Enron Accountants May Be Placed On Leave by Board
The Wall Street Journal, 02/05/2002

Former Enron Chairman Lay's Whereabouts Unknown
Bloomberg, 02/05/2002

Lawmakers Will Subpoena Kenneth Lay --- Ex-Chief of Enron Resigns From Company's Board, Citing Various Inquiries
The Wall Street Journal, 02/05/2002

Lay stands down from Enron board after scathing report.
Financial Times, 02/05/2002

SENATE PANEL SAYS IT WILL SUBPOENA EX-CHIEF OF ENRON
The New York Times, 02/05/2002

Lay Leaves Enron Board; Founder Severs Last Ties to Firm
The Washington Post, 02/05/2002

Lay steps down from Enron's board of directors 
Irate lawmakers working on subpoenas 
Houston Chronicle, 02/05/2002
Deal at Enron Gave Insiders Fast Fortunes
The New York Times, 02/05/2002

Legal Liability for Enron Debacle May Be Determined by 1997 Memo
The Wall Street Journal, 02/05/2002

Enron Report Could Bolster Criminal Case Probe: Panel's allegations of financial subterfuge increase likelihood of indictment, legal experts say.
Los Angeles Times, 02/05/2002

Varied Roles Cause Some Conflicts, Brokers Say
The New York Times, 02/05/2002

Lawsuits may widen to hit partnerships SPECIAL-PURPOSE VEHICLES.
Financial Times, 02/05/2002

Enron workers' benefits reportedly raided 
$15 million allegedly spent elsewhere 
Houston Chronicle, 02/05/2002

Enron Witness Points to Lay; Lawmakers Told of 'Fundamental Default of Leadership'
The Washington Post, 02/05/2002

Little-Known Academic Pushed Onto Enron Stage
The Washington Post, 02/05/2002

Bidders Emerge for Enron's British Water Utility --- Sale of Wessex Water Could Bring $1.4 Billion To Failed Energy Firm
The Wall Street Journal, 02/05/2002

Enron Direct pay-outs decided.
Financial Times, 02/05/2002

Ernst & Young Latest Auditor Moving to Alter Some Practices
The New York Times, 02/05/2002

Dynegy charges Enron has only itself to blame 
Houston Chronicle, 02/05/2002

'He should have been here' 
Ex-staffers irked after trip to D.C. 
Houston Chronicle, 02/05/2002
Saving Your Career After Earning a Name As a Whistle-Blower
The Wall Street Journal, 02/05/2002

Sex and The Scandal
The Washington Post, 02/05/2002

The Blue Bayou City; Two Months After 'Black Monday,' Houston Still Is Picking Up The Enron Pieces
The Washington Post, 02/05/2002

A Debacle Chronicled in Kitsch
The New York Times, 02/05/2002

Decoding Enron
The New York Times, 02/05/2002

Enron's Culture of Corruption
The Washington Post, 02/05/2002

QUOTATION OF THE DAY
The New York Times, 02/05/2002

_____________________________________________________________________

Enron Accountants May Be Placed On Leave by Board
By Rebecca Smith
Staff Reporter of The Wall Street Journal

02/05/2002
The Wall Street Journal
A6
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Enron Corp.'s board is expected to put the company's two top accounting officers on administrative leave this week in reaction to an internal report that says neither did his job adequately, sources close to the matter say. 
The men, Chief Accounting Officer Richard A. Causey and Chief Risk Officer Richard B. Buy, reviewed Enron's creation of several outside partnerships run by Enron officers and, records indicate, judged them beneficial to Enron. They also reviewed subsequent transactions with those entities. Recent disclosures that these partnerships greatly enriched a handful of Enron employees at Enron's expense contributed to the Houston energy concern's collapse into bankruptcy proceedings in December.
Neither man nor an attorney representing them responded to requests to comment yesterday. 
To date, there is no evidence that Messrs. Causey or Buy invested in any of the Enron-related partnerships or personally reaped any financial windfall from them. The men were scheduled to testify Thursday before one of several congressional committees investigating Enron's downfall. 
Before joining Enron in early 1991, Mr. Causey was an accountant for Arthur Andersen in Houston and had "primary responsibility for the Enron engagement," according to his company biography. Mr. Buy, before joining Enron in 1994, was a vice president at Bankers Trust, assigned to energy lending and trading in Houston and New York. 
In his current role at Enron, Mr. Causey was supposed to make sure that Enron's accounting practices adhered to industry standards and that its Securities and Exchange Commission disclosures were full and complete. Mr. Buy, as chief risk officer, has had primary responsibility for "quantifying and controlling risks in both Enron's trading activities and investment opportunities," according to his company biography. 
Instead, Mr. Causey has "presided over" accounting decisions that go "well beyond aggressive," according to the Enron internal report prepared by a special, three-person committee of the board. Mr. Buy, according to that same report, "saw his role more narrowly" than appropriate and "did not affirmatively carry out . . . a careful review of the economic terms" of transactions between Enron and the related-party entities. 
Board minutes reviewed by The Wall Street Journal show that Messrs. Causey and Buy frequently told the board that there were adequate controls in place to protect the company's interests as it transacted business with the officer-controlled partnerships, including ones run by Enron's former chief financial officer, Andrew Fastow. 
For example, in a meeting of the board's finance committee on Oct. 6, 2000, Mr. Causey joined then-chief executive Jeffrey Skilling in discussing the "benefits to the company" of being able to transact business with the LJM partnerships set up by Mr. Fastow, according to minutes of that meeting. Previously, Mr. Fastow had told the board that all transactions with the vehicles he ran would be reviewed by Messrs. Causey, Buy and Skilling in order "to mitigate any potential conflicts." 
J.C. Nickens, an attorney representing both men, couldn't be reached to comment yesterday. But in an interview last week, he said his clients are blameless. Referring to Mr. Causey, Mr. Nickens said that "my client would say the accounting for these partnerships was appropriate . . . that the deals were structured and accounted for with professional advice of people on his staff and Arthur Andersen," which was Enron's auditing firm. 
All told, the Fastow-related partnerships engaged in more than two dozen transactions with Enron that left the company, in many cases, holding the bag. The Enron special committee, in its report, which was released during the weekend, said that in some cases Enron settled some of its partnership ventures for far less money than what the committee felt was fair value. This suggests that the interests of the officer-controlled partnerships may have been put ahead of those of Enron.

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

Former Enron Chairman Lay's Whereabouts Unknown
2002-02-05 08:32 (New York)

     Washington, Feb. 5 (Bloomberg) -- Kenneth Lay, former chairman of Enron Corp., won't appear at a House hearing this morning after his attorney refused to accept a subpoena compelling him to appear, CNN said.
     Lay's attorney, Earl Silbert, said there wasn't enough time because Lay had returned to Houston and Silbert didn't know where to find him, CNN said.
     This morning the Senate Commerce Committee plans to vote to issue a subpoena for Lay to testify on Feb. 12. House and Senate committee members have said they hope Lay won't take the Fifth Amendment and refuse to testify on the grounds it may incriminate him.
     Lay backed out of appearances yesterday and today before the Senate Commerce Committee and a House Financial Services subcommittee. Silbert informed both panels that Lay wouldn't appear because of "inflammatory'' comments made by members of the committee that he said were prejudicial to his client.
     Yesterday the House panel voted to subpoena Lay to appear at 10 a.m. this morning.
     A board-sponsored investigation released this weekend said Enron executives enriched themselves while hiding at least $1 billion in losses in 3,000 partnerships. Those transactions caused Houston energy dealer to file the largest bankruptcy reorganization on Dec. 2.
     The company's failure led to at least 4,500 job losses in Houston and 1,100 in the U.K. and wiped out millions of dollars of retirement savings for Enron employees, whose investments were tied up in the company's stock.

Powers Testimony

     Yesterday Lay resigned from the board of the company he founded in 1985, saying it was in the "best interests'' of former and current Enron employees and "other stakeholders,'' according to a statement distributed by PR Newswire.
     In testimony yesterday before the House panel, William Powers Jr., the head of the Enron's special investigation Committee, said Lay and the rest of the board failed to halt ``a systematic and pervasive attempt'' by management to deceive investors about the energy dealer's finances.
     "What we found was absolutely appalling,'' Powers said.
     Powers' 203-page investigative report found Enron executives enriched themselves while hiding at least $1 billion in losses in 3,000 partnerships. Enron had said it overstated earnings by $586 million since 1997 by failing to disclose partnerships used to hide loans and losing ventures.
     Powers also said today that Enron's auditor, Arthur Andersen LLP, couldn't have performed an independent audit of Enron because it was paid $5.7 million by the company to help set up the partnerships.
     "If they helped structure the transactions, they already are going to hold views of the transactions,'' he told the House Financial Services subcommittee on capital markets.
     Andersen was paid $25 million in audit fees by Enron and $27 million for non-audit services in 2000. Senate and House Democrats are introducing bills that would prohibit auditors from also providing some consulting services to the same client.

-- William Selway in the San Francisco newsroom at (415) 743-3511, or wselway@bloomberg.net 


Lawmakers Will Subpoena Kenneth Lay --- Ex-Chief of Enron Resigns From Company's Board, Citing Various Inquiries
By Michael Schroeder
Staff Reporter of The Wall Street Journal

02/05/2002
The Wall Street Journal
A3
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- Lawmakers say they will issue a subpoena to compel Kenneth Lay, former chairman of Enron Corp., to appear before committees investigating the collapse of the Houston energy trading giant. 
Enron director William Powers told a House Financial Services subcommittee that a recently completed review by the board concluded that Enron's top managers, including Mr. Lay, outside auditors and directors, all contributed to the company's downfall. Mr. Lay had canceled his much-anticipated appearance before a Senate panel, saying that the hearings would be prosecutorial.
Separately yesterday, Mr. Lay announced his resignation from the Enron board, saying that because of the many investigations being conducted that involve him, his continued role on the board has "become a distraction" as the company works to emerge from bankruptcy-court proceedings. 
Meanwhile, Senate Commerce Committee Chairman Ernest Hollings (D., S.C.) called for a special prosecutor to replace the Justice Department in its criminal investigation of Enron. And Harvey Pitt, chairman of the Securities and Exchange Commission, pointed a finger at the Financial Accounting Standards Board, the independent rule-setting body, for long delays in updating rules, including a request by the SEC more than a decade ago to reconsider new accounting rules for off-balance-sheet special-purpose entities. Enron used these partnerships extensively, which contributed to the company's downfall. 
Mr. Powers's testimony was seized on by committee members to press their proposals for additional oversight of auditors, stock analysts and rating agencies. Lawmakers are debating whether severe shortcomings in financial reporting can be addressed by new SEC rules or legislation. 
Mr. Hollings's comments are a signal that the high level of partisanship on the Enron debacle among congressional Democrats is likely to intensify as more hearings are held in the coming weeks. The Bush administration's extensive ties to Enron made it a "cash-and-carry government," he said at a news conference. 
Mr. Hollings also said that the Justice Department couldn't be relied on to conduct an objective investigation, given the Enron connections of several department officials, including Attorney General John Ashcroft. Mr. Ashcroft recused himself from the probe, citing the large campaign contributions he had gotten from Enron in his 2000 Senate campaign. 
Justice Department officials responded that appointing a special prosecutor is unnecessary. "No conflict of interest exists. No person involved in pursuing this investigation has any conflict, or any ties that would require a recusal," the department said in a statement. 
Mr. Hollings also said he had doubts about the objectivity of the Enron internal review, conducted by a special committee of the company's board led by Mr. Powers. Mr. Powers "is a very fine gentleman, but he's a member of the board," he said. 
The senator, who canceled his panel's hearing yesterday after Mr. Lay declined to testify, said members would vote today to issue a subpoena. 
Mr. Lay also said he wouldn't appear at a scheduled House subcommittee hearing today. In response, the Financial Services Committee chairman, Rep. Michael Oxley (R., Ohio) attempted yesterday afternoon to serve Mr. Lay a subpoena through his attorney Earl Silbert. Peggy Peterson, Mr. Oxley's spokeswoman, said that Mr. Silbert said he "didn't know the whereabouts of his client." 
Mr. Silbert didn't return a phone call or answer an e-mail seeking comment. 
The subpoenas can't compel Mr. Lay to testify, however. Sen. Byron Dorgan (D., N.D.) acknowledged that Mr. Lay could use his Fifth Amendment right to refuse to answer questions when he does appear under subpoena. Two other Enron executives who lawmakers want to talk with about the company's collapse have already told lawmakers they plan to do this. 
In testimony before Rep. Richard Baker's subcommittee, Mr. Powers said that he found "appalling" problems at Enron. The University of Texas Law School dean outlined the main findings of his report, focusing on the firm's use of complex off-the-books partnerships that enriched key employees, including Chief Financial Officer Andrew Fastow. "Virtually everyone, from the board of directors on down," understood the company was using partnerships to offset investment losses with its own stock. 
Mr. Powers, whose objectivity has been questioned because of Enron contributions to his university's law school, faulted the board of directors, saying it "failed in its duty to provide leadership and oversight." During the hearing, numerous lawmakers said they were incredulous that the board never raised any red flags. 
"Whether the Powers report is appropriately balanced or not, given the limited information on which the report is based, it does establish a basis on which to conclude . . . that the rules aimed at requiring disclosure were so misused that they were warped into a black bag from which no information was able to escape," Mr. Baker said. 
Several lawmakers, including Rep. John LaFalce (D., N.Y.), called for legislation or new regulations to address accounting and disclosure weaknesses that the Enron scandal has uncovered. 
Mr. LaFalce also complained that the Bush administration authorized only a 4% SEC budget increase to $480 million for the next fiscal year. He said he favors tripling the SEC's budget. 
--- 
Journal Link: Listen in as a House panel examines the findings of Enron's special investigative committee. Also, Andersen CEO Joseph Berardino testifies on the accounting firm's relationship with Enron, in the Online Journal at WSJ.com/JournalLinks, by arrangement with Hearings.com.

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

FRONT PAGE - FIRST SECTION - Lay stands down from Enron board after scathing report.
By ANDREW HILL, SHEILA MCNULTY and PETER SPIEGEL.

02/05/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

Kenneth Lay, Enron's former chairman and chief executive, yesterday resigned from the company's board, two days after publication of a damning internal report on the energy trader's ill-fated deals with partnerships. 
The report, which criticised officers, directors and advisers of the company, has raised the legal stakes in the race to apportion blame for Enron's collapse.
In a statement announcing his resignation, Mr Lay said his involvement had "become a distraction" from achieving the goal of a successful reorganisation of the bankrupt company. 
Two congressional committees moved yesterday to subpoena Mr Lay, compelling him to appear as early as next week. He unexpectedly withdrew from hearings this week after congressmen said the report suggested Enron executives had broken the law. 
The report analyses in detail some of the deals Enron conducted with off-balance-sheet partnerships. It concludes that many were carried out simply to flatter Enron's accounts and that Mr Lay, and other senior officers, bore ultimate responsibility for the failure of oversight. 
Dynegy, facing a $10bn suit from Enron after pulling out of its abortive rescue bid last year, said yesterday the report showed Enron's demise was "self-inflicted" and justified its decision to withdraw from the takeover. 
Shareholders and employees seeking compensation from Enron directors and officials said the report also could provide ammunition for lawsuits against investors who financed Enron's off-balance-sheet partnerships. 
Limited partners in the special-purpose vehicles took on little risk and received disproportionately large returns, according to the report. 
Investors in one of the partnerships, LJM2 Co-Investment, included funds or units run by Merrill Lynch (which also led the placement of stakes in LJM2), JP Morgan Chase, Citigroup, and other blue-chip companies. 
Eli Gottesdiener, head of a Washington law firm involved in one suit against Enron and Andersen, its former auditor, declined to say whether limited partners would now be sued. But he said lawyers for employees and shareholders would probably "use the report to assist them in casting the net as widely as possible". 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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

National Desk; Section A
ENRON'S MANY STRANDS: THE OVERVIEW
SENATE PANEL SAYS IT WILL SUBPOENA EX-CHIEF OF ENRON
By STEPHEN LABATON and RICHARD A. OPPEL Jr.

02/05/2002
The New York Times
Page 1, Column 6
c. 2002 New York Times Company

WASHINGTON, Feb. 4 -- After Kenneth L. Lay, the former chairman and chief executive of Enron, refused to testify before the Senate Commerce Committee this morning, Republicans and Democrats on the panel said they would vote Tuesday to issue a subpoena to compel his appearance. 
Mr. Lay, who severed his final tie to Enron this evening by resigning from its board, had infuriated lawmakers by canceling his appearance at the last minute, saying through his lawyer that Congressional hearings planned for this week had taken on a prosecutorial tone.
''We decided that we really had no choice but to issue a subpoena,'' Senator Byron L. Dorgan, a North Dakota Democrat, said at a news conference this afternoon. Mr. Lay, he said, ''should not have expected it would ever be a walk in the park'' to testify at a Congressional hearing. 
Lawmakers in the House said this evening that they had notified Mr. Lay's lawyer, Earl J. Silbert, that they intended to issue a subpoena, and were told that he did not know where his client could be found. Mr. Lay had been scheduled to testify in the House on Tuesday, but he also backed out of that date. 
Mr. Silbert did not respond to requests for comment tonight, but Congressional aides and other lawyers involved in the case said they expected that Mr. Lay, if subpoenaed, would again refuse to testify, and invoke his Fifth Amendment right against self-incrimination. 
Tonight, Mr. Lay issued a brief explanation of why he had decided to remove himself from the company he founded 16 years ago, expanded into one of the nation's largest energy concerns and watched helplessly as it spiraled out of control. 
''I want to see Enron survive and successfully emerge from reorganization,'' he said. ''Due to the multiple inquiries and investigations, some of which have focused on me personally, I believe my involvement has become a distraction to achieving this goal.'' 
Mr. Lay's silence before Congress is a remarkable turnabout for a corporate executive who not long ago was a highly courted figure in Washington, a financial patron of many public officials, a guest of both Democratic and Republican presidents and a top contender for a cabinet position in the administration of the first President Bush. 
Now he is facing a multitude of investigations by Congress, the Justice Department and the Securities and Exchange Commission. A report issued on Saturday night by three outside directors of Enron, which has filed for bankruptcy protection, concluded that he bore overall responsibility as its leader, but that he appeared to be largely oblivious to the details of questionable transactions. The report was based in part on interviews with Mr. Lay and foreshadows his defense to the inquiries. 
The day witnessed the first extensive testimony by a member of Enron's board about the company's demise. William C. Powers, the chairman of the special committee on Enron's board that issued the report, told a Congressional panel that his inquiry had uncovered ''a systematic and pervasive attempt by Enron's management to misrepresent the company's financial condition.'' 
''The tragic consequences of the related-party transactions and accounting errors were the result of failures at many levels and by many people,'' said Mr. Powers, the dean of the University of Texas School of Law. ''A flawed idea, self-enrichment by employees, inadequately designed controls, poor implementation, inattentive oversight, simple and not-so-simple accounting mistakes, and overreaching in a culture that appears to have encouraged pushing the limits.'' 
Mr. Powers termed his findings ''absolutely appalling.'' He added, ''There's no question that virtually everyone, from the board of directors on down, everyone understood that the company was seeking to offset its investment losses with its own stock.'' 
Fresh signs of the political implications of Enron's demise were evident in a capital that has quickly become captivated by the matter. At a news conference this afternoon, Senator Ernest F. Hollings, the South Carolina Democrat who heads the Commerce Committee, sharply criticized the Bush administration for its ties to Enron and its top executives. 
''I've never seen a better example of cash-and-carry government than this Bush administration and Enron,'' he said. ''Specifically, everyone knows how the Bushes got the cash, whether while he was governor using the planes of the largest contributor; as president in his campaign the largest contributor; to the Republican committee running the convention and the inaugural committee and everything else like that.'' 
Mr. Hollings, following some House Democrats, called on the administration to appoint a special counsel to lead the criminal investigation into Enron's collapse. He cited the company's ties to nearly a dozen top officials in the administration and Attorney General John Ashcroft's excusing himself from the case because he had received campaign donations from Enron. 
The Justice Department said it saw no reason for such a counsel. ''No conflict of interest exists,'' its statement said. ''No person involved in pursuing this investigation has any conflict or any ties that would require a recusal.'' 
Mr. Hollings gamely deflected a question about his own campaign contributions from the company. Asked whether he had received donations from Enron, he replied: ''I sure did, but I got 3,500 over 10 years, but our friend Kay Bailey Hutchison, she got 99,000. Heck, I'm the chairman of the committee. That wasn't a contribution. That was an insult.'' 
Republicans, meanwhile, continued to denounce what they called corruption at Enron while noting that the company had ties to Democrats. 
''Clearly Enron was a very politically active corporation, and I think that makes this a more interesting story,'' said Senator Peter G. Fitzgerald, the Illinois Republican who is the ranking minority member on one of the subcommittees examining the affair. ''But the fact of the matter is that at root I think this is a corporate scandal. I don't believe that anyone in the Bush administration was aware that there was what appears to me to have been a pyramid scheme going on in Enron.'' 
After noting that the administration of President Bill Clinton also promoted some of Enron's business interests, he added, ''There's a very famous picture of Ken Lay with the previous president as well as the current president.'' 
At a House financial services subcommittee hearing today, Harvey L. Pitt, the chairman of the Securities and Exchange Commission, said that if facts described in the Enron report as characterized by one lawmaker proved correct, ''that would be fraud.'' 
He said his agency was re-examining a broad range of regulations as a result of Enron's problems. ''I am committed and the commission is committed to re-examining every assumption, every rule, and regulation, in light of Enron,'' he said. 
Specifically, he said, the agency was reviewing disclosure and financial reporting requirements, the role of audit committees and the oversight of accounting firms. He said that the agency was closely examining other companies that have shifted their liabilities off their books and that he believed that corporate executives ought to face ''personal exposure'' for violating disclosure rules.

Photos: Representative Richard H. Baker of Louisiana, center, the chairman of a subcommittee of the House Financial Services Committee, consulted with colleagues and aides yesterday at a hearing on the collapse of Enron. (Associated Press); The S.E.C. chairman Harvey Pitt before Congress yesterday. (Associated Press)(pg. C4) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

A Section
Lay Leaves Enron Board; Founder Severs Last Ties to Firm
Peter Behr
Washington Post Staff Writer

02/05/2002
The Washington Post
FINAL
A04
Copyright 2002, The Washington Post Co. All Rights Reserved

Enron Corp. founder Kenneth L. Lay resigned from the company's board of directors yesterday, two days after an investigative report found him significantly responsible for the company's demise. 
In a letter of resignation cutting his last ties to the company, Lay said: "I want to see Enron survive and successfully emerge from [bankruptcy] reorganization. Due to the multiple inquiries and investigations, some of which are focused on me personally, I believe that my involvement has become a distraction to achieving this goal."
Lay was supposed to testify voluntarily yesterday before a Senate committee, but he canceled the appearance Sunday. His attorney said members of Congress had prejudged Lay before hearing his testimony. 
Lay and other directors were pointedly criticized in a report released Saturday by a special committee appointed by Enron's board and headed by William Powers Jr., dean of the University of Texas Law School. 
Powers told members of the House Financial Services Committee yesterday that the failure of Lay and other directors to police accounting and ethics violations at Enron was "appalling." Disclosures of executives' self-dealing and false financial statements by Enron shattered its credibility with investors and customers, forcing it into bankruptcy. 
For Lay, the departure ends a tumultuous year at the company he founded 16 years ago. He stepped down as chief executive a year ago, turning the post over to his prote{acute}ge{acute} Jeffrey Skilling. While Lay kept the chairman's position, he was planning to expand his activities outside the country. Then Skilling's unexpected resignation in August, as Enron's financial problems were growing, forced Lay to take up the chief executive's duties once again. 
His assurances last summer that Enron was in good shape has been condemned by former Enron workers and attacked by lawyers suing Enron and its top executives on behalf of shareholders and employees. Lay and top Enron executives also face ongoing federal securities and criminal investigations. 
Lay resigned as chairman and chief executive Jan. 23 under pressure from creditors in the Enron bankruptcy reorganization case. Enron is trying to sell enough assets to meet creditors' demands while eventually putting surviving units of the company back on their feet. 
Thomas Roberts, Enron's outside lawyer in the bankruptcy case, received Lay's resignation. 
"This was Ken Lay's decision," Roberts said. While it is difficult for a corporate board to remove an individual director, Lay could have been forced to resign. 
Roberts said Enron was sorry Lay did not feel comfortable testifying yesterday. "The company would have liked him to tell the company's story and his story, and the company is sorry that circumstances have led to his leaving the board." 
Lay has been working at an office at Enron's Houston headquarters but is cut off from former executives and employees he once led. His wife, Linda Lay, said last week that except for their home, "everything is for sale." 
The financial implications of Lay's resignation as chairman and chief executive are not yet clear. 
"His severance package is being discussed now," Roberts said. "With the company in bankruptcy, the board does not have much latitude, if any, in agreeing to a severance package. It's all subject to the bankruptcy court."

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

Lay steps down from Enron's board of directors 
Irate lawmakers working on subpoenas 
By JULIE MASON 
Copyright 2002 Houston Chronicle Washington Bureau 
Feb. 5, 2002, 12:43AM
WASHINGTON -- Former Enron Corp. Chairman Ken Lay resigned from the company's board of directors Monday, as irate lawmakers prepared subpoenas that would force him to appear on Capitol Hill. 
Lay, who resigned as chairman last month, severed final corporate ties with Enron, saying his problems had become a distraction to the company's efforts to emerge from bankruptcy. 
"Due to the multiple inquiries and investigations, some of which are focused on me personally, I believe that my involvement has become a distraction to achieving this goal," Lay said in a statement. 
The move came during a chaotic day in Washington as lawmakers, stung by Lay's abrupt cancellation of highly anticipated testimony on Capitol Hill, took steps to compel the embattled former executive to appear. 
"I understand it would be difficult to come and testify, but he should not have expected it would ever be a walk in the park," said Sen. Byron Dorgan, D-N.D. 
Lay withdrew less than 24 hours before he was to appear Monday at the Senate Commerce Committee. He also pulled out of a hearing set for today before the House Financial Services Committee. 
In response, the House committee voted unanimously to authorize its chairman to subpoena Lay, and the Senate panel is poised to do the same today. 
The Senate panel tentatively set Feb. 12 as the new day to hear from Lay, while the House committee's new date was undecided. 
Earl Silbert, Lay's attorney in Washington, D.C., said Monday night he is aware that Lay may be subpoenaed by the House Financial Services Committee and suggested to the committee that Lay could testify on Feb. 12 or 13. 
According to news reports Silbert said he did not know where Lay was when he was contacted by the committee about him, but he meant that he did not know where Lay was when the committee staff was speaking to him. 
"I knew he had left D.C.," Silbert said. 
Kelly Kimberly, Lay's newly hired spokeswoman, said Lay returned to Houston from Washington, D.C., Monday morning. 
Lawmakers said they are not inclined to barter immunity for Lay's testimony, and it was unclear whether Lay would invoke his Fifth Amendment right against self-incrimination and refuse to answer questions. 
Far from backing down from the heated rhetoric that Lay's attorneys blamed for his withdrawal, angered lawmakers, again lashed out at Enron and its former chairman for failing to appear as promised. 
"We have not arrived at any preconceived notions here, but I will tell you it sure appears to me that this company was on the financial equivalent of steroids," said Sen. Ron Wyden, D-Ore. "They inflated those short-term profits and pumped themselves up to the detriment of the long-term health of thousands of families in my home state." 
Sen. Ernest Hollings, D-S.C., chairman of the Senate committee, criticized the Bush administration for its ties to Enron and called for a special prosecutor to oversee the criminal investigation. 
"I've never seen a better example of cash-and-carry government as this Bush administration and Enron," Hollings said. 
Attorney General John Ashcroft recused himself from prosecuting the case, disclosing that he took campaign contributions from Enron for a failed 2000 Senate bid. 
Hollings criticized the subsequent choice of Deputy Attorney General Larry Thompson to head up the investigation, noting that Thompson once worked in a law firm that represented Enron. 
"In other words, it should be independent," Hollings said. 
"Of course, finding someone in this town independent of Enron is easier than finding bin Laden, I can tell you that," he said ironically. 
The Justice Department rejected the call to replace Thompson with a special prosecutor. 
"No person involved in pursuing this investigation has any conflict, or any ties that would require a recusal," Justice Department officials said. 
Lay, who it was hoped would finally break months of silence on the collapse of his one-time empire, was to be the star attraction in a week of intense hearings in both the House and Senate. 
Instead, his lawyers cited "prosecutorial" tones in the public remarks of lawmakers preparing to question Lay, in explaining his withdrawal. 
Committee members generally scoffed at Lay's response, noting that their adversarial tone has remained largely consistent since he agreed in December to testify. 
"The problem for Mr. Lay is that some of the autopsies have already been done on Enron," said Sen. Peter Fitzgerald, R-Ill. "If Mr. Lay wants to correct some of the damning impressions that are coming out of these documents, he ought to come before the American people." 
Lay's decision not to appear came the day after a special committee of Enron's board released a 218-page 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. 
The report also cited Lay for bearing significant responsibility in the company's collapse. 
Lay resigned as chairman and CEO of Enron Jan. 23, saying he could not run the company effectively while facing investigations and lawsuits into Enron's collapse. 
His resignation from the board closes 16 years of service at Enron, leaving his diminished stock ownership the only remaining link to the company. 
He retired as chief executive in February 2001, but resumed the position when his successor, Jeff Skilling, quit in August. 
Lawmakers said Monday that Skilling is still expected to cooperate. Former Chief Financial Officer Andrew Fastow, also scheduled to testify, has notified lawmakers he will not answer questions. 
In a brief statement on Lay's resignation from the board, Enron said, "We regret that circumstances have led to this. We wish Ken the best." 
Chronicle reporters Laura Goldberg in Houston and Patty Reinert in Washington contributed to this story. 
 
Business/Financial Desk; Section A
ENRON'S MANY STRANDS: THE PARTNERSHIPS
Deal at Enron Gave Insiders Fast Fortunes
By KURT EICHENWALD

02/05/2002
The New York Times
Page 1, Column 5
c. 2002 New York Times Company

They called it Southampton Place. To most people in Houston, it was the name of a neighborhood known for expensive homes and influential residents. 
But to a small group of executives at the Enron Corporation, it meant something far different: the opportunity to obtain millions of dollars of cash, fast, with the money coming from the company's own coffers.
Details of the lucrative investments in Southampton, a limited partnership involved in dealings with Enron partnerships, were disclosed Saturday in a report released by a special committee of the Enron board. For directors and former employees, the details have proved to be some of the most emotionally charged disclosures in the lengthy report: a small group of insiders made millions in profits in secret deals with some of the partnerships that ultimately brought the company to its knees. 
Two of the investors were able to transform $5,800, the price of a used car, into more than a million dollars each in just two months, according to the report. Andrew S. Fastow, the former chief financial officer of Enron and engineer of many of the partnership transactions, transformed a $25,000 contribution from a family foundation into $4.5 million in the same matter of weeks. 
The deals in early 2000, which involved at least half a dozen Enron employees, violated the company's conflict of interest requirements. Last fall, when the first inklings of Southampton emerged, every senior executive investing in the deal who had not already been fired for a role in the partnership problems was terminated. Until then, the report says, no top officials of the company knew anything about -- let alone approved of -- the insider deal that had come from Mr. Fastow's finance division. 
The investment was arranged by Mr. Fastow and another Enron employee, Michael Kopper, who both live in Southampton Place in Houston. Investigators working for the board committee worked to figure out why the two executives offered the lucrative opportunity to other corporate insiders, but were unable to find an answer. 
Now, legal experts say, that same question is certain to be examined by Federal prosecutors investigating the Enron debacle. 
Investigators will look for a quid pro quo arrangement in which something of value was expected from the investors in return for the lucrative opportunity to participate in such a profitable deal, said Stephen Meagher, a former federal prosecutor in San Francisco who handled white-collar cases. 
A spokesman for Mr. Fastow declined to comment. Mr. Kopper did not return a telephone message left at his home. 
The small group of other investors included only people who were involved in partnership transactions with Mr. Fastow. Mr. Kopper, like Mr. Fastow, also invested $25,000, through a partnership he called Big Doe -- apparently a nod to the potential profits from the investment. 
The other investors included Ben F. Glisan Jr., the former Enron treasurer who helped set up some Enron partnership deals with Mr. Fastow, and Kristina Mordaunt, a lawyer who worked for Mr. Fastow before becoming general counsel of the company's broadband division. Mr. Glisan and Ms. Mordaunt were the executives who each put up $5,800 for a return of $1 million. 
Two other employees put up smaller amounts, and received thousands in return. 
Henry F. Schuelke, a lawyer for Mr. Glisan, did not return a phone message. Ms. Mordaunt's phone number could not be found in a computer search. However, according to the report, she informed the committee that she never asked for and never provided anything in return for the Southampton investment. Mr. Glisan also told the committee that Mr. Fastow never asked him for any favors or other consideration in return for the Southampton investment. 
For some legal experts, the Southampton transaction sounds eerily similar to a central part of the investment scandal at the investment house Drexel Burnham Lambert Inc. more than a decade ago. There, the man in charge of Drexel's junk bond operation, Michael R. Milken, offered lucrative interests in a partnership called MacPherson Investment Partners L.P. to a group of mutual fund managers. Some of those managers, who invested their mutual funds in other Drexel deals, were subsequently convicted on charges that they had accepted bribes in exchange for decisions they made for their funds. 
With the Enron executives having fiduciary obligations to the company's shareholders, legal experts said, investigators will try to determine whether anyone appeared to modify their actions because of the investment opportunity. 
The MacPherson case clearly has a role as precedent in this instance, said Mr. Meagher, the former prosecutor. 
Kenneth J. Vianale, the main prosecutor in the MacPherson cases, declined to comment, citing a conflict; his firm has already brought class actions against Enron on behalf of shareholders. 
According to the report, both Mr. Glisan and Ms. Mordaunt played roles in negotiating with Mr. Fastow's partnerships on behalf of Enron after they received their returns on the Southampton investment. That month, Mr. Glisan became treasurer of Enron, and was intimately involved that year in a series of partnership deals that played a major role in bringing down the company. Ms. Mordaunt was involved in at least one transaction with a Fastow partnership on behalf of Enron after her investment. 
The Southampton Place partnership traces back to a $10 million investment by Enron in March 1998 in Rhythms Netconnections Inc., a privately held Internet service provider. Enron's stake, 5.4 million shares originally priced at $1.85 each, proved to be enormously profitable, at least for a while. 
A little more than a year after Enron purchased its stake, Rhythms went public at $21 a share and closed on the first day of trading at $69. Soon Enron's stake was worth some $300 million, according to the committee's report. 
But the company could not cash in its stake because the terms of its investment prohibited selling the stock until the end of 1999. The prices of Internet stocks were extremely volatile, and the changes in value of Rhythms shares showed up on the company's income statement, because of how Enron was accounting for the shares. 
Senior executives wanted to limit those swings in value. 
That is where the partnerships came in. Mr. Fastow and Mr. Glisan, who would later be appointed Enron's treasurer, arranged a series of transactions supposedly to hedge the risk in the Rhythms investment. 
The complex transactions involved a number of related partnerships. But ultimately the deals required Enron to contribute both stock in Rhythms and its own stock to the partnerships. The report said Mr. Fastow indicated to other Enron executives that he had no financial interest in the transactions. 
In 2000, when Enron decided to sell its Rhythms stake, the complex series of transactions had to be undone, a process known as unwinding. 
During the negotiations on the unwinding, Mr. Fastow proposed that Enron pay $30 million to one partnership involved He did not reveal at that time that the partnership was secretly owned by Southampton, which had just been established. 
The fact that Enron executives were profiting off this deal at the expense of their employer raised serious concerns for the committee. 
''We have not seen any evidence that any of the employees, including Fastow, obtained approval from the chairman and C.E.O. under the code of conduct to participate financially in the profits of an entity doing business with Enron,'' the report says. ''While every code violation is a matter to be taken seriously, these violations are particularly troubling.''

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

Legal Liability for Enron Debacle May Be Determined by 1997 Memo
By John R. Emshwiller
Staff Reporter of The Wall Street Journal

02/05/2002
The Wall Street Journal
A6
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Legal liability in the Enron Corp. debacle could depend, in part, on who knew about an innocuous-looking, two-page memorandum dated Dec. 30, 1997, involving one of the now-controversial outside partnerships run by company executives. 
Enron's collapse into bankruptcy proceedings late last year, caused in large part by the existence of those partnerships, is now the focus of congressional hearings and criminal and civil investigations. The company's downfall also has subjected the nation's corporate-accounting practices to unprecedented scrutiny.
The memo was signed by two Enron executives at the time, Jeremy Blachman and Michael Kopper. It included plans for how to distribute about $6.6 million from one limited partnership, known as JEDI, to another limited partnership, known as Chewco Investments. Chewco has received widespread attention recently as one of the partnerships whose questionable accounting treatment helped bring Enron down. Chewco was run and partly owned by Mr. Kopper, who resigned last year as a managing director of the Houston energy-trading giant. 
The memo shows Mr. Blachman was signing on behalf of an Enron unit that was serving as general partner of JEDI, and Mr. Kopper was signing on behalf of Chewco. The memo was on JEDI letterhead and addressed to Chewco Investments. 
The final destination and purpose of these funds has become the center of a controversy between Enron and its longtime auditor Arthur Andersen LLP, as well as a focus of inquiries by federal investigators probing the Enron collapse. Late last year, Enron and Andersen officials said their discovery of the use of that money in relation to Chewco had required Enron to retroactively reduce reported earnings back to 1997 by nearly $400 million, or more than 10%. This reduction produced the lion's share of a broader financial restatement that helped force Enron to seek bankruptcy-court protection on Dec. 2. 
In Dec. 12 congressional testimony, Andersen's chief executive, Joseph Berardino, said the 1997 handling of the Chewco/JEDI financial arrangements involved "possible illegal acts." He said that in 1997, crucial information about the financial arrangements had been withheld from Andersen by Enron officials. 
Yesterday, an attorney for Mr. Kopper declined to comment. Mr. Blachman, who is currently a managing director at an Enron unit, didn't return phone calls seeking comment. It isn't clear whether Mr. Blachman played anything more than just a minor role in the Chewco matter. A report issued over the weekend by Enron's board of directors investigating Enron's executive-run partnerships indicates that Mr. Blachman, when interviewed recently, couldn't recall details of the Dec. 30 document. 
Mr. Berardino's testimony added to questions of who knew what and when in regard to Chewco. The partnership was created in 1997 to purchase from Enron for $383 million an interest in JEDI, which is an acronym for Joint Energy Development Investments. Enron had helped form JEDI in 1993 and operated it as a separate entity to invest in energy projects. By selling Chewco an interest, Enron was able to keep treating JEDI as independent, which meant keeping more than $700 million in JEDI-related debt off Enron's balance sheet. 
Enron was only able to do this transaction because Chewco was considered an independent entity under accounting rules, which required that the entity have outside equity equal to at least $11.5 million, or 3%, of its $383 million in assets. Andersen has acknowledged that it reviewed Chewco in 1997 and found that two small limited liability companies, known as Big River Funding and Little River Funding, had put in enough outside equity to meet that requirement. Mr. Kopper, besides his connection to Chewco, also shows up as signatory for Big River and Little River on its bank-loan documents. 
As it turned out, however, more than half the outside equity investment was in effect guaranteed by the $6.6 million due from JEDI to Chewco being deposited in accounts as collateral against bank loans, which Big River and Little River had taken out to invest in Chewco. This collateral deposit meant Chewco never had enough true outside equity to be treated as independent. Thus it should have been folded into Enron, along with JEDI, in 1997. Andersen has said it wasn't told in 1997 about the collateral arrangement. 
The 1997 memo talks of sending the $6.6 million to reserve accounts on behalf of Little River and Big River. Yesterday, an Andersen spokesman said "this is more confirmation of the fact that Enron didn't provide critical information regarding Chewco to Andersen." An Enron spokesman declined to comment. One person familiar with the matter said that in 1997 Enron officials were telling bankers involved in the Chewco-related loans that Andersen had reviewed and approved of the now-suspect collateral transaction. The board report released over the weekend said that Andersen work papers indicated that the accounting firm had access to cash-flow records from JEDI including the now-suspect $6.6 million distribution. However, the report added, it didn't know if Andersen had done anything to trace the disbursements from JEDI. 
And it still isn't known who at Enron or Andersen saw or had access to this 1997 memo over the past four years. If individuals knew about the arrangement and its potential financial impact on Enron, they could be guilty of violations of the law, says one federal investigator looking into the matter. 
A Nov. 2, 2001, memorandum prepared by an Andersen official said that the accounting firm was called on Oct. 26 by an Enron official named Rodney Faldyn who "advised that he had learned that Chewco may not have the requisite equity" and asked about the possible accounting impact of that situation. That was the same day that The Wall Street Journal disclosed the existence of Chewco and its connection to Mr. Kopper. Mr. Faldyn declined to comment yesterday. 
Over the next several days, Enron and Andersen began reviewing Chewco, according to the Andersen memo. On Nov. 2, Andersen received a set of Chewco-related documents from the law firm of Wilmer, Cutler & Pickering, which had just been hired to help Enron's board of directors do its investigation of the partnership arrangements. That investigative report, released over the weekend, was extremely critical of Chewco and similar partnerships as well as of top Enron officials. 
The Dec. 30, 1997, memo was part of the Wilmer Cutler packet of documents, said the Andersen memo. It isn't clear where the law firm obtained the Chewco-related documents. William McLucas, the firm's lead attorney on the Enron investigation, couldn't be reached for comment yesterday.

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

Business; Business Desk
Enron Report Could Bolster Criminal Case Probe: Panel's allegations of financial subterfuge increase likelihood of indictment, legal experts say.
WALTER HAMILTON
TIMES STAFF WRITER

02/05/2002
Los Angeles Times
Home Edition
C-1
Copyright 2002 / The Times Mirror Company

A report claiming that Enron Corp. executives used partnerships to enrich themselves and mask the company's troubled finances makes it increasingly likely that prosecutors will bring criminal fraud charges, legal experts said Monday. 
The report, released late Saturday by a special committee of Enron board members, said the partnerships appeared in some cases to be used for financial subterfuge rather than for legitimate business purposes.
If investigators can show that Enron officials intentionally deceived investors, it would mark a significant new development in the case, according to attorneys experienced in corporate fraud. 
Enron executives would have a stronger defense had the report found that they simply made bad business decisions, attorneys said. Instead, the report charged that the now-infamous partnerships at the heart of Enron's collapse often served no "bona fide economic" purpose. 
"This report makes it more likely that there will be a criminal indictment," said Christopher Bebel, a partner at Shepherd Smith & Bebel in Houston. 
"It looks like the government's going to have an easier time establishing intent, because now we've learned additional details about the efforts at concealment of the truth as the scheme was unfolding," Bebel said. "And we're learning about the extent to which members of top management profited." 
The report detailed a culture of corporate mismanagement and inside dealing. It pointed the strongest criticism at Andrew S. Fastow, Enron's former chief financial officer, saying that he and several subordinates reaped tens of millions of dollars in profit at the expense of the company and its shareholders. 
Fastow could not be reached for comment. 
Some legal authorities cautioned that it was not certain criminal charges would be brought. 
Though the report contains strident allegations, the three-member panel acknowledged that it did not have the full picture. Some key people refused to cooperate, and the panel lacked access to important documents. 
Though the report appears to strengthen the government's hand in bringing potential fraud charges, Enron executives still have a variety of defenses available, some authorities said. 
Enron executives could argue that the partnerships were created and run with the full backing of lawyers and others upon whom they relied for expert advice, said Ira Lee Sorkin, a New York defense attorney who previously was at both the U.S. attorney's office in New York and the Securities and Exchange Commission. 
Sorkin noted that as a defense, Enron executives could claim that lawyers, accountants and others signed off on the deals. 
Still, many experts said the report contains clearly damaging information that lowers the hurdle to bringing a criminal case. 
Simply put, the difference between a civil case and a criminal one is intent, attorneys said. Prosecutors would have to prove that a defendant purposely broke the law as opposed to simply having acted "recklessly." 
With Enron, prosecutors could argue that Fastow and others were making millions while manipulating the company's books, experts said. 
"If the evidence is as strong as this report seems to make it, then I'd think it's a pretty strong case," said Paul Fishman, a New York lawyer who handles white-collar crime cases. 
The report also hands the Justice Department extra ammunition with which to pursue its case, Fishman and others said. One major strategy in the investigation is to coax insiders to cooperate with information about the wrongdoing of others. 
The report may convince some people that it's better to cooperate before others do and they lose offers of leniency. 
"There may be enough in [the report] that it may scare the pants off someone," Fishman said. 
If the allegations in the report bear out, the government could charge fraud on several levels, said Brian O'Neill, a partner at O'Neill, Lysaght & Sun in Santa Monica. 
If the company was shuffling its finances while borrowing money from financial institutions, that could be bank fraud, he said. If it used the mail or electronic means to deceive investors, that could be mail or wire fraud. 
The headline-garnering nature of the Enron debacle could itself increase the likelihood of criminal charges being brought, said Henry Hu, a securities-law professor at the University of Texas at Austin. 
"This case has so gripped the attention of the general public that the failure to bring a criminal prosecution, if the facts warrant it, could undermine confidence in the financial markets," Hu said. "The message it would send is that [criminal wrongdoing] doesn't matter: 'Even in an egregious situation, we won't prosecute criminally.'"

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

Business/Financial Desk; Section C
ENRON'S MANY STRANDS: WALL STREET
Varied Roles Cause Some Conflicts, Brokers Say
By PATRICK McGEEHAN

02/05/2002
The New York Times
Page 6, Column 1
c. 2002 New York Times Company

Investors may have been astonished to learn that the Enron Corporation allowed its former chief financial officer, Andrew S. Fastow, to wear two hats. But Wall Street insiders could have shrugged and said, ''Is that all?'' 
On Wall Street, the biggest and most successful firms routinely play a variety of roles and simultaneously serve several, and often conflicting, interests. In some cases, the same firms that privately sold shares in the complex partnerships that Enron kept off its balance sheet also lent Enron money and recommended Enron's stock and bonds to the public.
A report by a special committee of Enron's board found that the accounting for those partnerships -- some of which were run by Mr. Fastow while he was chief financial officer -- was one cause of the company's collapse. Congressional investigators are asking whether the company's auditor, Arthur Andersen, was blinded to that conflict by the consulting fees Enron was paying it. 
While the large accounting firms rush to eliminate their apparent conflicts, executives on Wall Street are standing behind the securities laws that have perpetuated theirs. Unless Congress or securities regulators tell them otherwise, the big securities firms intend to continue raising money for corporations by selling stocks, bonds and shares in partnerships to the full spectrum of investors, from the most sophisticated millionaires to the novices. 
''There are inherent conflicts of interest in this business,'' said James Wiggins, a spokesman for Merrill Lynch & Company, the nation's biggest brokerage firm. ''It's a question of how you manage them.'' 
Like many major firms on Wall Street, Merrill helped to finance Enron's rapid rise. The firm managed sales of the company's bonds, lined up buyers for one big partnership run by Mr. Fastow and even collected a fee for advising another company on its purchase of a utility that Enron sold. 
At times, including last fall, Merrill's stock research department advised brokerage customers to buy Enron's stock. Donato J. Eassey, an analyst who followed Enron for Merrill until December, was recommending the stock after Merrill successfully sold $349 million of shares in LJM2, a partnership created by Enron executives, through a private offering. Several Merrill investment bankers, including Thomas Davis, now a vice chairman of the firm, bought shares of that partnership for themselves, though their interest was not disclosed to Merrill's customers. So far, they have recovered slightly more than 90 percent of the money they invested, according to a person close to the partnership. 
There is no evidence that Merrill's investment bankers or executives ever considered these various roles an unacceptable conflict of interest. To the contrary, Merrill's two top executives reassured the firm's employees last week about the firm's role in selling LJM2. 
In an internal memorandum on Jan. 30, Merrill's chief executive, David H. Komansky, and its president, E. Stanley O'Neal, said: ''We placed it privately with a limited number of qualified institutional and individual investors who received full disclosure about its structure. Co-investment by Merrill Lynch and some of our qualified employees is common in these kinds of placements and does not represent a conflict of interest. Indeed, it directly aligns our interests with the sophisticated investors who join us in putting their capital at risk.'' 
If Merrill's bankers, as agents of Enron, gathered any information about Enron that was not available to the company's shareholders or bondholders, they would have been barred from sharing it, experts in securities law said. That information belongs to the client and is available to the investment bankers under strict terms of confidentiality. 
''Investment bankers are not going to blow the whistle on transactions blessed by the company's lawyers and accountants,'' said Joseph McLaughlin, a partner with the law firm of Sidley Austin Brown & Wood. ''You can't release the information without the company's permission.'' 
If bankers learned something negative in preparing to manage a private placement for a public company, he said, ''what that calls for is a frank discussion with the company'' to encourage its executive to disclose the information publicly. 
But if the company chooses not to tell investors everything -- as Enron clearly did not -- that arrangement can leave the securities firm in an awkward position. Its analysts and brokers may be promoting stocks that they would not like so much if they knew what some of their co-workers in the investment-banking department knew. 
Securities firms long ago became comfortable with the potential for such conflicts. They have been playing the dual roles of corporate underwriter and financial adviser for decades. 
''Conflicts of interest in the financial industry are as inevitable as death and taxes,'' said John Coffee, a professor of law at Columbia University. ''You can't wholly purge them.'' 
The most likely moves to deal with those conflicts, Mr. Coffee and other experts said, will be to insulate analysts even more from their investment-banking counterparts. Rather than allowing the two sides to share more information, regulators will probably try to limit the bankers' ability to influence the analysts' ratings and views on securities that their firms underwrite. 
Beyond that, Wall Street executives are likely to resist calls for change. It is an industry with codes of conduct that do not prevent an investment bank from representing both the buyer and the seller in a merger. ''It's taken an incredible perfect storm to force the auditing industry to change,'' Mr. Coffee said. ''I don't think we're going to see Wall Street fundamentally change how it behaves.''

Photo: David H. Komansky, chief executive of Merrill Lynch, wrote a memorandum that explained the firm's role in LJM2, created by Enron. (Carol Halebian) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

COMPANIES & FINANCE THE ENRON COLLAPSE - Lawsuits may widen to hit partnerships SPECIAL-PURPOSE VEHICLES.
By JOSHUA CHAFFIN, STEPHEN FIDLER and ANDREW HILL.

02/05/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

Plaintiffs in suits against Enron directors and advisers are examining whether to widen their case for compensation to include investors who backed the energy trader's off-balance-sheet partnerships. 
People involved in some of the class-action suits on behalf of employees and investors in Enron say a damning special report to the Enron board may provide ammunition for a wider case against the banks, funds and individuals that funded the special-purpose vehicles.
The report, published at the weekend, analyses in detail many of the deals Enron conducted with the partnerships. It concludes that many "had little economic substance" and were carried out simply to flatter the Enron accounts. 
Limited partners in the special-purpose vehicles took on little risk and received disproportionately large returns, according to the report. 
The investigation by three Enron directors does not go into detail about how the partnerships were pitched to investors by Andrew Fastow, Enron's former chief financial officer, and Michael Kopper, another Enron employee. But other documents obtained by the Financial Times make clear that potential partners were aware of the inherent conflicts of interest. 
Those documents - relating to LJM2 Co-Investment, one of the main partnerships - show the rapid deal making, high rates of return and the promise of an inside track on Enron's strategy were all touted as attractions. 
The internal report points out that in 20 transactions with Enron, "the LJM partnerships rarely lost money ... even when they purchased assets that apparently declined in value after the sale" and in spite of the fact that "each transaction theoretically involved a transfer of risk". 
Among investors in LJM2, according to partnership documents, were funds or units run by Merrill Lynch (which also led the placement of stakes in LJM2), JP Morgan Chase, Citigroup, Dresdner Bank, Lehman Brothers, Credit Suisse First Boston, Wachovia and CIBC. GE Capital had a small stake, as did insurers and individual investors. 
"We invested $10m," Lehman said. "We did it not simply for the relationship, but because we thought it would be a good investment." 
Lehman declined to comment on the possibility of a suit against partners in LJM2, but one institution involved said it was more likely that partners would now sue Enron. 
The special report details for the first time the involvement of CSFB and National Westminster Bank, now part of Royal Bank of Scotland, in LJM Cayman (LJM1). Mr Fastow raised $7.5m from each of two limited partners ERNB and Campsie which, the report says, were associated with CSFB and NatWest respectively. 
Some of those approached by Mr Fastow were intrigued by the high returns promised, but eventually deterred by the fact that the chief financial officer and other Enron employees were running the vehicles. Calpers, the Californian pension fund that invested in other Enron-backed entities, turned down LJM2 for those reasons, according to a Los Angeles Times report. 
One private equity investor said he knew Mr Fastow's presence guaranteed "an edge". But this was also disconcerting because of the apparent conflict of interest. 
"If these are legitimate deals, then why does Enron need Andy? Why not a third party?" he had wondered. 
When the investor raised these concerns with Mr Fastow, the Enron executive replied that the board had approved, and so there was no problem. The investor declined to join the partnership. "The whole team were Enron guys. There was not one of them who was a member of the partnership. There was something unusual about that," he said. 
Eli Gottesdiener, head of a Washington law firm involved in one suit against Enron and Andersen, its former auditor, declined to say whether limited partners would now be sued. But he said employees' and shareholders' lawyers would probably "use the report to assist them in casting the net as widely as possible". 
Among the most egregious transactions involving partnerships was one related to an entity called Jedi. 
The internal report confirmed that for much of the 1990s, Enron was reporting as income gains appreciation in its own shares. From 1993 to the first quarter of 2000, Enron reported as income gains the appreciation of 12m Enron shares contained in Jedi, which it controlled jointly with Chewco, an entity formed by Mr Kopper. 
Workpapers from Andersen indicated that Enron recorded $126m in Enron stock appreciation in the first quarter of 2000, but in the third quarter of that year this practice ended. 
In the first quarter of 2001, Enron did not record its share of the loss in value of Enron shares held by Jedi - amounting to some $90m. 
Enron accountants said they were told by Andersen that since gains were not being recorded as income, losses should not be either. "We do not understand the basis on which Enron recorded increases in value of Enron stock held by Jedi in 2000 and prior years, and are unable to reconcile that with advice apparently provided by Andersen in 2001 concerning not recording decreases," the report said. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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

Enron workers' benefits reportedly raided 
$15 million allegedly spent elsewhere 
By KRISTEN MACK 
Copyright 2002 Houston Chronicle 
Feb. 5, 2002, 12:43AM
A former senior accountant at Enron told CBS News that the company took at least $15 million from legally protected worker-benefits accounts and spent it elsewhere. 
During an interview aired on CBS-TV's Evening News Monday, Robin Hosea said that immediately after joining Enron as a benefits specialist in 2000 she noticed the money was being spent in other departments. 
"The money that comes out of benefits accounts that is not directly to pay for employee benefits is illegal," Hosea said. "It was a large amount of money and also a large number of items." 
The Chronicle was unable to reach Hosea Monday night. 
She said her records showed unexplained payments totaling almost $15 million by the end of 2000, part of which went to monthly payments to outside consultants. 
Last May, Hosea said she questioned her superiors about the payments and was told "that it was a payment to friends of executives and to leave it," she told CBS. 
That summer, Hosea took disability for knee surgery. 
Days before Enron declared bankruptcy, Hosea told CBS that she contacted federal officials at the Department of Labor about her concerns. 
Since then, Hosea said, an Enron supervisor has told her to keep quiet. She also said she gets regular phone threats. 
Hosea was laid off from Enron in December. 
"Those sound like serious allegations," said Enron spokesman Mark Palmer. 
Monday night, Palmer said there was no way of checking the truth of her claims. 
"If the Department of Labor is looking into this, we should wait until their investigation is complete to find out what the facts are," Palmer said. 

A Section
Enron Witness Points to Lay; Lawmakers Told of 'Fundamental Default of Leadership'
Robert O'Harrow Jr. and Jackie Spinner
Washington Post Staff Writers

02/05/2002
The Washington Post
FINAL
A01
Copyright 2002, The Washington Post Co. All Rights Reserved

Enron Corp.'s collapse was the result of a "a systemic and pervasive attempt" to inflate profits and hide losses, not of a few rogue employees breaking company rules, a member of Enron's board of directors told a House panel yesterday. 
The testimony from William C. Powers Jr., dean of the University of Texas Law School and an author of a scathing report about the energy trading company released over the weekend, will make it even more difficult for Enron's former leaders to deflect blame for the company's stunning collapse to lower-level employees or its auditor, Arthur Andersen.
"What we found was appalling," said Powers, chairman of the Enron board's special investigative committee. "And there was a fundamental default of leadership and management. Leadership and management begin at the top, with the CEO, Ken Lay." 
Powers testified before a House Financial Services subcommittee after Lay backed out of a pledge to appear before a Senate panel yesterday. Lay then resigned from Enron's board, closing out his involvement in a company he helped to form in 1986. 
Lay changed his mind because of "inflammatory language" surrounding the case and his perception "the hearing will be prosecutorial," his attorney said. Lay resigned as chief executive late last month under pressure from the company's creditors. 
The Powers report concluded that Lay and former chief executive Jeffrey K. Skilling were largely responsible for a "fundamentally flawed" decision to let Andrew S. Fastow, the company's chief financial officer at the time, set up and run Enron-funded partnerships that made him tens of millions of dollars and allowed Enron to hide huge losses and debts. Enron finally was forced to disclose those losses in mid-October, sparking a crisis of confidence among investors, lenders and customers that sent what was the nation's seventh-largest corporation spiraling into bankruptcy court within seven weeks. 
Fastow received at least $30 million from running partnerships -- a fact that was never reported to shareholders. One of his colleagues, Michael J. Kopper, got at least $10 million from an initial investment of $125,000. Others received up to $1 million or more for doing virtually nothing, Powers said. 
In other testimony, Harvey L. Pitt, chairman of the Securities and Exchange Commission, told the House panel he cannot guarantee that other "Enrons" -- companies with massive accounting irregularities -- won't emerge. "It is my hope there are not other "Enrons out there," Pitt told lawmakers. "But I'm not willing to rely on hope." 
Within hours after Lay's testimony was to have begun, leaders of the Senate Commerce Committee and its subcommittee on consumer affairs said they intend to subpoena Lay to testify next Tuesday. Committee Chairman Ernest F. Hollings (D-S.C.) said the full committee would meet today to vote on authorizing the subpoena. 
Hollings also said the Justice Department should appoint an outside special prosecutor to handle the case because Enron was a major contributor to President Bush's campaign and had ties to an array of administration officials. He cited, among other things, Attorney General John D. Ashcroft's decision to recuse himself because of Enron campaign contributions. 
The Justice Department released a statement saying it "sees no reason to appoint a special counsel to investigate the Enron matter" because "no conflict of interest exists." 
In the House, Rep. Richard H. Baker (R-La.), chairman of the subcommittee that heard testimony yesterday, said the panel also would seek authority to subpoena Lay. "Those who chose to ignore their responsibilities and enrich themselves while bringing harm to others shall have no safe harbor," he said in a statement that opened a hearing about Enron yesterday afternoon. 
Baker later said Lay's attorney, Earl Silbert, told him Lay would invoke the Fifth Amendment and refuse to testify if subpoenaed. But Baker said he expected to submit written questions to Lay, through his attorneys. 
"Mr. Lay firmly rejects any allegations that he engaged in wrongful or criminal conduct," Silbert told the panel. 
Powers declined to answer some of the House subcommittee's questions, including those asking him to speculate about criminal wrongdoing or the need for a special prosecutor. He used his appearance to underscore the damning findings of the Enron board's three-month investigation of the company's use of partnerships. 
He described incorrect accounting in deals from the third quarter of 2000 to the third quarter of last year that were hidden from the public. 
"As a result of these transactions, Enron improperly inflated its reported earnings for a 15-month period . . . by more than $1 billion," he said. "This means that more than 70 percent of Enron's reported earnings for this period were not real." 
The company misused its stock to "hedge" losses from investments, he said. Normally, hedging involves getting an outsider to take on the risk of a deal, for a fee. If an investment loses value, that outsider loses. 
But Powers said Enron "was essentially hedging with itself" by promising investors in the Raptor partnerships that they would receive Enron stock if the assets in the partnerships fell in value. That depended on Enron's stock continuing to climb in value. When the asset values and Enron's stock both fell, the Raptor partnerships could not meet their obligations. "This is precisely what happened in late 2000 and early 2001," Powers said, but Enron hid the problem and "gave the false impression that Raptors had enough money to pay Enron what they owed," he said. 
"Let me say that while there are questions about who understood what, concerning many of these very complex transactions, there's no question that virtually everyone, from the board of directors on down, understood the company was seeking to offset its investment losses with its own stock," he said. "This is not the way it is supposed to work." 
He told the lawmakers, "Whenever this many things go wrong it is not just the act of one or two people." 
Pitt, in his testimony, repeated his call for a new regulatory body to govern the accounting profession and stressed the need to modernize financial disclosure rules and corporate accounting systems. And he lamented the impact of Enron's fall on regular people who trusted the company, such as employees who lost most or all of their 401(k) retirement savings because they were heavily invested in Enron stock. 
"It is these Americans whose faith fuels our markets, who have no lobby and no trade associations, whose interests are, and must be, paramount," he said. "I am appalled at what happened to them as a result of Enron's collapse." 
Pitt said the SEC would work with Congress to determine which areas of reform could be addressed by rules and which would require legislative action. He did not outright reject several suggestions, including a mandated term limit for audit firms, that the accounting profession vehemently opposed while he represented it as a lawyer in private practice. 
He also pledged to review how audit firms are paid and said the SEC was working with lawmakers to address concerns related to conflicts of interest among securities analysts, many of whom were urging investors to buy or hold Enron stock until just before it sought bankruptcy protection. 
Key figures in the creation of the partnerships have been invited before Congress on Thursday, but not all of them will actually testify. 
Fastow's attorney has said he will appear before the House Energy and Commerce Committee, but aides there said he is expected to exercise his Fifth Amendment right against self-incrimination. Kopper has been subpoenaed but has informed the committee he will refuse on Fifth Amendment grounds. 
But an attorney for Skilling reiterated yesterday that Skilling will testify as scheduled. Skilling also was criticized in the Powers report, which described him as a man who prided himself on total involvement in management oversight but who appeared to have little or no oversight of the partnerships. 
Former Enron treasurer Jeffrey McMahon, now the company's president, is expected to testify. He complained about the partnership structure to Skilling, warning of serious conflicts of interest, according to the report. An Enron lawyer who raised questions about the partnerships, Jordan Mintz, is also planning to testify, according to his attorneys. 
Arthur Andersen chief executive Joseph F. Berardino previously testified that Enron officials committed "possible illegal acts" by not disclosing that a partnership that caused huge losses lacked enough non-Enron investment to be separated from Enron's financial statements. 
Powers said Andersen initially cooperated in his investigation but pulled out after Enron fired it last month, citing Andersen's admission that employees in its Houston office had destroyed large numbers of documents related to the Enron audit. 
Andersen announced over the weekend that it had hired former Federal Reserve chairman Paul A. Volcker to lead a sweeping review of its business practices. Dean McMann, who heads a Houston-based accounting consulting firm, said that suggested to him that the firm's problems may be greater than previously realized. 
"They had to hire a watchdog to watch over a watchdog," he said. 
In federal bankruptcy court, meanwhile, a number of creditors filed objections to a motion submitted in by Enron last month that would authorize certain Enron insurance carriers to make payments to lawyers representing current and former Enron officials in lawsuits and government investigations. 
The officials include Skilling. An attorney for Skilling submitted a statement supporting the Enron request. 
The objecting creditors included the Florida State Board of Administration, which in its filing called Enron's request for an initial $30 million to pay advance expenses and legal fees "another effort on Enron's part to protect the wrongdoers who caused billions of dollars of losses . . . and to provide them with further financial benefits." 
Staff writers Helen Dewar, Susan Schmidt, Kirstin Downey Grimsley and Ben White contributed to this report.

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

Financial
Little-Known Academic Pushed Onto Enron Stage
Carrie Johnson
Washington Post Staff Writer

02/05/2002
The Washington Post
FINAL
E01
Copyright 2002, The Washington Post Co. All Rights Reserved

Last Halloween, amid revelations of accounting misdeeds at Enron Corp., William C. Powers Jr. called a friend with some unexpected news. 
Powers, dean of the University of Texas Law School, had agreed to join the troubled energy company's board of directors -- and to lead a probe into its byzantine financial dealings.
"I asked him, 'Why would you want to jump on a sinking ship?' " recalled Richard Hogan, a Houston lawyer. 
Indeed, many wondered. Texas newspapers questioned his ties to Enron -- the law school had raised $250,000 from Enron and Enron's general counsel was on the board of the law school. 
Yet in just three months the relatively unknown academic, with little background in securities law, oversaw the production of a withering report on the management practices at Enron and the actions of its auditor, Arthur Andersen. 
The extraordinary 218-page report detailed questionable financial partnerships and activities that are providing a blueprint for more than a dozen congressional and executive branch investigations. 
Powers testified at a hearing yesterday before a subcommittee of the House Financial Services Committee. In the wake of former Enron chief executive Kenneth L. Lay's refusal to testify, Powers became an unlikely star witness, sitting solemnly in a rumpled dark-blue suit, with sandy hair brushed across his forehead. 
His testimony was as blunt as the report. "What we found was absolutely appalling," Powers said. 
And he spared no one, not even the board that had asked him to make the study, presumably in the hopes of salvaging the company's reputation. "Within Enron, the checks and balances simply broke down. The oversight broke down at the board level, at the senior management level and in the finance department," he told lawmakers. 
Powers, 55, declined comment through a spokeswoman. But interviews with friends and colleagues say his handling of the investigation reflected his blend of low-key intelligence and earthy pragmatism. 
"He's an extraordinarily quick study," said Steven Goode, an associate dean at the Texas law school and a friend of Powers's since they joined the faculty in 1977. "He grasps things more quickly and more deeply than anyone I know." 
Goode, who shares a motorboat with Powers and Powers's wife, Kim Heilbrun, a real estate lawyer, said Powers has a razor-sharp and curious mind. Bookshelves in the modern Austin home where Powers lives with his wife and three of his five children are filled with audiotapes from the Learning Co. on subjects including American literature, the New Testament and physics. 
Despite 23 years of teaching at the law school in Austin and two as its dean and chief fundraiser, Powers has not developed a national reputation outside of the law school community and the relatively small group of lawyers who focus on reforming product-liability laws. Powers has written dozens of articles and several textbooks on the subject. 
"He's not a pretentious person," said Houston lawyer and multimillionaire Joe Jamail, a member of the Texas law school's board of trustees and a lawyer representing Enron's law firm, Vinson & Elkins. "He just does not get out and beat his own chest." 
Friends say Powers has been working 100-hour weeks to balance the duties of the Enron probe with that of running a law school. Raymond Troubh, a New York financial consultant who serves on the three-member Enron investigating committee, said the group worked long hours, with conference calls stretching until midnight and beyond. 
Staffers from the Washington law firm Wilmer, Cutler & Pickering and the accounting giant Deloitte & Touche did much of the hands-on work. But the three-member committee, which also includes Herbert Winokur, head of a private investment firm, played a large part in guiding, rewriting and revising the Enron report, Troubh said. 
Although Powers has been teaching full time for two decades -- earning a distinguished-teaching award from the university -- he has maintained an active legal practice, arguing before the Texas Supreme Court and the 5th U.S. Circuit Court of Appeals. 
Powers colleagues say that although he lacks a background in derivatives, he does have a reputation for being able to sort through confusing corporate dealings. For instance, he was hired by workers to cut through the complex structure of an oil company after an explosion at a refinery in Corpus Christi, Tex., left some severely burned. 
The firm, Coastal Corp., maintains that the factory is owned by a subsidiary, Coastal Refining & Marketing Inc., and that Coastal Corp. has no legal responsibility to pay the $120 million awarded by a court. The case is on appeal. 
"Bill was able to help us pierce through the corporate structure to get to the real guts of what's going on," said Hogan, the Houston lawyer whose firm employs Powers as a consultant. "He's very good at taking a snapshot of things from 30,000 feet up and seeing things clearly." 
Powers earned a degree in chemistry from the University of California at Berkeley in 1967, then joined the Navy and served for three years in the Persian Gulf. He then attended Harvard University's law school, where he edited the law review. 
By one account, Powers came to the attention of Enron through Harry Reasoner, the managing partner of Vinson & Elkins and a trustee on the University of Texas Law School Foundation. 
Enron general counsel James Derrick served on the law school foundation's board of directors and on the alumni association board. Derrick resigned from the two boards after Powers joined Enron's board. Because the law school received contributions from Enron and Vinson & Elkins, Powers has been criticized in recent weeks for agreeing to head the probe. 
The jabs, including an editorial in the Austin American-Statesman that recommended Powers step down in favor of a more independent evaluator, have taken their toll. 
"All of the innuendos are quite embarrassing to him," said Troubh. "I didn't see one iota of partiality in one direction or another. He was a determined, impartial chairman." 
Longtime friend Goode said Powers was most upset that the "unfair personal attacks" came in the days before Powers released his report, which concluded that Enron executives failed to oversee key partnerships and covered up $1 billion in losses in 12 months. 
The Feb. 2 report also had harsh words for Vinson & Elkins, the auditing firm Arthur Andersen and Enron's board of directors, saying they failed to monitor self-dealing among company executives. 
"The tragic consequences of the related-party transactions and accounting errors were the result of failures at many levels and by many people," the report said. "Our review indicates that many of those consequences could and should have been avoided." 
Researchers Richard Drezen and Kim Klein contributed to this report.

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

International
Bidders Emerge for Enron's British Water Utility --- Sale of Wessex Water Could Bring $1.4 Billion To Failed Energy Firm
By Erik Portanger and James R. Hagerty
Staff Reporters of The Wall Street Journal

02/05/2002
The Wall Street Journal
A12
(Copyright (c) 2002, Dow Jones & Company, Inc.)

LONDON -- Efforts to salvage value from the wreckage of Enron Corp.'s overseas interests are showing signs of progress. 
A shortlist of bidders has been drawn up for Wessex Water, a utility in southwest England that is one of the largest international assets of the failed energy-trading company. People familiar with the situation say the list includes Italian energy company Enel SpA; Cheung Kong Infrastructure Holdings Ltd. of Hong Kong; and a consortium composed of General Electric Co.'s GE Capital arm, Royal Bank of Scotland and Abbey National PLC.
The sale is expected to take another six to eight weeks to complete. A person familiar with the bidding said Wessex is likely to fetch more than GBP 1 billion ($1.4 billion). 
Spokesmen for GE Capital, Royal Bank of Scotland, Abbey National and Enel declined to comment. A spokesman for Cheung Kong wasn't immediately available for comment. 
Separately, PricewaterhouseCoopers, the accounting firm appointed last year as administrator of Enron's European arm, expects to raise $500 million to $750 million through other transactions, including asset sales and completion of futures trades. That money would go toward the claims of thousands of creditors and trading partners of Enron Europe and its units, said Tony Lomas, a partner at PricewaterhouseCoopers in London. Enron Europe owes about $1 billion to its parent, Enron Corp., and Enron Europe's obligations to other parties are likely to total more than $1 billion, Mr. Lomas said. 
Enron Corp. bought Wessex in 1998 to be the cornerstone of a new global water division, called Azurix. Enron's plan at the time was to transform the global water industry in the same way it revolutionized natural-gas markets, by taking advantage of deregulation to squeeze inefficiencies out of utilities formerly managed by governments. But the strategy didn't work out as planned, at least partly because of Enron's failure to create a successful online marketplace to trade water. 
Even so, Wessex Water is considered one of the best-run utilities in Britain and one of only a handful of sizable water assets up for grabs anywhere in the world. "If you are looking to make an entry into the global water market, then the U.K. is one of the few parts of the world where you can do that on a meaningful scale," said Andrew Wright, an analyst at UBS Warburg in London. The sale has been complicated, however, by strict regulatory constraints that prevent companies from owning, or holding a stake in, more than one U.K. water company. While more than a dozen potential bidders expressed interest in Wessex, many of these dropped out at an early stage. 
Even if a sale is completed, it would require the approval of British regulators. 
At least one of the bidders on the shortlist, the GE Capital-led consortium, has made an offer that would involve refinancing the water company with debt, which would then be paid off by revenue, say people familiar with the situation. This so-called securitization technique has been used frequently in the past to acquire assets with stable cash flows. 
Enel's interest in Wessex suggests an about-face for the Italian-government-controlled company, which last year pulled out of a race to acquire Britain's Southern Water. Analysts believe Enel is pursuing Wessex as part of a broader push to diversify out of its core electricity operations and into other utility sectors. Cheung Kong Infrastructure Holdings, an infrastructure company controlled by Hong Kong businessman Li Ka-shing, is believed to be seeking a foothold in the European market. 
Separately, PricewaterhouseCoopers has scheduled a series of meetings in London next week with creditors of Enron Europe and its subsidiaries.

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

COMPANIES & FINANCE THE ENRON COLLAPSE - Enron Direct pay-outs decided.
By MATTHEW JONES.

02/05/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

Administrators for Enron Europe have determined approximate payment levels for creditors of Enron Direct, the first business to be sold after the US parent group's collapse in December last year. 
PwC, the administrators, said between 55p and 73p in the pound would be paid back to creditors, depending on the tax liability of the company, a small energy retailer sold in December to Centrica of the UK.
Enron Direct's total debts are #132m ( $188m), of which #105m is owed to another Enron subsidiary. The largest external creditors are listed as Universal Utilities, owed #2.5m, Western Power Distribution, owed #2m, and Scottish and Southern Energy, owed #1.3m. 
Creditors of Enron Direct are likely to receive among the highest payments of Enron's creditors, because it was a relatively straight-forward business with some assets. 
Other businesses, such as Enron Power Operations Limited, a company with 4,000 creditors that set up services contracts for other Enron units, are expected to recoup less of their losses. 
PwC sent preliminary reports on five Enron subsidiaries to thousands of creditors over the weekend. The complexity of deals within the trading and services businesses, which represent the bulk of Enron Europe's debts, mean it will be months before their creditors know the full extent of liabilities. 
Tony Lomas of PwC said trading staff were still working through 250,000 individual trades with about 1,000 counterparties. Those contracts "in the money" would realise at least $150m, but losses were expected to be many times greater. 
Overall, administrators estimate they will realise $500m to $750m of value, but this will be swamped by "many billions of dollars" of debts. Creditors include most of the financial institutions operating in the City of London, the worst exposed of which include JP Morgan Chase, Bank of Tokyo Mitsubishi and Aegon, the Dutch insurer. 
The first creditors' meetings for the European businesses will be held next week in London. Enron Direct creditors will meet administrators on Tuesday, while those of four other trading and services companies will meet on Friday. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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

Business/Financial Desk; Section C
ENRON'S MANY STRANDS: ACCOUNTING
Ernst & Young Latest Auditor Moving to Alter Some Practices
By JONATHAN D. GLATER

02/05/2002
The New York Times
Page 1, Column 5
c. 2002 New York Times Company

The accounting firm Ernst & Young announced yesterday that it would stop selling information technology services to companies it audits and that it would no longer serve as internal accountant and external auditor at the same company. 
The move by Ernst & Young comes as several competitors are announcing new limits on the range of services they will provide to a client. On Sunday, Arthur Andersen, the accounting firm that audited the Enron Corporation, announced that it was creating a special oversight board with broad powers to change how the firm does business. KPMG and PricewaterhouseCoopers both announced last week that they would support similar changes.
Ernst & Young's announcement leaves Deloitte & Touche as the only Big Five accounting firm standing by the practice of providing consulting services to companies it audits. 
In a statement last week, Deloitte acknowledged that its policy was perceived as a problem by investors, but said, ''The public interest would be served by lowering the level of hyperbole in the debate and carefully considering potential unintended consequences of any proposed reforms.'' 
James S. Turley, Ernst & Young's chief executive, said in a conference call with reporters yesterday that it was important for the large accounting firms to adopt clear positions on the question of which services auditors can provide to clients. Investors, regulators and lawmakers have been calling for a review of the many services accounting firms provide since the collapse of Enron and its filing for bankruptcy protection. Enron's auditor, Arthur Andersen, provided both consulting and audit services and also served at times as an internal and external auditor. 
''It's obviously a challenging time for the profession,'' Mr. Turley said. ''Over the last few weeks it became very clear to me that several of us needed to stake out positions and just get on with things, relative to the scope of services.'' 
Mr. Turley said he favored the creation of an independent disciplinary organization unrelated to the accounting industry's trade association, a proposal similar to one made last month by the chairman of the Securities and Exchange Commission, Harvey L. Pitt. But he also suggested that regulators create a crisis-response team that would react to situations like Enron's bankruptcy filing by recommending rapid changes to accounting standards. 
Mr. Turley said that providing consulting services to companies audited by Ernst & Young did not in fact create conflicts of interest and that a prohibition against doing so would probably not prevent an Enron-style implosion. 
Rather, he said the public perception of a conflict had to be addressed. In any event, he said, giving up technology consulting would not be a serious hardship because the firm sold its consulting business to Cap Gemini, a European consulting firm, in 2000. 
Ernst & Young will, however, feel the effects of no longer serving as both internal and external accountants for its clients, Mr. Turley said. From 20 to 25 clients receive both services, and the internal audit work generates several hundred million dollars a year for the accounting firm. 
Ernst & Young would not disclose exactly how much it earns from clients where it is both internal and external auditor. The firm could lose some clients when it changes its policies, but it could just as easily pick up clients from other accounting firms making similar changes. Not to take such steps might keep the accounting industry from recovering its credibility, Mr. Turley warned. That in turn could cause it to lose its best people. 
''The profession could become one where existing professionals don't want to stay in it,'' he said, and students would not want to work as accountants. 
The same concerns are behind an e-mail message sent yesterday by James G. Castellano, chairman of the American Institute of Certified Public Accountants, to members of that organization. 
Mr. Castellano wrote that ''Enron's collapse has eroded our most important asset: public confidence,'' and reported that the association's board had approved a resolution supporting measures similar to those adopted by Ernst & Young, Andersen and others. 
Mr. Castellano also advised the group's members that in the next few weeks the association would take out advertisements in national publications to try to restore confidence in the accounting profession and attract recruits. 
''The profession's heightened visibility,'' Mr. Castellano wrote, ''makes this an opportune time to convey our messages regarding its viability, dynamism and high standards.''

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

Dynegy charges Enron has only itself to blame 
By BILL MURPHY 
Copyright 2002 Houston Chronicle 
Feb. 4, 2002, 9:33PM
Enron has only itself to blame for going bankrupt after Dynegy called off a proposed merger in December, Dynegy's lawyer said Monday. 
Enron is suing for $10 billion, saying Dynegy's failure to live up to the deal, signed Nov. 9, caused it to go bankrupt. 
"Enron planted the seeds of its death spiral years before it turned to Dynegy seeking a bailout," said Dynegy's response, filed Monday in New York bankruptcy court. 
At a news conference in Houston, Daryl Bristow, Dynegy's lawyer, said the deal specifically allowed Dynegy to back out if it learned that key information on which it was based was incorrect. 
After about 10 days of research, Bristow said, Dynegy learned Enron had been concealing debt in off-the-book accounts and had been grossly misleading about profits and liquidity. When it told Enron it would back out, he said Enron responded by cutting its asking price in half. 
Dynegy called off the deal Nov. 28 after determining there was no way to save Enron, Bristow said. 
"Everyone knew there had been a major and a disastrous financial change," Bristow said. "Enron brought this on its own head. Dynegy only tried to salvage the situation." 
Bristow repeatedly cited the report of an Enron internal investigation, released Saturday, that assailed the company's executives, auditors, lawyers and board members for letting improperly created partnerships inflate company profits, conceal its debt and wrongfully enrich several insiders. 
During negotiations, Enron informed Dynegy its core energy-trading business was sound, but Bristow said Enron had suffered a massive cash drain in the week after the merger was announced. 
Enron paid more than $1 billion to cover margin calls -- a demand that it repay money borrowed to buy stocks -- in its trading unit. 
Bristow said Dynegy will argue that the Enron suit should be transferred from the New York City court to federal district court in Houston. 
Dynegy alleges Enron engaged in fraud, but it did not file a countersuit because Enron has no assets, Bristow said. 
Martin Bienenstock, Enron's lawyer, said, "If they are afraid to assert the fraud claim (in a countersuit), you have to wonder how good their defense is." 
He said he has not read Dynegy's court filing and could not discuss it in detail. 
 
'He should have been here' 
Ex-staffers irked after trip to D.C. 
By PATTY REINERT 
Copyright 2002 Houston Chronicle Washington Bureau 
Feb. 4, 2002, 11:37PM
WASHINGTON -- Laid-off Enron Corp. workers, who traveled to Washington in hopes of confronting Ken Lay, said they were angry Monday that their former chairman backed out of his promise to testify before Congress. 
"He should have been here. He should have said something," said Gwen Gray, who worked in Enron's human resources department for three years before the company filed for bankruptcy last year. "He knows what's going on. He could explain a lot of things that we don't know the answers to now because he didn't show up." 
Lay, who resigned as the Houston company's top executive last month and from the company's board Monday, had been scheduled to testify before the Senate Commerce and House Financial Services committees, the first of several hearings on Capitol Hill this week looking into Enron's collapse. 
On Sunday, Lay abruptly reversed course and said he would not testify. 
The decision came one day after University of Texas Law School Dean William Powers released his report on the company's activities. 
Powers, who testified before the House panel Monday, said his investigation found that Enron's management attempted to misrepresent the company's financial condition. 
In his written testimony, Powers said there was a default of leadership and management that began at the top and included Lay. 
Enron, once the world's largest energy trader, filed the country's largest bankruptcy on Dec. 2 after admitting it overstated its profits by hundreds of millions of dollars since 1997. In addition to at least 10 congressional inquiries and investigations by the Securities and Exchange Commission, the Labor Department and the Federal Energy Regulatory Commission, Enron and its executives face a federal criminal probe and several class-action lawsuits filed by employees and stockholders. 
The company's former employees say they were misled about its finances and were briefly kept from selling Enron stock from their 401(k) retirement plans last fall as the price was falling. Now, they want their money back. 
In letters to congressional committees, Lay's attorney, Earl Silbert, said his client rejects allegations that he did anything wrong as his company spiraled toward bankruptcy. But Silbert said he advised his client against testifying after coming to the conclusion that lawmakers had already made up their minds and would not give Lay a fair hearing. 
The Senate committee plans to vote today on whether to subpoena Lay; the House panel also is considering a subpoena. 
The small group of former workers, accompanied by the Rev. Jesse Jackson and members of his Rainbow/PUSH organization, met with lawmakers, urging them to pass legislation to help workers recover money lost from their retirement plans. Several laid-off workers sat in on the House panel's hearing. 
Debbie Perrotta, a Kingwood resident who was a senior administrative assistant at Enron for five years, said she was not surprised that Lay changed his mind about testifying. 
Perrotta, scheduled to testify today before the Senate Governmental Affairs Committee, said she held out little hope of confronting Lay about Enron's collapse. If she ever gets the chance, she said she will ask: 
"Why the deceit? Why the lies? And if you knew there was something going on, that we were losing money, why did you continue to take bonuses?" 
Perrotta said she also lost her family's health insurance and about $40,000 in Enron stock in her 401(k). 
In her testimony today, she said, she'll try to explain to lawmakers why the employees put trust in the company. 
"We loved Enron," she said. "Enron was a great company." 
The workers had hoped to sit behind Lay in the hearing rooms so that when TV cameras recorded his testimony, they also would show former employees. 
"We need to see him face to face, and let him look at our faces," Perrotta said. "He needs to know how many lives they've destroyed." 
 
MANAGING YOUR CAREER
Saving Your Career After Earning a Name As a Whistle-Blower
By Joann S. Lublin

02/05/2002
The Wall Street Journal
B1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

ENRON EXECUTIVE Sherron Watkins never intended to become a whistle-blower by helping expose the practices that triggered her company's financial collapse. 
When Jeffrey Skilling, president of the Houston energy concern, abruptly quit in August, Enron officials set up a special letter-collection box so employees could anonymously vent their worries. Ms. Watkins, vice president for corporate development, wrote an unsigned, one-page note to then-Chairman Kenneth Lay. "Has Enron become a risky place to work?" her letter asked, after questioning its irregular accounting methods.
"I am incredibly nervous that we will implode in a wave of accounting scandals," she continued. "My eight years of Enron will be worth nothing on my resume." 
Nothing may be further from the truth. Ms. Watkins's subsequent experience suggests that whistle-blowing need not blow your career. Informers about workplace misdeeds can minimize career damage if they enjoy a strong reputation for honesty, management experts and former whistle-blowers say. 
Ms. Watkins, 42 years old, has been lauded for her courage since a House committee investigating Enron released an expanded version of her letter last month. Her reluctant internal disclosure "is going to be terrific for her career. It shows profound integrity and discretion," says Hal Reiter, CEO of New York recruiters Herbert Mines Associates. 

THOUGH MANY whistle-blowers get forced out after going public, Enron's mess offers Ms. Watkins some job security. Even so, blowing the whistle within Enron "wasn't an easy thing to do," says Philip Hilder, a Houston attorney representing Ms. Watkins and speaking on her behalf. 
Shortly after writing the letter, Ms. Watkins accepted a colleague's suggestion to divulge her identity and meet with Mr. Lay, where she detailed her concerns. That session prompted the company to invite a law firm's investigation. Enron filed for bankruptcy Dec. 2. 
Why didn't Ms. Watkins protect co-workers by alerting the SEC, asks Jeffrey Wigand. He is the research executive who blew the whistle on alleged wrongdoing by his former employer, Brown & Williamson Tobacco. He became an educator at one-tenth his former $300,000 salary. Keeping complaints in-house "minimizes your career damage . . . as well as minimizes your integrity," he believes. 
Ms. Watkins didn't contact securities regulators because she was challenging accounting practices approved by Enron lawyers and accountants, Mr. Hilder replies. 
Jerry Giordano understands the dilemma. In 1981, the then 37-year-old marketing director caused an internal ruckus but didn't inform authorities when he found what he says were unlawful pricing practices at a small West Coast industrial-products manufacturer. To make old products appear new, he says, the maker repackaged them, falsified engineering specifications and ordered him to pitch them before salespeople. An ex-Federal Trade Commission official advised him the small business wouldn't likely be prosecuted. 
Mr. Giordano confided his dilemma to a friend he had worked for at a defense contractor. The former boss had commended his integrity when he exposed hidden cost overruns at their former company. Both left for other jobs. "He created a job for me" at his new employer, he says. 
Good thing. Before he could resign, he was fired for sending a memo to colleagues about the company's packaging practices that concluded "being indicted looks bad on your resume." Mr. Giordano, now the 58-year-old CEO of Criterium-Mooney Engineers, civil-engineering consultants in Portland, Maine, would gladly hire Ms. Watkins. "She did the right thing by going to the top," he says. 
At the moment, Mr. Hilder says, Ms. Watkins isn't thinking about whether her internal whistleblowing might harm her career. "If the time ever comes when she needs to seek employment, she will rest on her abilities," the attorney insists. 

BARBARA PROVUS, a principal of Chicago recruiters Shepherd Bueschel & Provus, is skeptical. "Very few companies really want a corporate conscience," she says. 
Renwick T. Nelson learned that lesson after exposing allegedly deceptive life-insurance sales practices at Prudential Financial. He gave a sworn anonymous statement to Florida's attorney general in 1996 before he switched jobs at Prudential, from top marketing-practices officer to a $300,000-a-year post as a compliance officer. But he was fired in March 1997, according to his Dec. 5 testimony in a Miami federal court case stemming from the allegations. 
Following his dismissal, Mr. Nelson sent out numerous resumes -- and never got any interviews. He has a hunch why. "Senior management in the corporate world seems to think they are owed complete loyalty and whistle-blowing indicates that you may be loyal to something else," he says. 
Since July 2000, the 57-year-old has been a U.S. Peace Corps volunteer in Tonga, happily teaching business writing on the South Pacific island. What career guidance would he offer Ms. Watkins? "She will feel isolated and vilified, but ultimately she will know that what she did was right. Nothing can diminish that knowledge." 
--- 
E-mail comments to me at joann.lublin@wsj.com. To see other recent Managing Your Career columns, please go to CareerJournal.com.

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

Style
ART BUCHWALD edc
Sex and The Scandal
Art Buchwald

02/05/2002
The Washington Post
FINAL
C02
Copyright 2002, The Washington Post Co. All Rights Reserved

"The trouble with Enron," said Baldwin, an investigative reporter, "is that there is no sex. How can you have a scandal this size without sex?" 
I said, "There must be a smoking gun somewhere."
Baldwin said, "They had 20,000 people in the home office, plus private accountants and lawyers. Don't tell me someone wasn't fooling around." 
I asked Baldwin, "By the way, what did Enron do?" 
"It bought and sold oil and gas and took a commission from it. We're still trying to find out what they did at night down by the Enron wading pool." 
"So what did they do wrong, besides the lying and cheating about their profits and losses?" 
"When you have your own private plane, your own golf course, a yacht and a home on the Riviera, you realize that money isn't everything. After you get bored with giving soft money to politicians, you resort to something much more dangerous." 
"You know what makes me suspicious? The Enron big shots walked away with millions of dollars. What could they spend it on, unless they had mistresses?" 
"If we find one, she is going to be a young blond chickadee who likes jewels and fur coats and is willing to sell her story to the National Enquirer and Court TV," Baldwin said. 
I added, "I can't think of any scandal in this town that had legs to it that didn't involve sex." 
"Exactly. My editor keeps saying, 'Cherchez la femme.' " 
I asked, "Do you think any hanky-panky was going on while the accountants were burning the books?" 
"It could have started there. A lot of accountants get turned on when they're burning papers. Also, we hear about Enron executives making offshore partnerships and forming companies that were nothing more than bubbles. What a great excuse to take their paramours to Bermuda." 
"It sounds reasonable, but what happens if Enron and Arthur Andersen and their lawyers are squeaky clean?" 
"Don't you kid yourself. There have to be some unhappy wives out there right now who just lost their Neiman Marcus charge cards and are willing to blow the whistle on their husbands' girlfriends." 
Baldwin continued, "If I could find just one person who will introduce sex into the investigation, suddenly I will have the whole country's attention. If there is no sex in the Enron story in the next six months, we're going to stop covering the case." 
(c)2002, Tribune Media Services

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

Style
The Blue Bayou City; Two Months After 'Black Monday,' Houston Still Is Picking Up The Enron Pieces
Jennifer Frey
Washington Post Staff Writer

02/05/2002
The Washington Post
FINAL
C01
Copyright 2002, The Washington Post Co. All Rights Reserved

HOUSTON -- We have tears, we have penthouse apartments, we have a surfboard from Nevis and a couple of kegs. We have shredded documents and a funky art exhibit and a U.S. congressman talking about sending folks to the pokey. There has been a suicide by a former top executive. Some of the other executives are in hiding, perhaps because a female executive with a memo has them pretty much terrified. Not to mention that damning report released by their own board of directors over the weekend. 
We even have Jesse, Johnnie and Al.
Oh, and a bunch of chuck wagons coming to town. 
Welcome to Houston, post-Enron, where the city known for both its diverse array of strip clubs and its top-notch rodeo is now best known for one particular company with a tilted "E" logo. A logo that folks around here -- who still manage to have a sense of humor about all this -- have taken to calling the "crooked E." 
Just in the past week, Jesse Jackson has hit town and compared former Enron chairman Kenneth Lay to Job. Al Sharpton showed up to promote Johnnie Cochran's lawsuit at a town meeting. And Linda Lay cried while talking to Lisa Myers on the "Today" show, prompting Houstonians who have heard about the Lays' numerous properties -- including a penthouse apartment in the best part of town -- to write angry letters to the Houston Chronicle. 
These days, the enclosed skyway that connects Enron's gleaming, reflective-glass building at 1400 Smith St. to its parking garage has been nicknamed "The Bridge of Sighs." Television reporters and print journalists stalk the garage, desperate for information about the biggest bankruptcy in U.S. history. 
Those traders still employed by Enron "celebrated" the day the company's stock was delisted from the New York Stock Exchange by bringing in a keg. Once used to free-flowing champagne and ski weekends in Beaver Creek or getaways to Hawaii, they just thought it was the appropriate thing to do. Across the street, in a building that used to serve in part as an Enron annex, ex-employees shuffle into a federally funded employment assistance office, only to find Enron's now-infamous company posters ("respect" reads one, "integrity" another) still hanging on the walls. 
Behind the building, a passerby stops and points as a truck bearing the logo "Shredco" -- the company Enron hired to shred its documents -- is waved into the delivery bay more than a week after Enron came under fire for document shredding. 
Houston -- the fifth-largest city in the country -- has taken its share of grief. There is the shirt-soaking humidity, of course, and the bad air quality. Men's Fitness magazine has named it America's "fattest city" two years in a row. 
But don't treat the place too badly, because there's also lots to love. There was always NASA to be proud of, and some pretty fine restaurants, and a couple of basketball teams (the Rockets and the Comets) that have won a few championships. There's the annual rodeo -- biggest and best in the world, Houstonians like to say. The regular folks, like the ones who lost their Enron-invested pensions, are some of the nicest you'll find anywhere. 
Hey, even the Astrodome, once one of baseball's ugliest stadiums, has been replaced with a new ballpark that is helping revitalize Houston's downtown. Nowadays, though, some local residents hope the team will change the name. 
After all, the ballpark is called Enron Field. 
In tony River Oaks, you'll find multimillion-dollar mansions, Houston's most exclusive country club and bags of old, old, old money. 
And a little new money, like the stuff that Lay -- and several other Enron executives -- made off stock deals. 
The apartment where the Lays still live in Houston is in a building called the Huntingdon, the city's poshest building, at the intersection of Kirby and San Felipe. On this particular late-January morning, the Houston Chronicle's op-ed page is filled with letters from angry individuals who watched Linda Lay give that interview on "Today," during which she defended her husband, and cried, and tried to explain to the masses that her family is suffering, too. She talked about personal bankruptcy, and putting three of the family's four Aspen properties on the market. 
It didn't help, though, that Mrs. Lay gave her interview in the living room of one of her luxurious Houston homes. Or that the apartment she and her husband own is worth $7.1 million, encompasses nearly 13,000 square feet and has 6 1/2 bathrooms. 
"Linda Lay says they have lost everything except their home," A.M. Shelton wrote to the Chronicle. "Their $7 million penthouse apartment or the 11 other homes they own? Enron has ex-employees who have lost their only home, have no medical insurance and don't know how they are going to feed their families. Cry for them, Linda, not for yourself." 
And where are those people? 
Well, some of them are across the street from Enron's headquarters trying to find a new job. 
"Respect and integrity -- I'm okay with that," says Linda Walker, looking up at the Enron poster hanging over her desk at the employment office. "We just need to get some black paper to cover up that 'E.' " 
Until the day the bankrupt company laid off more than 4,000 employees -- a day those employees now call "Black Monday" -- Walker worked for Enron Energy Services in its executive offices. 
"I was an executive assistant under Lou Pai," she says. 
From across the desk, JoAnn Matson interrupts her. 
"Don't say that name, Lou Pai!" she says, making a face. 
"The truth will set me free!" Walker hollers, then she pauses, frowns. 
"And where is Lou Pai, anyway?" 
Lou Pai is now known as the Enron executive who made the most -- $353 million over the past three years -- on sales of Enron stock. And Walker and Matson, along with Joyce Barrett, a third former Enron employee, are working temporary jobs at the WorkSource office at 3 Allen Center. This particular space used to be home to offices in Enron's engineering and construction divisions. Now it holds a training center for workshops, a computer center where the out-of-work can refine re{acute}sume{acute}s and research corporations, and private offices for interviews. 
Barrett was once in charge of Enron's amusingly named "redeployment office" -- which is where the company sent employees it had just fired. 
"I gave them the good news after the bad news," she explains. 
The good news was the terms of their settlement, and an assignment to temporary office space where they had a phone, a desk and a computer while they looked for new employment, often ending up in another division of the company. 
When Barrett was let go, though, there was no severance, no redeployment, no good news. 
"I left before they could tell me," says Walker, who lost her entire 401(k) and would have been eligible for $60,000 in severance under non-bankruptcy circumstances. "I left at about 9:30, and I was crying so hard I could hardly drive." 
These days, Walker sees many of her former colleagues, and many of the people who had been in the redeployment program at the time of the bankruptcy filing, come into the WorkSource office. They always seem surprised, she says, to see her there. They thought that she, at least, would have been one of the lucky ones. One of the ones who remained employed. 
"What they don't understand," she says, "is that when they went away, I went away. Without them, there was no need for me." 
These days, Barrett is trying to bring in recruiters to interview potential employees at WorkSource. And trying -- with the help of Walker and Matson -- to keep her sense of humor. 
"I know that we had several floors of this building," Walker says, when asked how many Enron offices used to be housed at 3 Allen. Then she stops. 
"Listen to me, saying we!" she says, raising her voice. "Let me start over. I know that they had. . . ." 
Matson interrupts. 
"That's right," she says. "Look, you have to remember, we're divorced now." 
And the three women chuckle at the thought. 
The Enron Code of Ethics was a product of a trip to the toilet. There is, Drew Crispin admits, a bit of symmetry to that. 
This is the lobby of 3 Allen Center, down the bank of elevators from the WorkSource office. Here, Crispin runs a coffee stand called the Coffee Bar II, which used to be visited by Enron employees. Not any longer. Almost no one from Enron works in this building anymore. 
To honor their memories, though, Crispin -- with a big assist from several ex-Enron employees -- has put up a makeshift art exhibit on the walls of his stand. 
"Enron: A Term of Art (1995-2001)" is the exhibit's name, and its contents are all meticulously labeled, with placards just like the ones found in many galleries. 
There is, for example, the surfboard one employee received on a company junket to the Caribbean island of Nevis. ("On loan from the private collection of Mark Courtney," the label reads). The item is called "Hang 10 K." There is a bolt placed on red velvet and covered with glass -- a memento given to staffers when Enron completed a $2.6 billion deal involving the Houston Pipe Line Co. Its official title? "Bolt Before Screwed." Then there is the plastic dome containing shredded money, aptly labeled "Not a Shred of Evidence." 
"A bunch of people who used to work at Enron were sitting around one night, drinking beers and talking about how all these little mementos were the only things they have left from Enron," Crispin says, "so they decided to do something about it." 
The Code of Ethics, Crispin's personal contribution, was discovered in a box by the elevators right after Black Monday. Crispin had gone up to an Enron floor ("it has the closest public bathroom," he explains), and he peeked into a cardboard box left by the elevators -- a box full of unemployment information and job-seeking advice that Enron left out for the people it had let go. The book was on top of the pile. 
Crispin named it "Res Ipsa Loquitur." As in, the thing speaks for itself. 
Bring on the Dixie Chicks, the chuck wagons, the trail riders and ZZ Top. 
It's time for the annual Houston Livestock Show and Rodeo and, people hope, some sense of normalcy to arrive in this town. 
That is, if you consider massive traffic tie-ups as Fords and Hondas negotiate their way around cowboys on horseback (and, occasionally, the stuff the animals leave behind) on all of Houston's major freeways to be normal. 
The trail riders -- hundreds of them -- began their journeys to Houston as long as two weeks ago, and they are expected to converge upon Memorial Park on Friday, in time for "Go Texan" weekend and Saturday's big parade. Some left from Louisiana, another group from Mexico, most from spots scattered around Texas. 
Meanwhile, out near Reliant Park -- named for the other major energy company in Houston -- tents are going up in the parking lots that separate the Reliant Astrodome from Reliant Stadium (still under construction, it will open with the debut of the NFL Houston Texans next fall) and Reliant Arena and Reliant Hall. Forklifts are taking livestock pens out of storage. The stage is being prepared for a blockbuster lineup of concerts, featuring the likes of Destiny's Child and Bob Dylan. 
"To try and explain the Houston Livestock Show and Rodeo to people in another part of the world is hard," says Leroy Shaffer, an assistant general manager of the massive production. "We're every bit as important to Houston as Mardi Gras is to New Orleans or the Rose Bowl is to Southern California." 
Many major Houston corporations sponsor the show, which is entirely nonprofit -- all the proceeds go to charity, specifically education programs. Reliant Energy and Continental Airlines, for example, are sponsors. Enron was not. The company had a luxury box reserved, but with a five-year waiting list for boxes, it was immediately resold. 
"Our show won't be impacted at all," Shaffer says. 
The events span nearly three weeks, starting with the barbecue competition, which begins Thursday. The Dixie Chicks open the concert series next Tuesday. The cowboys swing into action the same day. 
More than a million visitors are expected. 
After all, this is Texas, and nothing can stop a good Texas rodeo. 
"Does it have a sharp edge or round edge?" 
It is "power hour" at the Enron Boys & Girls Club -- all the children are required to spend the first hour after school in the learning center, getting help with their homework. A little girl with thick brown hair and a purple T-shirt is trying to learn her shapes -- spheres vs. cones, pentagons vs. triangles -- with the help of Blanca Martin, the education director. 
The children gather around circular tables, some with math problems, some with science homework, many desperate for assistance because their parents cannot speak or read English, and they barely know the language themselves. 
Elmo and Cookie Monster and Big Bird sit on a shelf at one end of the room, next to a row of brightly colored storybooks. On the opposite wall, an Enron logo hangs above a map of the United States, and between a row of circus elephants decorated with numbers 1 through 14. 
This center, located in Houston's struggling second ward, east of downtown, opened Nov. 29, three days before Enron declared bankruptcy. The building was renovated by the Boys & Girls Clubs of Greater Houston out of its capital development fund, with the understanding that Enron would pay operating costs for 10 years -- to the tune of $2.4 million. 
Less than a month after Enron collapsed, having made just one payment, for $60,000, to the center that bears its name, local businessman Michael Holthouse quietly agreed to cover the deficit. Holthouse, a member of the Boys & Girls Club board, is a philanthropist with his own foundation (the Holthouse Foundation for Kids) and he has long been a big supporter of the organization. 
"We were one of the fortunate ones here," says John Havard, the president of the Boys & Girls Clubs of Greater Houston. "It only took us three or four weeks to make up for what we had lost." 
Still, the "crooked E" remains on most of the walls of the building, and the sign proclaiming the building "Enron Boys & Girls Club of Greater Houston" remains on display outside. The logo is on the scoreboard in the gymnasium, over the computers in the technical center, above the glass doors that mark the main entrance. 
There is a second dedication planned for Feb. 6. At 3 p.m. the club will remove all the Enron logos from the building and take down the outside sign. They will be replaced with ones bearing the insignia of Holthouse's foundation, an expense Holthouse is footing. Already the Enron logo that once graced the center of the basketball court has been sanded away. "The Holthouse Foundation for Kids" was painted in its place. During the transition, the center of the court was blocked off by cones, and the kids were unhappily confined to playing half-court ball. 
The rest of the signs, though, are coming down with ceremony. 
"You'd be amazed at how many people want to come," says Amber Pressley, the director of public relations and marketing. "It seems everyone has an interest in seeing those logos come down."

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

Business/Financial Desk; Section C
ENRON'S MANY STRANDS: MEMORABILIA
A Debacle Chronicled in Kitsch
By JOHN SCHWARTZ

02/05/2002
The New York Times
Page 5, Column 2
c. 2002 New York Times Company

HOUSTON, Feb. 3 -- This city, already rich in museums and art galleries, got a new minigallery last week: an exhibit of commemorative plaques, T-shirts and expensive gewgaws from the Enron Corporation. 
At a coffee bar.
In a building occupied largely by Enron. 
''Enron: A Term of Art (1995-2000)'' is drawn from the collections of current and former employees of what was formerly one of the word's most admired companies. And anyone who says the age of irony is over has missed the post-Enron age. 
The names given to each objet d'kitsch provide wry commentary: a bovine statuette is titled ''A Bunch of Bull'' and a framed copy of the 2000 annual report is entitled ''It Takes Skill(ing?) to Decipher.'' 
Particularly striking is a ''deal toy'' commemorating a transaction involving the company's paper trading business. It is a small dome filled with shredded money and entitled ''Not a Shred of Evidence.'' 
The objects show the company's almost fetishistic affection for trinkets, toys and plaques. There is a large bolt on a wooden base, issued after a $2.6 billion pipeline deal in 2001, and a voodoo figure distributed at a 1999 Enron legal conference in New Orleans. 
An Enron T-shirt parodies the company's ever-changing organizational charts, with the title ''Enron's Formula for Success,'' and boxes labeled ''Lots of Boxes,'' ''Lots of Arrows,'' ''Lots of Luck'' and ''Structure and Lots of $$.'' 
The idea for the exhibit arose among current and former employees of the company who met regularly at a local watering hole, said Drew Crispin, owner of the Coffee Bar in 3 Allen Center. The group was laughing about the fact that many Enron objects had appeared on eBay and were fetching high prices, and jokes began to fly about what a ''museum of bankruptcy'' might look like. 
After they scrounged through their closets and garages for a few days, the parody art exhibit was born. ''It was like the old Mickey Rooney movies -- let's put on a show!'' Mr. Crispin said. Most visitors are amused, though one older gentleman ''said 'harrumph' and walked away,'' he said. Many customers go back into the Enron offices and return with friends. 
Mr. Crispin, who is an Enron shareholder, said this was not his first foray into social commentary. ''I did it back in the 60's,'' he said, ''but I don't remember much of that.''

Photos: A pocket calculator with the Enron logo in the exhibit.; Visitors browsing through a collection of Enron memorabilia, assembled by present and former employees of the company, at a coffee bar in a building where Enron still has offices. (Photographs by James Estrin/The New York Times) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Editorial Desk; Section A
Decoding Enron

02/05/2002
The New York Times
Page 24, Column 1
c. 2002 New York Times Company

As the evidence of financial abuses at Enron grows, the more it looks as though the company was an intricate Ponzi scheme designed to enrich top executives and defraud stockholders. That, at least, is the impression left by a scalding examination of the company's operations prepared by a special committee of Enron's board of directors. The report, issued over the weekend, suggests that rather than being a thriving corporation brought down by accounting shenanigans, Enron at its core may have been a corporate mirage created to deceive the public while enriching insiders. Enron's leadership comes across as having been more concerned with managing the stock price, and profiting from it, than with running a real company. 
The report reviews the dealings between Enron and scores of partnerships set up by company officers. Ostensibly meant to hedge the risk associated with some of the company's investments, these partnerships really served to take debt off Enron's balance sheet, inflate the company's earnings and enlarge the bank accounts of the executives who created them.
The partnership transactions ''served no apparent business purpose for Enron,'' the report says. They did, however, enable Enron to improperly claim $1 billion in profits in the year before the company's implosion, and generated bountiful but illegitimate revenues for those involved, particularly Andrew Fastow, the chief financial officer at the time. Top Enron officers made even more money during that period by unloading stock that they were going to such lengths to inflate. 
The report strongly suggests that crimes were committed, though it stops short of making concrete allegations of securities fraud. The Justice Department and the Securities and Exchange Commission will determine in the days ahead whether prosecution is warranted. Given the complexity of Enron's financial manipulations, and growing signs on Wall Street that widespread accounting abuses may be eroding investor confidence, the White House and Congress should consider providing prosecutors with additional resources to investigate such cases. Securities fraud cases are hard to prove, and there is always a temptation to settle for assessing civil fines. Federal prosecutors must pursue the Enron case vigorously. 
The possibility of criminal prosecutions does not absolve Congress and federal regulators of their duty to reform the overall financial system. Regardless of whether crimes are ultimately proven, Enron's conduct already provides a primer on how current financial disclosure rules and accounting standards fail to protect investors adequately. No one should be lulled into believing that this was simply a case of sound rules being broken. 
Kenneth Lay, the former chairman of Enron, passed up an opportunity to shed more light on the case when he called off a planned appearance yesterday before the Senate Commerce Committee. The cancellation followed his wife's televised assurances last week that her husband had done nothing wrong and was eager to set the record straight. The committee will vote today on whether to issue a subpoena to force his appearance, as it should. He and his fellow Enron executives have a lot of explaining to do.

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

Editorial
Enron's Culture of Corruption

02/05/2002
The Washington Post
FINAL
A14
Copyright 2002, The Washington Post Co. All Rights Reserved

THE WEEKEND'S revelations about Enron make it tempting to see the scandal as an epitaph for the 1990s bubble. The firm seems to have assembled the various strains of hubris found in different corners of the country: the technological vanity of Silicon Valley mixed with the financial alchemy of Wall Street, the influence-peddling of Washington fused with the ten-gallon brashness of Texas. Not content with earning hundreds of thousands of dollars, Enron's senior executives cooked the books so that they could pocket millions. Not content with having created a wonderful new market in energy derivatives, they lied and cheated to create an illusion of impossibly fast earnings growth. Contemplating Enron's self-destructive arrogance, Sen. Byron Dorgan has spoken quite accurately of "a culture of corporate corruption." 
In time, historians may indeed choose Enron as a kind of symbol of the 1990s, much as Michael Milken's junk-bond empire has come to stand for the excesses of the preceding decade. But for now the cultural dynamics of the scandal ought not be the focus in Washington. The architects of Enron's corruption will be punished in due course by the justice system, and there's nothing to be gained by spinning a broader morality tale that might amplify the anti-corporate rhetoric of the globalization protests. The right focus for Congress and the administration is to fix the rules that allowed Enron's culture to evolve in the first place.
That means, first and foremost, fixing the audit system. The report on Enron released over the weekend pointed the finger at three groups of people -- the managers and board members as well as the accountants -- but it is the third group whose behavior is most reformable. Capitalism works on the assumption that managers will do all they can to boost profits, much as football assumes players' aggression. Up to a point, company boards can impose discipline on managers, but directors who meet only infrequently can no more be relied upon to spot foul play than a ref without line judges. This is why the key constraint must come from auditors. These are the experts who get paid millions of dollars to certify that corporate accounts are accurate. 
The Enron story shows how badly auditors neglect this mission. According to the weekend's report, few managers at the company knew the extent of Enron's phony bookkeeping; the board, while knowingly approving some dangerous transactions, was also partly in the dark. But Arthur Andersen, the auditor, knew all about the off-balance-sheet partnerships because it had been paid $5.7 million for advice about them; it must also have known about the illusory profits created by the advance booking of estimated future earnings, because it signed off on those accounts. In 2000 alone, Andersen's experts were paid $25 million to understand Enron's finances. But because of the looseness of the laws that define auditors' responsibilities, they did not feel obliged to share their insights with the ordinary investors whom they are meant to serve. If this scandalous laxity had not existed, the hubris of Enron's managers would not have mattered. A culture of corruption cannot develop if tough watchdogs are in place.

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

Metropolitan Desk; Section A
QUOTATION OF THE DAY

02/05/2002
The New York Times
Page 2, Column 6
c. 2002 New York Times Company

''I got 3,500 over 10 years, but our friend, Kay Bailey Hutchison, she got 99,000. Heck, I'm the chairman of the committee. That wasn't a contribution. That was an insult.'' 
ERNEST F. HOLLINGS, chairman of the Senate Commerce Committee, when asked if he had received contributions from Enron. [C4]


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



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