covering the company. 
Still, Chanos' warnings belie the line heard most often on Wall Street today, as big investors and analysts try to explain why they didn't see Enron's collapse coming. The line is, "We were totally snookered; the company deceived the government, its auditors, and us." 
Baloney, says James Grant, editor of Grant's Interest Rate Observer newsletter in New York and a longtime ally of the short- selling community. "I do not buy for one minute" the idea that anyone paying close attention to Enron's finances wouldn't have seen the same warning flags that Chanos did, Grant argues. 
"And if it [Enron] was so opaque, why did people own it?" he asks. 
Led by a handful of professional skeptics, more investors did short Enron stock as 2001 wore on. Those bets rose relatively slowly, and even by September, after Skilling had resigned and the share price was crumbling, a modest 13.8 million Enron shares (less than 2 percent of the total outstanding) had been shorted, according to New York Stock Exchange data. 
In November, as bankruptcy neared, short-selling of Enron stock soared. The big money would have been made by shorting the stock at $80 early in 2001, and holding that bet, rather than shorting it at $10 in November. (The profit on a short sale, after all, is the difference between the price at which borrowed stock is sold and the price at which shares are bought back to repay the loan. Enron shares were trading Friday at about 51 cents.) 
The community of money managers actively researching stocks to short is tiny, Fleckenstein said. In all, he estimates there may be less than $1 billion committed to short-selling funds such as his own. The funds' clients typically are institutional investors and wealthy individuals. 
Short-sellers have never been a huge group on Wall Street, but they enjoyed a higher profile - and endured substantial public wrath - in the late 1980s, after the 1987 market crash. Many of the famous short-sellers of that era were accused of spreading lies about stocks to knock them down and thus profit from short sales.

Caption: AP Photo - IN HIS OWN WORDS. Consumer advocate and former presidential candidate Ralph Nader reviews papers as he joined a number of activist groups during a news conference in Washington, yesterday, calling for regulatory reforms in the wake of the financial collapse of Enron Corp. Nader referred to the Texas energy giant as the "Enron supermarket of corporate crime, fraud and abuse." He also said a special counsel should investigate Enron rather than the Justice Department's criminal division. 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Andersen says Enron failed on business merits.

01/22/2002
The Saigon Times Daily
(c) 2002 Saigon Times Group

(Reuters-WASHINGTON) 
"To my knowledge, there was nothing that we've found that was illegal," Andersen Chief Executive Joseph Berardino said on NBC's "Meet the Press" current affairs program.
"This is a company whose business model failed. The accounting reflects the results of business activities. And the way these events were being accounted for were clear to management and to the board. 
"But at its base, this is an economic failure," he added. 
Berardino also denied that problems at Enron, coming on the heels of accounting controversies involving other large clients, put Andersen's survival at risk. oI don't think we're finished at all. We're meeting with our clients," he said. 
Enron, the Houston-based energy trading company with ties to President Bush and other Republicans, was once a darling of Wall Street with a soaring stock price and a future made bright by the promise of energy deregulation. 
But the company faltered last year and collapsed in the biggest bankruptcy filing in U.S. history, wiping out the life savings of many workers while senior executives reaped huge profits by selling shares. 
In the unfolding scandal, Enron's aggressive bookkeeping practices have come under scrutiny by government investigators, while Securities and Exchange Commission Chairman Harvey Pitt has proposed tougher accounting oversight.

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

MONEY
ENRON SPURS TEXAS-SIZE LEGAL QUAGMIRE ; MORE THAN 150 LAWSUITS HAVE ALREADY BEEN FILED IN HOUSTON AGAINST THREE OF THE COMPANY'S TOP EXECUTIVES.
David Streitfeld, Business Reporter

01/22/2002
Orlando Sentinel
METRO
B10
(Copyright 2002 by The Orlando Sentinel)

HOUSTON -- Even the lawyers are hiring lawyers. 
The astounding collapse of Enron Corp. has devastated employees, infuriated shareholders, stung creditors and woken 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 now-bankrupt energy company. 
"There will be civil lawyers, criminal lawyers, securities lawyers, regulatory lawyers, bankruptcy lawyers, employment benefits lawyers and trial lawyers," Zook added. "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 in Houston naming former Enron Chief Financial Officer Andrew Fastow as a defendant. Fifty-six go after former chief executive Jeffrey 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 are suing the company's former auditor, Arthur Andersen LLP, 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. Other lawyers are focusing on the brokers who touted the company's once-golden stock. Wendy Gramm, an Enron board member and the wife of Sen. Phil Gramm, R-Texas, already has had 14 suits filed against her. 
Texas is fond of its superlatives, so not many people here are resisting the notion that the biggest bankruptcy 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. 
"This involves civil actions as well as potentially criminal ones, private as well as public entities," said Stanford law Professor Deborah Hensler. "And it involves lots of money and has lots of political ramifications. Those are the ingredients you'd need." 
It's not only big. It's likely to be endless. 
"Given the size and scope of the fraud, the number of defendants, the number of legal proceedings and the potential of the criminal cases to delay the civil cases, it will take as many as six years to resolve this," predicted San Diego lawyer William Lerach. 
Lerach, who represents shareholders who claim they lost fortunes because of Enron's deception, rejects any 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 firm has deep pockets and, unlike Enron, isn't shielded by a bankruptcy court. 
While Enron lawsuits are being launched all over the country -- the bankruptcy case is being heard in New York, while the Samson complaint was filed in Tulsa, Okla. -- by far the greatest concentration is in Houston, 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. 
The tight relationships -- and Enron's big footprint in this town - - is leading to some 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 wouldn't comment; an assistant to Hittner said it was because he owned Enron stock. 
"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." 
While the number of lawyers are multiplying, for the moment the number of active cases is actually shrinking. That's because they're being consolidated on three tracks: employee benefits, shareholder class actions and so-called derivative suits, where 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., now 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.

PHOTO: Kenneth Lay 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Federal Judge Approves Sale Of Enron's Energy Trading Ops

01/22/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

(This article was originally published Friday) 

NEW YORK -(Dow Jones)- A federal judge approved the sale of Enron Corp.'s (ENRNQ) core energy-trading operations to UBS Warburg late Friday - a move the bankrupt company considered crucial to its reorganization efforts.
Judge Arthur J. Gonzalez, of the U.S. Bankruptcy Court of Southern District of New York, said the sale is "in the best interest" of Eron and its creditors. The decision capped a contentious eight-hour hearing. 
The sale of Enron's core operations is the "only mechanism to maintain value for the wholesale trading business," Judge Gonzalez told a packed courtroom. 
In approving the sale, the judge overruled objections by a handful of creditors, who had argued that the value of trading contracts may suffer because of the deal. 
The concern: traders who would be transferred to the new business, NETCO, would use their knowledge of Enron's futures contracts to their advantage in forging similar transactions with creditors' competitors. 
But Enron's official creditors committee told the court Friday that the risk of this happening isn't significant, as the bankrupt company has terminated many of these contracts. The trading book is currently valued at $1.3 billion, compared with $5 billion to $7 billion in the days after Enron filed for Chapter 11 court protection. 
Other creditors had argued unsuccessfully that the judge should order future proceeds from the sale to be put into escrow for the benefit of creditors of Enron North America - the unit that holds most of the deal's assets. 
Reacting to the verdict, Jeffrey McMahon, Enron's chief financial officer, said that the deal is "the best result for the creditors." 
"We surely believe the trade business with UBS' balance sheet will be highly successful in the future," he added. 
Under the deal, the Swiss bank will get 100% of Enron's energy-trading operations - including its valuable online trading platform - and pay no cash up front. Instead, Enron will be compensated as the business prospers, getting 33% of pretax profits for at least the first two years. UBS also has the option to buy out the distressed company's profit rights beginning in the third year. 
Additionally, the financial institution will be able to license Enron's trading software for 20 years, with exclusive rights for the first 10 years. 
Judge Gonzalez said that he was convinced that UBS' deal for Enron's energy-trading operations - which generated about 90% of the company's $101 billion in revenue last year - was the "highest value" that could be obtained. 
-Kathy Chu, Dow Jones Newswires; 201-938-5392; kathy.chu@dowjones.com

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

BUSINESS & TECHNOLOGY
UBS Pumps Life Into New Enron Unit
James T. Madore. STAFF WRITER

01/22/2002
Newsday
ALL EDITIONS
A38
(Copyright Newsday Inc., 2002)

The crown jewel of Enron Corp., its energy trading business, is likely to survive bankruptcy but as part of another company. 
Energy experts yesterday gave good odds for the success of a new trading entity that consists of employees and computer technology from Houston-based Enron and the financial backing of Switzerland's largest bank, UBS AG. The new company seeks to restart what had been the world's largest trading operation for electricity and natural gas, generating about $90 billion, or 90 percent of Enron's yearly profit.
The new company, which would be controlled by UBS, gained preliminary approval late Friday from the U.S. Bankruptcy Court in Manhattan to begin operating. It still must receive the go-ahead from federal regulators. 
Several energy experts described the new business as a recipe for success. "Enron's experience and ability to operate online markets has been married to a bank with an unquestioned credit rating...100 percent credibility comes back immediately," said James L. Smith, a professor of oil and gas management at Southern Methodist University's Cox School of Business in Dallas. "In principle, this could work as well as it did before." 
Enron grew from a small gas pipeline operator to America's seventh- largest corporation largely on the strength of its trading operation based on sophisticated computer software. Enron's trip to bankruptcy court Dec. 2 was precipitated by financial irregularities involving a string of off-the-books partnerships, not its trading division. 
"But there was a resulting loss of confidence in Enron's ability to stand between buyers and sellers, which caused the trading business to fall," Smith said. "People didn't believe Enron had the financial wherewithal to back the transactions it was processing." 
UBS does, with assets valued at $701 billion, ranking it among the 10 largest banks in the world. However, it remains to be seen if the bank's energy trading unit - tentatively called UBS New Energy Trading Co. - will hold on to the 800 or so former Enron traders that it's depending upon to execute orders. As a group, they would receive $11 million in bonuses - $5 million from UBS and $6 million from Enron - if they remain with the new company for one year, according to documents filed with the bankruptcy court. About 500 Enron traders were paid $55 million late last year to stay with the struggling company. 
"The financial incentive has kept people...Only a few have left," Smith said. "But it all depends on what happens in the next month. If this new trading company attracts big energy customers, then it will be able to pay the bonuses that employees have been promised." 
UBS paid no cash for Enron's most prized asset, agreeing instead to share any future profit. Enron would receive a 33 percent royalty fee, or about $750 million based on 2000 profit. The deal allows UBS to license Enron's intellectual property, lease its buildings and hire its employees to run the new trading operation without assuming Enron's debts, which exceed $40 billion. 
John Costas, chief executive of U.S. subsidiary UBS Warburg, said: "We look forward to re-establishing the business and to providing clients with superior service." 
The transaction doesn't include pending commodity trades and derivative contracts that Enron entered into before filing for bankruptcy. These were valued at more than $7 billion but have since fallen to $1.3 billion. And several creditors said in court papers that they were concerned that former Enron employees working for UBS would poach the contracts. Bankruptcy Judge Arthur Gonzalez disagreed, saying, "The court has a sufficient degree of confidence that Enron's book of business will not be diminished by the transaction." 
Besides the contracts, Enron's remaining assets include its energy trading operation in Europe, energy consulting services, a utility company in Oregon, a power plant in India, four natural gas pipelines that transport 15 percent of U.S. demand, a water company in Bristol, England, and a wind power company in California and Europe. 
"There's less there now than two years ago because they've sold off a lot of businesses," said Smith, the Southern Methodist professor. "But they still have hard assets that can be used to raise cash to pay creditors."

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

Enron Creditors Express Skepticism About Proposed Sale of Trading Arm to UBS.

01/22/2002
The Oil Daily
(c) 2002 Energy Intelligence Group. All rights reserved.

Enron's trading arm, which Swiss investment bank UBS Warburg plans to take over, is worth something between $40 million and $2.87 billion, according to scenarios presented to creditors. 
The value depends on future growth and profitability, but the wide range indicates the high degree of uncertainty about the operation's future.
UBS will not pay any money up front in the proposed acquisition, but has instead pledged to give Enron one-third of future profits for a limited period. 
Enron's advisor Steven Selin, a managing director at Blackstone, which structured the UBS deal on Enron's behalf, told creditors that several scenarios had been worked out, and presented them with two. 
In the case of a no-growth scenario, the unit could be worth a pre-tax $40 million-$70 million. If Enron's trading unit manages to grow at the same pace as it did in the first nine months of 2000, the deal looks completely different. Then, the unit could be worth up to $2.87 billion, Selin said. 
The scenarios did not convince creditors, with 22 objecting to the deal with UBS at a bankruptcy court hearing Friday in New York. 
They said the deal is financially risky, and that it is highly uncertain how much money will actually flow back to bankrupt Enron - and, in the end, to its creditors. 
"We're trying to show the court that this is a very risky deal," said John Wyllems, a lawyer with law firm White & Case, representing creditors. 
But some creditors took a more skeptical approach, with one noting that, "those scenario assumptions are based on Enron's numbers, based on auditing by Arthur Andersen." 
Creditors claimed the value of Enron's trading book, which is kept out of the UBS deal, could depreciate significantly as UBS acquires most of Enron's traders, who have an intimate knowledge of how the book is structured. 
"Knowing the content of the book is detrimental to the value of the book," said David DeRosa, called as an expert witness by creditors. He added that any deal with UBS should take the value of the book into account. 
Some creditors argued, in the corridors of the court, that the trading book is their major concern for objecting to the deal. 
Enron said it would keep on some traders to unwind the book, and that the positions in the book have been changing ever since operations ended Dec. 2. 
At the hearing, Enron lawyer Martin Bienenstock, of Weil Gotshal & Manges, dismissed the arguments of the objecting parties - many of them counterparties of Enron's trading arm, such as Mirant, Devon, Spinnaker, and Pure Resources. 
Bienenstock said they were simply objecting to UBS coming into the market as a new, big player. 
Sjur Skjaeveland. 
(c) Copyright 2002. The Oil Daily Co. 
For more infomation, call 800-999-2718 (in U.S.) or 
202-662-0700 (outside U.S.).

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

Enron To Pay GE Capital $138,474/Mo For Furniture Leases

01/22/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

NEW YORK -(Dow Jones)- Enron Corp. (ENRNQ) has agreed to pay General Electric Corp.'s (GE) GE Capital unit $138,474 a month under furniture lease agreements. 
The agreement - which is outlined in a Tuesday order by Judge Arthur J. Gonzalez, of the U.S. Bankruptcy Court of the Southern District of New York - allows GE to recoup some of its $21.7 million investment in Enron last year. The investment allowed the now-bankrupt company to finance furniture in its Houston offices.
Enron's monthly payments are made as "adequate protection" for the furniture's possible decrease in value over time under UBS Warburg's (U.UBS) control, according to court documents. 
Enron, as part of its transfer of 100% of its energy-trading operations to UBS, will grant the Swiss financial institution a license to use the existing furniture, fixtures and equipment. 
The bankrupt company will also pay all taxes due under the leases. 
-Kathy Chu; Dow Jones Newswires; 201-938-5392; e-mail: kathy.chu@dowjones.com

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

Enron Trying To Keep $7.92M In Funds From Some Creditors

01/22/2002
Dow Jones International News
(Copyright (c) 2002, Dow Jones & Company, Inc.)

(This article was originally published Saturday) 
By Kathy Chu and Carol S. Remond 
Of DOW JONES NEWSWIRES 

NEW YORK -(Dow Jones)- Distressed Enron Corp. (ENRNQ) is trying to lay claim to about $7.92 million in funds, and to keep this cash out of the hands of its creditors - at least for now.
Late Friday, Enron Re, a wholly owned Enron North America unit, asked the U.S. Bankruptcy Court of the Southern District of New York to issue a temporary restraining order that would prevent the parent company's creditors from taking "actions" on the cash, which is currently being held in accounts with Merrill Lynch and Citibank N.A. 
Enron Re - which is in the process of liquidating - argues that because it's incorporated in Bermuda and subject to foreign laws, it should be able to recover the money in order to distribute to its own creditors. 
Essentially, Enron is trying to get the money back to itself, according to court filings, because at least three of Enron Re's five principle creditors are affiliates of the bankrupt company. 
These Enron entities include Enron North America, Enron Corp., and Risk Management Trading Corp. The other two creditors are European Finance Re & Harrington International Insurance Ltd. 
The temporary restraining order will allow Enron Re to have "an orderly wind-up and liquidation" in Bermuda, it claims. The reinsurance company has little or no other assets besides the $7.9 million cash, but has $8.93 million in liabilities, according to court documents. 
The reinsurance unit is also asking the New York court, which is six weeks into the largest bankruptcy case in corporate history, to prevent Merrill Lynch and Citibank from "disposing" of the funds. 
-Kathy Chu and Carol S. Remond, Dow Jones Newswires; 201-938-5392; kathy.chu@dowjones.com

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

USA: Lawmaker says set to subpeona Andersen in Enron case.

01/22/2002
Reuters English News Service
(C) Reuters Limited 2002.

WASHINGTON, Jan 22 (Reuters) - The head of a House of Representatives panel said Tuesday he was set to subpoena testimony if necessary from Arthur Andersen LLP, the fired auditors of collapsed Enron Corp. . 
Making clear Andersen was heading for very rough waters on Capitol Hill, Rep. Jim Greenwood, a Pennsylvania Republican, said: "Everything that we've seen so far indicates that there was an unusual and urgent sense of need to destroy documents at Arthur Anderson," independent of any pressure from Enron.
Enron said Monday it was looking into claims by an executive laid off last week, Maureen Castenada, that Enron employees had been shredding documents at the company's Houston headquarters as recently as last week despite court orders to preserve evidence. 
A lawyer for a class action including Castenada and other former Enron employees, William Lerach, said in television interviews he would ask a federal court Tuesday to take extraordinary precautions to protect documents at both Andersen and Enron. 
He said Enron may have destroyed hundreds of thousands of pieces of evidence. 
"It was a major accounting fraud and now they've been caught destroying the evidence," Lerach said on NBC's "Today" program. "I'd say they've got trouble on their hands." 
Enron - once the world's largest energy trader - became the the largest bankruptcy filing in U.S. history on Dec. 2. Its downfall threw thousands out of work, wiped out workers' life savings and hammered investors. 
He said he would go after stock sale gains by top Enron executives at a time the company was showing inflated profits of $600 million as well as Andersen's profits. 
Lerach said he would seek to open a court-supervised depository for Andersen documents. On ABC's "Good Morning America" program, he said it may be necessary to put a U.S. marshal at Enron company headquarters to "make sure these people behave themselves." 
Enron's lawyer, Robert Bennett, said in a statement late Monday that the company was investigating the reported destruction of documents. 
In October, Enron issued directives to employees worldwide that all relevant documents should be preserved in light of pending litigation, Bennett said. 
"If anyone violated those directives, they will be dealt with appropriately," he said. 
Greenwood, chairman of a House Energy and Commerce subcommittee that will hold hearings into Andersen's document destruction, said: "We've seen no evidence that this came from Enron." 
"By the time this show is over we'll either have some voluntary agreements from Arthur Andersen to testify or there are going to be a lot of subpoenas going out of Washington," Greenwood said on NBC. 
A spokesman for Andersen, which was fired Thursday as Enron's auditor, did not immediately return a phone call seeking comment on whether an agreement had been reached for voluntary testimony. 
Andersen has admitted destroying a "significant but undetermined" number of electronic and paper documents and correspondence relating to the energy trader's audit. 
The document destruction by Anderson, which continued after the Securities and Exchange Commission began inquiries into Enron's financial statements in late October, is to be the subject of a hearing by Greenwood's panel on Thursday. 
Castenada, identified as director of foreign exchange and sovereign risk management, said she worked across the hall from an accounting office at Enron's headquarters, where she said document destruction took place as late as last week. 
"After Thanksgiving, there was great interest in the accounting documents stored. They pulled out all the boxes and people had to go through every box," she said in an on-camera ABC television interview Monday night. 
Castenada showed what she said were some of the shredded documents she discovered in an office hallway. She said she had taken one of many such boxes, basically to use as "packing material." 
In televised images of the shreds, the word "confidential" could be seen along with snippets of financial transactions dated in December. Also visible were references to secret off-the-books partnerships, such as Jedi, believed by investigators to have helped bring Enron down.

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

Report on Business: International
Enron auditor says Andersen shares blame Congressional subcommittee rejects bid to delay public testimony set for Thursday
PETE YOST
Associated Press

01/22/2002
The Globe and Mail
Metro
B12
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."

WASHINGTON -- Congressional investigators in the Enron Corp. probe yesterday pressed for public testimony by a fired auditor who says the Arthur Andersen LLP accounting firm shares the blame for Enron's collapse. 
Dismissed over the destruction of thousands of Enron-related documents, David Duncan told investigators that Andersen had ample information when it evaluated the controversial partnership arrangements at Enron that were a big factor in its bankruptcy. Enron kept hundreds of millions of dollars in debt off the balance sheet for several years.
Mr. Duncan "did not sit there and say 'Enron hid all this information from us and therefore we couldn't count right,' " said Representative Jim Greenwood, R-Pa., who heads a House panel investigating the collapse. 
"It was more of . . . 'we made mistakes.' " 
Rather than giving a "mea culpa," Mr. Duncan gave "a wea culpa; he did not point the finger at Enron," Mr. Greenwood said yesterday, characterizing the comments the fired auditor made last week to congress. 
Mr. Duncan's lawyers sought to delay his public testimony, scheduled for Thursday before the House oversight and investigations subcommittee, arguing that Mr. Duncan needs more time to prepare. 
But Mr. Greenwood, who chairs the subcommittee, rejected the request, saying Mr. Duncan "doesn't really need to recall every detail of what he did for Enron. We're focused on the destruction of documents. We'll subpoena him if we have to." 
Andersen chief executive officer Joseph Berardino "is saying that the company found fault with Duncan's destruction of documents. He [Duncan] needs to defend himself," Mr. Greenwood said. 
Appearing Sunday on NBC's Meet the Press, Mr. Berardino criticized Mr. Duncan and defended attorney Nancy Temple, who advised the Houston office by electronic mail on Oct. 12 about the firm's document destruction policy. That was just four days before Enron announced more than $600-million in third-quarter losses and took the first step in disclosing details of the partnerships. 
Mr. Berardino said Mr. Duncan displayed "at the least . . . extremely poor judgment" for his part in discarding the documents in October and November. 
Mr. Berardino said Ms. Temple reminded the Houston office of the policy to do away with some documents "because accountants are pack rats. . . . We save lots of stuff that's not relevant." 
But Mr. Duncan told investigators "it was unusual" for a company lawyer to emphasize the document-destruction policy. 
Meanwhile, a lawyer for Kenneth Lay, Enron's chairman and CEO, said Mr. Lay disposed of millions of dollars in Enron stock before the company's collapse last year because he needed to raise cash to repay loans, not because of concerns about the health of his company. 
Attorney Earl Silbert said Mr. Lay had put up shares of his Enron stock as collateral for other investments. On at least 15 occasions between February and October last year, Mr. Lay returned shares to the company to repay $4-million he had received through a credit line. 
However, Mr. Silbert also said that Mr. Lay held onto some stock, detailing one transaction in which Mr. Lay exercised options to purchase 68,000 shares of Enron stock on Aug. 21. 
"He continues to hold that stock today," Mr. Silbert said. 
In other developments: 
-- The U.S. State Department disclosed that Secretary of State Colin Powell referred to Enron's problems regarding a power plant in India in a discussion with India's foreign minister last April 6. Enron was trying to collect a $64-million debt on the project. According to the State Department, Mr. Powell said failure to resolve the matter could have a serious deterrent effect on other investors. 
-- Senator Barbara Boxer, D-Calif., said accounting firms should be barred from providing management consulting services to the companies they audit. "These conflicts have led to the kind of hide-the-debt shell game that took place at Enron," said Ms. Boxer, who will introduce a bill to ban the dual role. 
-- Consumer advocate Ralph Nader said a special counsel should investigate Enron rather than the Justice Department's criminal division. Mr. Nader also said Bush administration officials should have alerted the Justice Department and the SEC last fall when contacted by Mr. Lay about the company's growing problems.

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

New US Judge In Enron Cases No Stranger To Controversy

01/22/2002
Dow Jones Energy Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

(This article was originally published Friday) 
By Erwin Seba 
Of DOW JONES NEWSWIRES 

HOUSTON -(Dow Jones)- The U.S. District Court judge assigned to preside over the civil lawsuits filed against Enron Corp. (ENRNQ), its executives, directors and Arthur Andersen L.L.P. has handled some controversial cases in the past year.
This past summer, Judge Melinda Harmon issued an order sending an aspiring Houston true-crime writer to jail for several months. 
Would-be writer Vanessa Leggett was jailed for refusing to turn over notes to a federal grand jury investigating a high-profile murder case. Leggett was cited for contempt of court for her refusal 
Harmon ordered Leggett released Jan. 5 when the grand jury's term ended. She had been in jail for five months. 
Harmon was also the presiding judge in another case involving Andersen's accounting: The Waste Management Inc. merger lawsuits. 
In August, Harmon issued a ruling in consolidated shareholder suits against two former Waste Management executives. Harmon said the plaintiffs had failed to prove allegations of securities laws violations including insider trading and inadequate disclosures in the USA Waste Services-Waste Management merger. 
The case was eventually settled. 
"I think she's going to be a fine judge for this," said Charles Parker, attorney for New York City Pension Funds, which is suing Enron. "She handled the Waste Management case, which was the single largest case dealing with these issues." 
Harmon will be presiding over the more than 60 civil lawsuits pending against Enron becuase Judge Lee Rosenthal recused herself from the cases last week. 
Rosenthal has declined requests for interviews about her recusal. Harmon also declined interviews. 
Two other judges in the U.S. District Court for the Sourthern District of Texas recused themselves from presiding over cases against Enron prior to Rosenthal's taking over the cases. Rosenthal was the judge who ordered the cases consolidated so shareholder and employee lawsuits would be considered together. 
Harmon takes over the cases because she was assigned to preside over a lawsuit against Enron with the next highest case number above the one in the suit against Enron first assigned to Rosenthal. 
Harmon has also already acted in one case arising from Enron's bankruptcy. In December, she sent back to Texas state court a lawsuit between Dynegy Inc. and Enron subsidiary CGNN Holding Co. Inc. for control of the company that owns Northern Natural Gas Co. and 16,500 miles of gas pipeline running between Texas and the Great Lakes. 
In a decision accompanying her ruling, Harmon wrote the question of Northern Natural Gas's ownership wasn't central to Enron's bankruptcy proceeding in a federal court in New York. 
Harmon was appointed to the federal bench in 1989 by then-President Bush. She served as a judge in the civil division of the Harris County District Court for one year before her appointment. 
Harmon was a trial attorney for Exxon Co. from 1975 to 1988. She was a clerk for U.S. District Court Judge John Singleton in Houston from 1973 to 1975. She replaced Singleton on the federal bench. 
Harmon earned a law degree from the University of Texas in 1972. She received a bachelor's degree from Radcliffe College in 1969. She was born in 1946 in Port Arthur, Texas, which is near the Texas-Louisiana border and about 100 miles east of Houston. 
-By Erwin Seba, Dow Jones Newswires; 713-547-9214; erwin.seba@dowjones.com

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

UK: UPDATE 1-Enron Europe creditors face $900 mln trading loss.
By Stuart Penson

01/22/2002
Reuters English News Service
(C) Reuters Limited 2002.

LONDON, Jan 22 (Reuters) - Creditors of the failed energy trading arm of stricken U.S. group Enron's European unit face trading losses of around $900 million, an industry source close to the company told Reuters on Tuesday. 
In the first firm indication of trading losses resulting from Enron's record-breaking bankruptcy, the industry source said London-based Enron Capital Trade Resources Ltd (ECTRL) had outstanding liabilities of about a billion dollars.
Enron Europe's administrator, PricewaterhouseCoopers (PWC), expected to recoup only about $100 million of that exposure from the settlement of ECTRL's outstanding contracts, the source said. 
PWC declined to comment in detail but a company official, who requested anonymity, said creditors to ECTRL faced a "substantial shortfall" based on current estimates. 
At the time of its collapse, the company was sitting on around 250,000 open contracts in the forward markets, the official said. 
Enron traded power and gas in Europe with some 300 counterparties including many of the continent's utilities, oil majors, trading houses and banks that traded in energy. 
Separately, PWC partner Neville Kahn told Reuters that the auditor planned to hold a meeting of around 100 Enron Europe creditors in London on February 11 when losses are likely to be outlined. PWC would be writing to creditors imminently, another PWC official said. 
Houston-based Enron, once the world's largest energy trader, filed for bankruptcy nearly two months ago in the largest collapse in corporate history. 
Enron Europe, based in London, was placed into PWC's administration in late November and 1,100 staff were laid off. 
PWC had managed to settle with counterparties about 75 percent of in-the-money, or profitable, contracts held by ECTRL, Kahn said. 
"But there are some large trades that will take some time to unravel, it's a huge task," he said. 
Enron commanded about 20 percent of Europe's wholesale electricity and gas trading. 
Part of ECTRL's position in the UK gas market is still being traded from the company's London headquarters, which has retained a skeleton staff of about 150.

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

Two More Enron Units File Chapter 11, Total Reaches 37

01/22/2002
Dow Jones Energy Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

(This article was originally published Saturday) 
By Kathy Chu 
Of DOW JONES NEWSWIRES 

NEW YORK -(Dow Jones)- Two more Enron Corp. (ENRNQ) units have filed for bankruptcy, bringing the total number of units that have sought Chapter 11 protection to 37.
In documents recorded late Friday at the U.S. Bankruptcy Court of the Southern District of New York, Enron Liquid Fuels, Houston, listed assets of $35.5 million and debts of $74.7 million, excluding off-balance sheet and contingent obligations. 
The unit, a marketer of methanol and petrochemicals, doesn't expect any funds to be available for creditors after administrative expenses are paid. 
Enron Liquid Fuels' largest unsecured creditors include Formosa Plastics Corp. (Q.FPL), which has a "disputed claim" of $14.7 million, Itochu Petroleum Co., which holds a trade debt of $7.32 million, and Petroleos del Ecuador (E.PCD), with a trade debt of $4.71 million, according to the filing. 
The bankruptcy court has assigned the chemicals marketer, which is wholly owned by Enron Corp., case number 02-10252. 
In a separate filing late this week, ENA Upstream Asset Co., a holding company for Enron North America, listed assets of $79.1 million and debts of $78.1 million, excluding off-balance sheet and contingent obligations. 
The unit estimates that funds will be available for distribution to its creditors after administrative expenses. Linder Oil Co., Forest Oil Co. (FST) and Bluebird Energy Inc. are the company's largest unsecured creditors, holding trade debts respectively of $3.68 million, $2.83 million and $1.29 million. 
The court has assigned ENA Upstream case number 02-10232. 
Both bankrupt companies are being pledged as collateral under Enron Corp.'s credit agreements, including a debtor-in-possession financing led by J.P. Morgan Chase (JPM) and Citigroup Inc. (C). 
Beleaguered Enron and its units began filing for Chapter 11 protection Dec. 2. It's the largest bankruptcy in U.S. history. 
-By Kathy Chu, Dow Jones Newswires; 201-938-5392; kathy.chu@dowjones.com

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

Dark humour and a line in T-shirts from Enron victim - Ex-employees' website reveals the real losses.
By David Teather in New York.

01/22/2002
The Guardian
P19
Copyright (C) 2002 The Guardian

John Allario, one of the thousands of Enron employees who lost their jobs when the energy firm fell into bankruptcy at the end of last year, is trying to find some dark humour in the unfolding saga. 
Mr Allario, 38, has set up Laydoff.com, a website acting as a forum for workers who not only lost their jobs but, in many cases, their life savings in the company's collapse.
The site's name is a swipe at Enron's chairman and chief executive Ken Lay, who pocketed millions of dollars from offloading shares over the past few years. 
So far, the site has had 18,000 hits and Mr Allario has sold nearly 500 T-shirts, bearing messages including I got Lay'd by Enron to My boss got a retention bonus, all I got was this T-shirt. The best seller is the simple Thanks Ken, Jeff and Andy, referring to the directors held to account by workers for the collapse of the company. 
Mr Allario, who had worked at EnronOnline, had been with the firm for six and a half years, and has walked away with $4,500 ( #3,130) before tax - around three weeks' pay. Shares he held in his pension plans had been worth $108,000 at the peak. He sold them for less than $500. 
I left feeling pretty angry but that can destroy you, so I'm trying to put it into something positive, he said. 
It's like Of Mice and Men - these guys trawling around the country looking for work and one says to the other, 'don't be friendly with your boss - he's not your friend, he's your boss'. I used to work in investment banks, and the focus with Enron and Wall Street is making money, and the system stinks. 
Like other workers Mr Allario is talking to lawyers about potential action for redress. Fleming Associates, a Houston-based law firm, is holding a meeting with former employees later this week. 
There is certainly enough anger among the former Enron workers to support Mr Allario's website. Many employees' pension plans were tied up in Enron stock, which fell from a peak of $90 to virtually nothing. Janis Farmer, a former administrator who retired last year, is typical. At the time her stock was worth $700,000. She sold it for $20,400. 
It has become increasingly clear that employees and retirees were sacrificed for their own personal gain, she said. 
Enron executives let us down, the auditors let us down, Wall Street analysts let us down and the companies lending the money to Enron let us down. But at the end of the day, when the dust settles, who has the greatest pain and greatest losses? We do. 
Another Enron worker, Roger Boyce, had in excess of $2m invested in Enron stock - now worth about $3,000. When he wanted to sell as the share price plummeted, he was locked out by the company's management. If we aren't properly informed about what is going on, how can we make intelligent investment decisions? 
I don't think I was naive. Why wouldn't we believe what the executives were saying and what the Wall Street analysts were saying - that this was a growth company? We had tremendous trust in Enron, and that has been betrayed. 
One employee, who lost his job in December and asked not to be named, had seen the storm coming early last year but did not realise the extent of the crisis. He had worked in the broadband unit which was trying to create a market for capacity on telephone cables - part of the over-expansion that built calamitous debts. 
As we were coming up to the second quarter we were being put under a lot of pressure to boost revenues. But it just wasn't materialising. We had earnings of $5m and costs of about $107m. I started to become frustrated when it became apparent there wasn't really a concrete business plan and that there were unreasonable expectations. 
There was a culture of aggressiveness in both trading and in the finance department, and they stepped over the bounds. I'm just surprised there weren't the checks and balances in place. These transactions were going up to board level. It wasn't a couple of rogue trades, it was systematic. 
As for Mr Allario, the level of disaffection among Enron employees has led him to think there may be a market out there for a broader website. I was thinking I could sell T-shirts to Boeing employees and turn it into a full service site for laid-off workers. I am putting up a 'shredding' T-shirt and I think that will sell well. Andersen's has 84,000 employees worldwide, and it should appeal to them. 
Laid-off workers wait for a lift outside Enron's office in Houston, Texas, last December.

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

US Treasury Responds To Waxman Request For Enron Info

01/22/2002
Dow Jones Capital Markets Report
(Copyright (c) 2002, Dow Jones & Company, Inc.)

(This article was originally published Friday) 

WASHINGTON -(Dow Jones)- The U.S. Treasury Department told U.S. Rep. Henry Waxman, D-Calif., that it would provide details of its Enron-related dealings "in an organized, timely and uniform manner" along with all other requests, according to a letter Treasury Secretary Paul O'Neill sent to Waxman Friday.
Waxman wrote O'Neill and Commerce Secretary Don Evans on Jan. 11, asking for details of all administration correspondence with Enron Corp. (ENRNQ), the beleaguered energy giant, during 2001. He also asked for more information on potential Enron lobbying activities, and for an explanation for not releasing Enron-related details sooner. 
Waxman asked for this information by Friday, Jan. 18. O'Neill's late-in-the-day, two-paragraph letter met that deadline, but without the details Waxman was seeking. However, he said Treasury was cooperating completely with a Presidential inquiry into laws and regulations related to Enron's troubles. 
"We are currently devoting our full resources to this endeavor," O'Neill wrote. 
Many committees and regulatory agencies have jurisdiction over the Enron investigation, he said, adding that Treasury plans to respond to all inquiries from such authorities. 
"The impact of Enron's demise on its employees and investors is a serious matter that warrants careful examination and raises significant policy issues," O'Neill wrote. "If such an examination reveals that Enron officials broke the law, they should be punished." -By Rebecca Christie, Dow Jones Newswires; 202 862 9249;
rebecca.christie@dowjones.com

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

SMARTMONEY.COM: Special Report: Enron Vs. Investors
By Matthew Goldstein

01/22/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

IF ENRON (ENRNQ) is Wall Street's version of Dr. Evil - the arch-villain from the Austin Powers movies - then the NewPower Holdings (NPW), the deregulated electrical utility that Enron spun off two years ago, looks a little bit like a corporate Mini-Me, Dr. Evil's pint-size duplicate.
As much as NewPower executives would like to distance themselves from their wayward founder, it's clear that the two companies are closely tied together. At the zenith of Enron's power and influence two years ago, those ties were seen in a positive light, and helped smooth the way for NewPower's initial public offering in October 2000. In particular, the Enron name may have helped reassure the thousands of individual investors who got a chance to buy shares in NewPower's $579 million IPO, which was one of the last hot stock offerings of the year. 
But it now appears that investors in the NewPower IPO were walking into a hornet's nest of behind-the-scenes maneuvering by Enron and its mysterious off-balance sheet sidekick, the LJM2 Co-Investment partnership. And if those investors had known the details of Enron's role, far from being reassured, they probably would've been deeply troubled: Enron, it turns out, was using complex hedging strategies to reduce its exposure to a drop in the NewPower's stock price. (For more on the workings of LJM2, see The Enron Papers under code ENRNQ.) 
In other words, Enron appears to have been seriously worried that NewPower - a company that it had created and that it was ushering down the aisle to outside investors - would lose significant value, and took steps to protect its $1 billion stake. And that, finance experts say, is highly unusual. "I've never heard of people saying, 'How are we going to hedge our ownership in...a business you always owned and now you are slowly divesting?'" says Kenneth Froewiss, a corporate finance professor at New York University's Stern School of Business. 
And as it turns out, Enron, which still owns more than 43% of the spinoff, had good reason to worry. NewPower did enjoy a 30% pop above its $21 offering price on its first day of trading. But the $27 close price of NewPower stock on the day of its IPO was its high-water mark. The stock closed at 42 cents on Friday, down more than 98%. The company has never booked a profitable quarter and continues to lose fistfuls of money. With just one million residential customers in a smattering of states, NewPower is far from achieving the goal of signing up the 10 million utility customers it had talked about around time of the IPO. 
The irony is that unsuspecting investors were once clamoring to get a piece of NewPower's offering. The deal was something of a showpiece for the two big Wall Street investment banks that took NewPower public, Credit Suisse First Boston and Donaldson Lufkin Jenrette, which were just about to complete their merger. Immediately after the IPO, the two firms issued a press release boasting that the offering "demonstrated their power as a combined firm." And as part of that showpiece, thousands of individual investors who were customers of Donaldson's online brokerage arm, DLJDirect (now CSFBDirect), got a chance to buy into the deal. The opportunity looked like a rare boon to retail investors, who are more typically denied early access to such offerings, while insiders and favored institutional clients reap most of the benefits. 
Those online investors, however, could be excused for thinking they were getting a piece of a good thing. The prospectus boasts that NewPower intends "to become the first company to establish a national brand for consumer energy and related products and services." At the time of the offering, Enron and NewPower were trumpeting a joint marketing agreement with AOL Time Warner (AOL), which gave the fledgling power company an exclusive six-year agreement to try and sell electricity to AOL's 24 million online customers. (AOL has since abandoned the agreement.) 
And then there were those Enron ties. Besides being NewPower's corporate parent and largest shareholder, the company contributed three of NewPower's directors, including Enron Chief Executive Kenneth Lay and Chief Accounting Officer Richard Causey. NewPower and Enron even relied on the same big accounting firm, Arthur Andersen, to audit their books. 
The Enron name certainly seems to have been an important draw for institutional investors. "We had made some investments with Enron in the past that had done very well," says James Leech, a senior vice president of the Ontario Teachers pension plan. "There was a respect for their business acumen." Today, the Ontario Teachers' initial $35 million investment in NewPower is worth about $10 million, which translates into a 71% loss on its investment. 
Meanwhile, starting in January 2000, Enron and LJM2 (the Enron off-balance-sheet partnership that invested $50 million in the fledgling company) engaged in a sophisticated hedging strategy that "included price-swap derivatives, call options and put options" in order to "mitigate market exposures on Enron investments, including investments in (NewPower)," according to corporate filings. 
For a time, this strategy enabled Enron to convert anywhere from between $100 million to $200 million of its paper wealth in NewPower stock into a asset that could be plopped onto Enron's corporate balance sheet. In 2000, for instance, Enron initially claimed a $39 million net gain on investment from the sale of NewPower assets, which accounted for roughly five cents of that year's earnings per share. Similar moves with other investments enabled Enron to allegedly inflate its profits and hide its debts, practices that ultimately led it to restate its earnings by $600 million and decrease its shareholder equity by some $1.2 billion. 
But the accounting maneuvers also suggest that Enron executives were concerned about maintaining the value of their NewPower investment, which dates back to 1997. Its subsidiary, called Enron Energy Services, tried to develop a market for deregulated residential electric power, and that small business ultimately became NewPower. At the time of the IPO, NewPower still had fewer than 400,000 customers, limited revenues and a long history of red ink. Two years later, it's not doing much better, and its investors are now paying the price. 
It's the kind of stuff Dr. Evil would be proud of. 
For more information and analysis of companies and mutual funds, visit SmartMoney.com at http://www.smartmoney.com/

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

Tractebel bids for Enron's SKorean assets - report

01/22/2002
AFX News
(c) 2002 by AFP-Extel News Ltd

LONDON (AFX) - Tractebel SA said yesterday it has submitted a bid for the South Korean assets of Enron Corp, the Financial Times reported. 
A Tractebel official refused to disclose the value of the bid. 
The FT cited Korean press as saying Tractebel's bid will face competition from the Royal Dutch/Shell group, and El Paso of the US.
Enron has a 50 pct stake in SK-Enron, an equal joint venture with SK Corp, Korea's third largest industrial conglomerate. Enron's stake was worth 240 mln usd in 1999 when the company was formed, the report said. 
Enron is expected to take a week to consider the bids and will then select a preferred bidder. 
A Shell official declined to comment on whether it was also bidding for the SK-Enron stake. 
SK-Enron controls about 25 pct of South Korea's natural gas market and about half of the liquefied petroleum gas market. It has stakes in 11 affiliates, including a 46 pct holding in SK Gas Co, the LPG provider. 
Tractebel already operates in Thailand and Singapore and has expressed interest in bidding for power plants in China. 
jfr/ob

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

Electrabel In Talks With Enron Over Spanish Power Plant

01/21/2002
Dow Jones International News
(Copyright (c) 2002, Dow Jones & Company, Inc.)

BRUSSELS -(Dow Jones)- Belgian electricity utility Electrabel SA (B.ELE) confirmed Monday it wants to take over a Spanish electricity power plant project abandoned by Enron. 
"Electrabel is discussing the Arcos de la Frontera project with Enron," said Electrabel spokeswoman, Francoise Vanthemsche.
European energy companies have been circling Enron Corp.'s (ENRNQ) assets since it collapsed late last year amid revelations of complex partnerships used to keep billions of dollars in debt off its books. But none of the U.S. energy giant's European power stations or building permits have been sold off so far. 
According to Vanthemsche, both technical and legal questions will need to resolved before Electrabel is willing to sign on the dotted line. 
"We need to be prudent in view of Enron's situation," she said. 
In July 2000, Enron became the first foreign company to win government approval to build a power plant in Spain. Work on the 1,200 megawatt cycle gas turbine plant, located south of Seville, was due to start in mid 2000. It was expected to cost around EUR450 million. 
Last summer, Enron signed a long-term contract with Spanish natural gas distributor Enagas for the delivery of fuel to the plant. The contract, for the regasification and transport of 1.7 billion cubic meters of gas, is due to start in 2004. 
Accountancy firm PriceWaterhouseCoopers, the court-appointed administrators of Enron's European assets, declined to comment on the report. 
-By Victoria Knight, Dow Jones Newswires; 322-285-0132; victoria.knight@dowjones.com

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

New BG Bid Soon For Enron's India Pete Fields' Stake -PTI

01/21/2002
Dow Jones Energy Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

NEW DELHI -(Dow Jones)- U.K.-based BG Group PLC (BRG) will finalize a new bid shortly for the 30% that bankrupt U.S. energy trader Enron Corp. (ENE) holds in India's Panna-Mukta and Tapti offshore oil and natural gas fields, the Press Trust of India news agency reported Monday. 
"Since our original deal for acquiring Enron's 30% stake in the fields expired on Dec. 24, we will make a revised bid for the same soon," the PTI quoted British Gas India Pvt. Ltd.'s Chief Executive Nigel Shaw as saying.
British Gas India is a wholly-owned subsidiary of BG Group. 
"Negotiations are on and I would not like to say anything beyond this," Shaw said. 
In October, BG announced a conditional acquisition of Enron's stake in the Tapti and Panna-Mukta fields, located offshore India's western coast, subject to getting the operatorship. The acquisition, valued at $388 million, was for the entire offshore interests held by Enron's unit, Enron Oil & Gas India Ltd. 
India's state-owned firm Oil & Natural gas Corp. (P.ONG) holds 40% of the Panna-Mukta and Tapti fields and Reliance Industries Ltd. (P.REL) owns the remaining 30%. 
The commercially recoverable reserves from the Panna-Mukta and Tapti fields have been estimated at 783 billion cubic feet of natural gas and 43 million barrels of crude oil. 
-By Himendra Kumar, Dow Jones Newswires; 91-11-461-9426; himendra.kumar@dowjones.com

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

Gov't hopes to close Enron deal this month.
By Iris C. Gonzales.

01/22/2002
BusinessWorld (Philippines)
P8
(c) 2002 Business World Publishing Corporation.

The government hopes to close within the month the deal with cash-strapped US firm Enron Power to buy out the remaining years of its power purchase contract for the Subic and Pinamucan plants. 
Energy Secretary Vincent S. Perez, Jr., however, pointed out that they are very careful with the deal.
"We're currently in due diligence stage right now and we hope we could come to agreement and get the conditions that we wish," said Mr. Perez, as he pointed out that the Power Sector Assets and Liabilities Management Corporation (PSALM) is not really obligated to buy out the contracts. 
stranded debt 
"PSALM doesn't really need to do the deal but if it's attractive enough and we could reduce our stranded debt, then we would," he said. 
He expressed hopes that the deal could be closed within the month but said that it's not a must. 
"If we can't close the deal with the conditions that we want there's no urgency to closing the deal by the end of the month," he said. 
DoE has already started its due diligence on the 105-megawatt Pinamucan and 115-megawatt Subic plants, to assess all the technical, legal and financial aspects of the project that would affect the planned buyout.

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

INDIA PRESS: Dabhol May Be Sold In Two Parts

01/21/2002
Dow Jones International News
(Copyright (c) 2002, Dow Jones & Company, Inc.)

NEW DELHI -(Dow Jones)- India's Dabhol Power Co. may be sold in two parts, comprising the 2,184-megawatt power plant and the 5.5 million metric ton a year liquefied natural gas facility, respectively, reports the Business Standard. 
"This is the thinking that is prevalent among the lenders at present but no final decision has been taken on the issue," the newspaper reports, quoting a source from the domestic Dabhol lenders' consortium.
U.S. energy company Enron Corp. (ENE) holds a 65% stake in Dabhol, while General Electric Co. (GE) and Bechtel Corp. (X.BTL) own 10% each. The Maharashtra State Electricity Board owns the remaining 15%. 
Enron wants to sell its stake due to disputes with the Maharashtra State Electricity Board, which is its sole buyer, and with the Indian federal government over payment guarantees. 
Located in the western state of Maharashtra, the $2.9 billion Dabhol project is the single largest foreign investment in India to date. Newspaper Web site: http://www.business-standard.com 

-By Himendra Kumar; Dow Jones Newswires; 91-11-461-9426; himendra.kumar@dowjones.com

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

INDIA'S TROUBLED DPC READY TO HAND OVER EVIDENCE TO HIGH COURT

01/22/2002
Asia Pulse
(c) Copyright 2002 Asia Pulse PTE Ltd.

MUMBAI, Jan 22 Asia Pulse - Enron's troubled Dabhol Power Company (DPC) informed the Mumbai High Court that the code CDs and e-chips of its idle power plant were in India, and that it was ready to hand over these critical components to Industrial Development Bank of India (IDBI). 
Refuting Maharashtra State Electricty Board's allegation that DPC had removed the components and shifted them abroad, its counsel Janak Dwarkadas said these components were available to Indian company officials.
"We are ready to produce them as and when required by the court, and if necessary, to IDBI," Dwarkadas said. 
Adjourning the matter to January 24, Justices Ajit Shah and Vijaya Tahilramani told DPC to serve notices on IDBI and other financial institutions for their response. 
Advocate General Goolam Vahanvati, who represents the Maharashtra State Electricity Board (MSEB), said that the DPC had also removed certain vital documents from the plant. 
However, DPC counsel said "We are prepared to give a list of documents we possess as well as that of the components." 
MSEB alleged that DPC has sent these critical software components to its headquarters in the US. 
The High Court is hearing a DPC petition challenging the jurisdiction of the Maharashtra Electricity Regulatory Commission to adjudicate its dispute over the non-payment of dues with MSEB. 
(PTI) 22-01 1727

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

Report on Business Column
TO THE POINT
Enron points to need for independent analysts
ERIC REGULY

01/22/2002
The Globe and Mail
Metro
B14
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."

Analysts must be thrilled. As the war against biased, shabby research was reaching its peak, along came Enron and saved them. Now auditors, not analysts, are Wall Street's favourite whipping boys. Thanks to Arthur Andersen, Enron's hapless auditor, the entire accounting profession faces regulation to prevent conflicts of interest. 
In reality, there were no heroes in the Enron debacle and analysts were no exception. As late as October, many months after the Enron began its slide to oblivion, 16 out of 17 securities analysts who covered the company had "buy" or "strong buy" ratings on the stock. Credit Suisse First Boston kept a "strong buy" on Enron until late November, only a few days before its bankruptcy filing. While analysts, like auditors, argue that they can't be expected to be fraud detectors, you've got to wonder why they maintained their bullish stances so late in the game. Enron just didn't fall off a cliff. The shares peaked at $87.25 (U.S.) in mid-2000 and were in rapid decline by last spring. Something was clearly rotten at the world's biggest energy trader well before the market officially learned in the autumn that its financial statements were meaningless.
Enron came just as investors were beginning to think that analysts were getting better at their jobs after a generally shameful performance during the bubble years. In the late 1990s, all-star analysts, such as Henry Blodget, could propel Internet stocks into orbit simply by saying they deserved to be there. The hard, number-crunching analysis to justify the targets was either missing or laughable. 
When the Internet economy came crashing down to earth, investors demanded blood, which was laughable itself. For years, as analysts operated as if they were the marketing arms of their employers' corporate finance departments -- most analysts, in fact, got paid out of that department's profits -- investors didn't balk because stocks kept rising. When the inevitable happened, analysts were suddenly discovered to be hopelessly conflicted corporate shills. The Securities and Exchange Commission got on their case, congressional hearings into their conduct were held and investors launched lawsuits. Mr. Blodget left Merrill Lynch last year after Merrill settled an arbitration case launched by a New York investor who alleged conflict of interest on the analyst's part. 
In the past year or so, the anecdotal evidence suggests that equity research has improved somewhat. The number of sell recommendations, historically fewer than 1 per cent of the total number of analysts' recommendations, has crept up, although they probably don't exceed 3 per cent. 
The embarrassment of having put "strong buy" calls on dubious tech and Internet stocks seems to be putting pressure on the surviving analysts to do proper research. Some are getting more imaginative. National Bank of Canada, for example, uses a return on capital analysis to help value banks, on the belief that the standard return on equity ratio can be too easily manipulated. 
Meanwhile, the SEC's fair disclosure rules are putting all analysts on an equal footing and making them work harder. Whisper guidance from the chief financial officer, which many analysts would use as a crutch, is taboo. 
Then along came Enron and you wonder whether the quality of research really has improved. At the margins, it probably has. In general, though, research has a long way to go before it becomes more reliable. The reason it hasn't is simple: Analysts' pay structure, for the most part, remains the same. 
Arthur Andersen got into trouble because of an apparent conflict of interest. Enron was paying it as a consultant as well as an auditor. Theoretically, if the auditing side had exposed funny accounting gimmicks, the consulting side would be out of a job for a net loss in income for Arthur Andersen. 
Analysts also have built-in conflicts. Much, perhaps most, of their income comes from the corporate finance department. Corporate finance showers the analysts with riches if they attract clients who generate fees from underwritings, acquisitions and the like. Analysts know that a bearish report risks alienating a client, which helps to explain why most of them didn't turn negative on Enron until it was obvious the company had no hope of recovering. 
In the end, the best way to assure a steady improvement in research is to make analysts truly independent. That means overhauling their pay structure to separate them from the corporate finance business. Will it happen? Don't count on it. If another Enron happens, though, analysts may find that regulators will force independence on them. 
ereguly@globeandmail.ca

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

Report on Business Column
TAKING STOCK
Where are market cops when we need them?
BRIAN MILNER

01/22/2002
The Globe and Mail
Metro
B23
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."

Washington politicians are demanding answers and heads in the Enron debacle. State lawmakers are launching suits with the zeal of ambulance chasers in an effort to recover hundreds of millions lost by their pension funds. Police are sifting through what's left of the shredded paper trails in search of crooks; and the chairman of the U.S. Securities and Exchange Commission has suddenly found religion when it comes to auditing. 
All of the official sound and fury that has erupted in the wake of the worst stock market scandal in modern times is supposed to make us feel good about the transparency, strict regulation and basic honesty of the world's busiest capital markets.
Sure, the occasional rotten apple shows up in the American barrel, but look how swift the pursuit is, and how terrible the punishment. People will pay, heads will roll and it will never, never happen again. Until the next time. 
The sad truth is that Enron is not an isolated exception -- apart from its unprecedented size and scale and the fact that every one of the checks and balances designed to protect the investing public failed to do the job. 
The reality is that while the bulk of the players at the vast U.S. capital markets table are free of taint, there are plenty of people who play fast and loose with the rules. And why not? They can often get away with it. And even when they get caught, they usually get off pretty lightly. What's a little embarrassment, a few legal bills and the occasional small financial penalty when millions of dollars are at stake? 
Just the other day, Donald Trump's casino company reached a settlement over what regulators said was misleading information given to the public . . . in 1999. The SEC trumpeted the case as the first stemming from a crackdown on the growing corporate habit of massaging financial results to make things look better than they really are. 
Yet Trump Hotels & Casino Resorts paid no financial penalty -- unlike the investors who rushed to buy the stock on the apparent good news. In fact, the company didn't even have to acknowledge that it had done anything wrong. It merely promised not to do it again. 
This, despite the fact that the actions of three senior officers (but not Mr. Trump, who was chairman at the time) caused the company to violate "the anti-fraud provisions of the Securities Exchange Act by knowingly or recklessly issuing a materially misleading press release." 
Then we have the developing saga of ImClone Systems. 
While Enron has been grabbing all the headlines, ImClone is coming up fast on the outside. The once hot biotech firm faces a rash of shareholder lawsuits and a probe by one of the same congressional committees investigating Enron. News of the investigation and other concerns about the company sent the stock tumbling 30 per cent on Friday. Its stock has plunged to $21.15 from a high of $75.45 just six weeks ago. 
At issue is whether ImClone misled investors about Erbitux, a potentially promising treatment for colorectal cancer. When its stock was still riding high, the company learned that the U.S. Food and Drug Administration had refused to look at its application to market the drug. The company revealed the FDA's concerns on Dec. 28. 
The FDA had earlier agreed to a quick review once it accepted the application, and analysts expected that the potential blockbuster drug would hit the market by midyear. 
Further buoying investor optimism was the fact pharmaceutical giant Bristol-Myers Squibb had acquired a 20-per-cent stake in the company in September, just to get its hands on the experimental drug. Bristol-Myers, which paid $70 a share for its stake, now faces hard questions about the quality of its due diligence. But it's big enough to take care of itself, and it can afford to wait for results. 
Biotech is an inherently risky game, but it becomes a lot riskier when investors don't have access to material information. 
The FDA's rejection letter revealed that ImClone's testing procedure was flawed and that new clinical trials might be required. The company says it remains confident in the drug and that the FDA's questions concerned data collection. But the fact is that approval might be delayed for a considerable time, something investors had a right to know. 
Another point worth noting about ImClone: The company's chief executive officer, Samuel Waksal, and his brother, Harlan, the chief operating officer, picked up more than $110-million (U.S.) from tendering shares to Bristol-Myers. Harlan Waksal pocketed another $50-million from share sales in December. 
Now the Waksals, like Enron's honchos, face a public grilling by a bunch of Washington politicians. This admittedly cruel form of torture may turn out to be the worst punishment meted out to any of them by the supposedly tough market cops south of the border. bmilner@globeandmail.ca

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

Financial Post: World
U.S. push on for independent auditors: Enron fallout
Reuters with files from Bloomberg News and Agency France-Presse

01/22/2002
National Post
National
FP10
(c) National Post 2002. All Rights Reserved.

WASHINGTON - With accounting firm Arthur Andersen mired in controversy over its audit of collapsed trading giant Enron Corp., a U.S. senator announced plans yesterday to introduce a bill to ensure auditors remain independent. 
Sen. Barbara Boxer, a California Democrat, said accounting firms should be banned from providing management consulting services for the companies that they audit.
"The American people have a right to expect that the firms that audit the companies they invest in are free from conflicts of interest," she said . 
"These conflicts have led to the kind of hide-the-debt shell game that took place at Enron," added Ms. Boxer, who has also proposed legislation to protect other U.S. workers from the retirement savings meltdown suffered by Enron employees. 
Enron -- once the world's largest energy trader -- plummeted from Wall Street's lofty heights to the largest bankruptcy filing in U.S. history on Dec. 2. Its downfall threw thousands out of work, wiped out workers' retirement savings and hammered investors. 
As Enron's auditor, Andersen signed off on accounting practices that hid billions of dollars in off-balance-sheet debt and led to a US$600-million reduction of four years' worth of earnings. 
Andersen may have to pay hundreds of millions of dollars to resolve civil lawsuits over the accounting firm's audits of Enron, and its survival might be threatened, legal and bankruptcy experts said yesterday. 
The risk to Andersen would increase if it's indicted or any of its 4,800 partners admit criminal wrongdoing for such acts as destroying documents related to Enron's audits, experts said. 
Shareholders, creditors and others who lost US$60-billion in Enron's collapse hope that Andersen's "deep pockets" will offer more than the energy trader, which sought bankruptcy protection. 
"We could be looking at hundreds of millions of potential liability," said Stephen Presser, a professor of law and business at Northwestern University. "If ever there is a criminal conviction, the civil case becomes a cakewalk." 
Ken Lay, Enron's chairman, sold stock in the company prior to its filing for bankruptcy protection because he needed cash, not because he wanted to bail out, his lawyer told The New York Times yesterday. 
Lawyer Earl Silbert told the daily that Mr. Lay had sold his shares at least 15 times in 2001 in order to repay US$4-million of loans. 
The acknowledgment "has fueled concern that [Mr. Lay] was exiting his position as he was encouraging others to buy," the Times said. 
According to the daily, in early 2001 Mr. Lay sold shares "on every business day" making a profit of US$21-million. 
He stopped selling in July when the value of the stock fell to half its value. 
On Sept. 26, Mr. Lay used an Internet chat forum to encourage Enron employees to buy shares as the stock was "an incredible bargain", adding that the stock value would increase 800% in the next decade, the Times wrote.

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

World News
Enron case steals Bush limelight

01/22/2002
Belfast News Letter
Ulster
17
(Copyright 2002 Century Newspapers Ltd.)

ON George Bush's first anniversary in the Oval Office, his aides are concerned the collapse of Enron, America's largest ever bankruptcy, is diverting attention from the president's second year agenda. 
The White House has helped fuel speculation over how much was known about the demise of the world's biggest energy trading group, a colossal business failure that robbed thousands of their savings and could still incriminate senior administration officials.
White House officials hope Bush's State of the Union address on January 29 will re-focus attention on his domestic agenda and the war on terrorism. 
But Democrats and Republicans on Capitol Hill are pushing for a full internal investigation.

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

Politically Sensitive Enron Items Pulled Off EBay Friday
By Kathy Chu

01/22/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

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

NEW YORK -(Dow Jones)- It seemed to be a catchy slogan for a political button: the words "Watergate," "Irangate" and "Enrongate" emblazoned upon an image of a paper shredder.
At least, that's what Keith Shirey, a button maker and retired California professor, thought when he designed this product and listed it on eBay Inc. (EBAY) last week. 
But apparently, the online auction site didn't find these items so humorous, because three of Shirey's satirical buttons were yanked off the site Friday. 
It was a move that Shirey found difficult to understand, given the prevalence of jokes about Enron Corp. (ENRNQ) since the company collapsed in early December, and filed for the largest bankruptcy in corporate history. 
Kevin Pursgrove, a spokesman for the online auction giant, said Monday that the company "periodically" removes items when the seller "is using a listing space for an item to make a social commentary." 
In a Friday e-mail to Shirey, eBay had noted that "(t)he sale of items offering social commentary about Enron are not currently permitted for sale on eBay at this time." 
The buttons, according to the company, were "inappropriate for listing." 
But after being pressed about the company's policies, Pursgrove announced late Monday that eBay had reversed its decision and plans to notify the seller that these buttons may be relisted. 
"It was a judgment call," he said. "The person who made the decision at the time (to remove the items) may have believed the language was gratuitous and inflammatory." 
It was the description of these items - rather than the products themselves - that prompted the removal, according to Pursgrove. 
Shirey, to promote the "Enrongate" button, had stated in his listing that there's a "national scandal of the new century." Other buttons designed by Shirey and removed from eBay's site last week had Enron's symbol, the letter E, with the middle finger extended or the symbol stamped on an elephant's backside. 
The self-described liberal - who has been designing buttons for the past two-and-a-half years, offering political commentary about topics ranging from taxation to sweatshops and the post Sept. 11 atmosphere - hopes to get the buttons back for sale on the site as soon as possible. So far, he's unloaded about a dozen of them. 
The eBay spokesman said the buttons will be permitted to reappear on the site "soon," but couldn't give a timeline. 
"I'm glad they've decided to let me sell them," said Shirey, who makes about $350 a month from selling various buttons on eBay and on a personal Web site. "It's devastating not to be able to express yourself." 
It's not the first time that eBay has censored items from its auction site. 
The company, after the World Trade Center attacks, temporarily banned some items that alluded to the events, including a pin designed by Shirey that portrayed Osama Bin Laden with a red slash across his face. 
Also, eBay has deleted hundreds of neo-Nazi products listed for sale since May, after being alerted to them by the media and the German government. 
But the company's latest move to ban Enron-related buttons from the site is surprising, and could be a cause for concern if it continues, according to legal experts. 
"The question is, if eBay is going to begin to exercise editorial control for items like this, you have to wonder, what other things will they try to exercise control over?" said Lawrence Lessig, a law professor at Stanford University. 
There's also another issue. 
"(Censoring items) is so contrary to eBay's beginning and to their success - that it's an open platform," said Megan E. Gray, a lawyer with Baker & Hostetler in Los Angeles. 
-Kathy Chu; Dow Jones Newswire; 201-938-5392; 
e-mail: kathy.chu@dowjones.com

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

ComPsych(R) Reports Rapidly Increasing Employee Stress Levels Caused by Recent Financial Events

01/21/2002
PR Newswire
(Copyright (c) 2002, PR Newswire)

CHICAGO, Jan. 21 /PRNewswire/ -- ComPsych(R) Corporation, the pioneer in GuidanceResources(R) (integrated employee assistance programs, managed behavioral health, work-life, legal and financial services, personal convenience services and human resource support services), announced today a notable jump in calls to its EAP from employees requesting help in addressing stress caused by financial concerns. 
"The controversial Enron bankruptcy, on the heels of a tough stock market and high unemployment rates, has workers feeling uneasy about their personal finances," says Dr. Richard Chaifetz, Chairman and CEO of ComPsych. "As a result their stress levels are up, they're feeling anxious and their ability to concentrate on work is compromised."
ComPsych works with employees to manage their stress, preventing more severe physical and psychological problems. ComPsych's counselors help employees step back and gain a realistic assessment of their situation. They look across multiple dimensions of stress in an employee's life to identify all the reasons behind their tension. 
"Often times when employees are dealing with overwhelming feelings of stress they often stem from other causes, such as finances," says Chaifetz. "Therefore it's critical that employers implement financial services with their EAP so that they can respond with integrated support, such as our GuidanceResources." 
ComPsych's EAP counselors are teamed with its FinancialConnect(SM) financial professionals who are standing by to discuss with employees their personal money management concerns. ComPsych's experts provide to workers the tools they need to meet their financial goals, whether it's getting out of debt or planning for retirement. After talking with ComPsych's professionals employees are able to regain a sense of control over their financial future and put recent financial events into perspective. 
About ComPsych 
Founded in 1984 and headquartered in Chicago, ComPsych provides its programs to over 600 companies throughout 72 countries worldwide, covering over seven million individuals. Clients range from the Fortune 500, such as American Express, General Electric, Schlumberger, DuPont, J.P. Morgan Chase, and Comcast, to smaller public and private concerns, such as Dean Foods, Krispy Kreme, Mervyn's, and Tiffany & Company, as well as government entities, health plans and Taft-Hartley groups. The company offers a full range of behavioral health and work-life services, creating "Build-to-Suit" programs, which help employers attract and retain employees as well as improve employee productivity and performance. For more information, visit www.compsych.com . 
MAKE YOUR OPINION COUNT - Click Here 
http://tbutton.prnewswire.com/prn/11690X74664439


/CONTACT: Rebecca McQueeney of ComPsych Corporation, +1-312-595-4048, rmcqueeney@compsych.com / 08:30 EST 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

GETTING PERSONAL: 401(k) Woes? Might Be Your Own Fault
By Kaja Whitehouse

01/22/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of DOW JONES NEWSWIRES 
(This column was originally published Friday.) 

NEW YORK -(Dow Jones)- The Enron Corp. (ENRNQ) debacle has some people thinking "401(k)" is the newest four-letter word.
Actually, though, many employees have no one to blame for their 401(k) problems but themselves. 
Washington is abuzz with talk of "reform" of the 401(k) system, with lawmakers using the Enron bankruptcy - where thousands of employees lost large chunks of their nest eggs - as a chance to fiddle with plan designs. 
To truly free investors of risk, legislators would have to send the 401(k) the way of the pension, and that is unlikely. By definition, defined-contribution plans were meant to allow people to save as much as possible and place that money in investment funds most suitable to their needs. Pension plans, on the other hand, promise to pay out a certain amount when workers retire, depending on how many years they worked for a company. 
At best, our public officials will cap the amount of company stock in which a person can invest in a retirement plan. But that won't solve other problems, such as workers' failure to diversify or to switch to more conservative investments as they age. 
Call it a consequence of free will. Some people just don't pay enough attention to how they save for retirement. Here's the best example: The period from 1999 to 2000 was volatile for markets, but investors did nothing to shield their retirement savings. Rather, the average asset allocation of 401(k) participants remained the same in that period, according to a November study by the trade groups Employee Benefits Research Institute and the Investment Company Institute. 
Despite the newfound attention, it's not a new phenomenon, said Tom Samuels, chief investment officer at Stavis, Margolis Advisory Services. About 50% of the people who walk into the Houston firm have "picked an allocation when they started and let it go on autopilot," he said. 
Other Options Available 

Accepting a 401(k) plan should entail taking the time to make sure assets are invested wisely. The 401(k) is a great investment vehicle, "but if it's not used properly, it doesn't work," said Thomas Endersbe, a certified financial planner with American Express in St. Paul, Minn. 
People who don't have the time to care for their 401(k) plan should consider other options. A lot of plan sponsors also offer pensions, which are considered safer because they are backed by federal insurance. "If 60% of your retirement income is replaced by a (pension), maybe you can take a more casual view of your 401(k)," said Janna Gjesdal, associate editor of the Institute of Management & Administration, a New York research firm. 
Understandably, some people just might not like the investment options offered by their 401(k) plan, especially if it's too tied up in company stock. 
If your employee match is limited to company stock that you can't convert for some time, as it was for Enron's employees, stay away from investing additional dollars in the company. This may mean forgoing company stock purchase plans that allow workers to buy company shares cheap. 
Also, when adding up your assets, exclude significant stock holdings until the cash is in your hands. This will force you to build up assets in other areas. 
Don't forget Individual Retirement Accounts, or IRAs, as a diversification tool. Contribution limits for an IRA are much smaller - $3,000 this year compared with $11,000 for a 401(k) - but anyone can invest in one, and the investment options are much wider. 

Diversify, Diversify, Diversify 

As with all investment, diversification and asset allocation are key in retirement planning. Stavis, Margolis Advisory's Samuels said his firm has been dealing with diversity issues in 401(k) accounts long before Enron collapsed. 
The Houston firm often works with employees of area technology companies such as Compaq Computer Corp. (CPQ) and Dell Computer Corp. (DELL), many of whom had to extend their working life because their retirement savings weren't diversified. 
Samuels' clients were often given company shares, but many people also continued to buy additional shares on their own, he said. His clients weren't barred from selling their stock early like Enron workers were, but they still saw their retirement plans blow up in smoke when the tech bubble burst in March 2000. 
"It's psychological," he said. "Everybody wants to be part of a team. And when you have a team that is on the front lines," it's easy to get caught up, he said. 
And when it's not one stock that investors load up on, it's one type of stock, financial advisers said. Getting people to diversify away from pure technology holdings, for example, has been an ongoing battle, they added. 
It's a wider problem than most people think. Of 219 401(k) plans studied by the research firm IOMA, 25 had more than 60% of their assets "wrapped up" in company stock. In fact, Enron's plan holdings - where 57% were invested in its own stock - might be considered well-diversified compared with those at big firms such as Procter & Gamble Co. (PG), Sherwin-Williams Co. (SHW) and Abbott Laboratories (ABT), where company stock makes up more than 90% of each plan's assets, according to the IOMA survey. 
One area where legislation might help is in encouraging companies to offer investment advice to their employees. Currently, most 401(k) plan participants go it alone when investing because plan sponsors are fearful of liability for advice that leads to losses. 
The Enron case was a disaster, but it could have a silver lining, said Samuels. "It will be very good for people to pay attention to their retirement, and to realize that diversification is not just a word financial professionals throw around." 
-By Kaja Whitehouse, Dow Jones Newswires; 201-938-2243; kaja.whitehouse@dowjones.com

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

Editorial
Enron: No Taxes . . .
Richard Cohen

01/22/2002
The Washington Post
FINAL
A15
Copyright 2002, The Washington Post Co. All Rights Reserved

I recently had dinner with a very rich man -- a multimillionaire for sure, maybe a billionaire. He described one of his recent deals, how he had taken a small company, added all sorts of doodads to it, done this and done that (pardon the technical terminology) -- and sold it for an astounding amount of money. He then confided his business philosophy: Pay no taxes. 
As it happens, that's precisely my own business philosophy. Only I have been unable to implement it. All the years I've been in business, which is to say working for a living, I have paid federal, state and local taxes -- and I resent, loathe and even hate anyone who manages not to.
I am talking Enron here. It paid no federal corporate income taxes in four of the past five years. It managed that while reporting profits that turned its stock from a stodgy performer to a Wall Street high-flyer, enabling its executives and board members to sell more than $1 billion in stock in that period. Most of that time, Enron paid nothing to Uncle Sam. 
How did it manage to do this? Let me count the ways. Enron set up almost 900 subsidiaries in tax havens. I am referring to the Cayman Islands, the Turks and Caicos, Mauritius and Bermuda, places with nice beaches and banks that ask no questions. Using those secret partnerships we now know about, the company buried its profits under the palm trees, like the pirates of old. 
At the same time, Enron was able to deduct the cost of stock options. So the many millions that Enron's executives and board members received in options were deducted for tax purposes. In the year 2000, for instance, a tax bill of $112 million turned into a refund of $278 million. 
Enron billed itself as the quintessential American company. It adapted to the new era and the New Economy. It traded in a virtual intangible, energy -- by taking electricity from there and selling it here. But it was quintessentially American in another way: It talked rugged individualism, but when things got tough, the tough didn't get going. They put out their hand. 
The taxes that Enron did not pay -- that's your money. (You had to make up for it.) The $254 million in the Republican-sponsored stimulus plan -- that would have been your money, too, had it become law. It was awfully good of you, Mr. and Mrs. America, to subsidize the stock options that Enron's biggies got for their hard work or, in the case of its board, for merely showing up and asking no questions. 
What we have here is an updated form of feudalism. Enron supported many charities and cultural institutions -- but only the ones it chose. It put its name on a stadium -- but, again, only the one it chose. It basked in the gratitude it received for such largess -- All hail Enron -- and it felt it owed nothing to the community at large. This is what taxes are about. You even support institutions that don't have your name on them -- the welfare department, for instance. 
I am about to get letters of reprimand. Enron did nothing illegal. I know that. Avoiding taxes was smart -- and, while not commonplace, not unknown, either. I know that, too. Some other Fortune 500 companies also paid no federal taxes. 
In fact, I sense that everything Enron did was legal and that an entire company can collapse, some people getting very rich and others losing everything they had, and no one will ever go to jail. Enron failed because "the economics didn't work." So said Joseph Berardino, the chief executive of Arthur Andersen, the accounting firm that ought to make the three monkeys its corporate symbol. 
But legal is not the same as right. It is simply not right that Enron paid no taxes while, just to pick an example, its now-broke former employees did. It's not right that an American company -- and oh, how American Enron was -- should act like a drug dealer, laundering its money so that a profit somehow becomes a loss. This is clever accounting, I grant you. It is, however, obscene. 
For so much of what Enron and Arthur Andersen did, the phrase it is not right seems apt. And the more you hear the likes of Berardino explain how everything done was legal and up to the highest ethical standards, the more you understand that this is not a scandal about a single company, but a reflection of a society in which the rules you think apply to everyone actually don't. Most people pay taxes, but some don't -- and the ones who pay subsidize the ones who don't. 
I suppose you can call that a business philosophy. I call it a rip-off.

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

EDITORIAL
GEORGE W. CLINTON? IT SOUNDS CRAZY, BUT BUSH'S ENRON DEFENSE IS `BILL DID IT, TOO'
E.J. DIONNE JR.

01/22/2002
Pittsburgh Post-Gazette
SOONER
A-13
(Copyright 2002)

White House spokesman Ari Fleischer also discouraged "comparisons to the way business used to be done in the White House." He said, "We do our business a little differently." 
-- Washington Times, Jan. 13, 2002
Fleischer said the administration's actions had nothing to do with Enron's political contributions. He noted that the Clinton administration had acted in a similar manner in Dabhol. 
-- Washington Post, Jan. 19, 2002 
You've got to feel for Ari Fleischer. The administration's strategy for containing the political impact of the Enron collapse requires him to contradict himself on a regular basis. 
In general, Fleischer is supposed to say that the Bush administration is clearly more moral, decent and ethical than the Clinton administration, As a result, the rules of investigation and disclosure that Republicans applied to the previous administration don't apply to this one. The days of investigation are over. 
But if it's disclosed that the Bush administration did a favor for Enron, the defense is that the Bush administration did just what the Clinton administration did and therefore should be held blameless. In the second example above, Fleischer is defending assistance the White House gave Enron in a dispute with the Indian government over the Dabhol power plant. 
The Bush administration, you see, should be given a pass because it's so different from the Clinton administration, except on days when it should be given a pass because it's so similar to the Clinton administration. 
Remember the scorn Republicans used to pour onto what they disdainfully called the "everybody does it" defense during the various Clinton scandals? The party's leading moral philosopher, William Bennett, put it forcefully. "The worst argument that's out there," he told Tim Russert in 1998, "the one that bothers me the most in the public is `They all do it.' " Bennett argued that "cynicism about politics actually has made people lower the standard for politicians and presidents." 
But with Enron, the "everybody does it" defense lives again. Wasn't Enron one of President Bush's leading contributors? Didn't Enron give close to three-quarters of its campaign contributions to Republicans? Forget about it. "Clearly Enron is a corporation that has given hundreds of thousands of dollars to both parties," the indefatigable Fleischer told The Washington Times. 
"They are all living in a glass house," Mary Matalin, Vice President Dick Cheney's counselor, told The New York Times. "How far are they going to go with guilt by contribution?" 
Contrast this view with the tough ethical stance taken by Sen. Susan Collins, a Maine Republican, during the 1997 Senate hearings on campaign finance abuses in the previous election, the one in which Clinton was re-elected. "My Democratic colleagues must show a willingness to go where the evidence leads and to not restrict the committee's ability to gather information," she said. "They must also resist the temptation to make dissimilar conduct look similar in an effort to dismiss serious legal and ethical breaches with the time- worn excuse that `everybody does it.' The White House, and others under scrutiny, must be much more forthcoming." 
At the same hearings, Sen. Don Nickles, an Oklahoma Republican, noted that some of his colleagues "have said or kind of implied, `Well, both parties have kind of pushed the envelope.' Maybe that's true, but I think in this case, this administration in many, many cases, and some individuals, leading to the highest individuals in the White House, have moved beyond pushing the envelope." 
And here is where the Bush-isn't-Clinton defense kicks back in: There's no evidence that what Bush did is in any way comparable to Clinton's abuses. 
Therefore, congressional demands for more information, such as the release of the records from Cheney's energy task force, can be dismissed by Fleischer as part of a "fishing expedition." But what about Collins' sensible argument that the party in power must be willing to go where the evidence leads? Does that view apply only when Democrats are in the White House? 
Let us assume that Democrats as well as Republicans will have to answer for any special favors they did for Enron. Let us further assume that the president's defenders are absolutely right and that no abuses of power will be discovered in the Bush administration. 
In that case, the administration should have no problem following the Collins Principles of full disclosure and cooperation. In the meantime, the White House should give poor Ari Fleischer a break and allow him to come up with a less contradictory set of talking points.

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

INSIGHT
Corruption festered in the dark
RONALD BROWNSTEIN

01/22/2002
Kitchener-Waterloo Record
Final
A7
Copyright (c) 2002 Kitchener-Waterloo Record.

As reporters systematically uncover the links between Enron Corp., its accountants and virtually every politician with a pulse, the multiplying connections can obscure as much as they reveal. 
In many quarters, the story is being portrayed as a simple morality tale of how money corrupts politics. Yet the lesson of Enron's experience in Washington is more complex. Money always matters, but it matters most when the media and public are not watching the decisions money is meant to manipulate. If there's a wake-up call here for politicians, there's also a ringing alarm for reporters and voters to pay more attention to what their government does. Because, more often than not, such public scrutiny is the only offset to the power of special-interest cash.
Campaign-reform advocates often act as if the way to understand everything that happens in Washington is to just follow the money. But money is only one of several ingredients that produce decisions in Washington. 
Ideology and even principle matter at least as much. So do electoral calculations. Big donors win more than their fair share of political disputes. But when a problem provokes an unambiguous public demand for action, even the most powerful contributors and supporters can get rolled. 
If contributions were always the decisive weapon in political arguments, there would be no Occupational Safety and Health Administration, no Food and Drug Administration, no Clean Air Act, no Medicare (which the medical industry adamantly resisted), no ban on assault weapons and no fair lending laws. Each time, well-heeled interest groups resisting changes were abandoned by politicians who feared disappointing an engaged public. 
The same thing happened to Enron last summer. For months, opposition from Enron helped block price controls on the wholesale electricity sales that had become an important profit centre for the company. But when soaring power prices in the West generated enough outrage to prompt Congress to begin seriously discussing controls, the Federal Energy Regulatory Commission reversed itself, swallowed its deregulatory instincts and approved the caps. 
It's when the media and public aren't watching that money really talks. The Enron scandal illuminates this basic truth of Washington life: the more obscure the issue, the greater the leverage of special interests. Put another way, there's an inverse relationship between the amount of public and media attention a Washington decision attracts and the ability of special interests to shape the result. 
The Enron story underscores this. Today, many in Washington consider the Andersen accounting firm's dual role as auditor and management consultant for Enron a conflict of interest. But that didn't seem so obvious when the Securities and Exchange Commission tried to ban such double-dipping toward the end of the Clinton administration. The accounting industry mobilized a huge campaign against a proposal by then-SEC chairman Arthur Levitt to bar accounting firms from auditing and consulting for the same clients. Last week, USA Today revealed that at least 50 members of Congress wrote the SEC in 2000 opposing the rule. 
Their fervour may have been at least somewhat stoked by the $53.4 million US that, according to the Center for Responsive Politics, the accounting industry has contributed to candidates for federal office since 1990. 
The fight over the SEC proposal proved no contest. Most pressure came from the accounting industry and its allies; with the media paying little notice, there wasn't enough public engagement to offset the industry muscle. Levitt was forced to back down and Andersen was free to wear two hats at Enron. 
Scandals change the balance of power on obscure but critical decisions by widening the circle of interest. For politicians, siding with the demands of a special pleader suddenly carries not only benefits (campaign contributions) but costs. To stand with Enron now is to stand against workers and retirees who were financially crippled by the company's collapse. That makes the money less persuasive. 
Scandals can make practices long tolerated suddenly unacceptable. But the better answer is greater public scrutiny of legislative and regulatory favours for special interests. Lots of people and institutions failed in the Enron mess. A distracted media and public were among them.

Photo: Associated Press / Enron employee Meredith Stewart sits on a box of personal items outside Enron last month in Houston, Tex. Employees watched their pension accounts, loaded with Enron stock that matched their contributions, dwindle as shares tumbled from $80 US to less than a dollar.; Photo 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Editorial
Putting the `public' back in CPA

01/22/2002
Chicago Tribune
North Sports Final ; N
16
(Copyright 2002 by the Chicago Tribune)

Imagine this scenario: Arthur Andersen refuses to sign off on Enron's off-the-books partnerships. The partnerships make Enron look a lot richer than it really is, but they represent a huge liability that could sink the company. They may comply with the letter of the law, Andersen bluntly tells the client, but not the spirit. 
What would have happened next? Andersen might have lost a client, but would have kept its professional reputation. Enron might have found a more compliant auditor. Or it might have had to disclose the partnerships and restate earnings. Given those more realistic numbers, investors likely would have pummeled the stock.
We'll never know, but it's unlikely these two names would be linked in scandal the way they are today. The reality, of course, is Andersen did sign off. Now it's fighting for its professional life and Enron is in bankruptcy court. 
At the heart of the implosion of the nation's 7th largest corporation lie aggressive accounting practices. That's the kind of accounting you get when two plus two adds up to four--or whatever total you, the client, would like. Accounting isn't just math; it also means making judgment calls about what the rules allow. 
Aggressive accounting isn't illegal, but it should be when it tells investors that red is black. At the very least, investors ought to be made aware of the risks such accounting poses. This goes far beyond Enron and Arthur Andersen. They are not the only companies that pushed the accounting envelope in the sizzling 1990s--Sunbeam, Cendant, Waste Management and Rite Aid come to mind. The cover story of the Jan. 21 Business Week calls into question Cisco Systems' own use of aggressive accounting. 
But this funhouse math has taken a staggering toll on the credibility of the accounting profession. Investor-based capitalism fuels the U.S. economy. If investors can't believe the "official" numbers, the whole system is undermined. 
In the wake of the 1929 stock market crash, the federal government began requiring accounting firms to audit the books of companies that sell shares to the public. They are supposed to serve the public interest--that's the "P" in Certified Public Accountant. 
They are also supposed to be independent. But because they are paid by their clients, potential conflicts of interest have always existed. Those worsened over the last decade as accounting firms came to rely increasingly on consulting fees from the same companies that they audited. 
The past decade was also characterized by a Wall Street boom. Rising stock prices were supported by ever-rising quarterly earnings justified by ever-brighter prospects ahead. Once the market bubble burst and the economy slowed, the only way for some companies to get those results was to aggressively exploit the rules. To keep their clients happy--and those fees coming in--accounting firms were eager to help. 
Led by the Big 5 firms--Arthur Andersen, KPMG, Deloitte & Touche, PricewaterhouseCoopers and Ernst & Young--the profession for years has argued it can police itself. It has now proved that it can't. Stricter oversight is necessary. It's time to put the "public" interest back into accounting. There must be real consequences for firms that fail in that duty. 
Former Securities and Exchange Commission Chairman Arthur Levitt saw the conflict of interest problem looming ever larger and sought to sharply restrict the amount of consulting business accounting firms could perform for their audit clients. He lost. But he succeeded in forcing disclosure of how much companies were paying in fees for consulting and auditing services. That helps identify the scope of the problem. 
SEC Chairman Harvey Pitt proposed that accounting firms be policed by a private oversight board that would operate under the auspices of the SEC. That's a good idea, but to make it effective Pitt should push for tighter financial reporting and more disclosure to investors. The SEC can reduce the ambiguities. 
Potential risks should be clearly spelled out. If a company's fortunes rely on application of critical accounting principles, investors should know that. They should also be told what the financial impact would be if those principles were applied differently. All that would help. But if a company is hell-bent on skirting the rules, there is little the regulators can do. That's where the regulators bow out and the prosecutors step in. 
The Justice Department has launched a criminal inquiry into the failure of Enron. Several congressional panels will be probing. The number of civil lawsuits grows by the day. One suspects that the prospect of prison and hefty civil judgments will be far more sobering for the accounting industry than the threat of more rule- making from the SEC.

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

VIEWPOINTS
Bush Better See Enron Case as a Threat
James P. Pinkerton. James P. Pinkerton's e-mail address is pinkerto@ix.netcom.com.

01/22/2002
Newsday
ALL EDITIONS
A27
(Copyright Newsday Inc., 2002)

IS ENRON a big story? The media sure think so. The Washington Post, for example, has run 119 stories using the word "Enron" just in the last two weeks. 
But will the collapse of a company in Houston damage the man in the White House? The president doesn't seem worried, and his arrogant and careless attitude toward disclosure and appointments proves it.
The Post, which turned Watergate from a third-rate burglary into a first-rate impeachment, should not be underestimated. And the rest of the press corps wants its pound of George W. Bush, too. So maybe the president should reassess. 
Let's consider disclosure first. Reporters naturally want the White House to hand over any document with an "e" in it, but press secretary Ari Fleischer demurs, citing constitutional doctrine. "There is a very important principle involved here," he said last week. 
But sometimes the principle must yield to the practical; as Ellen Ratner, a White House reporter who makes no secret of her liberal sympathies, argues, "The Clinton White House had to fork over all its records on Hillary's health care task force and Bill's China coffees, and so now it's Bush's turn to fully disclose." 
Indeed, the problem for the Bush people is that as long as they're holding anything back, their critics are free to assert the worst. And so here's a prediction - actually, two of them. The White House will eventually reveal everything and, when everything is revealed, it won't look so bad. After all, the key energy policy player, Vice President Dick Cheney, is famously careful. In the unlikely event he sold out to Enron behind the scenes, it's even more unlikely he left a paper trail proving same. 
And if uncovered documents simply add minor detail to what's already known - that Cheney, for example, lobbied India on Enron's behalf - then it would be up to Bush's war-roomers to barrage the country with reminders that the Clinton White House pressured not only India, but also Bosnia, Croatia and Mozambique at Enron's urging. 
Two wrongs might not make a right, but in politics they tend to cancel each other out. 
The second issue, more problematic for the incumbent White House, is appointments. Mark Racicot, the former governor of Montana, was Bush's pick to be chairman of the Republican National Committee - and a bad choice at that. Racicot became controversial immediately because he planned to continue his lucrative Washington lobbying practice, even as he led the GOP. 
After much criticism - notably from conservative columnist Robert Novak - Racicot announced that he would not lobby but would still collect a paycheck from his lobbying firm. 
Got that? Moreover, Racicot's firm, Houston-based Bracewell & Patterson, had represented Enron. A bad rap? Guilt by association? Maybe, but that's politics. Thus the headline in Friday's Chicago Tribune: "New GOP Leader Faces Enron Cloud." And as CNN's Candy Crowley reported from Austin, at Racicot's first news conference as Republican chairman, every question but one concerned Enron. 
On Fox News's "Beltway Boys" show over the weekend, both "boys" - Morton Kondracke and Fred Barnes - agreed that Racicot deserved a "down" pundit arrow. Barnes, who's about as pro-Bush as any pressie, was nonetheless blunt in his criticism of the choice for party chief: "This is such a bad idea. I don't know why George Bush, the president, insists on it. Anybody can be Republican national chairman." 
Barnes is right on both points. First, the White House controls the party; the 165-member Republican National Committee has about as much independent authority as the Supreme Soviet under Josef Stalin. And, second, since the big political decisions are made by the president's advisers, the GOP top job requires merely rote speechmaking and money-raising. Which is to say, Bush could have found a non-tainted non-lobbyist to take up those chores. 
So while the Republicans are well-positioned on most of the big issues - the war against terror has gone well, and the battle against Democratic tax-increase plans is going well - Bush & Co. could yet trip up over Enron-gate. 
And that would be a familiar tale: The commander in chief, having done many things right, wrongly concludes that he can do everything right. Hubris may be inevitable at the pinnacle of power, but presidents should strive to stave off its symptoms till the second term.

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

A Section
WHITE HOUSE NOTEBOOK Dana Milbank
Wrapping Up Tough Questions With Foil
Dana Milbank

01/22/2002
The Washington Post
FINAL
A13
Copyright 2002, The Washington Post Co. All Rights Reserved

The flowering of the Enron bankruptcy scandal has reintroduced a strange animal to the White House briefing room: the press corps foil. 
The use of foils, a technique popularized by Clinton press secretaries Mike McCurry and Joe Lockhart, involves the careful selection of questioners from among the many raised hands to steer the briefing in a direction the press secretary desires.
Want to change the subject to foreign affairs? Call on Raghubir Goyal of the India Globe (he'll ask about the perfidies of Pakistan), Jacobo Goldstein of CNN Radio Noticias (a Latin American question is likely) or Connie Lawn (a freelancer with particular interest in the Middle East). Had enough of foreign policy and wish to return to domestic matters? Choose Keith Koffler of Congress Daily (he follows the legislative process) or April Ryan of the American Urban Radio Network (she favors socioeconomic questions). 
Want to end the briefing by turning the whole thing into a circus? You might choose Russell Mokhiber of the Corporate Crime Reporter (he'll launch into a tirade about greed), or Baltimore radio personality Lester Kinsolving (he'll ask about how "the Reverend Mr. Jackson impregnated his mistress and used tax-exempt contributions to get her out of Chicago"). Within seconds, the wire service reporters in the front row will beg for an end to the briefing. 
The truly desperate press secretary might call on a certain journalist of unknown affiliation who sits in the back, wears a big hat and shouts unintelligible questions such as: "My name is Miguel Sandoval. I'm a representative of -- (inaudible) -- News Service. . . . I am a former public school teacher who began my career in the -- (inaudible) -- 1946 after returning to fulfill my duty to defeat the -- (inaudible) -- Tokyo during the Second World War." 
Last week, when press secretary Ari Fleischer was getting peppered with questions about Enron Corp. and its chief, Kenneth L. Lay, Fleischer turned to the Goyal Foil. "Goyal," Fleischer said as others shouted to get his attention. Fleischer said to the others: "We'll come back. We'll come -- we'll -- " 
The press corps resisted. "Ari?" one called out. "Let me follow that, Ari -- " 
"Hold on," the press secretary commanded. "Goyal, go ahead." 
Goyal did his usual. "If I may go back to India and Pakistan. . .," he began. 
On the day the White House first disclosed that administration officials had been approached by Enron about its financial troubles, most reporters had only one subject in mind. After a battery of tough Enron questions, Fleischer reached for Goyal as if for a life raft. "As far as the home minister of India's visit," Goyal began. When others tried to jump in, the press secretary asked Goyal if he had a follow-up question. Goyal did, about Pakistani fighter planes. 
Next, Fleischer turned to sometime-foil Goldstein -- but the Radio Noticias man wanted to know about Enron. Fleischer tried Congress Daily's Koffler in a transparent bid to switch the talk to Congress. Koffler indeed asked about Congress -- investigating Enron. Even Middle East expert Lawn asked about Enron. Finally, Fleischer was saved by an angry Greek journalist who wanted to know why he was not allowed to attend a meeting with the Greek prime minister. 
"The room can get, out of boredom, into a feeding frenzy," Lockhart notes. "The ability to change the subject is an important tool for the press secretary." Lockhart admits to using a foreign journalist as a foil. ("He always had some technical question about Crete.") But his favorite foil was familiar to all: "If you're in a jam, go to Goyal," he says. 
Will Fleischer acknowledge the use of foils? "No, I will not," he says. "I call on all corners of the room." McCurry and Lockhart resorted to foils "because of all the scandal coverage. That's not the way of this administration." Still, Fleischer adds: "I'm not above using a foil. I just haven't had opportunity to do it yet." 
THE ENRON AFFAIR has also revived one of the White House's most dedicated pen pals on Capitol Hill: Henry Waxman, the diminutive but pugnacious ranking Democrat on the House Government Reform Committee. The Californian has fired off 10 Enron letters in as many days, including two to Vice President Cheney, two to Enron chief Lay and one each to Bush Chief of Staff Andrew H. Card Jr., economic adviser Lawrence B. Lindsey and Treasury Secretary Paul H. O'Neill. 
The letters tend to follow the same no-win format of: "Did you stop beating your wife?" 
Printing all the letters available on Waxman's Web site produces an inch-thick pile of letters to the Bush administration: OMB, HHS, DOD, DOJ, FERC, EPA, CMS, Bush, Cheney, Karl Rove, Tom Ridge, the White House counsel, Cheney's counsel and the energy task force. 
Why is he so prolific? Because Waxman is in the minority party. "If you don't have the power to issue subpoenas or hold hearings and don't want to make reckless accusations, what you end up with is writing letters," said Waxman's chief of staff, Phil Schiliro. "That's one thing we can do." 
Not that it does much good. When Waxman's latest missive arrived at the White House last week, a senior Bush aide said, "We just set it aside."


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

News; Opinion
Enron's Fatal Arrogance
George Will George Will Is A Member of The Washington Post Writers Group.

01/22/2002
Australian Financial Review
46
Copyright of John Fairfax Group Pty Ltd

George Will argues that at the root of Enron's collapse was a belief by its directors that no-one was supervising them. 
Jeff Skilling, Enron's chief executive until last August, who less than two years ago said Enron's stock, then at $US80, should sell for $US126, also said traditional companies like ExxonMobil ``will topple over from their own weight''. Today, the unbearable lightness of being Enron (its stock price when trading was suspended on Tuesday was US67cents) proves that the famously innovative company pioneered a new way to topple.
Eleven months ago, Skilling impatiently told Bethany McLean of Fortune magazine: ``Our business is not a black box. It's very simple to model. People who raise questions are people who have not gone through it in detail.'' 
That was exactly wrong. Enron thrived partly on the sloth of Wall Street analysts, who were uninterested in details or were reluctant to admit there were things they did not understand such as Enron's deliberately opaque and possibly illegal relationship with various partnerships run by Enron officers. 
Problems revealed by Enron's collapse are rooted in recent changes in the US legal, financial and accounting professions. Sandy Williams, a Foley&Lardner attorney specialising in energy matters, believes the trouble began with an epidemic of aggressiveness in the 1980s, when all three professions began to think of themselves as ``can do'' people ``problem solvers'' who ``think outside the box''. 
But sometimes the box is there for a reason, such as protecting human beings from human nature. Sometimes clients need ``can't-do-that'' advisers who protect clients from themselves. 
The increased use of stock options as compensation was, Williams says, supposed to have the salutary effect of getting executives to inhabit the same economic universe as shareholders. But the result was a hyper-aggressive management cadre continually trying to impress analysts with ambitious targets for the growth in stock values. When the targets were met, the analysts raised the bar, and sometimes the ever-higher expectations could not be met without financial and accounting practices that were the equivalent of steroids. 
Executives pursuing bonuses were fixated on quarterly estimates, as were the analysts who represented brokerages that were chasing investment bank business. Analysts give advice away. They are attention-grabbers. So analysts sometimes are instruments for pumping up the value of a stock, thereby attracting the sort of huge fees that Enron distributed to Wall Street for financial services. 
Enron's implosion should not, but nevertheless may, have several consequences, one of them constitutional. 
Enron's assiduous, not to say promiscuous, cultivation of political parties with contributions bought no Washington help in Enron's crisis. Indeed, Washington probably was particularly unhelpful because it was wary of perceptions arising from Enron's largesse. Nevertheless, this event will be used to justify more government regulation of political giving and spending. 
Congressional opponents of partial privatisation of Social Security will recklessly use the mismanagement of one company to foment fear of equities markets. The mess California made of energy deregulation last year would have been about as costly even if Enron had never existed. However, Governor Gray Davis's re-election campaign this year will be made easier by blaming Enron. 
Washington's benign neglect of Enron's pleas for help with its credit rating indicates that something has been learned since 1979. Then, a New York financial consultant was asked his opinion of the Carter Administration's plan for a bail-out of Chrysler Corp. The consultant said that the danger was not that the bail-out would fail but that it would succeed. Then government policy would be to rescue all ``TBTF'' private-sector entities those supposedly ``too big to fail''. The consultant was Alan Greenspan. 
A TBTF policy breeds moral hazard incentives for bad behaviour. Entities that assume there are government safety nets beneath them will take more risks than prudence would otherwise permit. 
Lenders who recently exposed themselves to large losses in Argentina remembered the 1995 rescue of reckless lenders to Mexico. It is axiomatic: minimising the consequences of folly maximises the amount of folly. 
However, the primary cause of Enron's collapse was not risky behaviour arising from people's belief in a net under them. Rather, the cause was the growing arrogance of executives who became confident that no-one was looking over their shoulders, watching and understanding what they were doing.

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

Editorial
Get Tough On Corporate Crime
James Freeman

01/22/2002
The Washington Post
FINAL
A15
Copyright 2002, The Washington Post Co. All Rights Reserved

As the Enron debacle looks more and more like a criminal case and less like a regulatory failure, congressional investigators should consider a new avenue of inquiry. Instead of examining possible flaws in federal oversight, they might consider stronger penalties for white-collar crime. 
Ultimately juries will decide whether Enron executives and officials at the firm's auditor, Arthur Andersen, are guilty of crimes. The question for Congress is how to dissuade other executives from cooking the books in the future.
Right now the legal incentives to tell the truth are not that great. Look at some sentences handed out by federal courts in the Southern District of Texas, which includes Houston, home to Enron and its top executives. In its latest annual report, the U.S. Sentencing Commission describes 162 defendants convicted of fraud in that district during fiscal 2000. But only 115 of those convicts actually received prison time. Twenty-three received probation, and the rest some combination of fines, probation and confinement outside of prison. (Such confinement can include home confinement. No one enjoys being grounded, of course, but such punishment is unlikely to frighten people into ethical behavior.) 
Of the convicts who were sentenced to prison, 53 received 12 months or less, and the average sentence was just 18.2 months. Factoring in the possibility of early release for good behavior, the likelihood that such convicts are confined in a minimum security prison, and the possibility of spending the final months of a sentence in a halfway house, we might ask whether the disincentives to commit white-collar crime are strong enough. 
As you might expect, according to federal sentencing guidelines, frauds that affect lots of people and cause millions of dollars in losses should result in longer sentences than those imposed for small-time scams. So you might say that an Enron-size case, if prosecuted successfully, will result in a much greater punishment than the average sentence in south Texas. But keep in mind that the average defendant can't afford a legion of lawyers to aggressively negotiate a deal (preferably one that includes a big fine but no jail time). And the recent history of financial shenanigans, from Sunbeam to Waste Management, suggests that executives can make most of these problems go away by writing a check. 
Recently a former chief financial officer at Aurora Foods, after pleading guilty to securities fraud and several related crimes, did actually receive a prison sentence of 57 months. But considering that the fraud involved underreporting corporate expenses by $43 million, is that a harsh punishment? After all, 57 months is roughly the average prison sentence for federal defendants convicted of auto theft. 
In a series of studies in recent years, the Texas-based National Center for Policy Analysis (NCPA) has shown that a move toward longer prison sentences (made possible by a prison-building boom in Texas) tracks very closely with a sharp decline in Texas crime during the 1990s. In a December 2000 report, NCPA notes that the Texas murder rate fell by 57 percent in the 1990s, rape by 26 percent, and the rate of burglary by 48 percent. In each category, crime rates declined faster in Texas than in the nation as a whole. 
"Why did the rate of serious crime decrease so fast in Texas?" the report asks. "Certainly a strong case can be made that tougher policies toward criminals played an important part. More people went to prison and stayed there longer. . . . Texas had 704 prisoners per 100,000 population in 1999, compared to 290 per 100,000 in 1990, a 143 percent increase in imprisonment." 
The Texas experience in the 1990s mirrors a national trend that began in the early 1980s. As sentences became longer, as more aggressive law enforcement increased the likelihood of punishment, crime rates began a long downward trend that continues to this day. According to the government's Bureau of Justice Statistics, violent crime rates fell to the "lowest level ever recorded in 2000." The evidence suggests that harsh punishment does deter crime. For those seeking to eradicate corporate crime, it's worth considering whether we should make fraud convictions more costly and painful. 
The writer is president of Hudson Media Corp., a television production company in Alexandria.


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

Editorial/Opinion
...Poisonous Enron

01/22/2002
The News & Observer Raleigh, NC
Final
A8
(Copyright 2002)

One can't help wonder how the ancient Greeks, with their direct democracy, would view the ways in which our representative system has reacted to the Enron problem. Perhaps they would suggest hemlock to the perpetrators. 
We owe so much to those ancient people: our conceptions of beauty, honor, government and civic responsibility; even the names of our two major political parties -- the Democrats and the Hypocrites.
Robert M. Fearn 
Raleigh

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

What a fall!
Our Editorial

01/22/2002
Business Standard
7
Copyright (c) Business Standard

The Enron collapse, by far the biggest bankruptcy in corporate history, will have far-reaching repercussions. Enron was an icon, as was its charismatic chairman, Kenneth Lay. Long held to be the epitome of the New Economy and a paragon of corporate governance, the coming to grief of the high-flying chairman and his company has raised fundamental questions about the relationships that exist between Corporate America and the US government. A revolving door existed between employees of Enron, their auditing and consulting firm Arthur Andersen, and their law firm. That door also opened to several government offices. An Enron consultant became a White House economic adviser while an Enron vice-president became secretary of the army. Harvey Pitt, an attorney for Arthur Andersen and defender of the controversial practice of an accounting firm being allowed to do consulting services, was appointed by President Bush as head of the Securities and Exchange Commission (SEC). Enron helped US Vice President Dick Cheney devise an energy plan that would benefit the company immensely. 
With such close relationships between the failed corporation and the government, it's small wonder that the charge of crony capitalism has been made, and that the US administration tried to intervene on behalf of Dabhol. But it's not only the relationship between government and big business that is under scrutiny. The independence of auditors is being questioned, and it now appears that Arthur Andersen knew of the state of affairs at Enron well before it collapsed. Arthur Andersen apparently earned more in consulting fees from the failed energy major than from its auditing work, creating a clear conflict of interest. Also under the microscope is the relationship between investment bankers and companies, with some Wall Street firms recommending a buy on Enron well after their shares had collapsed. The Wall Street Journal has pointed out how some of the world's leading banks and brokerage firms provided Enron with crucial help in creating the opaque financial structure that led to the energy trader's impressive rise but ultimately led to its spectacular downfall.
The trouble is that such incestuous relationships aren't confined to Enron. Lobbying government on behalf of business, for instance, is a well-recognised practice in Washington. Yet when former SEC chairman Arthur Levitt wanted accounting firms to choose between their auditing and consulting practices, the proposal was defeated by senators and Congressmen, who had received money from the accounting industry. With a few honourable exceptions, the "independent" directors on most corporate boards are a sham typically handpicked by the CEO and loyal to him. And why pick on Arthur Andersen? Ernst & Young and PriceWaterhouseCoopers have both had their share of similar controversy. Among research analysts, consider Mary Meeker at Morgan Stanley Dean Witter, dubbed the "Queen of the Net" for pumping up Internet firms while Morgan Stanley was taking in millions in fees on Internet IPOs. And why were the rating agencies so slow in downgrading the firm? 
These questions have no easy answers, and it would be naive to believe that these conflicts of interest are accidental. But the US will no longer be able to preach about crony capitalism or corporate governance to others. And while there's little doubt that we have no dearth of cronyism in India, for the moment, at least, it is those who supported Enron's Dabhol misadventure who are squirming.

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



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


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