Questioning the Books: Enron Official Failed to Warn Participants Of 401(k) Plan
The Wall Street Journal, 02/06/2002

ENRON EXECUTIVES SAY THEY DEBATED FREEZE ON PENSION
The New York Times, 02/06/2002

Rich Employee, Poor Employee; Senate Panel Looking at Pensions Shown Both Sides of the Enron Coin
The Washington Post, 02/06/2002

Execs say they tried to protect workers' money 
Houston Chronicle, 02/06/2002

Enron CEO Felt 'Betrayed,' Panel Told; Head of Internal Probe Testifies on the Hill
The Washington Post, 02/06/2002

Enron Officials Sought Lawyer's Dismissal Over Negotiations With Outside Partnership
The Wall Street Journal, 02/06/2002

The Financial Wizard Tied to Enron's Fall
The New York Times, 02/06/2002
Enron CEO Felt 'Betrayed,' Panel Told; Head of Internal Probe Testifies on the Hill
The Washington Post, 02/06/2002

$270 Million Man Stays in the Background
The Washington Post, 02/06/2002

Enron Execs Sold Stock as Losses Grew Probe: The $44-million sell-off came amid concern that problems at partnerships could become public. The action raises questions of possible insider trading.
Los Angeles Times, 02/06/2002

2 Officials Are Expected To Leave the Company
The New York Times, 02/06/2002

Investigators Buying Time For Inquiry
The New York Times, 02/06/2002

Enron Team Says Lay Took Some Blame Hearings: Former chief admits lapse in oversight, according to internal investigator questioned by lawmakers.
Los Angeles Times, 02/06/2002

Astros want out of naming-rights deal 
Houston Chronicle, 02/06/2002

For Houston Astros, a Sponsorship Turns Sour
The Washington Post, 02/06/2002

Astros Cry Foul and Try for an Enron Pickoff Play
The New York Times, 02/06/2002

Questioning the Books: Enron's Fall Spurs Desire to Revisit Laws
The Wall Street Journal, 02/06/2002

Former chairman of Enron to face lawmakers next week 
Houston Chronicle, 02/06/2002

Creditors' committee can quiz auditor - COURT RULING.
Financial Times, 02/06/2002

Andersen chief urges change in accounting rules.
Financial Times, 02/06/2002

Populist Pitch -- Without the Punch; Both Parties Claim Title, but Neither Makes Full-Scale Attack on Moneyed Interests
The Washington Post, 02/06/2002

Enron Is Grist for Business School Courses
The New York Times, 02/06/2002

Lerach's Enron Gambit
The Wall Street Journal, 02/06/2002

Questioning the Books: Panel, in Enron's Wake, to Review Lawsuit Curbs
The Wall Street Journal, 02/06/2002

Enron equity fears fuel 'flight from risk'.
Financial Times, 02/06/2002

Barbie Loves Math
The New York Times, 02/06/2002


____________________________________________________________________________



Questioning the Books: Enron Official Failed to Warn Participants Of 401(k) Plan
By Kathy Chen and Theo Francis
Staff Reporters of The Wall Street Journal

02/06/2002
The Wall Street Journal
C1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- A top Enron Corp. human-resources executive who also served as a trustee of the company's 401(k) plan said she became aware of serious allegations about the company's financial practices in August, but did nothing to protect retirement-plan members. 
Speaking at a Senate government affairs committee hearing, Cindy Olson said Enron Vice President Sherron Watkins approached her for advice before sending her now well-publicized e-mail to former Enron Chairman Kenneth Lay in August voicing concerns about the company's accounting practices. Ms. Olson said Ms. Watkins also sought out Jeffrey McMahon, currently Enron's chief operating officer, who was then its treasurer, for guidance at the time.
Enron's retirement plans, decimated by the collapse of the Houston energy concern, will come under further scrutiny in Congress this week. Today, Labor Secretary Elaine Chao testifies before the House Education and Workforce Committee about whether retirement-plan rules should change in the wake of Enron's collapse; tomorrow the Senate Committee on Health, Education, Labor and Pensions will hear from former Enron workers. 
In yesterday's hearing, Ms. Olson said she didn't share Ms. Watkins's allegations with the other 401(k) plan trustees because she didn't feel it was her responsibility to repeat "hearsay." In addition, she said, Ms. Watkins had come to her in confidence. After Ms. Watkins took her concerns to Mr. Lay and he ordered an investigation, "I felt it was all in good hands," Ms. Olson said. 
Eli Gottesdiener, a Washington-based lawyer representing Enron workers, countered those arguments. "She had information that affected the lives of 10,000 people and did nothing," he said, adding, "It's so clear that she breached her duty." He said Ms. Olson should have convened an emergency meeting of the trustees to inform them of Ms. Watkins's allegations so that they could launch their own investigation. The trustees immediately could have stopped offering Enron stock as an investment option, and stopped using Enron stock as a matching contribution in the retirement plan. 
Ms. Olson testified that the plan trustees felt that they didn't have the ability to change the plan design without approval from the board of directors. 
Ms. Olson herself sold much of her own Enron holdings, most before she knew of Ms. Watkins's concerns, but some afterward. Responding to sharp questioning from lawmakers, including Sen. Joseph Lieberman, a Connecticut Democrat who heads the Senate's Government Affairs Committee, Ms. Olson acknowledged she sold 83,000 Enron shares for $6.5 million, the bulk from December 2000 to March 2001. She said she decided to sell the shares after having a falling out with former Enron President Jeffrey Skilling over their different management styles. Thinking about leaving the company, she said, she went to a financial adviser who advised her to diversify her portfolio; at his suggestion, she said, she put the proceeds from selling her Enron shares into government bonds. 
A few days before Enron filed for bankruptcy-court protection on Dec. 2, Ms. Olson said she sold an additional 3,000 Enron shares that were in her employee stock ownership plan, for $2 each. She said she didn't have knowledge of the bankruptcy, but suspected the possibility. 
During the hearing, Mr. Lieberman said he would issue subpoenas to gather more information about the alleged payment of $105 million in bonuses to management around the time Enron filed for Chapter 11, and the company's alleged failure to pay workers severance pay, beyond a one-time $4,500 payment. 
As Enron shares plunged last fall, the company also considered postponing a planned "blackout" during which time employees wouldn't be able to change their investments or sell Enron stock, said Ms. Olson and Enron benefits manager Mikie Rath. Ms. Olson said she finally decided against a delay after consulting with other Enron executives and an outside lawyer several days before the scheduled blackout that began on Oct. 26 last year and lasted for about 10 trading days. She said the lawyer had advised Enron to go ahead with the blackout, on the grounds that it wouldn't be able to notify in time all employees -- specifically about 11,000 retirees and other workers based outside of the Houston headquarters -- about a potential postponement. 
Executives from Northern Trust Retirement Consulting LLC and Hewitt Associates LLC, the companies that managed Enron's 401(k) plans, confirmed that they were contacted about the possibility of delaying the blackout period. 
Ms. Olson said Enron hired counsel in early November to seek legal advice on whether it "made sense" to advise employees on selling their Enron stockholdings. 
This week's hearings are intended to generate more information for lawmakers who will decide whether retirement plans ought to be more carefully regulated. House Energy and Commerce Chairman W.J. "Billy" Tauzin (R., La.) says a top priority this year will be legislation aimed at protecting workers such as those at Enron. "Clearly, we need pension reform," Mr. Tauzin, the leading congressional investigator into Enron, said in an interview. 
However, retirement-plan experts say any significant change will be an uphill battle, as employer groups, Republicans, and the Bush administration oppose an overhaul -- in particular, any limits on company stock in retirement plans. 
Somewhat less controversial are proposals, by Democrats and more recently by President Bush and Rob Portman (R., Ohio) and Ben Cardin (D., Md.), that would provide employees greater ability to diversify out of stock contributed by their employer. Many employers now lock workers into such shares until age 50 or later. 
On this issue, there may be more opportunity for compromise, since so far, all proposals still leave employers with the freedom to lock employees into company stock for long periods. Mr. Bush's proposal has the weakest diversification provisions, as it exempts many defined contribution savings plans from proposed diversification rules, particularly ESOPs, which hundreds of large employers use. Consequently, employers could continue to lock workers into company stock in many plans until age 55 and later. 
--- 
Greg Hitt contributed to this article.

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

Business/Financial Desk; Section A
ENRON'S MANY STRANDS: THE OVERVIEW
ENRON EXECUTIVES SAY THEY DEBATED FREEZE ON PENSION
By STEVEN GREENHOUSE and STEPHEN LABATON

02/06/2002
The New York Times
Page 1, Column 1
c. 2002 New York Times Company

WASHINGTON, Feb. 5 -- Enron executives acknowledged today that before they temporarily prevented employees from selling company stock in their retirement accounts last fall, the executives had sharply debated delaying the moratorium because employees could suffer heavy losses from a plunging stock price. 
''We were concerned in the benefits department about the deterioration of the stock price,'' Mikie Rath, a benefits manager at Enron, said in testimony before the Senate Governmental Affairs Committee. But after the debate on the eve of the moratorium, they imposed the so-called blackout period to give themselves time to replace the administrators of the retirement plan.
Enron executives said they decided it would be too hard to notify the participants in the company's 401(k) plan immediately. They also said they feared they would open themselves to lawsuits by plan participants who were notified about the delay later than others for reasons like mail delays. 
The disclosures on the pension plan came as other Congressional committees took up Enron matters. 
House and Senate lawmakers issued subpoenas to compel the testimony of Enron's former chief executive, Kenneth L. Lay, while Congressional and state officials broadened their investigations into why state pension funds and state agencies invested and did business with Enron as it spiraled downward last year. 
The Senate Commerce Committee voted unanimously to issue the subpoena to require Mr. Lay's appearance next Tuesday. A similar subpoena was issued by Representative Michael G. Oxley, the Ohio Republican who is chairman of the House Financial Services Committee. 
A spokeswoman for Mr. Lay, who had been scheduled to testify on Monday but bowed out, said his lawyers would work out details for his appearance, although lawmakers said they expected that he would invoke his Fifth Amendment right against self-incrimination. 
While Mr. Lay may not answer any questions, members of a House subcommittee on oversight and investigation focused on him today, trying to glean, by proxy, what he might say. 
Under questioning, William C. Powers, chairman of the special investigative committee of Enron's board that wrote a harshly critical report, said that in his four-hour interview with Mr. Lay, the former chairman understood that off-the-books partnerships were set up to hide losses. ''But,'' Mr. Powers said, ''he didn't understand or appreciate that there was anything wrong with that. That's his story. The accountants signed off, and he was O.K. with that.'' 
President Bush brushed aside a demand by Senator Ernest F. Hollings, the South Carolina Democrat who heads the Commerce Committee, that a special counsel should be appointed to supervise the criminal investigation of Enron. Mr. Hollings cited Enron's ties to administration officials, including the attorney general. 
Mr. Bush told reporters as he toured a research laboratory in Pittsburgh: ''This is a business problem, and my Justice Department is going to investigate. If there's wrongdoing, we'll hold them accountable for mistreatment of employees and shareholders.'' 
Lawyers representing the employees have accused Enron of stock fraud for imposing the moratorium and for not disclosing the company's financial condition, resulting, the lawyers say, in losses of more than $1.2 billion for the 15,000 participants in Enron's retirement plan. During the moratorium, employees could not sell stock in the retirement plan, but senior executives faced no restrictions in selling their stock. 
The testimony prompted a new round of criticism of Enron's senior officials for looking out for their own interests while turning their backs on their employees. 
''Management knew full well that their employees' 401(k)'s were overloaded with shares of Enron,'' said Senator Joseph I. Lieberman, the Connecticut Democrat who is chairman of the governmental affairs committee. ''Shouldn't that have prompted them to postpone the lockdown when the company was reeling?'' 
In response to the collapse of Enron, an administration task force is preparing recommendations to revise securities and corporate laws. Administration officials said that they were debating proposals to make it more likely that corporate executives and boards face personal liability for violating the law. 
Officials in Connecticut, one of several states considering whether to suspend or revoke the license of Arthur Andersen, Enron's accounting firm, said they had subpoenaed Andersen records. 
Richard Blumenthal, the attorney general in Connecticut, said he was examining a state agency's decision last year to pay Enron $220 million for an energy contract that might never be fulfilled. 
At a House committee hearing, Joseph F. Berardino, Andersen's chief executive, repeated earlier statements that important information about Enron's finances had been withheld from his firm. 
Democrats and Republicans repeatedly complained that Mr. Berardino was evading the committee's questions about Andersen's involvement in Enron's collapse. 
''Maybe it's better to be dumb than culpable, but we want some answers,'' said Representative Gary L. Ackerman, Democrat of New York. ''Your not knowing what was going on, if that's the case, is basically saying that you have squandered the integrity of your company.'' 
Mr. Berardino said Andersen would establish new offices of audit quality and ethics and compliance. 
Before approving the subpoena of Mr. Lay, members of the Senate Commerce Committee said that they had begun investigating losses that state pension funds sustained from the decline in Enron stock. 
Senator Bill Nelson, Democrat of Florida, said it was suspicious that an investment manager for the Florida retirement system bought millions of dollars in shares last fall, at prices ranging from $22.82 to $9.02, even after Enron had announced that it was being investigated by the Securities and Exchange Commission. 
A few days before Enron filed for bankruptcy, the fund sold more than seven million shares at 28 cents each. 
The investment management firm that bought the Enron stock for Florida's retirement funds is Alliance Capital. Frank Savage, a recently retired senior executive at Alliance, sits on Enron's board. 
Mr. Nelson said that if Mr. Lay had agreed to testify, he would be asked, ''Were they told to buy the stock to prop it up?'' 
John Meyers, a spokesman at Alliance Capital, said that the investments were reasonable at the time and that Mr. Savage ''had no involvement in the buying, holding or selling of Enron'' stock. 
At the Senate governmental affairs hearing, Cindy Olson, Enron's executive vice president for human resources, said there had been a debate on the day before the trading moratorium about whether the company should postpone the blackout, which was needed for a change in plan administrators. 
But executives said they decided against delaying after concluding that it would be too hard to notify the participants in Enron's 401(k) plan immediately. The executives said they feared that if they delayed this blackout period, they would open themselves to lawsuits by participants who were notified later than others for reasons like mail delays. 
Though the company says the blackout began Oct. 26, it sent out conflicting bulletins. The confusion led many employees to think that the blackout began Oct. 19, when Enron stock traded at $26.05. By the time employees were able to sell shares on Nov. 13, the shares had plunged, closing at $9.98 that day. 
Deborah G. Perrotta, a former senior administrative assistant, told the committee that the blackout hurt. ''A delay would have saved a lot of people,'' she said. 
Several senators said it was unconscionable for Mr. Lay and other Enron officials to tell employees that the stock price would continue to rise while some officials were raising tough questions about the stability of the company's finances. 
Ms. Olson, who served as a trustee of Enron's retirement plan, testified that in August, Sherron S. Watkins, an Enron vice president, had told her of concerns she had about whether Enron executives had engaged in some chicanery that undermined the company's finances. Ms. Watkins raised many of those questions in a letter last summer to Mr. Lay. 
Saying she was not convinced that Ms. Watkins's assertions were accurate, Ms. Olson said that she, as a plan fiduciary, did not deem it necessary to inform plan participants of the questions about Enron.

Photo: Joseph F. Berardino, chief executive of Arthur Andersen, the former Enron auditor, testifying yesterday before a House committee. Both Democrats and Republicans complained that he evaded the panel's questions. (Paul Hosefros/The New York Times)(pg. C8) Chart: ''Buying as the Ship Went Down'' On the advice of Alliance Capital Management, one of its investment managers, the Florida state pension fund bought Enron stock even as the company's troubles became known. A former Alliance executive, Frank Savage, is also a member of Enron's board. Enron's daily closing stock price PURCHASES OF ENRON STOCK SINCE OCT. 17 DATE: OCT. 22 NUMBER OF SHARES: 311,200 SHARE PRICE: $22.82 PRICE PAID (MILLIONS): $7.1 DATE: OCT. 24 NUMBER OF SHARES: 302,500 SHARE PRICE: 16.30 PRICE PAID (MILLIONS): 4.9 DATE: OCT. 25 NUMBER OF SHARES: 124,600 SHARE PRICE: 15.47 PRICE PAID (MILLIONS): 1.9 DATE: OCT. 29 NUMBER OF SHARES: 373,900 SHARE PRICE: 14.51 PRICE PAID (MILLIONS): 5.4 DATE: OCT. 30 NUMBER OF SHARES: 317,800 SHARE PRICE: 12.23 PRICE PAID (MILLIONS): 3.9 DATE: NOV. 13 NUMBER OF SHARES: 581,900 SHARE PRICE: 9.37 PRICE PAID (MILLIONS): 5.5 DATE: NOV. 14 NUMBER OF SHARES: 478,600 SHARE PRICE: 9.84 PRICE PAID (MILLIONS): 4.7 DATE: NOV. 16 NUMBER OF SHARES: 209,500 SHARE PRICE: 9.02 PRICE PAID (MILLIONS): 1.9 OCT. 17 -- Enron reduces shareholder equity by $1.2 billion to account for transactions involving certain partnerships. OCT. 22 -- Enron discloses that the Securities and Exchange Commission has opened an inquiry into the partnerships. NOV. 8 -- Enron says it overstated profits for the previous five years by $586 million. NOV. 30 -- Pension fund sells its entire Enron holdings, 7.6 million shares, at 28 cents a share. DEC. 2 -- Enron files for bankruptcy protection. (Sources: Dow Jones Interactive [stock price]; Office of Senator Bill Nelson) (pg. C8) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Financial
Rich Employee, Poor Employee; Senate Panel Looking at Pensions Shown Both Sides of the Enron Coin
Albert B. Crenshaw
Washington Post Staff Writer

02/06/2002
The Washington Post
FINAL
E01
Copyright 2002, The Washington Post Co. All Rights Reserved

Two Enron employees told a Senate committee yesterday what happened to them before and immediately after the collapse of the giant Texas energy-trading company. 
Their stories were very different.
Deborah G. Perrotta, an administrative assistant, broke down in tears as she described losing her job, $40,000 in retirement savings and all but a fraction of her severance pay. 
The other, Cindy Olson, executive vice president of Enron's human resources department and one of the people in charge of the company's ill-fated 401(k) plan, still works for Enron. She matter-of-factly described how a year ago, when Enron stock was near its peak, she cashed in options on 83,000 shares, netting about $3 million. 
Their testimony again highlighted the devastation that can befall employees who tie their jobs and their retirement security to a single company. But it also showed how much difference professional advice and investment instincts can make for workers in a situation like Enron's, and how workers caught up in a company's collapse can be affected very differently. 
Perrotta and Olson testified before the Senate Governmental Affairs Committee, which is trying to determine what changes might be needed in federal pension and employment laws to improve worker protections should their employer fail. 
The hearing highlighted several issues that are common in 401(k) and other retirement savings plans known as defined-contribution plans, which, unlike old-fashioned defined-benefit pensions, place the market risk and reward on employees. 
* Fiduciary responsibility. Who is responsible for sharing information with employees and retirees, and how and when? 
Former Enron Chairman Kenneth L. Lay encouraged workers to keep their retirement money in company stock. Perrotta recalled that in August she was awarded a block of shares, and an accompanying e-mail from Lay said that "one of my highest priorities is to restore investor confidence in Enron. This should result in a significantly higher stock price. I hope this grant lets you know how valued you are to Enron." 
Olson, however, had a higher position at the company and access to more information than Perrotta. Indeed, Olson actually spoke with whistle-blower Sherron Watkins before Watkins sent her anonymous letter to Lay, in which she said she worried that the company's accounting practices could lead to a major scandal. Olson said Watkins was fearful that she was overlooking something or that there was some other reason her conclusions might be incorrect. Olson took no action to inform other employees about the concerns, however. "She went to speak to Mr. Lay, and Mr. Lay kicked off an investigation," Olson said. ". . . I felt like it was in good hands." 
* How tough it is to separate loyalty from investment decisions. 
Enron's restrictions on employees selling stock they received as matching contributions to their 401(k) plans have been well chronicled. But, by some accounts, 89 percent of the Enron stock in the plan was there because workers invested in it voluntarily. 
Olson, however, had been granted options that did not have the same restrictions against selling as the Enron stock matches in the 401(k) plan. Olson said she cashed in her options only because she had a run-in with then-chief executive Jeffrey Skilling that motivated her to seek professional investment advice. The adviser told her she was too emotionally involved with the stock, and she agreed to sell. 
Olson said she held on to another 3,000 shares in her retirement account until two days before the company went into bankruptcy. 
The panel is looking at proposals to limit the percentage of company stock permitted in a 401(k) account. But employer groups argue that retirement plans are often designed to align the interests of workers and companies, and they are urging Congress to be careful not to discourage companies from offering retirement plans or matching worker contributions to plans. 
* Investment advice. Most companies are reluctant to provide it for fear of exposing themselves to liability if the advice doesn't work out. 
Pending legislation would permit them to provide advice or to pay for it from third parties. 
The potential benefits for employees seem clear in retrospect. Olson went to an adviser while Perrotta did not. "When it started to fall apart, we just sat there -- watched it," Perrotta said. 
But critics say that the issue is more complex than it seems and that any legislation should be careful to eliminate conflicts of interest among advisers and employers. 
* "Lockdowns" of 401(k) plans. These freezes on account activity occur when a company changes plan administrators, and can last up to several months. Enron changed administrators last fall and employee accounts were frozen for several weeks. The exact duration is in dispute. 
* Severance in bankruptcy. Laid-off workers are generally limited to payments of about $4,500. Severance owed beyond that is usually treated as a general unsecured debt, though some courts have been more lenient. 
It has become routine, however, for companies entering bankruptcy to pay large "retention bonuses" to keep certain workers while the newly unemployed get little. Enron paid out $55 million in such bonuses. 
Enron benefits manager Mikie Rath, who testified with Olson, drew snickers in the crowded hearing room when she said she had gotten a retention bonus but could not remember exactly how much it was. Pressed, she said it was "about" $20,000. 
Enron workers who were laid off would have been entitled to about $150 million total, and Olson said "we thought we could give employees the full severance" but "at the 11th hour we found we could only give $4,500." Company lawyers said the limit was set by law, she said.

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

Execs say they tried to protect workers' money 
By PATTY REINERT 
Copyright 2002 Houston Chronicle Washington Bureau 
Feb. 5, 2002, 9:17PM
WASHINGTON -- Two Enron executives told a Senate panel Tuesday that they scrambled to protect employees' retirement savings and severance pay as soon as they realized the company was collapsing last year. 
"We did the best we could with a difficult situation," said Cindy Olson, executive vice president for human resources for the Houston energy trader. 
Olson and Enron benefits manager Mikie Rath told members of the Senate Governmental Affairs Committee that they had considered, then rejected, putting off a planned change in the company's investment administrator last fall when they realized the transition would take place as Enron's stock was falling. Employees were prevented from selling the stock in their 401(k) retirement accounts during the transition. 
Later, as the company was headed for bankruptcy, Olson said she had several conversations with then-Chairman Ken Lay to try to salvage employees' severance pay. She quickly concluded, she said, that employees would get only a nominal payment of $4,500 each if Enron declared bankruptcy. The realization was devastating, she said. 
Several former Enron workers, who are suing Olson and other top executives, criticized the executives' testimony. 
Debbie Perrotta, a laid-off senior administrative assistant who had worked at Enron for five years, testified Tuesday that 4,500 Houston Enron employees lost their jobs, their retirement savings and an estimated $150 million in severance and vacation pay after the company filed for bankruptcy on Dec. 2. 
But two days before that filing, Perrotta said, "Enron cut $105 million in retention bonuses for a small number of executives." 
Sen. Joseph Lieberman, D-Conn., who heads the Senate committee, said he would subpoena records on the retention bonuses. 
Perrotta broke down and cried several times as she told of losing $40,000 in retirement money and struggling to pay for her family's health care and her daughter's wedding. She said she and other laid-off employees now must wait in line behind Enron's creditors in bankruptcy court to recover whatever they can. 
"It may be the law," she said, "but it's wrong." 
Lieberman asked Olson to explain why she failed to warn employees to sell their Enron stock as the price was sliding. 
"We didn't have a crystal ball," Olson said. "We didn't know where the stock was going to go." 
She added that federal law limits what investment advice employers can give their employees. Besides, she said, the company's top executives put their faith in Lay and hoped he could save the company. 
But Lieberman pointed out that something must have motivated Olson to sell $6.5 million of her own Enron stock months earlier. 
Olson -- who served on Enron's executive committee from 1999 until she and then-Chief Executive Officer Jeff Skilling had a falling out and he removed her in early 2001 -- said she sold most of her company stock in late 2000 and early 2001. 
Olson said she was thinking of leaving Enron after Skilling demoted her from the executive committee and took away some of her human resources duties. She said she and Skilling "did not see eye to eye" about how employees should be treated. 
Olson said she and her husband hired their own financial adviser, who urged her to diversify her stock portfolio so she would not be so reliant on her company's stock. 
Olson also testified that Sherron Watkins, a former Enron executive, had come to her last summer, asking Olson's advice on whether she should approach Lay with concerns about accounting problems she believed threatened to bring down the company. 
Olson said Watkins was unsure whether a memo she had written to Lay on Aug. 15 was technically or legally accurate. Olson said she encouraged Watkins to talk to Lay. 
Even after her conversation with Watkins, however, Olson said she did not warn her colleagues. Her talk with Watkins had been confidential, she said, and she trusted Lay to act if Watkins' fears were on target. 
Both Olson and Rath told lawmakers that they had considered halting the transition to a new retirement fund administrator last fall, but concluded that it would take longer to stop the process than to go through with it. 
In the midst of last fall's anthrax scares and the resulting delays in mail service, they said, it would have been impossible to notify the 11,000 retirees invested in Enron's retirement plan if the company had decided to change the schedule for the transition. Notifying current Enron employees via e-mail would have treated current and former Enron employees differently and that would have been unfair, they said. 
Instead, they decided to speed up the transition process and were able to shave one week off of the lockdown period so that employees would have access to their accounts sooner, they said. 
At the time, Rath testified, she was still hoping the stock price would go back up. 
In the hallway outside the hearing later, several laid-off workers criticized the two executives' testimony. 
"She cashed out six and a half million dollars in her own Enron stock," Gwen Gray said of Olson. "She knew (the company was failing)." 
Gray, who also worked in Enron's human resources department before she was laid off, said she was disturbed by Rath's remark that she couldn't remember the amount of her own retention bonus. 
When Rath's former colleagues in the audience laughed at her statement, senators pressured Rath. She said the bonus was "in excess of $20,000." (Olson testified that she had received nothing to stay with the company.) 

A Section
Enron CEO Felt 'Betrayed,' Panel Told; Head of Internal Probe Testifies on the Hill
Jackie Spinner and David S. Hilzenrath
Washington Post Staff Writers

02/06/2002
The Washington Post
FINAL
A01
Copyright 2002, The Washington Post Co. All Rights Reserved

Former Enron Corp. chairman Kenneth L. Lay told investigators for the Enron board that he should have paid more attention to his company's bookkeeping but felt "betrayed" by others at the company who kept information from him, the board's lead investigator testified yesterday. 
Lay, in four hours of interviews with the special board committee investigating the company's collapse, indicated that he knew the company was using Enron stock to protect investors in its off-the-books partnerships, said William C. Powers Jr., chairman of the committee, which issued its report Saturday.
That unusual strategy helped Enron hide large debts and losses. 
"When we interviewed Mr. Lay . . . he didn't understand or appreciate there was anything wrong with it," Powers, dean of the University of Texas Law School, told the House Government Reform subcommittee on oversight and investigations. Lay's story was that "the accountants had signed off on it," Powers said. "It was a credible device." 
Powers also disclosed that the Enron board's investigative committee spent "a couple of hours" interviewing former Enron vice chairman J. Clifford Baxter, who was found dead on Jan. 25 of a self-inflicted gunshot wound. Powers said Baxter gave no hint that he was "a person . . . in danger." 
House members asked Powers for notes or recordings from that interview. Powers said he could not turn the records over without permission from the company, but he said he would support their release. Enron attorney Robert Bennett later said the company "certainly will provide the materials requested." 
Committees in the Senate and House yesterday subpoenaed Lay to appear on Capitol Hill on Feb. 12 and 14. Lay, who withdrew from a scheduled appearance Monday, is expected to invoke his constitutional right against self-incrimination and refuse to testify, but the subpoenas mean he will have to do so in person in the full glare of publicity. 
Meanwhile, members of a Financial Services subcommittee unleashed their wrath on Arthur Andersen chief executive Joseph F. Berardino, blasting the big accounting firm's audits of Enron and voicing exasperation when Berardino said he didn't know the answers to many of their questions about Andersen's conduct. 
"Maybe it's better to be dumb than culpable, but we want some answers," said Rep. Gary L. Ackerman (D-N.Y.). 
"I mean, your ship is going to go down and you're going to be lashed to the mast unless you start talking to us about what happened." 
Berardino, who headed Andersen's audit practice before becoming its chief executive about a year ago, said Andersen was still trying to gather the facts. 
"I don't know, with authority, what we knew and when we knew it," he told the Financial Services subcommittee on capital markets, one of several congressional panels investigating Enron's collapse. 
Separately, a spokesman for Andersen said yesterday that its auditors went to Enron's board earlier than was previously known with concerns about possible illegal activity. 
The first approach was in August, after the emergence of a letter from executive Sherron Watkins to Lay warning of widespread accounting irregularities, spokesman Charlie Leonard said. 
Federal law requires auditors to alert the SEC when they suspect illegality and the board or management does not address it. In this case, Andersen personnel went to the board but not to the SEC because they were assured the board was investigating the matter, Leonard said. 
Andersen previously said it had alerted the board to possible illegal activities last fall as Enron unraveled. 
As lawmakers search for ways to prevent future Enrons, Rep. Richard H. Baker (R-La.), chairman of the House subcommittee, floated what would be a fundamental change in the auditing business -- having stock exchanges hire the auditors. Currently, auditors are hired by the companies they are responsible for auditing -- an arrangement that some lawmakers say deters them from challenging dubious corporate accounting. 
In other developments yesterday, President Bush rejected a call by Sen. Ernest F. Hollings (D-S.C.) for a special prosecutor to investigate Enron, saying his Justice Department could do the job. Enron was a major contributor to the Bush presidential campaign and has ties to a number of administration officials. 
The House Energy and Commerce Committee yesterday subpoenaed former Enron chief financial officer Andrew S. Fastow to appear at a hearing tomorrow. Fastow's attorneys originally told the committee he would appear voluntarily, but they later informed the committee he had "a change of heart," committee spokesman Ken Johnson said. Fastow, who organized some of Enron's largest partnerships and earned at least $30 million from running them, intends to assert his Fifth Amendment right against self-incrimination, Johnson said, but he will be required to do that in front of the committee. 
Fastow has hired criminal lawyer John Keker of San Francisco, who prosecuted Oliver L. North in the Iran-contra affair, to represent him in the Justice Department's criminal investigation. 
Andersen's chief executive yesterday made his second voluntary appearance before the capital markets subcommittee, and lawmakers praised him for testifying. But that was one of the few things they gave him credit for during about four hours of stern questioning and speechifying. It was a much more skeptical reception than Berardino received from the same lawmakers in December, when he faced few if any probing questions. That appearance, however, took place before Andersen acknowledged that it had destroyed numerous documents pertaining to its work at Enron, and before the Powers report said it "did not fulfill its professional responsibilities" in its Enron work. 
Berardino said auditing is "a hard job" and Andersen personnel "are trained to do the right thing." 
"But we are human beings, and we may not get it right every time. I'm not apologizing for that," he said. 
Rep. Max Sandlin (D-Tex.) asked Berardino to consider "the people whose lives . . . you helped destroy," a reference to Enron employees who lost their jobs and the bulk of their retirement savings when Enron collapsed. Rep. Michael E. Capuano (D-Mass.) said Andersen "blew it so badly." 
The report commissioned by Enron directors accused Andersen of failing in its responsibilities and helping Enron create a web of transactions designed to hide debts and losses. In the process, the report said, Andersen accountants "had to surmount numerous obstacles presented by pertinent accounting rules." 
For example, the report said Andersen advised Enron each step of the way about transactions with a group of off-the-books partnerships known as the Raptors, which "had little economic substance." 
The Raptor transactions accounted for about $1.1 billion of the $1.5 billion of pretax income Enron reported during the five quarters that preceded Enron's December bankruptcy filing. 
Berardino said Andersen approved deals involving the partnerships but didn't come up with the ideas for them. The accounting firm was reacting to plans developed by Enron personnel, investment bankers and others, he said. 
"Suffice it to say that we were very much involved, as the company was, setting up these transactions, giving our advice on whether they would pass the rules," Berardino said. That was part of Andersen's job as auditor, he said. 
"The point I would like to emphasize is, at the end of the day, these are the company's financial statements," Berardino told the committee. "We cannot make a company report any more than what the rules require," he said. 
Berardino called for a major overhaul of accounting and auditing, saying that simply tinkering with the system would fail to prevent further financial debacles. He said stronger discipline is needed because today "punishment is not sufficiently certain to promote confidence in the profession." 
The Andersen chief said auditors should rate the quality of a company's accounting instead of just issuing a pass or fail grade, as they now do. He told lawmakers that Andersen will no longer serve as both internal and outside auditor for the same company -- as it did at Enron -- and will stop consulting to audit clients on the design and implementation of their financial information systems. 
Berardino said such activities accounted for "very, very little" of the $52 million Andersen received from Enron in 2000. 
Some lawmakers called on Berardino to stop consulting to audit clients altogether. 
Meanwhile, Deloitte Touche Tohmatsu, the global parent of accounting firm Deloitte & Touche, said it will announce today that it intends to split off its $3.5 billion management-consulting business, following a similar announcement last week by fellow Big Five accounting firm PricewaterhouseCoopers. 
Staff writer Susan Schmidt contributed to this report.

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

Enron Officials Sought Lawyer's Dismissal Over Negotiations With Outside Partnership
By Tom Hamburger and John Emshwiller
Staff Reporters of The Wall Street Journal

02/06/2002
The Wall Street Journal
A3
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- Enron Corp. executives tried to get one of the company's in-house lawyers fired in 2000 after their boss expressed unhappiness with the way the lawyer was negotiating with a partnership in which the boss had an interest, congressional investigators said. 
The disclosure underlined the conflicts of interest that apparently existed with outside partnerships set up and run by some Enron executives. For Enron, which is now in bankruptcy proceedings, the partnerships allowed the Houston energy-trading company to enhance its profits and to move debt off its books. But the partnerships also were used by some senior Enron executives to enrich themselves, according to an internal company report released this weekend.
The investigators' statements came as several congressional committees pushed forward with probes into Enron's collapse. A House and Senate panel each voted to issue subpoenas to force appearances by Kenneth Lay, Enron's former chairman and chief executive. Meanwhile, the head of Arthur Andersen, Enron's former auditor, was aggressively questioned before a House panel and outlined additional steps the accounting firm is taking to restore its reputation. 
At issue in the case involving the Enron lawyer was one of the outside partnerships known as LJM2. Enron attorney Joel Ephros was negotiating with attorneys for LJM2 from the law firm of Kirkland & Ellis in 2000, when he received an expletive-laced angry voice mail about his handling of the negotiation from Enron's Chief Financial Officer, Andrew Fastow, according to an account given to congressional investigators. Mr. Fastow at the time ran and had an ownership interest in LJM2, which eventually earned him substantial profits. 
Later, in the fall of 2000, two of Mr. Fastow's subordinates, Ben Glisan Jr. and Michael Kopper, approached Mr. Ephros's boss to accuse the lawyer of being unresponsive and incompetent and to urge his dismissal. The boss, Jordan Mintz, general counsel of Enron Global Finance, had just started his new job and said he wasn't prepared to make any personnel moves, so he declined. Informed of the decision, Mr. Fastow didn't object. Mr. Mintz later decided to keep Mr. Ephros on staff and praised his performance. 
The attempt to fire Mr. Ephros will be aired at a hearing tomorrow before the House Energy and Commerce Committee's oversight panel, Billy Tauzin, chairman of the full committee, said in an interview. The Louisiana Republican offered the episode as an example of what he called a corrupt culture within Enron as it sought to inflate revenue and conceal losses using entities such as LJM2. 
"They literally became sham operations," said Mr. Tauzin, who is leading the most aggressive probe of nearly a dozen now being conducted on Capitol Hill into Enron. "One purpose was to fool investors into believing that debt had moved, that risk had moved. And the other purpose was to create phony income. This is an old game. This is nothing new. This is insider theft." 
Mr. Mintz will be a chief witness at tomorrow's hearing and is expected to detail his recollections about the effort made to muzzle Mr. Ephros. A spokesman for Mr. Fastow declined to comment. A lawyer for Mr. Glisan didn't return a call for comment. Mr. Ephros and Mr. Kopper couldn't be reached. Mr. Tauzin said he expects Messrs. Fastow and Kopper to invoke their Fifth Amendment rights against possible self-incrimination to avoid testifying at tomorrow's hearing. 
The Ephros episode is an example of a problem addressed cryptically in the internal report by a special committee of Enron's board that was released last weekend. Mr. Fastow "was in a position to exert great pressure and influence. . . . We have been told of instances in which he used that pressure to try to obtain better terms for LJM," the report said. "Simply put, there was little of the separation and independence required to enable Enron employees to negotiate effectively against LJM2." 
Mr. Tauzin said that tomorrow's hearing will also feature details of what he called "literally a sweetheart deal" involving another partnership. According to Mr. Tauzin and his investigators, one of the partnership deals was cut by two Enron employees who were engaged to be married, one representing Enron and one representing LJM2. 
Congressional investigators said that the agreement netted huge profits for the couple, Trushar Patel, an Enron attorney, and his fiancee, Anne C. Yaeger, who worked with Mr. Fastow and later left Enron. Ms. Yaeger signed a $30 million agreement on behalf of LJM2, listing herself as an "authorized person," documents shows. Her husband signed representing Enron. 
Committee spokesman Ken Johnson said investigators have learned Ms. Yaeger entered into the transaction by initially providing just $10 as a down payment, later kicking in an additional $2,913. "We believe she walked away from the deal with a profit of half a million dollars," Mr. Johnson said. "That's not a bad return for a $10 initial investment." 
Messages left at the home of the couple weren't returned. 
In other action, the Senate Commerce Committee and the House Financial Services Committee approved subpoenas for Mr. Lay to appear before their panels on Feb. 12 and 14, respectively. Mr. Lay had agreed to appear at hearings this week, but backed out in response to scathing criticism from Capitol Hill prompted by revelations in the Enron board's internal report. Though he will be forced to appear, he can refuse to testify by invoking the Fifth Amendment, and several senators and House members predicted he would do so. Kelly Kimberly, Mr. Lay's spokeswoman, said he and his lawyers haven't yet decided whether he will testify. 
In his second appearance before the House Financial Services panel, Andersen CEO Joseph Berardino outlined new steps the accounting firm will take to restore confidence in its work, including creating offices for audit quality, ethics and compliance. Mr. Berardino came under heavy criticism from panel members for Andersen's role in the Enron affair, including a document-destruction effort undertaken by Houston-based employees, one of whom was subsequently fired. He said he was "embarrassed" by the shredding. On Andersen's role in reviewing questionable partnership transactions, which later led to Enron's collapse, he reiterated his assertion that "information was withheld" by Enron as Andersen was reviewing them. 
The difficulty Mr. Berardino faces in restoring confidence in his company was made clear in Connecticut yesterday as the state's Board of Accountancy escalated its investigation of the firm, issuing a subpoena for Enron-related documents. The state could revoke Andersen's license to practice in Connecticut and levy a fine. State Attorney General Richard Blumenthal says his staff is searching for common policies between Andersen's activities in Houston and Hartford. He added that other state attorneys general have been in contact with him and could pursue similar actions. 
--- 
Judith Miller and Russell Gold contributed to this article.

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

Business/Financial Desk; Section A
ENRON'S MANY STRANDS: THE TRANSACTIONS
The Financial Wizard Tied to Enron's Fall
By DAVID BARBOZA and JOHN SCHWARTZ

02/06/2002
The New York Times
Page 1, Column 2
c. 2002 New York Times Company

HOUSTON, Feb. 5 -- Before the financial shell games; before Chewco, Raptor and LJM; before the partnerships that earned him $30 million, Andrew S. Fastow had his first setback at the Enron Corporation. 
The setback came in 1996, when Mr. Fastow, a rising young star in corporate finance, was nearly fired for the poor job he did running a retail unit that aimed to put Enron into competition with local utilities around the country.
Mr. Fastow, whose surname rhymes with how, was simply out of his element among the intricacies of the retail market, colleagues said and his spokesman, Gordon Andrew, acknowledged. Yet while Enron was notorious for its cutthroat corporate culture, its succeed-or-leave ethic, Mr. Fastow had enough influence to return to his old department, finance. 
''What the guy knew was numbers and finance,'' a longtime colleague said. ''He knew how to close a deal. No one did that better than Andy.'' 
Today, investigators think that Mr. Fastow's financial wizardry, his ability to wrap the company's assets and debts into complicated off-balance-sheet deals, was a central cause of Enron's undoing. What Mr. Fastow presented as an arrangement intended to benefit Enron, according to a report released on Saturday by a special committee of the board, ''became, over time, a means of enriching himself personally, and facilitating manipulation of Enron's financial statements.'' 
No one yet knows how much of the blame for Enron's collapse should fall upon Mr. Fastow. On Thursday, Mr. Fastow, 40, a father of two who was Enron's chief financial officer until he was forced to resign in October, is expected to invoke his Fifth Amendment right rather than give potentially self-incriminating answers to questions from members of Congress. 
The crucial question is whether Mr. Fastow was the mastermind behind Enron's most suspect financing deals. Or was he, as Mr. Fastow has maintained through a spokesman, merely doing, with the board's knowledge, the bidding of his superiors at Enron, the former chief executives, Kenneth L. Lay and Jeffrey K. Skilling? 
Even before Mr. Fastow's appearance on Capitol Hill, Representative James C. Greenwood, Republican of Pennsylvania, called him the ''Betty Crocker of cooked books.'' And today, in one Congressional hearing, William C. Powers Jr., an Enron director who led the committee that wrote the internal report, said Mr. Fastow had been plagued by dual loyalties. ''Fastow couldn't mind the store,'' Mr. Powers said, ''because he was involved in the transactions.'' 
For now, Mr. Fastow is not telling his story. He declined to be interviewed for this article, and he refused to cooperate with a special investigative committee for Enron's board. He also invoked his right against self-incrimination at a meeting a few weeks ago with the Securities and Exchange Commission. 
But the portrait that is emerging of Mr. Fastow, from interviews with former colleagues and details from the Enron special report, is that of a brilliant, ambitious and hard-charging executive who, it appears, grew obsessed with using complex financing techniques to supercharge Enron's earnings while inflating his own paycheck. 
Besides the $30 million he made in the LJM partnerships, Mr. Fastow earned a hefty salary and stock options at Enron. In 1999 and 2000, he sold about $23 million in Enron stock. 
It was not as if he needed the money, his friends say; his wife, the former Lea Weingarten, is the heiress to a Houston real estate fortune. But Mr. Fastow was adamant, friends say, in his belief that the amount of money a person made was the only meaningful measure of success in business. 
Even after Mr. Fastow retreated into seclusion last fall, he continued building an 11,500-square-foot house in Houston's wealthy River Oaks neighborhood. The Fastows also maintain an art collection, some of which has been displayed at the Contemporary Arts Museum and at the Menil Collection, both in Houston. 
He also had a prominent role in Houston's Jewish community, taking charge of fund-raising for the city's new Holocaust museum. 
''The work was significantly greater than the reward,'' said Bobby Lapin, a lawyer who has known Mr. Fastow for years. ''The person I know bears absolutely no relation to the person who has been characterized, in some reports, within the walls of Enron.'' 
But the focus on Capitol Hill is not on good deeds. 
According to the internal report, Mr. Fastow and a group of other top executives secretly invested in a series of partnerships that benefited from swapping assets with Enron. Mr. Fastow used some of those partnerships to conceal losses at Enron. He used others to inflate profits, by about $1 billion in a 12-month period in 2000 and 2001. And in one instance, he invested $25,000 in Southampton Place, a partnership that in a matter of two months made $4.5 million from a deal with Enron, the special report said. 
That transaction, and many others, were never disclosed to Enron's directors, the report said. The $4.5 million would eventually reach Mr. Fastow through a family foundation he had set up as a charity. 
The collapse of Enron is a dramatic reversal of fortune for Mr. Fastow. Until last August, when Mr. Skilling resigned as chief executive, Mr. Fastow was at his side constantly, a crucial player in winning Enron acclaim as one of the world's most innovative companies. 
He arrived at the company in 1990, at age 29, a handsome, talented and ambitious man who would eventually assume the job of chief financial officer in 1998 at the age of 36. 
A graduate of Tufts University and the Kellogg School of Management at Northwestern, Mr. Fastow was helping to refashion a gas pipeline company into something more akin to a Wall Street trading house. 
Those who knew Mr. Fastow at Enron described a man with twin personalities. They say he could be charming yet aggressive, quiet yet mercurial, and philanthropic yet bent on accumulating the trappings of wealth. 
''He was very smart and very good at what he did,'' one former executive said. ''He could be nice, but he could also be quite volatile and short-tempered. He didn't have a lot of patience with people who weren't as smart as him.'' 
Andrew Stuart Fastow was born in Washington but grew up in New Providence, N.J., the son of a buyer for supermarkets and department stores. His career started in Chicago in the 1980's, at Continental Bank, where he worked on ''troubled loans,'' and more complicated deals, like leveraged buyouts. 
At Enron, he started by trying to arrange financing for Mr. Skilling's innovative plan, the creation of a ''gas bank'' that would help struggling energy companies by providing them with loans in exchange for their oil and gas reserves, which Enron could hedge and trade against in its growing derivatives unit. 
Enron later began supporting energy producers by creating partnerships that allowed the company to keep the debt off the balance sheet. The first of those partnerships was named Cactus. 
By 1993, the partnerships Mr. Fastow helped set up were so successful that Calpers, the California Public Employees' Retirement System, approached Enron about a joint venture. The partnership was called JEDI, or the Joint Energy Development Investments. 
Later, there were hundreds of other partnerships, with names like Obi 1, Chewco and Raptor. 
In recent years, as Enron pushed to build power plants and to develop new markets, the company needed huge amounts of capital, and partnerships were one way to pay for the projects without having the debt accumulate on Enron's balance sheet. 
In 1999, CFO magazine honored Mr. Fastow for creating an innovative financing structure. In a rare interview, he told CFO that he would use off-balance-sheet transactions to avoid weakening Enron's credit rating. And he would do this while operating in the shadows. 
''This guy was never anything but low profile,'' said John E. Olson, an energy analyst at Sanders Morris Harris. ''He rarely, if ever, showed up at analyst meetings. He was a loan consolidator.'' 
By 1999, there were small fissures in Mr. Fastow's labyrinthine financing empire. As early as 1997, Enron had difficulty finding a partner to buy out Calpers's interest. So, apparently to skirt disclosure rules, Mr. Fastow proposed listing his wife's family as outside investors. When he was rebuffed, Michael Kopper, who worked under Mr. Fastow at Enron, was selected. Because he was a lower-level employee, Enron would not have to disclose his interest in S.E.C. filings. Mr. Kopper would eventually make at least $10 million in profit from the venture. 
Later, Mr. Fastow dealt with partnerships that involved at least four other Enron employees. 
Mr. Fastow, the board report said, often played dual roles as an Enron executive and a partner of LJM. Once, he found himself at odds with Enron Broadband Services. ''Fastow's involvement caused great distress for the E.B.S. team,'' the special report said. ''They understood that their job was to get the best deal possible for Enron but driving a hard bargain for Enron drew the ire of Enron's C.F.O.' 
Others, who worked closely with Mr. Fastow, say he was not a rogue operator. ''I think there's too much focus on Andy,'' one longtime colleague said. Mr. Fastow, the colleague said, did not do anything on his own. 
Other colleagues say it is quite possible Mr. Fastow took charge himself, that he got wrapped up in a series of complex transactions that ultimately doomed him. And even when it was all falling apart, Mr. Fastow was reluctant to acknowledge what was happening. 
In October, after the company was forced to restate its earnings but before he left, Mr. Fastow appeared at an employee meeting at the Hyatt Regency hotel here. His remarks were brief and mysterious. ''The Enron Corporation's balance sheet,'' one employee recalls him saying, ''has never been in better health.''

Photos: Andrew S. Fastow, Enron's former chief financial officer, at his lawyer's office last month in Houston. (James Estrin/The New York Times)(pg. A1); Andrew S. Fastow is said to have been a hard-charging executive obsessed with using complex financial techniques to bolster profit. (F. Carter Smith for The New York Times); After Andrew S. Fastow went into seclusion last fall, he continued work on his 11,500-square-foot new home in the River Oaks area of Houston. (James Estrin/The New York Times)(pg. C9) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

A Section
Enron CEO Felt 'Betrayed,' Panel Told; Head of Internal Probe Testifies on the Hill
Jackie Spinner and David S. Hilzenrath
Washington Post Staff Writers

02/06/2002
The Washington Post
FINAL
A01
Copyright 2002, The Washington Post Co. All Rights Reserved

Former Enron Corp. chairman Kenneth L. Lay told investigators for the Enron board that he should have paid more attention to his company's bookkeeping but felt "betrayed" by others at the company who kept information from him, the board's lead investigator testified yesterday. 
Lay, in four hours of interviews with the special board committee investigating the company's collapse, indicated that he knew the company was using Enron stock to protect investors in its off-the-books partnerships, said William C. Powers Jr., chairman of the committee, which issued its report Saturday.
That unusual strategy helped Enron hide large debts and losses. 
"When we interviewed Mr. Lay . . . he didn't understand or appreciate there was anything wrong with it," Powers, dean of the University of Texas Law School, told the House Government Reform subcommittee on oversight and investigations. Lay's story was that "the accountants had signed off on it," Powers said. "It was a credible device." 
Powers also disclosed that the Enron board's investigative committee spent "a couple of hours" interviewing former Enron vice chairman J. Clifford Baxter, who was found dead on Jan. 25 of a self-inflicted gunshot wound. Powers said Baxter gave no hint that he was "a person . . . in danger." 
House members asked Powers for notes or recordings from that interview. Powers said he could not turn the records over without permission from the company, but he said he would support their release. Enron attorney Robert Bennett later said the company "certainly will provide the materials requested." 
Committees in the Senate and House yesterday subpoenaed Lay to appear on Capitol Hill on Feb. 12 and 14. Lay, who withdrew from a scheduled appearance Monday, is expected to invoke his constitutional right against self-incrimination and refuse to testify, but the subpoenas mean he will have to do so in person in the full glare of publicity. 
Meanwhile, members of a Financial Services subcommittee unleashed their wrath on Arthur Andersen chief executive Joseph F. Berardino, blasting the big accounting firm's audits of Enron and voicing exasperation when Berardino said he didn't know the answers to many of their questions about Andersen's conduct. 
"Maybe it's better to be dumb than culpable, but we want some answers," said Rep. Gary L. Ackerman (D-N.Y.). 
"I mean, your ship is going to go down and you're going to be lashed to the mast unless you start talking to us about what happened." 
Berardino, who headed Andersen's audit practice before becoming its chief executive about a year ago, said Andersen was still trying to gather the facts. 
"I don't know, with authority, what we knew and when we knew it," he told the Financial Services subcommittee on capital markets, one of several congressional panels investigating Enron's collapse. 
Separately, a spokesman for Andersen said yesterday that its auditors went to Enron's board earlier than was previously known with concerns about possible illegal activity. 
The first approach was in August, after the emergence of a letter from executive Sherron Watkins to Lay warning of widespread accounting irregularities, spokesman Charlie Leonard said. 
Federal law requires auditors to alert the SEC when they suspect illegality and the board or management does not address it. In this case, Andersen personnel went to the board but not to the SEC because they were assured the board was investigating the matter, Leonard said. 
Andersen previously said it had alerted the board to possible illegal activities last fall as Enron unraveled. 
As lawmakers search for ways to prevent future Enrons, Rep. Richard H. Baker (R-La.), chairman of the House subcommittee, floated what would be a fundamental change in the auditing business -- having stock exchanges hire the auditors. Currently, auditors are hired by the companies they are responsible for auditing -- an arrangement that some lawmakers say deters them from challenging dubious corporate accounting. 
In other developments yesterday, President Bush rejected a call by Sen. Ernest F. Hollings (D-S.C.) for a special prosecutor to investigate Enron, saying his Justice Department could do the job. Enron was a major contributor to the Bush presidential campaign and has ties to a number of administration officials. 
The House Energy and Commerce Committee yesterday subpoenaed former Enron chief financial officer Andrew S. Fastow to appear at a hearing tomorrow. Fastow's attorneys originally told the committee he would appear voluntarily, but they later informed the committee he had "a change of heart," committee spokesman Ken Johnson said. Fastow, who organized some of Enron's largest partnerships and earned at least $30 million from running them, intends to assert his Fifth Amendment right against self-incrimination, Johnson said, but he will be required to do that in front of the committee. 
Fastow has hired criminal lawyer John Keker of San Francisco, who prosecuted Oliver L. North in the Iran-contra affair, to represent him in the Justice Department's criminal investigation. 
Andersen's chief executive yesterday made his second voluntary appearance before the capital markets subcommittee, and lawmakers praised him for testifying. But that was one of the few things they gave him credit for during about four hours of stern questioning and speechifying. It was a much more skeptical reception than Berardino received from the same lawmakers in December, when he faced few if any probing questions. That appearance, however, took place before Andersen acknowledged that it had destroyed numerous documents pertaining to its work at Enron, and before the Powers report said it "did not fulfill its professional responsibilities" in its Enron work. 
Berardino said auditing is "a hard job" and Andersen personnel "are trained to do the right thing." 
"But we are human beings, and we may not get it right every time. I'm not apologizing for that," he said. 
Rep. Max Sandlin (D-Tex.) asked Berardino to consider "the people whose lives . . . you helped destroy," a reference to Enron employees who lost their jobs and the bulk of their retirement savings when Enron collapsed. Rep. Michael E. Capuano (D-Mass.) said Andersen "blew it so badly." 
The report commissioned by Enron directors accused Andersen of failing in its responsibilities and helping Enron create a web of transactions designed to hide debts and losses. In the process, the report said, Andersen accountants "had to surmount numerous obstacles presented by pertinent accounting rules." 
For example, the report said Andersen advised Enron each step of the way about transactions with a group of off-the-books partnerships known as the Raptors, which "had little economic substance." 
The Raptor transactions accounted for about $1.1 billion of the $1.5 billion of pretax income Enron reported during the five quarters that preceded Enron's December bankruptcy filing. 
Berardino said Andersen approved deals involving the partnerships but didn't come up with the ideas for them. The accounting firm was reacting to plans developed by Enron personnel, investment bankers and others, he said. 
"Suffice it to say that we were very much involved, as the company was, setting up these transactions, giving our advice on whether they would pass the rules," Berardino said. That was part of Andersen's job as auditor, he said. 
"The point I would like to emphasize is, at the end of the day, these are the company's financial statements," Berardino told the committee. "We cannot make a company report any more than what the rules require," he said. 
Berardino called for a major overhaul of accounting and auditing, saying that simply tinkering with the system would fail to prevent further financial debacles. He said stronger discipline is needed because today "punishment is not sufficiently certain to promote confidence in the profession." 
The Andersen chief said auditors should rate the quality of a company's accounting instead of just issuing a pass or fail grade, as they now do. He told lawmakers that Andersen will no longer serve as both internal and outside auditor for the same company -- as it did at Enron -- and will stop consulting to audit clients on the design and implementation of their financial information systems. 
Berardino said such activities accounted for "very, very little" of the $52 million Andersen received from Enron in 2000. 
Some lawmakers called on Berardino to stop consulting to audit clients altogether. 
Meanwhile, Deloitte Touche Tohmatsu, the global parent of accounting firm Deloitte & Touche, said it will announce today that it intends to split off its $3.5 billion management-consulting business, following a similar announcement last week by fellow Big Five accounting firm PricewaterhouseCoopers. 
Staff writer Susan Schmidt contributed to this report.

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

A Section
$270 Million Man Stays in the Background
Peter Behr and Robert O'Harrow Jr.
Washington Post Staff Writers

02/06/2002
The Washington Post
FINAL
A01
Copyright 2002, The Washington Post Co. All Rights Reserved

Lou Pai struck many colleagues as the brightest brain at Enron. Others say he was notable for helping to produce some of the company's biggest business disasters while head of Enron Energy Services, the Houston firm's effort to sell electricity to retail customers. 
The 54-year-old Pai certainly stands out as the company's biggest winner amid financial devastation -- he sold $270 million of Enron stock in the 16 months before he resigned last July.
Because of his stock sales, he, along with other senior Enron executives and board members, is being sued by shareholders. But so far he is one of the second-tier players in the Enron drama. He was not named in the Enron board's special report on the partnerships run by the company's chief financial officers. He has not been called to testify by the myriad congressional committees probing Enron's collapse. 
But Pai's role at Enron illustrates some central themes in the company's rise and fall, according to former executives and colleagues. 
His windfall from Enron stock sales highlights a compensation strategy that provided huge rewards to top executives who launched new business or created major new trading opportunities for the Houston company. Some company critics say this reward structure led Enron to take greater and greater business risks that finally caught up with the company last year. 
There are allegations that the retail energy business Pai headed until last year racked up hundreds of millions of dollars in trading losses in 2000, according to a memo written by former Enron manager Margaret Ceconi. She contends that those losses were effectively hidden when the division was combined with a much larger wholesale energy operation around March 2001. 
An Enron spokesman has disputed that allegation. 
Pai, who lives with his second wife in Houston's Sugar Land suburb, declined, through one of his attorneys, to be interviewed for this report. 
A source close to Pai said Pai "doesn't know anything" about the alleged hidden losses. She called Pai "a consummate professional" who also knows nothing about the partnerships accused of hiding company losses and inflating earnings. "Lou was an operations guy" who had "nothing to do with accounting," she said. 
Pai is "a very quiet guy," the source added. "If you walked into a room of people, you would not pick him out as the guy with all the money," she said. 
There were signs Pai was willing to spend freely, however. He, and possibly other partners, bought 77,000 acres of Colorado mountain land since 1999 for at least $23 million, according to press reports in that state. 
In the spring of 2000, about the time he was going through a divorce, Pai was intent on buying a house. He told people he wanted to have a home for his son to visit during a break from college. 
The house he chose in the Tanglewood section of Houston had been on the market for only a day or two. He paid just over $900,000 in cash, according to a person familiar with the deal. "There was hardly anybody ever at the house. Within six months, the house was back on the market," the person said. 
The source close to Pai said he used tens of millions of dollars of the proceeds from his Enron stock sales for his divorce settlement in 2000. 
Pai is the son of a distinguished aeronautics engineering professor at the University of Maryland, Shih-I Pai, who died in 1996. He himself earned an undergraduate degree at Maryland in 1970 and a master's degree in economics there three years later. 
Pai worked at Conoco Inc., another energy company, before joining Enron in 1987. Three years later he was part of a new group of executives forming around Jeffrey K. Skilling -- later the company's chief executive -- bent on turning Enron from a dowdy natural gas pipeline company into a fast-paced energy-trading firm. 
Quiet-spoken and diminutive, Pai did not push his way into discussions, associates said. He did win notice for his ability to devise ingenious energy-trading strategies that covered a variety of business risks, including sharp swings in prices and changes in the weather, they added. 
Working first for the corporate planning group, he helped set up one of the company's first risk-management units. It used complex financial contracts to help protect Enron's natural gas investments against sharp price swings. 
That became a model for Enron's wholesale electricity-trading business, Enron Capital & Trade Resources, which led in turn to the creation of the company's retail energy unit. 
Pai's expertise was strong enough to insulate him from the first of his setbacks as a manager, Enron's attempt to sell retail electricity to households and commercial customers in California and East Coast states as energy deregulation began in those states in the mid-1990s. 
In 1997, Pai became chairman of Enron Energy Services (EES), the company unit handling retail energy marketing. Thomas E. White, now secretary of the Army, was vice chairman of the unit from 1998 until last year. 
A year later, however, after spending $15 million to promote the unit's services with Super Bowl ads and other promotions, Enron gave up in California -- the costs of competing against the state's utilities were too high. 
Outside California, the move toward electricity deregulation was halting, despite state-by-state lobbying by Enron's political teams. 
But Pai wasn't through, and EES shifted its sights to large commercial and industrial customers while spinning off its power-marketing operation for households to a new subsidiary called New Power Co. 
In one interview in 2000, Skilling called Pai "my ICBM," an intellectual missile instantly launched at new ventures. "He can conceptualize it, bring in the right people, and get it up and running fast," Skilling said. 
But the creation of New Power as a separate unit was an admission that EES had failed at consumer retailing, said Marc E. Manly, a managing director of New Power, now a separate company. 
"They didn't know how to do it," Manly said of Enron's efforts in the field. "They failed miserably." While remaining at Enron and EES, Pai was given the chairmanship of New Power when Enron spun it off as a publicly traded firm in 2000. 
He showed his loyalty by investing $5 million in New Power. And Enron reciprocated, giving Pai 2 million shares of New Power stock. 
"That was an arrangement with Lou," Manly said. "He was in at the beginning of this, the originator of the idea of the company, and Enron worked out a compensation arrangement. . . . We had to abide by the commitment Enron had made with Lou." 
Pai is listed in the latest New Power company filings as its largest single shareholder, with 3.4 million shares. While Pai's timing in his sales of Enron shares was fortunate, that wasn't the case with New Power. 
The stock went public in October 2000 at $21 a share. But the public's resistance to electricity deregulation after the California crisis and a steep drop in electricity prices has battered New Power's operations. It's stock closed yesterday at 36 cents a share. 
While running EES in 1999, Pai began purchasing the Taylor Ranch in southern Colorado, on the west side of a mountain range that rises to 14,000 feet and runs down almost to the New Mexico border. 
Exactly how much Pai owns and controls isn't clear. Before Pai bought the land, the owner had tried to keep local residents off the sprawling site, barring them from hunting and gathering wood. Pai has continued to oppose access and now is the target of a 20-year-old lawsuit over the issue. 
Lawyer Jeff Goldstein, who has represented local residents suing the ranch, said it's Pai's property. "There is no question that he is the principal. He goes there and seems to be running the show," Goldstein said. 
But as with Enron's entities, the exact ownership is murky, Goldstein said. The listed owners are partnerships. 
Researcher Lucy Shackelford contributed to this report.

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

Financial Desk
THE NATION Enron Execs Sold Stock as Losses Grew Probe: The $44-million sell-off came amid concern that problems at partnerships could become public. The action raises questions of possible insider trading.
JEFF LEEDS; THOMAS S. MULLIGAN
TIMES STAFF WRITERS

02/06/2002
Los Angeles Times
Home Edition
A-1
Copyright 2002 / The Times Mirror Company

HOUSTON -- A handful of senior Enron Corp. executives sold $44 million in company stock while concerns were growing inside the company that losses racked up by a group of obscure partnerships could spill into public view, records show. 
The huge investment losses by the four so-called Raptor partnerships were disclosed months later and played a key role in forcing Enron in October to say it had overstated the value of the company by $1.2 billion, spurring the company's filing for Chapter 11 bankruptcy protection Dec. 2.
Stock sales by Enron executives before the company's descent previously have come under a spotlight, but the timing of the sales gained new significance with the release Saturday of an internal Enron investigation that detailed the executives' knowledge of the Raptor problems. 
Four Enron executives--including former President and Chief Executive Jeffrey K. Skilling and former Chief Financial Officer Andrew S. Fastow--sold about $44 million in stock from Aug. 7, 2000, when the Raptor problems became known internally, through March 26, 2001, when the partnerships were restructured to prevent disclosure of losses, according to a review of stock sales Tuesday. 
There is no evidence that the sales were directly related to knowledge of the problems facing the Raptors. But any stock sales by executives based on information not available to the public could be construed as trading on inside information, a federal crime, according to a Washington securities lawyer who declined to speak for attribution. 
The executives--Skilling, Fastow and Chief Accounting Officer Richard A. Causey and Chief Risk Officer Richard B. Buy--could not be reached for comment. 
During the period Aug. 7, 2000, to March 26, 2001, Skilling had stock sales totaling $28.2 million, and Fastow sales totaling $4.3 million, according to data compiled by Thomson Financial, a securities research firm. 
Causey's sales totaled $7.1 million and Buy's totaled $4.3 million, Thomson said. 
The sales came at a time when Enron executives were concerned that losses by the Raptors could force damaging public disclosure. The fear of disclosing those losses led Enron to expand and restructure the Raptors during an eight-month period in 2000-01 to keep its losses off the corporate books, according to an Enron board committee's internal report issued Saturday. 
Only an elaborate reorganization of the Raptors last March 26 saved Enron from having to disclose a $504-million loss on its first-quarter financial statements, according to Enron's internal report. 
Starting April 18, 2000, Enron created the first of four Raptor entities so that losses in its investment portfolio (including stocks) would not show up on Enron's income statement, the internal report said. The Raptors, which were little known beyond a small group of corporate insiders, allowed the energy company to hedge, or shield itself from, future losses on its investment portfolio by shifting some of the risk to the Raptors. 
Enron provided the initial funding for three of the Raptors with shares of its own stock. Each one also received a modest investment from a related partnership headed by Fastow. 
In essence, the Raptors agreed to cover potential losses on certain Enron investments. As long as the value of the Enron shares backing the Raptors held up, the entities would be able to pay their debts to the energy giant. Enron counted the debts owed by the Raptors as income, offsetting losses from its portfolio. 
Soon after creating the Raptors, however, Enron executives learned how quickly they could slip into trouble. 
According to the report, Skilling, Fastow, Causey and Buy attended an Aug. 7, 2000, meeting of Enron's finance committee in which Treasurer Ben Glisan noted that the credit capacity of Raptor I was "almost completely utilized and that Raptor II would not be available" until months later. The committee recommended creating a Raptor IV, but before that could be activated executives created, without board approval, Raptor III without informing the board. 
Unlike the other entities, Raptor III was not backed by Enron stock, making it what the internal investigation called an "extraordinarily fragile structure." 
One day after Raptor III became active, on Sept. 28, 2000, Causey exercised 61,097 stock options and sold an additional 19,536 shares, netting $5.4 million, according to the analysis by Thomson. That was one of only four days Enron's chief accounting officer has traded shares, according to Thomson. 
By late 2000, two of the entities, Raptor I and Raptor III, were essentially insolvent, lacking the credit to be able to pay back their debts, the report said. 
Raptor III was in especially bad shape. Unlike the three other entities, Raptor III was essentially backed by shares of New Power Co., an Enron spinoff that quickly foundered after going public. But under the deal designed by Enron accountants, the more that New Power shares fell, the more money Raptor III owed Enron. 
New Power went public Oct. 5, 2000. By mid-November, the stock had lost 50% of its value, threatening to wreak havoc with the Raptor structure and force Enron to disclose huge losses, according to the internal report. 
On Nov. 7, Fastow sold 52,080 shares at $83 each for a gross of $4.32 million. Filings reviewed by Thomson did not indicate Fastow's cost, so his net gain on the sales is unclear. Stock sales by Fastow earlier in the year--after the Raptors had been devised but before they showed signs of serious trouble--netted him an estimated $3.4 million. 
To avoid having to disclose a huge loss, Enron executives on Dec. 22, 2000, merged the credit of the four Raptors under a 45-day pact, allowing Enron to avoid reporting a credit-reserve loss in its year-end financial statements. 
In early January, Enron accountants began work to develop a more permanent solution to replace the 45-day agreement, according to the internal report. The accountants designed a complex restructuring that took effect March 26, 2001. 
"We were told that, during the first quarter of 2001, Skilling said that fixing the Raptors' credit capacity problems was one of the company's highest priorities," the report said. 
Skilling has disputed that account. He told the board investigation team, led by Texas Law School dean William Powers, that he recalls being informed of the Raptors' credit problems "in only general terms" and that he understood the matter to be "an accounting issue." 
The committee found that "either Skilling was not nearly as involved in Enron's business as his reputation--and his own description of his approach to the job--would suggest, or he was deliberately kept in the dark by those involved in the restructuring." 
By February 2001, Enron accountants were providing daily reports of the credit status of at least two of the Raptors to Causey and Buy, according to the internal report. 
Tension built through March 2001, according to the report, after executives became aware that Enron would have to take a pretax charge against earnings of about $504 million to reflect the shortfall in credit capacity of Raptors I and III. 
Buy, who had not traded any Enron shares since becoming Enron's chief risk officer in mid-1999, began an intense sell-off Jan. 2, 2001. According to Thomson's analysis, the 54,874 shares he sold from that date through March 5 of that year are the only shares he has sold since taking that post. The sales netted him an estimated $2.8 million. 
For his part, Enron's since-ousted chairman and chief executive, Kenneth L. Lay, knew of the creation of the Raptors, the internal report said. But investigators said they found no evidence that Lay, who stepped aside as CEO in February 2001 in favor of Skilling, was aware of the entities' debts and reorganization. 
On Aug. 24, 2000, Lay exercised 140,230 options and sold 75,000 shares, netting a $4.09-million profit on the day. On Nov. 1, he settled into a pattern, selling blocks of 1,000 to 4,000 shares almost every day until August 2001. 
In hindsight, the committee said, Enron's top executives, as well as outside advisors including accounting firm Andersen, should have kept closer oversight ofthe Raptors and other partnerships. 
"The creation, and especially the subsequent restructuring, of the Raptors was perceived by many within Enron as a triumph of accounting ingenuity by a group of innovative accountants," the committee report said. "We believe . . . especially after the restructuring, the Raptors were little more than a highly complex accounting construct that was destined to collapse." 
Leeds reported from Houston, Mulligan from New York. 
* 

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

Business/Financial Desk; Section C
ENRON'S MANY STRANDS: THE MANAGEMENT
2 Officials Are Expected To Leave the Company
By REED ABELSON

02/06/2002
The New York Times
Page 9, Column 5
c. 2002 New York Times Company

Two of the senior Enron executives who were sharply criticized in a report by a special committee of the board are expected to leave the company. 
Members of the senior staff at Enron have been told that Richard A. Causey, the chief accounting officer, and Richard B. Buy, the chief risk officer, are expected to leave the company and are currently negotiating the terms of their departures.
The situation is in flux, according to people close to the board. 
While the report examined the role of other executives who remain at Enron, including Jeffrey McMahon, Enron's new president, and James V. Derrick Jr., the general counsel, it focused on the responsibilities of Mr. Causey and Mr. Buy in providing accounting and risk-management controls at Enron. 
An Enron spokesman and a lawyer for Mr. Causey and Mr. Buy did not return phone calls seeking comment. 
None of the four executives had a direct role in the arrangement outlined in the report that used the partnerships to inflate profits and enrich some employees. But none of the executives alerted the board to troubling signs that these partnerships posed problems, according to the report. 
Mr. Causey, Mr. Buy and Mr. Derrick were all broadly responsible for overseeing what the company told investors about the partnerships, and they all played a part in the general oversight of Enron's finances. 
Mr. Derrick's lawyer, J. Clifford Gunter, said Mr. Derrick could not comment on the report. 
But the two executives with explicit duties to oversee the partnerships, reviewing transactions between the partnerships and the company, were Mr. Causey and Mr. Buy. While the report says they did not ignore their duties, ''they interpreted their roles very narrowly and did not give the transactions the degree of review the board believed was occurring.'' As the most senior accounting officer, Mr. Causey was ultimately responsible for Enron's financial reporting, according to the report. ''He presided over and participated in a series of accounting judgments that, based on the accounting advice we have received, went well beyond the aggressive,'' said the report. 
Mr. Causey also had a significant role in the decisions surrounding what Enron would make public, according to the report. Although the report depicted him as relying on the advice of the company's outside accountant, Arthur Andersen, he was described as ''the final arbiter of unresolved differences among the various contributors to the financial reporting process.'' 
The report concluded that Enron's disclosures, involving the compensation of the former chief financial officer involved in the partnerships and a variety of transactions between the partnerships and the company, ''were fundamentally inadequate.'' 
Because of Mr. Causey's specific responsibility ''with reviewing Enron's transactions with the LJM partnerships,'' he should have been in a position to provide advice concerning the disclosures, according to the report. ''The evidence we have seen suggests he did not.'' 
The report criticized Mr. Buy for neglecting his role in reviewing and approving all of the transactions between the partnerships and Enron. Mr. Buy never followed a procedure to identify all the transactions and did not, in the report's words, ''affirmatively'' carry out his responsibility for carefully reviewing the economic terms of all of the transactions. 
The Wall Street Journal reported yesterday that both Mr. Causey and Mr. Buy were being placed on leave. 
The board's report provides less detail on the role of Mr. Derrick, Enron's general counsel, who oversaw the dozens of in-house lawyers involved. The report does, however, suggest that Mr. Derrick and Enron's in-house legal staff played some role in determining what Enron told the public, in conjunction with the company's outside accountants and lawyers. 
Mr. Derrick was also at the center of Enron's investigation of the concerns raised by Sherron S. Watkins, an Enron executive, last August, according to the report. In consultation with Kenneth L. Lay, Enron's chairman, he selected Vinson & Elkins, despite potential conflicts, as the law firm to conduct the preliminary inquiry and severely limited its range. ''The scope and process of the investigation appear to have been structured with less skepticism than was needed to see through these particularly complex transactions,'' the report said. 
Even Mr. McMahon, who was named Enron's president last month as part of the team now leading Enron's restructuring, appears to be among the many executives who failed to speak up, according to the report. While Mr. McMahon raised doubts about the partnerships as early as March 2000, according to the report, he appears never to have voiced them to Mr. Lay or the board. 
All four executives were named in a lawsuit concerning possible insider trading because of their sales of Enron stock in recent years. According to the lawsuit, Mr. Causey sold $13.3 million in stock, Mr. Derrick sold $12.7 million, Mr. Buy sold $4.3 million and Mr. McMahon sold $2.7 million. Mr. Derrick never exercised a single option that was not about to expire, according to his lawyer. 
In the end, the report highlights what appear to be a series of failures of the various checks in place that led to $1 billion in false profits and the crisis in confidence that culminated in Enron's filing for bankruptcy last fall. At any point, concerns raised by the legal, accounting or risk-management executives involved might have prevented the company's collapse, according to Robert Mittelstaedt Jr., a professor at the Wharton School of the University of Pennsylvania. 
''It takes a whole series of mistakes to go so very badly,'' he said.

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

Business/Financial Desk; Section C
ENRON'S MANY STRANDS: CONGRESSIONAL MEMO
Investigators Buying Time For Inquiry
By DON VAN NATTA Jr.

02/06/2002
The New York Times
Page 1, Column 2
c. 2002 New York Times Company

WASHINGTON, Feb. 5 -- Kenneth L. Lay backed out of his date with Congress this week, but his refusal to testify voluntarily only served to increase the resolve of politicians to get the truth about the fall of the Enron Corporation, even if they never get the opportunity to hear the former Enron chairman's side of the story. 
Two panels sent subpoenas today to Mr. Lay, but lawmakers said they were almost certain Mr. Lay would refuse to answer their questions and would instead invoke his Fifth Amendment right against self-incrimination. Two other former Enron executives, Andrew S. Fastow and Jeffrey K. Skilling, are also expected by lawmakers to decline to testify.
Yet in the end, the former Enron executives' refusal to cooperate may represent little more than a speed bump to the 11 Congressional inquiries focusing on the many strands of the largest bankruptcy case in American history, Congressional leaders and staff members said today. 
The extension of the Congressional inquiries is a mixed blessing for the White House because the Enron examination on Capitol Hill will continue to be a distraction from the Bush administration's war on terrorism and its efforts to invigorate the economy. 
Congressional staff members say the Enron executives' refusal to testify now will allow staff members more time to comb through more than two million Enron documents and assemble the many pieces of a very complex corporate puzzle. 
''It helps us more than it hurts us,'' Ken Johnson, spokesman for the House Committee on Energy and Commerce, said of the delay in hearing from the former executives. ''The game plan was always to bring in the underlings first and set the stage for an appearance by Mr. Lay and the other senior executives when we have more evidence.'' 
In 1994, as a House panel inquiry on the tobacco industry was just beginning, seven tobacco executives voluntarily testified and swore under oath that nicotine was not addictive and they did not market cigarettes to children. Later in the inquiry, the panel obtained a slew of documents that undercut many of the statements made by the tobacco executives. But when Republicans seized the leadership of the House in 1995, the executives were not required to testify again after the Republicans closed the inquiry. 
Mr. Lay's refusal to testify served as a reminder on Capitol Hill that the Bush administration has refused to cooperate with a related Congressional inquiry. Several Democratic leaders on Capitol Hill aimed their anger over Mr. Lay's refusal to cooperate squarely at the White House. 
The Bush administration has rejected a request by the General Accounting Office, the investigative arm of Congress, for a list of energy industry executives, including some from Enron, who met with Vice President Dick Cheney's energy task force last year. The accounting office is expected to file a lawsuit against Mr. Cheney and the administration. 
''The appearance is awful,'' said Philip M. Schiliro, the chief of staff for Representative Henry A. Waxman, Democrat of California. ''Lay is reversing himself and refusing to voluntarily testify, and at the same time the administration is continuing to refuse to cooperate with the Congress. It's hard to believe that's a combination the administration wants.'' 
Mary Matalin, counselor to the vice president, portrayed some Democrats' anger at the White House as ''playing politics with Enron.'' 
''As we've been saying from the beginning, we are greatly saddened by the Democrats who prefer to play politics with this difficult issue as opposed to joining the president to form policies that will ensure this will never happen again,'' Ms. Matalin said. 
Another senior administration official scoffed at the idea that the Enron collapse was anything but a corporate scandal. ''People think Ken Lay is Satan,'' the official said. ''They don't think we are and they don't think some G.A.O. process story is the equivalent of lying and robbing people.'' 
Mr. Lay had agreed in December to appear on Feb. 4 before the Senate Commerce Committee. But his offer occurred before many of the most damning revelations about Enron, which was capped over the weekend by a highly critical report by a committee of Enron's board.

Photos: Senator Ernest F. Hollings, left, listened as Senator Byron L. Dorgan, in glasses at right, said he favored issuing a subpoena to Kenneth L. Lay. At right, a copy of the subpoena issued by a House committee. (Paul Hosefros/The New York Times) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business; Business Desk
Enron Team Says Lay Took Some Blame Hearings: Former chief admits lapse in oversight, according to internal investigator questioned by lawmakers.
RICHARD SIMON and EDMUND SANDERS
TIMES STAFF WRITERS

02/06/2002
Los Angeles Times
Home Edition
C-1
Copyright 2002 / The Times Mirror Company

WASHINGTON -- Former Enron Corp. Chairman Kenneth L. Lay acknowledged to company investigators that he should have kept a closer eye on the energy trader's financial operations, but he also pointed the finger at subordinates, the head of the company's internal investigation told Congress on Tuesday. 
"I think he felt he had not been watching carefully enough, but he certainly felt he had been betrayed," said William C. Powers, whose team interviewed Lay as part of a recently released report examining the company's collapse.
Meanwhile, lawmakers grilled Joseph F. Berardino, the head of Enron's former outside auditor, Andersen, for destroying thousands of documents related to Enron and for helping to create some of the off-the-books partnerships that led to Enron's demise. 
"Your company helped set these up," said Rep. Paul E. Kanjorski (D-Pa.). "You're not some innocent coming in here as an auditor and having all these transactions that are out there and you're just looking at them. You went through the intellectual analysis of how to do these things." 
House and Senate committees still want to hear directly from Lay, issuing subpoenas Tuesday for him to appear next week. He and another star witness--former Chief Financial Officer Andrew S. Fastow, who has been asked to appear on Thursday--are expected to invoke their 5th Amendment right against self-incrimination. 
Lay was summoned to appear Feb. 12 before the Senate Commerce Committee and Feb. 14 before the House Financial Services subcommittee on capital markets. 
Lay spokeswoman Kelly Kimberly, asked about whether Lay would invoke the 5th, said, "He is still determining his strategy for how to handle the hearings." 
Unable to hear from Lay, members of the House Energy and Commerce subcommittee on oversight and investigations sought to find out from Powers, dean of the University of Texas law school who joined Enron's board last fall, exactly what the former Enron chief knew and when he knew it. 
The Houston-based energy company--once one of the nation's largest and best-connected corporations--sought bankruptcy protection Dec. 2 amid questions about its accounting practices. Less than a month before filing for Chapter 11, Enron revealed previously unreported losses of $586 million over the previous 4 1/2 years. 
Powers, whose team spent four hours interviewing Lay during its internal probe, said Lay was aware Enron was using company stock to hedge against investment losses. 
"He didn't understand or appreciate that there was anything wrong with that," Powers told the committee. "I don't know whether that's credible. That's his story." Lawmakers said they hope to secure notes of Powers' interviews of Lay and other senior officials. 
Powers' 203-page report, released late Saturday, concluded that accounting abuses masked more than $1 billion in losses in a one-year period and assigned widespread blame to Enron management, accounting firm Andersen, company lawyers and Enron's board for creating--and then failing to oversee--a series of partnerships that sparked the company's bankruptcy filing. The report noted that Lay, a major fund-raiser for President Bush, was "captain of the ship" for most of the time that abuses were occurring and "bears significant responsibility for ... flawed decisions" of subordinates. 
Powers said the Enron investigating team also met briefly with Fastow, but "very little information was forthcoming"--a sign of the challenge before Congress in grilling the man who is regarded as the expert on the partnerships. 
Powers told the committee that Andersen stopped cooperating with Enron's internal investigation once the company fired the accounting firm, saying the auditors had destroyed documents sought by government investigators. 
But Andersen's chairman, Berardino, said the firm offered to assist Powers but was not contacted by his team after the Jan. 17 firing. 
At his second appearance before a House Financial Services subcommittee, Berardino offered few new details about why Andersen destroyed documents and failed to warn investors about Enron's questionable accounting practices. 
Asked about the shredding, Berardino said, "I'm embarrassed by what happened at my firm." 
But Berardino repeatedly said he did not know the details of Andersen's business dealings with Enron, whether Andersen employees knew about problems or what documents were destroyed. "How could you not know?" asked Rep. Richard H. Baker (R-La.). 
"Maybe it's better to be dumb than culpable, but we want some answers," said Rep. Gary L. Ackerman (D-N.Y.). 
Andersen has not completed its own internal investigation into the Enron matter. Berardino disputed allegations in the Powers report that the firm was instrumental in creating some of the questionable partnerships. "It's not like we were running around town shopping these things," he said. He said Andersen merely reviewed proposals made by Enron managers. 
At a separate House hearing, Rep. W.J. "Billy" Tauzin (R-La.), chairman of the House Energy and Commerce Committee, said that congressional investigators were finding that "there was no legitimate purpose in the construction of some of these deals except in the defrauding of investors." 
Investigators also have found that "some [investment] banks were told they'd get special bond deals if they would put the money up for some of the partnerships," Tauzin said. 
A Tauzin spokesman declined to elaborate.

PHOTO: Enron director William C. Powers testifies before the House.; ; PHOTOGRAPHER: Agence France-Presse 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Astros want out of naming-rights deal 
By ERIC BERGER 
Copyright 2002 Houston Chronicle 
Feb. 6, 2002, 1:55AM
Saying Enron's collapse has "tarnished the reputation of the Houston Astros," the club sought a court order Tuesday to get out of its naming-rights agreement with the company. 
With the 2002 season looming, lawyers for the team asked U.S. Bankruptcy Judge Arthur Gonzalez to force Enron to accept or reject the agreement that has kept the company's name on the ballpark and virtually all related materials since it opened. 
Enron almost certainly couldn't make another payment on the 30-year, $100 million contract, so it would have to relinquish the Enron Field name and allow the Astros to sell the rights to another bidder. 
"We felt like we needed to take an aggressive stance," said Astros owner Drayton McLane. "We just find it kind of embarrassing that we're tangled up in all of this." 
Since Enron filed for bankruptcy Dec. 2, McLane said, the team has tried to renegotiate the agreement, which also requires the company to lease a large luxury suite and buy 35 season tickets for box seats. 
McLane said he and his assistants have had one meeting with the company's then-chairman, Ken Lay, and more talks with other executives, including Cindy Olson, an Enron executive vice president. 
"Ken said he was going to follow through, but it just never unfolded," McLane said. 
Enron officials responded that their main concern is trying to recover some or all of the $3.4 million they paid the Astros last August. The next annual payment, for $3.65 million, is due Aug. 31. 
Company spokesman Mark Palmer said Enron is acting on behalf of its creditors. To comply with the terms of the contract, the company paid $108,000 for a 14-person luxury suite on Jan. 22, and nearly $90,000 for the 35 season box seats on Monday. 
"Let me get this right," Palmer said, "they're upset that we're living up to our contractual obligations?" 
With opening day less than two months away, the club faces the embarrassing possibility of having the Astros continually linked to a disgraced and bankrupt company. 
Palmer said Enron is ready to talk buyout. 
Because Enron has not defaulted on its payments, there is no way for the Astros to rename Enron field until at least Aug. 31 without negotiating an end to the contract or the judge compelling Enron to accept or reject it. A hearing has been set on the Astros' motion for Feb. 27 in the New York court. 
In a Chapter 11 bankruptcy the debtor, Enron in this case, does not have to accept or reject a contract until it files a reorganization plan, which likely won't happen until this summer, or later. 
In arguing their case, the Astros maintain the association with Enron has hurt their business. McLane said many people believe Enron owns a piece of the club. 
"One thing is clear: The Astros are being perceived in the public and cast in the national media as an affiliate (and even an ally) of Enron even though the Astros have done nothing wrong," Astros attorney Paul K. Ferdinands argues in the legal motion. 
"The court should not allow this irreparable harm to continue." 
In the motion, the Astros say the team has had to devote substantial resources to respond to a "deluge of daily inquiries" about the Astros' relationship with Enron. Also, fans and corporate sponsors may seek to distance themselves from the team because of the association with Enron. 
And the financial uncertainty of whether the company will make its $3.7 million payment this August affects the Astros' ability to field the best team possible, the motion states. 
Judge Gonzalez may well buy none of those arguments, said Nancy Rapoport, dean of the University of Houston Law Center and a bankruptcy law expert. 
"The judge is most likely to say, `Thank you for your motion,' " she said. "There's no rush and there may be more pressing executory contracts." 
At the heart of the dispute is whether Enron could re-license the ballpark's name to another company. In theory, they might be able to profit by selling the name for more than the annual payment to the Astros. 
The team says flatly that Enron cannot, and there are clauses in the contract prohibiting a re-licensing of the name. However, Rapoport said, in bankruptcy court such assignment clauses may not be enforced if they would be to the advantage of the debtor and its creditors. 
Beyond the assignment clauses, however, there is language in the naming rights contract that prevents the ballpark's name from being changed before 2009 without the club's consent, said Pam Gardner, president of business operations for the Astros. 
Even Gardner acknowledged, however, that all bets on even this type of language may be off in bankruptcy court. Either way, the team just wants Enron to be forced to accept or reject the contract, so the matter can be put to rest, she said. 
Despite the negative association with Enron, and a glum economy, there's a good chance the ballpark's name could be resold for $3.3 million annually, possibly even more, said Dean Bonham, of the Bonham Group, a Denver sports marketing firm. 
"I'm very bullish on the Astros eventually coming out on top in this financially," he said. "Part of it is it's quite likely there would be a good bit of public rejoicing for the company that comes in and removes the Enron name." 
McLane said three or four local companies have contacted him about the naming rights, though there have been no negotiations. Bonham said he, too, knows of several interested Houston companies. 

A Section
For Houston Astros, a Sponsorship Turns Sour
Paul Duggan
Washington Post Staff Writer

02/06/2002
The Washington Post
FINAL
A10
Copyright 2002, The Washington Post Co. All Rights Reserved

At the start of the 2000 baseball season, when the gates opened at Enron Field, the Houston Astros' new, $250 million, state-of-the-art ballpark, "we just could not have been prouder to see that name up there," recalls Pam Gardner, the team's president of business operations. After all, Enron Corp. stood for vibrancy, for innovation, for success. 
"Unfortunately," Gardner noted yesterday, "things have changed."
Oh, have they ever. 
There's nothing proud about Houston-based Enron anymore. And the Astros, as Gardner politely put it, "would like to move in another direction" with the ballpark name. Worried about "the negative public perception" of the bankrupt, scandal-tainted energy trader, Gardner said, the team wants out of its 30-year, $100 million-plus naming rights contract with the company. But Enron won't play ball. 
The dispute, which surfaced yesterday, seems a mere sideshow to this week's congressional hearings on Enron's questionable financial practices. But as Astros officials see it -- staring up at that name, writ bright and huge on a facade high above the right field seats, among other places -- their lovely, 42,000-seat stadium might as well be called "Bankruptcy Ballpark." 
"It's a perception issue," Gardner said. 
The problem for the Astros is that Enron, despite its financial problems, has been making its annual payments under the contract, and its next installment, $3.7 million, isn't due until August. Enron also has held up its contract obligations on leasing a luxury box and buying season tickets, Gardner said. 
"We are continuing to honor our agreement," Enron spokeswoman Karen Denne said, adding that the naming rights "are a valuable asset, and it is our responsibility to preserve that asset for [Enron's] creditors." She said lawyers for Enron are reviewing the contract to determine whether the rights could be sold, to help satisfy Enron's creditors. 
Astros lawyers say the contract does not allow such a sale, Gardner said. 
Denne suggested that Enron would agree to give up the naming rights for a price. "We've had some discussions, but they haven't offered to do that," she said of a potential buyout. 
Gardner said Astros officials have scoffed at the idea. 
It remains to be seen whether the bankruptcy court in New York that is handling Enron's case will let the company retain the naming rights when the next contract payment comes due in August. The Astros this week asked the court to decide the issue now, rather than wait until summer. 
"The allegations against Enron have been overwhelming," Gardner said. "Fan response has intensified in the last several weeks. A lot of people think the relationship between Enron and the Astros is stronger and closer than just a sponsorship agreement." 
The team and company used to have a strong and close relationship. 
Enron's then-chairman, Kenneth L. Lay, "did a whole lot of work to get this [stadium] built downtown," Gardner said. "He was instrumental in the process, talking to a lot of people, convincing a lot of people that it was the right thing to do." 
The ballpark, with its natural grass and nostalgic design, is owned by the Harris County-Houston Sports Authority and leased to the Astros for $7 million a year. It replaced the Astrodome as the team's home. 
Opening day is less than two months away. 
And the Astros are anxious. "When you're a baseball team, you're viewed as a public trust," Gardner said. "We don't want everybody focusing on the name of our field."

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

Business/Financial Desk; Section C
ENRON'S MANY STRANDS: A SPORTS CONNECTION
Astros Cry Foul and Try for an Enron Pickoff Play
By JONATHAN D. GLATER

02/06/2002
The New York Times
Page 9, Column 3
c. 2002 New York Times Company

It is not often that a Major League Baseball team wants to prevent a corporation from buying box seats and other stadium goodies, but then, it is not often that a big company loses billions of dollars in shareholder equity before going spectacularly bankrupt in an exploding accounting scandal. 
That company, of course, is Enron, and the baseball team is the Houston Astros, which barring some change will start the season playing at Enron Field.
Yesterday, the Astros asked a federal bankruptcy court to force Enron either to pledge to honor its obligations under a contract that gives the stadium its name or to reject the contract and free the Astros to negotiate a naming deal with somebody else. The Astros say that for Enron to continue to make payments under the name contract costs its creditors money and will earn them nothing; Enron says it can sell the right to name the stadium to another company. 
So far, Enron has complied with its obligations to the Astros, and lawyers say its contract can be sold to a third party with the blessing of the bankruptcy court. Enron has paid $75,890 for 35 box seats, said Karen Denne, a spokeswoman for the company; the next payment is not due until August. 
''That naming rights agreement is a valuable asset and the creditors view it as a valuable asset,'' Ms. Denne said. ''It was our responsibility to preserve the value, and we're doing that.'' 
The Astros say that Enron cannot comply with the terms of the agreement and that they want to be able to resell the lucrative naming right to another company. 
''This was not our preferred way to go about this,'' said Pam Gardner, president of business operations for the Astros. ''Since this started a few months ago, we've been trying to work in a new direction'' through negotiations with Enron, she said, but those negotiations did not resolve the dispute. 
Sandra Mayerson, a lawyer representing several creditors in Enron's bankruptcy proceedings, said it was possible that the bankruptcy court could override terms of the the Astros agreement with Enron to allow the company to sell the naming rights. And it is in everyone's interest to rename the field, she added. ''Wouldn't you be kind of anxious to go ahead and have it renamed?''

Photo: Barring a change, the Astros will play at Enron Field this season. (Bloomberg News) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Questioning the Books: Enron's Fall Spurs Desire to Revisit Laws
By Greg Hitt
Staff Reporter of The Wall Street Journal

02/06/2002
The Wall Street Journal
A8
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- The chairman of one of the leading congressional committees investigating the collapse of Enron Corp. says he expects to make a major legislative push this year to address problems arising from the debacle. 
Republican Rep. W.J. "Billy" Tauzin of Louisiana said he wants his House Energy and Commerce Committee to tighten the rules governing investments in the sort of off-balance-sheet partnerships Enron used to hide debt. He also is calling for pension reforms, citing concern about Enron workers who lost their retirement savings. And he voiced support for greater scrutiny -- while not ruling out complete elimination -- of the common corporate practice of having one accounting firm audit the books as well as consult on business practices, as was the case with Enron and its accounting firm, Arthur Andersen LLP.
"We can see several things emerging" from the congressional hearings, Mr. Tauzin said. 
At the same time, though, he warned against legislative overreach, suggesting too-aggressive action "could create incredible problems for the stock market and for investors." He also voiced misgivings about efforts by some on Capitol Hill to turn Enron's collapse into an overtly political matter. 
"My concern is that -- because Democrats have decided to `Enronize' Republicans on this issue -- that the thing gets bogged down politically, and to me that's terrible," Mr. Tauzin said in an interview. "We owe a bigger obligation to the country than an election in November." 
Mr. Tauzin's comments provided the clearest indication yet that lawmakers, despite the distractions of the unfolding election year, won't be content to simply probe Enron's failure. 
In the Senate, key members of the Banking Committee, having lost faith in the accounting industry in the wake of Enron, signaled support for direct federal oversight. Sens. Richard Shelby (R., Ala.) and Christopher Dodd (D., Conn.) said the privately funded accounting group that regulates the industry, the Financial Accounting Standards Board, should be brought under the government control. 
"Can the accounting profession police themselves?" Mr. Shelby asked. "I don't think they can." 
In an appearance before the Senate panel, Federal Reserve Chairman Alan Greenspan agreed changes are needed but cautioned prudence. "It's important to ask what are the consequences," he said. 
Mr. Tauzin, whose panel has sweeping jurisdiction over business regulation in the U.S., is seen as a good barometer of the legislative outlook in the GOP-controlled House. 
As with Mr. Greenspan, Mr. Tauzin, too, counseled some caution. He described the problems at Enron as an "aberration," not necessarily an indication of systemic problems in the business community. And he urged regulators -- such as the Securities and Exchange Commission and the FASB, which has quasi-government status -- to begin moving ahead of Congress to respond to perceived problems. 
But he also made clear his intention to act. "Our obligation to supervise the operation of FASB is real, and I'm going to exercise it," he said. 
Mr. Tauzin cited specific concern with existing accounting rules that allowed Enron to create off-book partnerships with outside investments of as little as 3% and the balance of funding coming from the company. 
"It's a surprise to a lot of people that such a rule exists," he said, suggesting he "thought it was always 50%." He added, "I should think we ought to have a better rule than that." 
Describing the current situation as "not adequate," Mr. Tauzin also indicated his intention to wade into the debate over whether to separate the bookkeeping and consulting services offered by accounting firms. "We have to examine that now in light of Enron," he said. He suggested he is "ready to conclude that we need stronger" oversight of those two accounting roles, but he hasn't yet determined where to draw the line legislatively. 
--- 
Dawn Kopecki of Dow Jones Newswires contributed to this article.

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

Former chairman of Enron to face lawmakers next week 
By JULIE MASON 
Copyright 2002 Houston Chronicle Washington Bureau 
Feb. 6, 2002, 12:21AM
WASHINGTON -- After abruptly canceling on lawmakers Sunday, former Enron Corp. Chairman Ken Lay will answer next week two congressional subpoenas issued Tuesday on Capitol Hill. 
It was unclear whether Lay would answer questions or refuse to testify. 
"I'll bet you a dollar to a doughnut that he doesn't testify and invokes his right under the Fifth Amendment," said Sen. John Breaux, D-La. The amendment guarantees protection against self-incrimination. 
The Senate Commerce Committee is requiring Lay to appear Tuesday, while the House Financial Services Committee has ordered that he appear on Feb. 14, Valentine's Day. Lawmakers said Tuesday the more they learn about the collapse of Enron, the greater the urgency to hear from the former chairman. 
"Any of Enron's officers who claim they didn't know isn't telling the truth," said Rep. Peter Deutsch, D-Fla., "No one has ever accused these people of being stupid." 
Lay for months has remained silent on his role in the complicated outside partnerships and other factors being blamed for the company's stunning financial free-fall. 
In testimony Tuesday, an in-house Enron investigator told lawmakers that Lay failed to closely monitor events leading up to Enron's collapse, and now feels betrayed by other executives. 
Enron attorney Bob Bennett declined to comment on Lay's plans for answering the subpoenas, while Lay spokeswoman Kelly Kimberly confirmed he would appear, but said strategy was still under discussion. 
Lay's attorney Earl Silbert did not return calls. Lay was to have testified before lawmakers this week, but declined to do so less than 24 hours before he was to appear. 
"It's unfortunate that Mr. Lay didn't appear voluntarily as he promised," Rep. Michael Oxley, R-Ohio, and committee chairman, said as he signed the subpoena. "We thought we were dealing in good faith with Mr. Lay and his attorney." 
Lawmakers are not inclined to barter immunity for Lay's testimony, although several expressed continued frustration at his unwillingness to answer questions. 
"Mr. Lay, wherever you are," said Rep. W.J. "Billy" Tauzin, R-La., "Get yourself some new lawyers, sir." 
Tauzin was among a number of lawmakers blamed by Silbert over the weekend for creating a "prosecutorial" atmosphere that forced Lay to cancel his congressional testimony. 
What Lay knew and when he knew it are key pursuits for congressional investigators, as more than 10 different committees have launched probes of the company's downfall. 
On Capitol Hill, the oversight and investigations subcommittee of the House Energy and Finance Committee closely questioned William Powers, dean of the University of Texas law school, about his own probe of Lay and other Enron executives. 
Powers, a specially appointed board member named to conduct the internal investigation, on Saturday released a report criticizing company executives, auditors, lawyers and board members for allowing improperly created partnerships to inflate Enron's earnings, hide its debt and wrongfully enrich a handful of insiders. 
"I think he felt that he had not been watching carefully enough," Powers said of Lay. "He felt he had been betrayed." 
Powers said that in four hours of interviews with internal investigators, Lay expressed a lack of familiarity with some of the issues now under scrutiny in the probe of Enron's collapse. 
For example, Lay was at an executive committee meeting where one of the complicated outside partnerships was approved, but he told Powers' internal committee that he did not recall the name of that entity. 
There were other matters that Lay knew about, but didn't perceive as problematic, Powers said. 
"Mr. Lay fully understood they were using their own stock to offset their losses," Powers said. "He didn't understand or appreciate that there was anything wrong with that." 
Rep. James Greenwood, R-Pa., chairman of the subcommittee, noted the partnerships set up by Enron executives used names from the Star Wars movies, such as Jedi and Chewco, for Chewbacca. 
With reference to the hero and the villain of Star Wars, Greenwood asked Powers of Lay, "Is he Luke Skywalker or is he Darth Vader?" 
Powers replied, "He is not Luke Skywalker. He certainly is responsible for letting this happen, and there certainly were red flags that he chose to ignore." 
While congressional rhetoric increasingly targets Lay and his oversight of Enron, other executives scheduled to testify are coming under added scrutiny as well. 
In the House subcommittee hearing, one lawmaker referred to former Enron Chief Financial Officer Andrew Fastow as "Fast Andy Fastow," while another called him "the Betty Crocker of cooked books." 
Fastow is scheduled to appear before the House Energy and Commerce Committee Thursday, but is expected to invoke the Fifth Amendment. 
Also slated to appear is former Enron CEO Jeff Skilling, who is expected to testify Thursday. 
As congressional probes continue, lawmakers also want to hear from members of the Bush administration about its dealings with Enron executives. 
Rep. John Conyers, D-Mich, ranking member of the House Judiciary Committee, on Tuesday called on White House political adviser Karl Rove to disclose his efforts securing an Enron job for Ralph Reed, the former executive director of the Christian Coalition. 
According to the White House, Rove recommended Reed to Enron for a job in 1997. Reed was hired by Enron in September, shortly after he resigned from the Christian Coalition. 
Bush, who was considering a presidential run at the time, wanted Reed to help him court conservative voters for the 2000 election. 
Reed, now chairman of the Georgia Republican Party, says he did not know of Rove's recommendation. 
Bush, meanwhile, rejected a suggestion from Capitol Hill that a special prosecutor be appointed for the Enron investigation under way at the Justice Department. 
"Listen, this is a business problem, and my Justice Department is going to investigate," Bush said. "And if there is wrongdoing, we'll hold them accountable for mistreatment of employees and shareholders." 
Lay and Enron have been major contributors to Bush campaigns, dating back to his first run for Texas governor. 
Chronicle reporters Laura Goldberg in Houston and David Ivanovich in Washington contributed to this story. 

COMPANIES & FINANCE THE ENRON COLLAPSE - Creditors' committee can quiz auditor - COURT RULING.
By ANDREW HILL.

02/06/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

Enron creditors were granted permission yesterday to demand paperwork from Andersen about its audit of the energy trader and the firm's involvement in the establishment of off-balance-sheet partnerships. 
A New York bankruptcy judge also said the official creditors' committee could quiz Andersen executives, including David Duncan, the lead partner involved in the Enron audit.
The committee, which acts on behalf of all Enron's creditors, sought the ruling last month after Andersen said it had destroyed Enron-related documents and sacked a number of employees, including Mr Duncan. 
The creditors said in a court filing that "a thorough examination" of Enron deals carried out prior to its bankruptcy filing in December was crucial to their attempt to discover Enron's true financial condition. 
The revelation that Andersen and Enron shredded documents has prompted other creditors to demand the appointment of an examiner at Enron, who would investigate allegations of wrongdoing at the company. Some have even asked for a court-appointed trustee to run the company. 
The publication of a damning internal report on Enron's deals with partnerships at the weekend could add to the pressure for such an appointment. But legal experts say the judge is unlikely to approve a trustee at this stage, as it would be disruptive. 
The Enron creditors' committee wants all documents relating to Andersen's audits from 1996 to 2000. The firm was fired as Enron's auditor last month. 
The committee will also seek documents about special purpose entities (SPEs) set up by Enron, including partnerships such as LJM Cayman and LJM2 Co-Investment run by Andrew Fastow, former chief financial officer, and Michael Kopper, another former Enron employee. 
The internal report concluded that a number of Enron deals with such partnerships were intended to flatter Enron's figures and enrich employees involved in running the SPEs. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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

COMPANIES & FINANCE THE ENRON COLLAPSE - Andersen chief urges change in accounting rules.
By PETER SPIEGEL.

02/06/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

COMPANIES & FINANCE THE ENRON COLLAPSE - Andersen chief urges change in accounting rules ENERGY TRADER'S FAILURE BERARDINO SAYS FIRM BARRED FROM RAISING ALARM - * DISCREPANCY OVER 401(k) PENSION PLAN ADVICE - * AUDITOR WEIGHS UP THE AFTER-SHOCKS. 
Joseph Berardino, Andersen chief executive, yesterday blamed the structure of the accounting industry for contributing to the collapse of Enron, saying that audit rules barred Andersen accountants from warning the public about the energy trader's financial condition.
Mr Berardino urged lawmakers to change accounting regulations to allow auditors to grade the quality and risk of a company's financial statements. Firms can give only a "pass" or "fail" to financial data submitted by a company. 
"Some companies do the bare minimum to meet (accounting) requirements, while others are much more prudent in their accounting decisions and disclosures," Mr Berardino told a hearing of the House financial services committee. 
"There are some companies that are pushing the envelope and investors don't know which one is which." 
The hearing was one of four held yesterday on Enron's collapse. The Senate commerce committee voted unanimously to subpoena Kenneth Lay, Enron's former chief executive, who pulled out of a hearing before the panel on Monday at the eleventh hour. Mr Lay is likely to be forced to appear on February 12, although senators said they expected him to invoke his Fifth Amendment right to silence. 
Michael Oxley, chairman of the House financial services committee, which was also to have heard from Mr Lay yesterday, also issued a subpoena, saying he would compel the former Enron chief to appear on February 14. 
In his testimony before the panel, Mr Berardino said his company repeatedly questioned Enron's accounting practices, pointing to a widely reported meeting of Andersen auditors in which some of Enron's practices were labelled "intelligent gambling". However, while accounting rules allowed auditors to raise their concerns with Enron's board - which Mr Berardino said they did regularly - they prevented any public disclosure unless there were clear violations of accepted accounting principles. 
"Our only option is to resign the engagement (but) resigning an engagement may destroy a company that is fundamentally sound," he said. "So those are our choices when faced with a client whose accounting treatments are risky: give it a pass or give it the death penalty." 
Mr Berardino's recommendations were largely ignored by committee investigators, who repeatedly questioned the Andersen chief on the auditor's role in Enron's questionable financial reporting. 
Mr Berardino declined to answer most of the questions, insisting he had no direct knowledge of how the Enron audit was conducted - a response that enraged some committee members. 
"You're captain of the ship," said Democrat Gary Ackerman. 
"If they came to you and said: we want to rob a bank and here's who's going to drive the getaway car, and this is what we're going to pay for the gun, you don't feel you have a duty to blow the whistle?" 
Mr Berardino said Andersen was aware of Enron's now infamous private partnerships, which enabled the company to take debts off its balance sheets, but insisted they were set up by Enron executives and investment bankers, with Andersen only giving passive judgments as to whether they passed accepted accounting principles. 
He added that Andersen would set up a new ethics office which would investigate questionable audit reviews when concerns were raised about the integrity or independence of an accountant. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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

A Section
Populist Pitch -- Without the Punch; Both Parties Claim Title, but Neither Makes Full-Scale Attack on Moneyed Interests
Juliet Eilperin
Washington Post Staff Writer

02/06/2002
The Washington Post
FINAL
A06
Copyright 2002, The Washington Post Co. All Rights Reserved

As the Enron scandal pumps new life into the old caricature of corporate executives as greedy and shady, politicians in both parties are stepping up efforts to claim the title "populist." 
"President Bush is a populist," Bush senior adviser Karl Rove declared last month. Other White House aides said the president's latest string of speeches had populist themes. House Democrats, meanwhile, have embraced "an economically populist, fiscally conservative, socially moderate message" this year, said their campaign group's executive director, Howard Wolfson.
But neither Bush's late-January swing through the South, nor a recent series of speeches by Democratic leaders, came close to the full-scale attack on moneyed interests that defines true populism. 
These rhetorical stabs acknowledged voters' anger over news that top executives made tens of millions of dollars while ordinary workers saw their jobs and retirement funds vanish. But they did not propose significant legal or regulatory changes that might rattle the nation's corporate hierarchy -- a structure that pours millions of dollars into Republican and Democratic coffers alike. 
"True economic populism, in the sense of William Jennings Bryan, would involve a direct attack on corporate America," said Claremont McKenna College political science professor Jack Pitney. "You're not hearing anything like [Bryan's 1896] 'Cross of Gold' speech." 
Populist themes reemerge periodically in American politics, from the Whiskey Rebellion to the Bull Moose movement to the presidential candidacies of Ross Perot and John McCain. Even the self-described centrist Bill Clinton espoused populist ideas in the 1992 election. He called for eliminating tax deductions "for excessive executive pay" and letting shareholders "determine the compensation of top executives." But little came of it all, and executive compensation packages skyrocketed in the 1990s. 
The latest populist boomlet is fueled mainly by revelations about Enron Corp., where one executive collected $353 million in stock proceeds while thousands of workers and shareholders lost huge sums. Enron's saga could prove politically troublesome for Bush, even if the scandal is never linked directly to the White House. Voters tell pollsters they associate Bush more closely with corporate influence than they do many other political figures. 
The president combats this potential problem not so much by offering populist changes in government as by returning to his folksy campaign rhetoric. In speeches in battleground states or GOP-leaning regions, he portrays himself as a fighter against Washington -- in other words, a populist, his aides say. 
"Thank goodness we cut taxes when we did," Bush told an applauding crowd in Winston-Salem, N.C., last Wednesday. "The best way to help an economy recover is to let hard-working people keep more of their money. When they get more money in their pocket, they spend more money, and as they spend more money, it helps create jobs." 
Bush pivoted to the opposition. "And for those who want to do away with tax relief -- you don't know what you're talking about," he said. "We've got to trust people with their own money. I'm not sure what textbook some of them are reading up there. But, obviously, it's not the same one we've been reading here in this room." 
Numerous Democrats, meanwhile, are claiming the populist label for themselves, hoping it will undercut high approval ratings for the president in particular, and for Republicans in general. 
"Enron reinforces, very dramatically, the image of the Republican Party as being too beholden to special interests," said Democratic pollster Mark Mellman. 
Reporting on a poll it conducted recently about the Enron collapse, Democracy Corps -- a group founded by Democratic consultants Stan Greenberg, James Carville and Robert Shrum -- urged Democrats to seize upon the Enron issue to contrast themselves with Republicans. "Enron has the potential to shape the entire political environment for 2002, impact other issues and reduce confidence in the Bush administration and Republicans," the report said. 
But the poll raises doubts about the political benefit Democrats might reap from the issue. Respondents agreed 57 percent to 34 percent with the statement, "What happened at Enron is indicative of a larger pattern of abuses by big corporations that have too much influence over what happens in Washington." But they agreed, 46 percent to 35 percent, that the Bush administration "is not part of the Enron mess." 
Pushing the populist refrain could reignite an old debate between Democratic progressives and centrists. Many remain divided over the wisdom of Vice President Al Gore's emphasis on populist themes in the 2000 election. At his convention speech, Gore promised voters he was "on your side" and vowed to protect "the people" over "the powerful." 
After the election, several influential Democrats concluded the strategy had backfired. "Economic populism as a message for Democrats has failed," pollster Mark Penn said in a recent interview. Penn has worked extensively for Clinton and the centrist Democratic Leadership Council. 
Liberals including Greenberg and union leaders disagreed. They said Gore's attack on entrenched interests gave him the biggest lead of his campaign. This advantage evaporated, they said, when subsequent campaign events made it harder for voters to distinguish between Gore and Bush. 
Such debates may explain why Florida Democrats have been cautious in tying Gov. Jeb Bush (R) to Enron. The president's brother recently attended a fundraiser at the home of a former Enron executive, despite Florida's pension plan losing $335 million in Enron stock. Jeb Bush's reelection campaign seems little troubled by the news. 
Even Greenberg said it is unreasonable to expect Democrats to take a hard-line populist stand. "I don't think either party centers their policies on going after corporations or going after CEOs," he said. 
Indeed, at the national level, Democrats are pushing the tamer goals of greater government oversight and more job creation. In his response to Bush's State of the Union speech, House Minority Leader Richard A. Gephardt (D-Mo.) called for tighter financial regulations, targeted tax cuts and fiscal restraint. 
That suits Simon Rosenberg, director of the centrist New Democrat Network, just fine. Gephardt's list, he said, amounts to "a repudiation of populism on its face. . . . The mainstream economic view is winning out in the Democratic Party." 
The mainstream view allows for modestly populist-sounding goals. Democrats, for example, continue to challenge the House GOP's decision to provide tax breaks in its economic stimulus plan for corporations such as Enron. 
"Democrats in the House have a unique opportunity to take on the Washington special interests," said Jenny Backus, spokeswoman for the Democrats' House campaign committee. 
Staff writer Dana Milbank contributed to this report.

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

Business/Financial Desk; Section C
ENRON'S MANY STRANDS: A CASE STUDY
Enron Is Grist for Business School Courses
By SANA SIWOLOP

02/06/2002
The New York Times
Page 8, Column 1
c. 2002 New York Times Company

Business school professors across the country say they are latching onto the Enron scandal as a way to make courses on everything from Accounting 101 to crisis management come alive. 
Some teachers are treading cautiously, partly because business-school case studies usually focus on historical events, not unfolding dramas, and partly because the Enron collapse is so complicated.
But the revelations about the maneuverings of Enron Corporation executives and the actions of the company's auditor, Arthur Andersen, are too tempting to pass up, professors say. 
Roger D. Martin, an assistant accounting professor at the business school at Indiana University, says he introduced a graduate accounting class on the company early in November, when Enron had to restate its earnings and ''things started smoking.'' 
Professor Martin said he planned to use Enron's financial meltdown for years to come as a case study in his advanced accounting class. ''This is a classic case in almost everything related to accounting,'' he said. ''If anything, it might make it tough to keep the conversation going in just one direction because there are so many angles.'' 
Other business school professors say they are eager to use Enron to enliven business cases that too often focus on old examples like the Ford Pinto gas tank of the 1970's. ''Students now are largely unimpressed if something is more than four to five years old,'' said Al Hartgraves, an accounting professor at the Goizueta Business School at Emory University in Atlanta. 
Before his students left for their Christmas break in the second week of December, Professor Hartgraves promised to e-mail them a summary of the company's situation, and did so at the end of the month. Then a couple of weeks ago, he created a computer bulletin board about Enron over the internal e-mail system that connects roughly 1,000 Emory business students. Within 24 hours, he said, more than 100 students had asked him for bulletin board access. 
''We've seen audit failures before with companies like Waste Management and Sunbeam,'' Professor Hartgraves said, ''but never anything as big as this.'' 
At Brandeis University in Waltham, Mass., Alfonso F. Canella, an adjunct professor who teaches a class in financial modeling, said he planned to use Enron to illustrate the mechanics, as well as the riskiness, of putting together limited partnerships, especially when the deals were not listed on a company's balance sheet. 
Not everyone is convinced that Enron's troubles belong in every classroom. Jan Barton, an assistant accounting professor at Emory, thinks that it is appropriate to use Enron in an introductory course on financial statement analysis, but that its accounting and energy-trading practices may be too complicated for most students. 
Even when it comes to teaching more advanced students, Professor Barton said, he preferred to focus on companies like Dell Computer, Sears Roebuck, Wal-Mart and Microsoft, whose financial statement practices and products are easier to understand. 
''I don't want to talk about a company that operates in a funky industry, like utilities, and whose transactions involved things like financial derivative contracts,'' Mr. Barton said. 
Still, Diana C. Robertson, an associate professor of organization and management at Goizueta, in time concluded that the Enron case could not be ignored. 
In December, she decided to stick to well-documented cases like the antitrust charges against Microsoft and Nike's foreign labor practices for her business ethics classes. But as Enron unraveled, she decided that using a business story in the making, rather than one that is years or decades old, was too ''wonderful'' to pass up. 
Raymond D. Horton, chairman of the Columbia University Business School's management division, said he would allocate plenty of time to the subject this winter in his course on the modern political economy. ''We're all itching to discuss it,'' he said, pointing to a pile of Enron news clippings on his desk. 
Robert Rupe, a second-year finance student at Columbia, said one lecture for a course on corporate turnarounds he just signed up for is titled simply ''Enron.'' 
A useful point in the Enron case, business professors say, is the light it sheds on the evolution of the American corporation into unexpected forms. For example, Anne Carter, an economics professor at Brandeis, says it helps illuminate the nature of the modern corporation, which often bears little resemblance to the ''mythical'' manufacturing and farming companies that appear in many textbooks. For one thing, she said, Enron is a good way to show students just how much of an imbalance there is in the information investors typically receive, and how a company can exploit that imbalance. 
Professor Carter plans to devote three classes to Enron this semester in an undergraduate course she teaches. ''I really think that Enron shows students that the market now is very different from the market that was shaped by Adam Smith's invisible hand,'' she said.

Photo: Al Hartgraves, an Emory University accounting professor, created an Enron computer bulletin board. (Robin Nelson for The New York Times) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

REVIEW & OUTLOOK (Editorial)
Lerach's Enron Gambit

02/06/2002
The Wall Street Journal
A18
(Copyright (c) 2002, Dow Jones & Company, Inc.)

As with any dead carcass, Enron is attracting downstream scavengers. Of course this includes the lawyers, especially lawsuit king Bill Lerach, who recently posed before TV cameras in Houston with a carton of what he claimed were shredded Enron documents. But before he cashes in one more time, Mr. Lerach's own legal practices deserve some greater public scrutiny. 
For example, a Los Angeles grand jury is investigating whether the Lerach law firm -- Milberg Weiss Bershad Hynes & Lerach -- paid plaintiffs to sign onto class-action lawsuits. There's also the recent decision by a federal judge to give the lead counsel slot in a class-action suit to a lower-cost law firm; the judge said that Milberg's stiff fees would have gobbled up too much of any money its clients might recover. Milberg's appeal on the latter will be heard by the Ninth Circuit Court of Appeals on February 15.
This all deserves more attention than it's received because Mr. Lerach is not just any old tort warrior. The Milberg firm accounts for the lion's share of all federal shareholders' suits, and in California Mr. Lerach is approaching Bill Gates levels of market share. 
With Enron's failure, a movement is also afoot to make tort lawyers the big beneficiaries. They're mobilizing to repeal a modest 1995 tort reform bill that reined in the worst of the tort bar's securities lawsuits. Mr. Lerach is himself now posing as a defender of Enron shareholders, and he's even been retained by Calpers, the big public pension fund that had invested in Enron partnerships. Mark this down as wildebeest hiring hyenas as bodyguards. 
The Lerach methods have been challenged before. Three years ago he lost big when the firm paid out $50 million to settle an abuse-of-process lawsuit brought against it by a Chicago-based consulting firm. According to California press reports, today's grand jury investigation revolves around a Beverly Hills eye surgeon who is in prison for fraud and who has appeared as a plaintiff in a number of suits filed by Milberg. It certainly wouldn't be kosher for a law firm to induce "victims" into filing contingency-fee claims. 
Mr. Lerach's standard defense is that his rough methods are the only way to make big business accountable. But that's just what makes the issue of Milberg's attorneys fees now headed for the Ninth Circuit so juicy. No one in this case is denying anyone her day in court. All the ruling by U.S. District Court Judge Vaughn Walker did was ensure that if the plaintiffs win, they won't have to turn nearly all of their winnings over to the Milberg plutocrats. 
The story begins, as many Milberg stories do, with a drop in the share price of a company, in this case Copper Mountain Networks. Milberg quickly moved in. But Milberg's wasn't the only suit, so when it came time to choose a lead counsel, Judge Walker asked for rival bids. When he looked at the price sheets he found that another firm's lower fees served the interests of the shareholders better than Milberg's hefty ones. 
This judgment is startling, because when it comes to fees lawyers nearly always stick together. But recent fees have become so obscene (in the case of tobacco and asbestos into the billions of dollars) that they may have opened up a new political and legal vulnerability for the tort bar. 
Lawyers love to shout "price controls" when anyone talks about their fees, but lawyers aren't normal businessmen. As Judge Walker noted in his opinion, lawyers are not independent contractors but are "fiduciaries for absent class members." They are officers of the court. This is the same understanding embodied in the American Bar Association's Model Rules of Professional Conduct, which forbids "unreasonable" fees on precisely these grounds. 
That understanding is even more critical in class actions, because the client being represented is absent and thus has no real voice. While in a normal case the client contracts with a lawyer, in class actions the lawyer essentially conscripts the clients. Then if the lawyer wins or settles the case, he takes the bulk of the winnings as fees, often leaving a pittance for the actual plaintiffs. "I have the greatest practice of law in the world," Mr. Lerach once quipped to a group of corporate directors. "I have no clients." 
But it is about time he got some adult legal supervision. The tort bar has become so rich, increasingly at the expense of its own clients, that its abuses need to be reined in for the good of the broader society. All the more so now that it is lining up to ravage Enron one more time.

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

Questioning the Books: Panel, in Enron's Wake, to Review Lawsuit Curbs
By Robert S. Greenberger
Staff Reporter of The Wall Street Journal

02/06/2002
The Wall Street Journal
A8
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- As federal investigators and Congress expand their probe into the collapse of Enron Corp., lawmakers want to revisit a 1995 law limiting lawsuits that will make it difficult for company shareholders to recoup their losses. 
The Senate Judiciary Committee today will hear testimony on the Private Securities Litigation Reform Act and how its provisions shielding corporate advisers from shareholder lawsuits could block Enron employees and shareholders from suing the accountants and lawyers who helped create the complicated partnerships that contributed to the giant energy trader's demise.
The law does nothing to inhibit the government from taking civil and criminal action against Enron, its lawyers and accountants. 
Enron, once the seventh-largest company in the U.S. by revenues, saw its share price implode last fall amid allegations of questionable accounting and overstated earnings, and was forced to seek bankruptcy-court protection. Its employees, whose retirement savings accounts were tied to company stock, and outside shareholders saw their investments evaporate. 
The bill was part of the Republican Party's "Contract with America," a platform of 10 bills aimed at overhauling government programs and the legal system that the GOP used to win control of the House in the 1994 elections. The securities-litigation bill was intended to curb a rash of lawsuits filed by shareholders angry over company performance, particularly in the volatile high-technology industry. It had the strong backing of the accountants and high-tech executives who saw themselves increasingly vulnerable to frivolous class-action suits. 
The committee will probe how the law tightens rules on bringing complaints that initiate lawsuits and how it protects accountants and other professionals from exposure to complete liability for corporate losses and from lawsuits seeking triple damages. Overall, the law partly shields the accountants, lawyers, bankers and other outsiders to whom victims might turn for redress from wrongs by a company in bankruptcy court. 
"By forcing through special exemptions for securities, Congress has contributed to the `Wild West' mentality reflected in Enron's hidden partnerships," said the judiciary panel's chairman, Sen. Patrick Leahy (D., Vt.). Should legislation to change the 1995 law come out of the hearings, however, it is unclear if it would be made retroactive and aid Enron shareholders. 
Steven Schatz, a California attorney who was selected as a witness by Sen. Orrin Hatch of Utah, the committee's ranking Republican, rejects the notion that the law makes it difficult for plaintiffs to bring legitimate lawsuits. Overall, it has a positive effect, he said, because "it has caused the plaintiffs' bar to be more circumspect with regard to whom they sue." 
One example is that the 1995 law requires that a complaint in a securities-fraud case must present details "giving rise to a strong inference" of fraud. Previously, the complaint didn't have to be as detailed. 
Meanwhile, the rules have also been changed to bar the beginning of discovery until after a court has decided whether to allow the case to go forward. Previously, plaintiffs attorneys could begin to gather documents and interview witnesses when the complaint was filed. 
Columbia University law professor Jack Coffee said that taken together, the two rules are a Catch-22: "You can't get discovery unless you have strong evidence of fraud, and you can't get strong evidence of fraud without discovery." 
The statute also substitutes proportionate liability for the old law under which everyone involved in the financial scheme would be fully liable for all the damages involved. So, in most circumstances under the new law, the amount for which an accounting or law firm could be held liable would be only a fraction of the 100% for which it might previously have been sued. This could be crucial for plaintiffs when a defendant company, such as Enron, is in bankruptcy court. 
Finally, it limits the use of the Racketeer Influenced and Corrupt Organizations Act, or RICO, in civil suits involving securities. The RICO law was very unpopular with corporate defense attorneys, because among other provisions it permits an award to plaintiffs of triple damages. 
Although the examination of the 1995 law involves such arcane legal issues, it is fueled by politics. Democrats are eager to pin the Enron debacle on pro-business Republicans. Consumer groups also are weighing in. 
The Consumer Federation of America, Consumers Union and U.S. Public Interest Research Group are among the groups pointing to a Dec. 12, 1995, letter they wrote lawmakers opposing the bill. "This legislation will protect financial swindlers from being held accountable to their victims," the letter said.

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

FRONT PAGE - FIRST SECTION - Post-Enron equity fears fuel 'flight from risk'.
By PHILIP COGGAN and PETER THAL LARSEN.

02/06/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

FRONT PAGE - FIRST SECTION - Post-Enron equity fears fuel 'flight from risk' WORRIED INVESTORS IN EUROPEAN AND US MARKETS SHUN STOCKS THAT FACE ACCOUNTING OR FINANCIAL CONCERNS. 
Equity markets in Europe and the US witnessed a "flight from risk" yesterday, with investors shunning any stocks that faced accounting or financial concerns.
Worries about the quality of corporate accounts in the wake of the collapse of Enron were accompanied by fears that heavily indebted companies would either collapse or be forced to raise large amounts of equity to restore their balance sheets. 
Investor concern was demonstrated when General Electric, the world's largest company, had to dismiss questions about the transparency of its accounting by reaffirming its earnings growth targets. Jeff Immelt, chairman and chief executive, said: "We have tremendous financial strength and a system of controllership that is second to none." GE shares recovered 3.5 per cent to close at $36.21 yesterday. 
European companies came under the spotlight. UK-based electronics group Invensys was one of the biggest casualties, its shares falling 8 1/2p, or 8 per cent, to 97 1/2p, the worst performance in the FTSE 100 index. 
Credit Suisse First Boston reduced its earnings forecasts for the company and said: "Market feedback on Invensys remains very discouraging." Dresdner Kleinwort Wasserstein warned of the possibility of a rights issue to reduce the company's debt. 
Elan, the Irish pharmaceutical company, whose accounts have come under intense scrutiny, saw its share price fall a further Euros 3.5, or 18 per cent, to Euros 16 in the wake of Monday's profits warning. 
Shares in Deutsche Bank, Germany's biggest bank, fell Euros 2.8, or 4 per cent, to Euros 67 on concern that corporate financial problems would prompt a rise in its bad debt provisions. 
European markets were pushed lower by the concerns and by Wall Street losses on Monday. In London, the FTSE 100 index fell 73.9, or 1.4 per cent, to 5,093.4. 
In the US, the Dow Jones Industrial Average closed down 1.66 at 9685.43. Tyco International shares continued to tumble after the beleaguered conglomerate on Monday drew down its credit lines, triggering a downgrade by Standard & Poor's, the credit rating agency. Even though Tyco's move has removed any short-term questions about its stability, the shares closed down more than 22 per cent at $23.10. 
Tyco has lost almost half its value since announcing plans for a four-way break-up. 
Companies adjusting earnings continued to suffer - even if reporting profits not previously disclosed. Reliant Resources shares fell fell more than 13 per cent to close at $11.95 yesterday after the energy group said it would restate second-and third-quarter earnings to show additional profits of $100m ( #70m) and $130m ( #90m) respectively. 
The Enron fall-out has made investors far more cautious about the quality of corporate profits, particularly in the US, where accounting standards had been assumed to be the best in the world. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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

Editorial Desk; Section A
Barbie Loves Math
By MAUREEN DOWD

02/06/2002
The New York Times
Page 21, Column 1
c. 2002 New York Times Company

WASHINGTON -- Hollywood is trying to figure out how to turn Enron into a TV movie. 
How do they take all the stuff about ''the contingent nature of existing restricted forward contracts'' and ''share-settled costless collar arrangements,'' jettison it like the math in ''A Beautiful Mind,'' and juice it up?
Enron is such a mind-numbing black hole, even for financial analysts, that if you tried to explain all the perfidious permutations, you'd never come out the other end. 
A movie executive asked Lowell Bergman, the former ''60 Minutes'' producer who is now an investigative reporter for The Times and ''Frontline,'' for the most cinematic way to frame the story. (Mr. Bergman had the ultimate Hollywood experience of being played by Al Pacino in another corporate greed-and-corruption saga, ''The Insider.'') 
''It's about the women up against the men,'' he replied. 
Before you know it, Enron will be Erined, as in Brockovich. Texas good ol' girl, fast-talking, salt-of-the-earth whistle-blower Sherron Watkins will be Renee Zellweger in a Shoshanna Lonstein bustier. The adorable and intrepid Fortune reporter Bethany McLean, the first journalist to sound an alarm about Enron's accounting practices, will be look-alike Alicia Silverstone. And Loretta Lynch, the tough California utilities czarina and Yale-trained litigator who questioned a year ago what Enron did that was of any value to consumers, will be look-nothing-alike Angelina Jolie, sporting power plant tattoos. 
''From the beginning of the California energy meltdown, women were not afraid to point a finger at the seventh-largest corporation in the U.S. and say 'You can't do this,' '' Mr. Bergman told me. ''And the electric cowboys at Enron, where the culture had a take-no-prisoners, get-rid-of-any-regulation, macho perspective on the marketplace, was aggressive when it came to shutting them up.'' 
As a Texas writer says: ''This was Jeff Skilling's club and there weren't a lot of women in his club.'' 
At first, the slicked-back Gordon Gekko C.E.O. and his arrogant coterie in the Houston skyscraper -- where men were wont to mess around and leave wives for secretaries -- dismissed female critics. 
Some privately trashed Ms. Lynch as ''an idiot'' and coveted Ms. McLean, calling her ''a looker who doesn't know anything.'' But when they realized the women were on to them, the company that intimidated competitors, suppliers and utilities tried to oust Ms. Lynch from her job and discredit Ms. McLean and kill her article. 
When Ms. Watkins confronted Kenneth Lay with her fears last August, he knew the cat was spilling out of the beans, as Carmen Miranda used to say. Within two months he had to 'fess up to $600 million in spurious profits. 
(In Houston's testosterone-fueled energy circles, many men watched Linda Lay crying on TV and muttered that in Texas, there is nothing lower than sending your wife out to fight your battle.) 
As a feminine fillip, there's Maureen Castaneda, a former Enron executive who revealed the shredding shindigs there. Ms. Castaneda realized something was wrong when she took some shreds home to use as packing material and saw they were marked with the galactic names Chewco and Jedi, which turned out to be quasi-legal partnerships. 
Only 10 years after Mattel put out Teen Talk Barbie whining ''Math class is tough,'' we have women unearthing the Rosetta stone of this indecipherable scandal. 
What does this gender schism mean? That men care more about inflating their assets? That women are more caring about colleagues getting shafted? 
It is men's worst fear, personally and professionally, that women will pin the sin on them, come ''out of the night like a missile and destroy a man,'' as Alan Simpson said during the Hill-Thomas hearings. 
There has been speculation that women are more likely to be whistleblowers -- or tattletales when they are little -- because they are less likely to be members of the club. 
Some men suggest that women, with their vast experience with male blarney, are experts at calling guys on it. 
At Enron, it was men who came up with complex scams showing there was no limit to the question ''How much is enough?'' And it was women who raised the simple question, ''Why?''

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



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