Cover Story: THE ENRON SCANDAL
CAN YOU TRUST ANYBODY ANYMORE? The scope of the Enron debacle undermines the credibility of modern business culture. Let's get back to basics
BusinessWeek, 01/28/2002

Cover Story: THE ENRON SCANDAL: THE WHISTLE-BLOWER
A HERO--AND A SMOKING-GUN LETTER Watkins' memo spoke volumes about Enron's behavior. So did higher-ups' tepid response
BusinessWeek, 01/28/2002

Cover Story: THE ENRON SCANDAL
THE PERFECT SALES PITCH: NO DEBT, NO WORRIES
BusinessWeek, 01/28/2002

Cover Story: THE ENRON SCANDAL: DISCLOSURE
WHO ELSE IS HIDING DEBT Moving financial obligations into off-book vehicles is now a common ploy
BusinessWeek, 01/28/2002

Special-purpose vehicles used to control market, credit rating
Houston Chronicle, 01/28/2002

Enron's hazy legal landscape: Were strong laws violated by bad people, or did weak laws render such violation unnecessary?
National Post, 01/28/2002

Enron Executive's Suicide-Note Release Delayed by Texas Police
Bloomberg, 01/28/2002

Former Enron CEO's Wife Says Scrutiny Is Fair, MSNBC Says
Bloomberg, 01/28/2002

USA: Kenneth Lay's wife says ex-Enron CEO is honest man.
Reuters English News Service, 01/28/2002

Lay's wife says couple trying to avoid personal bankruptcy
Associated Press, 01/28/2002

Enron Employees Group Files Suit Seeking Lost Savings
Dow Jones News Service, 01/28/2002

Enron staffers contemplate future amid gloom
Houston Chronicle, 01/28/2002

Crippled energy trader's workers consider futures amid gloom
Associated Press Newswires, 01/28/2002

Fedl Judge Gives Enron 60 Days To Decide On Commodities
Dow Jones News Service, 01/28/2002

Cheney refuses to release energy plan documents to Enron investigators
Houston Chronicle, 01/28/2002

Did Andersen Speed Up the Shredding? Documents just released by a House subcommittee suggest the firm may have rushed its document destruction after learning of the SEC probe
BusinessWeek Online, 01/28/2002

ENRON'S TROUBLES ENSNARE LEADING TEXAS LAW FIRM
Pittsburgh Post-Gazette, 01/28/2002

"Enron Is Just the Worst Example"; Billy Tauzin says his panel's probe has alerted him to "real problems...in the structure of Corporate America"
BusinessWeek Online, 01/28/2002

UK govt denies wrongdoing in connection with Enron, Arthur Andersen
AFX News, 01/28/2002

SEC's Top Cop Says Enron 'Not Going To Distract Us'
Dow Jones News Service, 01/28/2002

UBS' Wuffli says Enron trading ops takeover to level out earnings fluctuations
AFX News, 01/28/2002

INDIA: Gaz de France to bid for Enron with Indian partner.
Reuters English News Service, 01/28/2002

A year of good luck.
The Times of India, 01/28/2002

News - International - Americans `do not believe the White House'.
The Daily Telegraph, 01/28/2002

Energy Trading: Still Thriving: Enron could become what Drexel was to junk market that survived it
Investment Dealers Digest, 01/28/2002

Enron's Web site shows irony of a ruined regime --- In virtual world, everyone's smiling and all's well for discredited company
The Toronto Star, 01/28/2002

Enron: even the grammar is bankrupt
Kitchener-Waterloo Record, 01/28/2002

_______________________________________________________________

Cover Story: THE ENRON SCANDAL
CAN YOU TRUST ANYBODY ANYMORE? The scope of the Enron debacle undermines the credibility of modern business culture. Let's get back to basics
Essay by Bruce Nussbaum

01/28/2002
BusinessWeek
30
(Copyright 2002 McGraw-Hill, Inc.)

There are business scandals that are so vast and so penetrating that they profoundly shock our most deeply held beliefs about the honesty and integrity of our corporate culture. Enron Corp. is one of them. This financial disaster goes far beyond the failure of one big company. This is corruption on a massive scale. Tremendous harm has befallen innocent employees who have seen their retirement savings disappear as a few at the top cashed out. Terrible things have happened to the way business is conducted under the cloak of deregulation. Serious damage has been done to ethical codes of conduct held by once-trusted business professionals.
It is difficult not to contrast the professionalism of modestly paid firefighters and police doing their duty on September 11 with the secretive and squirrely behavior of six- and seven-figure accountants, lawyers, CEOs, bankers, and financial analysts who failed at their duty with Enron. The remarkable letter by Enron whistle-blower Sherron Watkins to Chairman Kenneth L. Lay in August that presciently warns of accounting scandals reads like a road map of corporate corruption, subterfuge, and manipulation. She worries about the world perceiving Enron's ``past successes as nothing more than an elaborate accounting hoax'' (page 34).
The Enron debacle calls into question a host of other aggressive accounting techniques used across a wide spectrum of Corporate America--most of them quite legal. And that's precisely the point. It's getting harder and harder to know what a company actually earns and what its stock is actually worth. An astonishing 723 companies have been forced to restate and lower their earnings since 1997. With enormous pressures to produce earnings growth, auditors are being turned into enablers. They forsake their traditional role of outside skeptic for that of inside business partner and they reject their age-old function of discloser of information for that of master magician who hides the financial rabbit (page 44).
Investor confidence is crucial to the success of our economic system. This confidence is threatened by not only the Enron scandal but by the dramatic decline in accounting standards. People increasingly feel the game is rigged. Unless Washington and business professionals seize the moment to clean up the mess in the market economy, they risk a major populist backlash.
In the end, Enron was able to enlist precisely those referees who, in the past, would oversee and check its behavior--accountants, lawyers, bankers, legislators, even regulators--in the pursuit of higher earnings. Many were tempted by a piece of the equity action and compromised their integrity. Enron paid big fees to many of these professionals to help manufacture its earnings, and together they created the mechanisms for evading the financial truth.
Watkins says as much. She talks of partnership deals that temporarily inflate the stock price, allowing execs to cash out options: ``It's a bit like robbing the bank in one year and trying to pay it back two years later.'' She adds, ``nice try but investors were hurt'' when they bought stock that later fell. In a free-market economy, companies are supposed to fail because of the business cycle or bad business decisions. Failure from loose and sleazy practices, if not outright fraud, is another matter.
We now know that something went seriously wrong in the march to deregulation. There is no question that deregulated markets are generating lower costs, higher growth, and lower unemployment for the U.S. economy. But dereg ideologues, such as Enron's President Jeffrey K. Skilling and the company's political allies in Washington, convinced the nation deregulation meant no regulation. A big mistake. Enron and other companies used the transition to deregulation to gain access to Congress and regulators and write their own rules. They persuaded the Commodity Futures Trading Commission to let Enron and a few other companies run largely unregulated energy-derivatives trading businesses. Wendy Gramm, who at the time was head of the CFTC, later joined Enron's board of directors--on the audit committee.
Financial complexity made it easy to mask the truth and play financial games. The financialization and securitization of the real economy into mathematical bits and bytes allowed Enron and others to massage earnings results in infinite ways. Off-balance-sheeting financial engineering became the requisite way to boost earnings and stock prices. Hundreds of companies have done it (page 36). Common standards were replaced by idiosyncratic measures. Slowly but surely, the financial truth disappeared. No one, not the accountants or lawyers or bankers or Wall Street analysts, protested as the bottom line became a fiction. On the road to deregulation, basic building blocks of capitalism--clarity, transparency, fairness, openness--were sacrificed. Everything the public needs to evaluate risk, value stocks, and participate in an equity culture was undermined. Americans embraced the equity economy in the '90s because they believed they could participate in it fairly. They didn't expect to see their 401(k)s go up in smoke.
Who can come to the rescue? The reputations of many of the professionals who were counted on to safeguard the economic system lie in tatters. Corrupted by the chase for an ever-greater piece of the action, accountants, lawyers, analysts, and managers have shirked their duty on a scale not seen since the 1920s. Conflicts of interest abound as accounting firms sell services to the companies they audit and accountants jump to the corporations whose books they examine. The accounting profession has successfully fought all attempts at reform, rebuffing efforts to end conflicts of interest, impose stricter oversight, or increase liability for their actions. In short, most certified public accountants feel little duty to the public at large.
Nor do lawyers see themselves as officers of the court, which they are. Vinson & Elkins LLP was asked by Enron Chairman Lay to check out whether Watkins' seven-page warning of financial deceit warranted action. It came back with a ``No.'' Wall Street analysts stopped being honest when their compensation became contingent on their firms getting investment-banking business from the companies they covered. And bankers are too busy selling fee-based services to carry out due diligence on loans and debt. They have enormous conflicts of interest. The Glass-Steagall Act was passed in 1933 to stop those conflicts. Its repeal in 1999 has ushered in their return.
What's to be done? Restoring investor confidence in the system of equity capitalism is crucial to the economy's health. The continued deregulation of the economy and the privatization of services depends on the integrity of the financial reporting system. If the investing public is going to participate, it must see a fair and transparent system.
The pendulum is swinging toward reform. The accounting changes required are all too obvious. But change must go beyond the scope of the financial implosion. The buying and selling of political access is not in the best interests of the country. It is unseemly to have the head of the Justice Dept., as well as the entire Houston branch, recuse themselves because of conflicts on the Enron case. A sense of outrage is growing. The lesson from the Enron debacle should be to restore basic integrity to the bottom line, ethics to business professionals, and clout to overseers that even a deregulated economy need.

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

Cover Story: THE ENRON SCANDAL: THE WHISTLE-BLOWER
A HERO--AND A SMOKING-GUN LETTER Watkins' memo spoke volumes about Enron's behavior. So did higher-ups' tepid response
By Wendy Zellner, with Stephanie Forest Anderson, in Dallas and with Laura Cohn in Washington

01/28/2002
BusinessWeek
34
(Copyright 2002 McGraw-Hill, Inc.)

At last, someone in the sordid Enron Corp. scandal seems to have done the right thing. Thanks to whistle-blower Sherron S. Watkins, a no-nonsense Enron vice-president, the scope and audacity of the accounting mess is becoming all too clear. Her blunt Aug. 15 letter to Enron CEO Kenneth L. Lay warns that the company might ``implode in a wave of accounting scandals.'' And now that her worst fears have been realized, it is also clear that Watkins' letter went far beyond highlighting a few accounting problems in a handful of off-balance-sheet partnerships. Watkins' letter lays bare for all to see the underbelly of Enron's get-rich-quick culture.
Watkins, 42, a former Arthur Andersen accountant who remains Enron's vice-president for corporate development, put her finger on the rot: top execs who, at best, appeared to close their eyes to questionable accounting maneuvers; a leadership that had lost sight of ordinary investors and the basic principles of accounting; and watchdogs--the outside auditors and lawyers whose own involvement may have left them too conflicted to query the nature of the deals. Perhaps the question shouldn't be how Enron collapsed so quickly--but why it didn't implode sooner.
Lay's response to Watkins' complaints is nearly as damning as her letter itself. Yes, he talked to her for an hour. And, yes, he ordered an outside investigation. But contrary to Watkins' advice, he appointed the company's longtime Houston law firm, Vinson & Elkins, despite the obvious conflict: V&E had worked on some of the partnerships. And Enron and V&E agreed there would be no ``second-guessing'' of Andersen's accounting and no ``detailed analysis'' of each and every transaction, according to V&E's Oct. 15 report. The inquiry was to consider only if there was new factual information that warranted a broader investigation. V&E declined comment.
Surprise: V&E concluded that a widespread investigation wasn't warranted. It simply warned that there was a ``serious risk of adverse publicity and litigation.'' And Watkins' letter reveals the inadequacy of Lay's response in the months following CEO Jeffrey K. Skilling's sudden Aug. 14 resignation for ``personal reasons.'' His departure triggered the letter. Lay never fully disclosed the partnerships or explained their impact to investors, even as he vowed there were no accounting issues and ``no other shoe to fall.'' Even after Enron revealed on Oct. 16 a $1.2 billion hit to shareholder equity related to the partnerships, Lay continued to express ignorance about details of these deals and support for Chief Financial Officer Andrew S. Fastow, who managed and had stakes in certain partnerships. But on Oct. 24, Fastow was removed from his job and promptly left the company.
Watkins, an eight-year Enron veteran, is not some disgruntled naysayer who is easy to dismiss. Her lawyer, Philip H. Hilder, says she became familiar with some of the partnership dealings when she worked in June and July in Fastow's finance group. Her position allowed her to review the valuation of certain assets being sold into the partnerships, and that's when she saw ``computations that just didn't jibe,'' says Hilder.
Former executives say the Tomball (Tex.) native was tenacious and competent. ``She wasn't really an alarmist,'' says one former Enron employee. Her mother, Shirley Klein Harrington, a former high school accounting teacher, calls her daughter ``a very independent, outspoken, good Christian girl, who's going to stand up for principle whenever she can.'' Watkins had previously worked at Andersen in Houston and New York and then for Germany's Metallgesellschaft AG.
At those companies, she befriended Jeffrey McMahon, whom she helped recruit. Now the CFO at Enron, McMahon ``complained mightily'' about the Fastow partnerships to Skilling, Watkins told Lay in the letter. ``Employees question our accounting propriety consistently and constantly,'' she claimed. McMahon didn't return calls. Skilling has denied getting any warnings about accounting.
Watkins didn't stop there. Five days after she wrote to Lay, Watkins took her concerns directly to an Andersen audit partner, according to congressional investigators. He in turn relayed her questions to senior Andersen management on the Enron account. It's not known what, if any, action they took.
Of course, Skilling and Andersen execs shouldn't have needed a letter and a phone call from Watkins to figure out something was seriously amiss. Red flags abounded. And Watkins, for one, had no trouble putting her finger on questionable accounting practices. She wondered if Enron was hiding losses in off-balance-sheet entities while booking large profits from the deals. At the same time, the outside partnerships were backed with Enron stock--a tactic sure to backfire when it was falling--and no outsiders seemed to have any capital at risk. Was Enron creating income essentially by doing deals with itself? ``It sure looks to the layman on the street that we are hiding losses in a related company and will compensate that company with Enron stock in the future,'' she wrote.
In the end, Watkins grasped one thing that Enron's too-clever-by-half dealmakers didn't: Enron's maneuvering didn't pass the smell test. Even if Enron and its high-priced auditors and lawyers can ultimately show that they followed the letter of the law, it matters little. As Watkins herself wrote, if Enron collapses, ``the business world will consider the past successes as nothing but an elaborate accounting hoax.'' And that seems destined to become Enron's epitaph.

Photograph: IN-HOUSE CRITIC: Watkins wondered if Enron was creating income by essentially doing deals with itself PHOTOGRAPH COURTESY OF ABC NEWS
Photograph: TAKING ISSUE Lay, left, says he ordered a probe. Skilling denies being warned about accounting improprieties PHOTOGRAPH COUTESY OF WYATT McSPADDEN
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Cover Story: THE ENRON SCANDAL
THE PERFECT SALES PITCH: NO DEBT, NO WORRIES
By Wendy Zellner in Dallas and Michael Arndt in Chicago

01/28/2002
BusinessWeek
35
(Copyright 2002 McGraw-Hill, Inc.)

At Enron Corp., debt avoidance wasn't merely a strategy for managing its own balance sheet. It was a way of life that pervaded the company's dealmaking culture. Consider Enron Energy Services, which managed energy needs and equipment for big corporate customers. The company held regular seminars to teach EES employees how to use complex financial vehicles to woo customers, manage earnings, and, naturally, keep debt off balance sheets at Enron and its clients. Former Enron executive Michael R. Boutcher recalls a class on structured finance that described the financings as ``accounting nirvana''--able to not only get debt off the books but even out of accounting footnotes.
No one is claiming that these structures were akin to the off-balance-sheet partnerships at the heart of Enron's accounting scandal. These deals gave tax and other benefits to customers who outsourced their energy management to Enron. But they certainly highlight Enron's aggressive philosophy of leveraging its financial acumen. Boutcher, manager of business development at EES until Enron's December collapse, says that creating complex financings with clients was standard practice. And, he says, Enron used them far more aggressively than its rivals. ``We could always sweeten the pot, and the objective was to beat out anybody that was competing against us,'' says Boutcher. An Enron spokeswoman says such equipment financing was common in the industry. But several rivals disagree.
In a presentation on Nov. 9, 2000, to some 60 employees in Houston, Boutcher says, a company lawyer explained how structured-finance deals could manage and accelerate earnings for Enron and take debt ``off credit'' for customers, so that it wouldn't be reflected in credit ratings. The objective laid out in one page of the presentation couldn't have been clearer: ``Off credit: Difficult to achieve. ...Must make it look like the company has no financial obligation at all under any circumstances, including default by them.''
EES says it never actually did one of the ``off-credit'' deals. There were some things even Enron couldn't peddle.

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

Cover Story: THE ENRON SCANDAL: DISCLOSURE
WHO ELSE IS HIDING DEBT Moving financial obligations into off-book vehicles is now a common ploy
By David Henry, with Heather Timmons and Steve Rosenbush in New York and Michael Arndt in Chicago

01/28/2002
BusinessWeek
36
(Copyright 2002 McGraw-Hill, Inc.)

When energy trader Enron Corp. admitted to hiding billions of dollars of liabilities in mysterious off-book entities, it trotted out the lame excuse of scoundrels: Everyone does it. And this time, it was the gospel truth.
Hundreds of respected U.S. companies are ferreting away trillions of dollars in debt in off-balance-sheet subsidiaries, partnerships, and assorted obligations, including leases, pension plans, and take-or-pay contracts with suppliers. Potentially bankrupting contracts are mentioned vaguely in footnotes to company accounts, at best. The goal is to skirt the rules of consolidation, the bedrock of the American financial reporting system and the source of much its credibility. These rules, set clear in 1959, aim to make public companies give a full and fair picture of their business--including all the assets and liabilities of any subsidiaries. But accountants, lawyers, and bankers have learned to drive a coach and horses through them.
Because of a gaping loophole in accounting practice, companies create arcane legal structures, often called special-purpose entities (SPEs). Then, the parent can bankroll up to 97% of the initial investment in an SPE without having to consolidate it into its own accounts. Normally, once a company owns 50% or more of another, it must consolidate it under the 1959 rules. The controversial exception that outsiders need invest only 3% of an SPE's capital for it to be independent and off the balance sheet came about through fumbles by the Securities & Exchange Commission and the Financial Accounting Standards Board. In 1990, accounting firms asked the SEC to endorse the 3% rule that had become a common, though unofficial, practice in the '80s. The SEC didn't like the idea, but it didn't stomp on it, either. It asked the FASB to set tighter rules to force consolidation of entities that were effectively controlled by companies. FASB drafted two overhauls of the rules but never finished the job, and the SEC is still waiting.
It's not just the energy industry that exploits the loophole and stashes major liabilities in the never-never land of SPEs. Increasingly, companies of all stripes routinely use them to offload potential balance-sheet bombshells such as loan guarantees or the financing of sales of their own products. For example, the accounts of data processor Electronic Data Systems Corp. don't show $500 million--half of last year's earnings--that it would owe if its customers were to cancel their contracts and leave it holding the bag for loans on their computer equipment. The arrangement is acknowledged only in a footnote. An EDS spokesman says the tactic is common in the industry and does not put the company at undue risk.
Airlines keep appearances aloft by shunting billions worth of airplane financing into off-balance-sheet vehicles, says credit analyst Philip Baggaley of Standard & Poor's Corp. United Airlines Inc. parent UAL Corp.'s published balance sheet for 2000 shows $5 billion of long-term debt. But only a footnote describes the bulk of its lease payments, which Baggaley estimates have a present value of $12.7 billion, due over 26 years on 233 airplanes. AMR Corp., parent of American Airlines Inc., is on the hook for $7.9 billion in lease payments not on its balance sheet. ``Everyone who's involved in the industry knows that the true leverage is higher'' than what's shown on the balance sheet, says Baggaley. UAL and AMR declined to comment.
Banks arrange many of the devices and are big users themselves. J.P. Morgan Chase & Co., for example, has revealed in the Enron bankruptcy that it has nearly $1 billion in potential liabilities stemming from a single 49%-owned Channel Islands entity called Mahonia that traded with Enron. The liabilities bring the bank's total Enron exposure to $2.6 billion. And J.P. Morgan is not alone. A suit filed earlier this month shows that many U.S. finance companies are among 52 partners in LJM2, an Enron off-balance-sheet entity with over $300 million in assets. The partners, including Citigroup, Wachovia, and American International Group, may all have to takes losses on it.
The banks' participation in SPEs is attracting scrutiny of federal regulators. A Federal Reserve spokesman said it is ``concerned about'' off-balance-sheet exposures and hopes new accounting rules will be put in place. How many more Mahonia or LJM2-like entities are there? The Channel Islands tax haven boasts more than 350 SPEs and similar entities, though it is impossible to know how many should really be consolidated on balance sheets of U.S. companies. Assets in the entities total more than $635 billion, according to Fitzrovia International PLC, a London-based research firm. The Cayman Islands, which has been competing for the business since the 1980s, claims another 600 trusts and banks, most of which have SPE expertise.
With some of the vehicles, it is impossible for investors to know from financial reports who could be responsible for what. For example, Dell Computer Corp. has a joint venture with Tyco International Ltd. called Dell Financial Services that last year originated $2.5 billion in customer financing, according to a footnote to Dell's accounts. According to the note, Dell owns 70% of DFS, but does not control it and therefore keeps DFS debts off its own balance sheet. What if DFS has trouble from customers not paying? Dell spokesman T.R. Reid says any obligations of DFS are Tyco's responsibility and Tyco agrees. Jeffrey D. Simon, president of the global vendor financing business at Tyco Capital, says Tyco would look to Dell's customers to pay and not to Dell. Tyco's balance sheet reflects borrowing to finance Dell's customers.
Companies argue that off-balance-sheet vehicles benefit investors because they enable management to tap extra sources of financing and hedge trading risks that could roil earnings. Maybe so, but they sure make the companies, and their executives, look good: Return on capital looks better than it is because balance sheets understate the amount employed. And investors and regulators don't freak out as corporate debt balloons. But critics charge that the widespread use of off-balance-sheet schemes encourages contempt for accounting rules in the executive suite and spreads confusion among investors. ``The nonprofessional has no idea of the extent of the real liabilities,'' says J. Edward Ketz, accounting professor at Pennsylvania State University. ``Professionals can be easily fooled, too.''
Worse yet, many SPEs have provisions that can throw their users into a full-blown financial crisis. To get assets off its books, a company typically sells them to an SPE, funding the purchase by borrowing cash from institutional investors. As a sweetener to protect investors, many SPEs incorporate triggers that require the parent to repay loans or give them new securities if its stock falls below a certain price or credit-rating agencies downgrade its debt. It was just such triggers in its notorious off-balance-sheet partnerships that sent Enron into a death spiral. And triggers fueled the crises last year at Pacific Gas & Electric, Southern California Edison, and Xerox, according to Moody's Investors Service. ``All of this hidden debt and these triggers could make the next economic downturn a lot worse than it would otherwise be,'' says Lynn Turner, who was chief accountant at the Securities & Exchange Commission until July.
Despite the risks, SPEs remain very appealing to companies. And any attempt to curb them or abolish the 3% rule will run into furious opposition. Since the early '90s, an army of accountants, lawyers, and bankers built a huge industry to concoct ever more creative ways to evade consolidated reporting. So reform won't come easily. ``It will be a phenomenal fight,'' says Turner.
Maybe so, but Enron's demise shows how quickly a tiny loophole can tear the country's economic fabric. And there may never be a better time to close it.

Out of Sight
Many companies keep debts and other obligations out of investors' view in
partnerships and other entities. Often, financial liabilities are secured
by physical assets such as planes or computers. A sample:
                                                 ESTIMATED EXPOSURE
COMPANY             ITEM NOT ON BALANCE SHEET        (BILLIONS)
UAL                 Plane leases                       $12.7
AMR                 Plane leases                         7.9
J.P. MORGAN CHASE   Liability for trading units          1.0*
DELL COMPUTER       Debt of consumer
                    financing venture                    N/A**
ELECTRONIC DATA     Payments for
SYSTEMS             customers' computers                 0.5
* Exposure to Enron through Mahonia
** Joint venture partner Tyco Intl. is responsible for losses
Data: Standard & Poor's, company reports
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Special-purpose vehicles used to control market, credit rating
By DAN FELDSTEIN
Copyright 2002 Houston Chronicle
Jan. 28, 2002, 6:31AM
As accountants, stockbrokers and others study Enron's collapse, they focus on the company's now-infamous "special-purpose vehicles" -- independent companies that propped up Enron's income and hid its debt.
They want to know whether the vehicles' goosing of Enron's financial statements was a side effect or their sole purpose.
One good clue is the list.
In the last year at Enron Global Finance group, managers were sometimes handed a list of Enron assets and instructed to go out and sell some to the vehicles, said an employee with direct knowledge of the procedure.
"Knowing what I do now, I know that was used directly to manipulate the (stock) market," the employee said.
A manager would pick something, from a plant to stock to a piece of a start-up company. Then he would walk the deal through a team of internal lawyers and auditors.
The bigger the "sale," the bigger his bonus.
What actually happened was that a bank or other investor lent money to the newly created company to finance the purchase. The new company, in turn, paid the money to Enron.
Why didn't Enron just get a loan itself without going through a middleman? Because the loan now belonged to the new company, not Enron, and thus didn't count as a debt on Enron's financial statement.
Instead, it counted as income to Enron when the new company passed on the proceeds.
Less debt and more income do wonders for a quarterly report. The procedure assured Enron would keep its high credit rating, saving big bucks, and would keep the stock price up.
After a while, the employee said, employees joked that there would be no assets left to deal.
"Every associate on up knew. We used to joke about, `I want this thing to stand up until I get my money and go,' " he said.
Two former Enron employees who worked on the special-purpose vehicles spoke at length to the Chronicle about what they did for a living. One met with a reporter in the offices of a Rice University accounting professor.
The employees, graduates of top schools, spoke on the condition that they not be identified.
Both said there were many uses for the vehicles that they considered legitimate, such as bringing in outside partners to share the risks of a particular venture. But there was little question, especially toward the end in the finance group, that many had no real "business purpose" other than improving financial appearances.
"They are created merely to make the income statement look better. An average person would say there's something wrong," said Michael Granof, a University of Texas accounting professor.
The employee with direct knowledge of the process didn't disagree. It's just sort of what they did, he said, and he never realized the extent of the company's debt.
The anatomy of the deal was simple, he said.
Say the asset was 100 shares of IBM stock. Enron would divide each share into two parts, one called a "control interest" and one called an "economic interest." Then it would sell the economic interest to a newly created special-purpose vehicle.
The asset was rarely as simple as 100 shares of another company's stock. So Enron had to put a value on it. Because there wasn't really an outside buyer, it decided the price itself and had that number blessed by its auditor, Arthur Andersen.
The deal was placed with a bank, insurance company or other major lender, which put up 97 percent of the money. Sometimes the promise of Enron stock would be put up to guarantee the loan, as a sort of collateral, although Enron stockholders were never told of the risk that their shares could be diluted if such new shares had to be issued, the employee said.
To qualify as "independent" from Enron for accounting purposes, an SPV had to be owned by someone else. So an outside entity would be brought in to make the required investment, which was just 3 percent of the SPV's total start-up cash.
In some cases, Enron is alleged to have lent that money to the outside equity partners, though the employee said he had no direct knowledge of that.
Enron no longer owned the economic interest in the asset, but it did own control over it. In the sales contract with the vehicle, Enron promised always to act in the interest of the SPV. Lawyers and auditors said all this was OK.
As the asset made money for the SPV -- if it did, and many didn't -- it made principal and interest payments to the lender and issued dividends to the outside equity partners, just like in a normal company.
So what was left for Enron? Unlike a normal company, the yield to the equity partners was capped. If the partner's yield cap was 15 percent and the asset made 20 percent, Enron got 5 percent.
Most important, Enron got to report the proceeds of the sale of the asset as earnings. It had to repay the loan, of course, but the debt didn't show up on Enron's financial statements.
A basic question is why Enron didn't just sell the assets normally to raise money. The answer is control, the employee said. If the asset were a plant, perhaps Enron would give itself the operating and maintenance contract. If it were private shares of another company, maybe Enron was technically forbidden to sell, or it could make another deal later.
By keeping its visible debt low, Enron retained a higher credit rating and thus paid a lower interest rate on money it borrowed and money borrowed by the SPVs, the employee said.
When Enron was forced to restate its earnings last year to include some of that debt, and as debt from other sources also surfaced, Moody's Investor Services downgraded Enron's bond rating. With a trading company such as Enron, where the ability to borrow vast sums at favorable interest rates is key, that was fatal. Bankruptcy quickly followed.
Such accounting practices were a factor in the company's fall, but the real problem was that many of Enron's recent major investments -- broadband and water divisions, New Power and an Indian power plant -- did not work out, said the employee and Rice University accounting professor Bala Dharan, who also questioned the employee.
"Investors don't like to hear you say, `Oh, I was wrong.' So you start having a yard sale to boost CFO (cash flow from operations) and net income," the employee said.
The second employee said many SPVs were easier to justify. Sometimes they were created to bring two other parties together, with Enron merely providing the expertise. Both said investors were happy to get involved in the deals.
But in recent years, the first employee said, their use became more questionable.
"Is any of that illegal? No, but it's shady. The investor couldn't truly know what Enron owned or what Enron owed. People don't pay attention to the footnotes," he said.
And the footnotes in Enron's required financial statements also weren't much help. Granof, an author of accounting textbooks with an MBA and doctorate, said he found them "unintelligible."
"That was conscious. No two ways about it," the employee responded.
Granof said he still couldn't quite understand why SPVs are considered legitimate. While expressing disappointment with Andersen for "deceiving" investors while meeting the letter of the law, he said, "there but for the grace of God go four other major accounting firms" of the Big Five that could have been similarly ensnared in the Enron fiasco.
"Something is wrong with the rules," he said.

Financial Post: World
Enron's hazy legal landscape: Were strong laws violated by bad people, or did weak laws render such violation unnecessary?
Diane Henriques with Kurt Eichenwald
The New York Times

01/28/2002
National Post
National
FP12
(c) National Post 2002. All Rights Reserved.

It was called "rotten, horrible, indefensible" and "shocking." With those words, securities law experts around the country condemned the way Enron had structured and sold a partnership called LJM2, which offered investors a chance to profit from confidential information about Enron's investment plans -- and gave the partnership investors more information about the company's finances than Enron's shareholders received. "This is potentially the most serious revelation about Enron to date," said Joel Seligman, a securities law historian and dean of the Washington University Law School. "You can't overstate how shocking it is."
But did the arrangement, however unfair it seems to stockholders, actually violate the nation's securities laws and regulations?
That is far more difficult to answer, legal scholars say -- and far more important. For them, the fundamental question about the sprawling Enron scandal is whether it is a case of strong laws being violated by bad people, or of weak laws rendering such violations unnecessary. "If a company of this size, advised by top-tier accountants and law firms, could conclude that our laws permit some of what happened here, then our laws are inadequate," said Richard C. Breeden, a former chairman of the Securities and Exchange Commission. "Clearly it violates the spirit and intent of securities laws and the whole concept of full and fair disclosure."
The quandary is particularly acute in the case of this partnership, because it seemed to thrive on arrangements -- procedural barriers known as "Chinese walls" -- that were actually intended to protect investors. These legal barriers prevented investment bankers who were privy to information about the partnership from legally sharing that information with shareholders. Instead, investors remained in the dark about Enron's actual financial condition.
But the partnership, lawyers and finance experts say, raises novel questions about the effectiveness of other parts of the securities laws, as well. These include prohibitions against trading on inside information; rules against selectively disclosing information to some shareholders and not others; efforts to police corporate conflicts of interest and the wisdom of removing restrictions on the roles that investment banks can play. "No matter how good you make the laws, there will always be a small group of people who will push them," said John Pound, a former finance professor at Harvard and the president of Integrity Partners, an investment management firm in Boston. "But the Enron case has raised a lot of useful and important policy questions that will need to be addressed. And the Chinese-wall issue is a perfect example of that."
Enron's swift fall, culminating in its bankruptcy filing in early December, came after the company revised its past financial statements to more accurately reflect partnership deals like the LJM2 arrangement. The company and its auditor, Arthur Andersen, are the subjects of both criminal and regulatory investigations, and are being examined by nearly a dozen Congressional committees.
One important focus of those investigations is the way that partnerships like LJM2 contributed to the company's collapse.
Confidential records of that specific partnership, disclosed in The New York Times, show that Enron tried to attract investors by dangling the prospect of potentially remarkable returns, driven by access to inside information about Enron's financial dealings.
Potential investors were told, in detail, about the company's off-the- books transactions and assets, information that Enron had not disclosed to its public shareholders. Indeed, partnership investors knew that Enron controlled at least 50% more assets than the company had disclosed in its audited financial statements, filed with the SEC and provided to public shareholders.
That lopsided flow of information strikes many legal experts as a direct challenge to traditional thinking about Chinese walls, the common nickname for the procedures that assure that the confidential information Wall Street firms obtain from their corporate investment banking clients remains confidential, even within the firm itself.
Chinese walls came into being in the late 1960s, as a regulatory response to the increased complexity of Wall Street firms and a more vigorous SEC response to insider trading, said Michael Perino, a securities law professor at St. John's University.
Their purpose, quite simply, was to prevent an investment banker from using confidential information about a corporate client to make trades in that client's stock -- trades in which the banker would have an advantage over other investors.
In 1988, at the end of a decade punctuated by insider trading scandals, Congress made such "informational partitions" mandatory, citing the need to prevent Wall Street insiders from taking advantage of Main Street investors.
But in this case, it appears that the protection backfired, legal experts said. Investment bankers who worked on the Enron partnerships were privy to information that may have raised doubts about the information Enron had provided to public investors -- but they were forbidden by law from raising any red flags.
"The purpose of the Chinese wall is to help public investors, but this worked backwards," said Mr. Pound, the former Harvard professor. "What amazes me is that the people who knew they had information adverse to the public investors would not feel a need to find a way, within the institution, to address that issue -- to go up in the institution high enough to say, `We have a policy problem here.' "
The LJM2 partnership points up Chinese-wall problems that courts and regulators have been struggling to resolve for years, said John Coffee Jr., a securities law expert at Columbia University Law School.
If the investment banking divisions of a brokerage firm had information that raised questions about the value of a public company's stock, there is nothing under the current law that the bankers could do to help the firm's retail investors. But there are more limited actions the firm could take, Mr. Coffee said.
"They can't go out and privately tell their clients the full information they have received without being part of an insider trading scheme," he said. "But they could arguably use the information to withdraw their recommendation on the stock." That, he added, "will cause some consternation and adverse publicity that would alert the market to a problem.
Other legal experts worry that the investment banks dealing with Enron were constrained by conflicts between their role as lenders and their work as underwriters.
This conflict, too, has roots deep in U.S. financial history. In the decade before the 1929 crash, banks would sometimes help a failing firm sell stock to the bank's customers to raise money to repay loans. As part of the New Deal, Congress passed the Glass- Steagall Act, which prevented banks from providing both underwriting and traditional banking services.
But long before Congress officially repealed Glass-Steagall in 1999, Street firms found legal detours around the prohibition. Now, some securities law experts said, Congress may need to take a fresh look at whether these dual roles in any way affected the flow of significant information to public investors in Enron.
Mr. Breeden, the former SEC chairman, said no direct parallels to the classic pre-1929 conflicts have appeared. But Enron's evolution "was a very subtle situation, and very complex. In any case," he added, "the public should be able to conclude where the investment banks' greatest interests lie."
That investors in the LJM2 partnership apparently got information that public investors could not get -- because Enron had moved certain operations off its balance sheet -- also underscores the importance of preventing selective disclosure by corporations, one former SEC commissioner said.
Until last January, corporate executives would routinely hold private briefings for analysts, slipping them details that were not available to public investors. To "level the playing field," the SEC enacted Regulation FD, which forbids such selective disclosure.
It is not clear from available documents whether partnership investors continued to learn about Enron's finances after the new rule went into effect. "But if they did, that raises blazing questions of selective disclosure," the former commissioner said. More broadly, he said, regulators should determine whether other corporations that use off-balance- sheet entities are giving investors in those entities more information than public stockholders receive.
Sheldon Elsen, a securities lawyer at Orans Elsen & Lupert in New York, said the structure of the LJM2 partnership "really presents some very troubling problems. I don't know that there is anything illegal here," Mr. Elsen said, "but there is a terrible odour about it."
James Moriarty, a Houston lawyer who has represented plaintiffs in a number of securities fraud cases, said: "That they would tell the truth to the rich investors, and lie to their stockholders, is outside the realm of the comprehensible."
Enron might argue that the information potential partnership investors got was not important enough to require disclosure.
But lawyers said the fact Enron disclosed the information to them would be evidence in itself that such details were material. "Given that they give the information to somebody else as part of their bargain to raise money for another deal, there is a strong likelihood that it would reach the materiality level," said Stanley Arkin, a New York corporate and securities lawyer.
But the information gap between partnership investors and public stockholders is just one of the conflicts that litter the Enron battlefield, legal experts say.
Congress is already wrestling with the potential conflicts that confront outside accounting firms, like Arthur Andersen. The firms act both as independent auditors -- which companies must have, by federal law -- and consultants on tax and technology issues.
But that, too, just scratches the surface. The LJM2 partnership, like several others set up by Enron, was run by a general partnership, LJM2 Capital Partners, and managed by a second partnership, LJM2 Capital Management. The people behind both partnerships -- the "principals" -- were all Enron executives, including Andrew S. Fastow, Enron's chief financial officer, and Michael J. Kopper, managing director at Enron's global equity markets group. "Investors should be aware that there will be occasions where the general partner and its affiliates may encounter potential conflicts of interest in connection with the partnership's activities," the partnership sales documents said. It explained that the principals "are employees at Enron and owe fiduciary duties to Enron and its subsidiaries; such fiduciary duties may from time to time conflict with fiduciary duties owed to the partnership and its partners."
Enron's board specifically approved Mr. Fastow's role by exempting him from the corporate conflict- of-interest policy -- a step that Mr. Breeden found inexplicable. "The very notion that the chief financial officer of a major corporation could have divided loyalties to this degree of magnitude is something I wouldn't have believed any board of directors would allow -- or that any CFO would accept," Mr. Breeden said. "The CFO is the financial conscience of the company, the guardian of the numbers. If he has a conflict, how can the system work?"
What is known about Enron's partnership arrangements so far, he said, reveals an even more profound conflict between management and shareholders. Because Enron had guaranteed the solvency of certain partnerships, obligations that were not disclosed on its balance sheet were secretly but steadily eroding its financial health.
"It is as if Enron and its top officers had set up a loaded machine gun and aimed it at the company -- and the shareholders didn't know it," Mr. Breeden said.
Two things, however, seem certain, legal experts said.
The first is that these fresh disclosures about how Enron's partnerships were structured and sold will expand the number of defendants named in the shareholder lawsuits aimed at trying to recover some of investors' market losses, which have been estimated at more than US$60-billion.
Every large institution -- whether an underwriter or partnership investor -- that was aware of material information withheld from Enron investors could find itself in court, securities lawyers said.
Already, they said, lawyers are discussing which investors, institutions and advisers are potential defendants. "The image I have in my mind is a long, long line of the wealthy and the powerful who made money out of these deals, all set up to hand it over to the people who lost everything in their Enron investments," said Mr. Moriarty.
The second consequence is likely to be systematic Congressional action to amend the nation's securities laws, said Mr. Seligman.

Black & White Photo: James Estrin, The New York Times / The Enron office towers in Houston were shrouded in fog last week.
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Enron Executive's Suicide-Note Release Delayed by Texas Police
2002-01-28 11:20 (New York)

     Sugar Land, Texas, Jan. 28 (Bloomberg) -- Former Enron Corp. Vice Chairman John Clifford Baxter's suicide note will remain under seal until an investigation of his death is completed, the Sugar Land Police Department said in a statement.
     Police previously promised to release the note this week, possibly as early as today, following a review by the Harris County Medical Examiner's Office, which ruled Baxter's Friday death Friday a suicide. Police decided Saturday to extend the investigation and delayed disclosure of the note, according to the statement.
     Baxter, 43, was found in his 2002 Mercedes-Benz at 2:23 a.m. Friday with a self-inflicted gunshot would to the head. He was the lone occupant of the car and a revolver was found near his body.
     Sugar Land Police Chief Earnest Taylor said in a statement Saturday that his department wasn't disagreeing with the autopsy results, but making sure ``we cross all the T's and dot all the I's.''
     A suicide note found at the scene said Baxter was distraught over Enron's fall and the prospect of testifying against friends who worked there, CNBC reported late Friday.
     Baxter resigned in May after a decade with Enron. The company is the subject of numerous shareholder lawsuits, as well as Congressional and criminal investigations, after filing the largest bankruptcy in corporate history in December.

--Jim Kennett in Houston at (713) 353-4871, or jkennett@Bloomberg.net, through the Chicago newsroom. Editor: Stroth.

Former Enron CEO's Wife Says Scrutiny Is Fair, MSNBC Says
2002-01-28 11:32 (New York)

     Houston, Texas, Jan. 28 (Bloomberg) -- Former Enron Corp. Chief Executive Officer Kenneth Lay's wife Linda said she understands why her husband is under scrutiny after the company he ran filed for Chapter 11 bankruptcy protection in December, MSNBC reported, citing an interview on NBC's ``Today'' Show.
     ``I don't think it seems unfair,'' MSNBC quoted Linda Lay as saying. ``The buck stops at his desk. Absolutely. He is at the top. That is where it ought to be. If I were back there listening to all the things that were being said, I would absolutely have to say, `What is wrong here?' How can all of this be happening without someone doing something terribly evil?''
     Lay said she and her husband are ``fighting for liquidity'' and everything is for sale except their home, MSNBC reported.
     She said former Enron Vice Chairman John Clifford Baxter's suicide last week is a ``perfect example of how the media can play such havoc and destruction in people's lives.''
     ``This is a mass hysteria of who can get the news first on when, how, why, suspicion, and they're lumping everybody together,'' Lay said, according to MSNBC. ``Nobody really even knows what the truth is yet. The only truth I know for sure is that my husband is an honest, decent, moral human being who would do absolutely nothing wrong. That I know 100 percent.''

--Chris Dolmetsch in the Princeton newsroom (609) 750-4652, or cdolmetsch@bloomberg.net. Editor: Byrd

USA: Kenneth Lay's wife says ex-Enron CEO is honest man.
By Sue Pleming

01/28/2002
Reuters English News Service
(C) Reuters Limited 2002.

WASHINGTON, Jan 28 (Reuters) - The wife of former Enron CEO Kenneth Lay defended her husband on Monday, saying he was an "honest, decent, moral" man who did nothing wrong in the devastating collapse of the energy trading giant.
In an interview with NBC's "Today" show, Linda Lay said her husband, who quit as chairman and chief executive officer of Enron Corp. last week, had been grossly misunderstood and was victim of "mass hysteria" surrounding the biggest bankruptcy case in U.S. history.
"Nobody even knows what the truth is yet. The only thing I know, 100 percent for sure, is that my husband is an honest, decent, moral human being who would do absolutely nothing wrong. That I know 100 percent," she said.
Linda Lay, whose five children also defended their father, said she could understand the anger and loss felt by Enron employees when they recalled her husband's publicly upbeat attitude toward the company before it dived.
Much of the criticism of Lay has centered on mounting evidence he knew of the energy company's debt-ridden position even as he was advising his staff to buy Enron stock, which is now worthless.
"If I were back there listening to all the things that were being said I would absolutely have to say, 'What is wrong here? How can all of this be happening without someone doing something terribly wrong?'" Linda Lay said.
But she said there were man things her husband had not been told that would come out in the many investigations now under way.
"Those things will all come to light and that's what we're all praying for."
Congressional hearings began in Washington last week into Enron's fall and the role of its auditor, Big Five accounting firm Andersen. Legislators are very interested in the destruction of thousands of documents related to Enron audits.
REALITY SET IN IT WAS OVER
Linda Lay broke down as she recalled a couple of days before Enron collapsed when her husband came home from work and said he could not turn the company around.
"He said he had tried everything he could think of and he could not stop it," she sobbed, adding: "(He was) devastated, devastated for his employees."
Asked how she felt toward those who said her husband betrayed them, she replied, "We've lost everything but I don't feel Ken has betrayed me. I'm sad, I'm desperately sad but I don't know where to place the anger. I don't know who to get mad at. I just know my husband did not have an involvement."
Like many of those affected by Enron's woes, Linda Lay said her own family was fighting for survival and that everything except their home was for sale.
"We are fighting for liquidity. We don't want to go bankrupt," she said, adding that nearly all of their fortune had been locked into Enron stock, which is now worthless.
According to a lawsuit filed in federal court in Houston, Lay received $101 million in proceeds from the sale of Enron stock between October 1998 and November 2001.
The Enron saga took a tragic turn last Friday with the apparent suicide of J. Clifford Baxter, who had resigned as vice chairman of Enron Corp last year and who was said to have opposed the accounting practices of the company.
Mrs. Lay said her family was devastated by Baxter's death, adding that her husband had spoken to him not too long ago.
"Cliff was a wonderful man. It's a perfect example of how the media can play such havoc and destruction in people's lives. This is the ultimate. This is a loss of life."
"It makes my heart, it makes Ken's heart ache," she added. "Had we known we would have picked up the phone and called him. We would have gone and been with him. We would have done anything we could to have helped him, helped his family but we had no idea he was in that kind of pain."
Lay came out of retirement last year to return to his old job as CEO. Asked how she would change her life, if given the chance, his wife said: "Selfishly, probably that my husband never went back to Enron."

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

Lay's wife says couple trying to avoid personal bankruptcy
Associated Press
Jan. 28, 2002, 9:06AM
The wife of former Enron Corp. chairman and chief executive officer Kenneth Lay said the couple is working to avoid personal bankruptcy.
"Everything we had mostly was in Enron stock," Linda Lay told NBC's Today show today.
"We've had long-term investments and those long-term investments have cash calls," she said. "Virtually -- other than the home we live in -- everything we own is for sale."
She said her husband, who built a modest pipeline company into an energy giant, is an "honest, decent, moral human begin who would do absolutely nothing wrong."
Kenneth Lay resigned last week as chairman and chief executive, though he remains on the Enron board.
Linda Lay said the full truth isn't out about the Enron debacle, in which the nation's seventh-largest corporation crumbled into bankruptcy because of questionable accounting practices.
"There's some things (Kenneth Lay) wasn't told," Linda Lay said. "That will all come out in the investigation."
She said outside counsel, law firm Vinson & Elkins, and accounting firm Arthur Andersen LLC had told her husband everything was fine.
Kenneth Lay had no idea former Enron executive J. Clifford Baxter -- who committed suicide -- was in some kind of pain, his wife said.
Baxter was found dead Friday in his Mercedes-Benz, a few miles from his home in suburban Sugar Land. On Saturday, the Harris County Medical Examiner's Office confirmed Baxter killed himself.
"It makes my heart ache, it makes Ken's heart ache," Linda Lay said. "Had we known, we would have picked up phones and called -- we would have gone and been with him."
"If what he did had anything to do with what's been going on, it's a real tragedy," she said.
Enron's collapse is the biggest bankruptcy in U.S. history. Its downfall and accounting practices are being investigated by federal prosecutors, the FBI, securities regulators and 11 congressional committees and subcommittees.

Enron Employees Group Files Suit Seeking Lost Savings

01/28/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

HOUSTON -(Dow Jones)- A group of former Enron Corp. (ENRNQ) employees has filed suit against the failed energy trader in Houston federal court seeking to regain lost savings.
In a press release Monday, a group of 400 present and former employees, calling itself the Severed Enron Employees Coalition, or SEEC, filed action seeking to recover the "staggering losses" suffered by employees who contributed to Enron's 401(k) savings plan.
The group, which seeks to represent some 4,500 laid-off Enron employees, is banding together to focus "on winning for disenfranchised Enron employees a greater voice in asserting claims resulting from Enron's bankruptcy," according to the prepared statement Monday.

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

Enron staffers contemplate future amid gloom
`It's mostly about survival our own and the company's'
By DAVID KAPLAN
Copyright 2002 Houston Chronicle
Jan. 28, 2002, 12:26AM
Every day, the scandal at Enron brings a new shock, with no letup in sight.
The complex and jaw-dropping developments have even most jaded news consumers shaking their heads.
Now, just imagine what it's like to still be working there.
In the morning, the papers are full of disturbing news about your employer's business practices. At work, reporters are waiting outside the building. During the drive home, talk radio fills your ears with invective. At home, TV repeats the day's bad news and adds more.
On Friday, Enron workers learned of the suicide of former company Vice Chairman Cliff Baxter, a member of upper management whom the employees admired.
"The stress has gotten so bad on me, so intense and so sustained, my brain could no longer take it," said one Enron employee.
He stopped watching and reading the news, because it had begun to affect him physically, though he knows he's missing out on information important to him.
"I feel like I'm flying blind," he said.
As might be expected, the mood at work is grim. Many wonder if Enron can somehow survive. If not, will the employees be left out in the cold?
At this point, he said, "it's mostly about survival -- our own and the company's."
Understandably, all those who spoke to the Chronicle asked to remain anonymous.
In mid-October, when Enron reported big third-quarter losses and the Securities and Exchange Commission began its inquiry, one trader began to see in his colleagues' eyes "a desolate, transparent, stare-out-in-space look."
"People were losing an enormous amount of money" in stock holdings and 401(k)s, the trader said.
By early November, when Dynegy announced its plan to buy Enron, employees were fearing for their jobs. Just before Thanksgiving, the apprehension intensified. The trader said he started getting 25 to 30 e-mails a day from people saying, "If I'm not here tomorrow, here's my home phone number. In case you hear of a new group starting up, here's how you can get ahold of me."
Then came Black Monday, when 4,200 people were laid off. Those who didn't lose their jobs were nonetheless shocked and had a sense of mourning for their co-workers.
Recalling that day, a woman who works in the pipeline group said she, too, wanted to stay at her desk with her head buried.
"I felt guilt and hurt," she said. "Now, I'm more depressed. You definitely don't want to be here anymore. Everyone I know has their r?sum?s out."
"There is probably a tremendous range of feelings," said Jonathan Kramer, a consulting and business psychologist and director of businesspsychologist.com, based in La Jolla, Calif.
Some workers feel betrayed and angry, while others are depressed, scared about what's coming next, he said.
"Certainly, it's got to be stressful for almost everyone," he said.
Enron's downfall is hard on employees partly because they've been emotionally tied to the company. "When it suffers, we suffer, too," Kramer said. "It's a very demoralizing experience."
Employees may feel lucky that they didn't get laid off, Kramer said, but the overriding feeling is: Today, I have a job, but tomorrow I may not.
One trader described his situation as "a strange Catch-22: Hey, the only reason I'm being kept around is because I have physical inventory. The faster I move it, the faster I'm out of a job."
Traders don't have much to do, because there isn't much activity. In fact, said one employee, traders feel like they are part of the inventory, "like they're being retained for the sole purpose of being part of a buyout package, like the software and hardware."
The people with "the most skill and drive have banded together," he said. "We're gonna take what's left of Enron and make something of it."
In the old days, there was immense pride, said one employee: "We were the Harvard of corporations. But management has managed to tarnish that image. Each of us, instead of having a positive image on our r?sum?s from working here, now we may have something of a tarnished image ourselves."
They've gone from being envied to the butt of jokes.
"We've talked about how embarrassing it is to work here," said one woman who works in the pipeline division.
She said that whenever she has to fill out an application form somewhere, she wants to lie about where she works now.
"We still have pride and still want to be with each other," she said. "It's the executives we don't want to work for anymore."
She said Enron management was always secretive and is even more so now.
"The communication we get is from news reports," she said. "Enron only admits things when it comes out in the media. Wenever hear about what's going to happen until after it's happened."
"The effect of secrecy is devastating," said Scott Sindelar, a business psychologist based in Scottsdale, Ariz. "It increases anxiety and anger and the likelihood of sabotage."
Sharing information is also the right thing to do ethically and from a business standpoint, Sindelar said.
"You never know when you'll meet these same people along the road again," he said.
It is best when you stay busy at work, one employee said, because then you don't think about everything.
"You kind of don't bring certain things up, like the names of people who used to work here," she said, "because it will kind of destroy the mood."
There are reminders, though. The names of laid-off workers are still on some desks and chairs.
For the first time, the woman in the pipeline division sees divisions within the company.
"We used to all feel like one close-knitted company, but now it's like the traders are everything and everyone else is expendable," she said.
One employee said he felt no survivor's guilt about still having a job: "People who work at Enron are savvy enough to realize that, hey, this is part of business. Nobody went behind closed doors to take somebody else's job away from them. It was just a luck of the draw."
Whenever there's news that a laid-off person got a job, "it kind of lifts everybody," another employee said.
With half its people gone, Enron's building has vast empty spaces, though the ones who are still there have been consolidated on certain floors.
Still, one said he often rides the elevator alone, which never used to happen.
In the halls, he has noticed a change in body language.
"Shoulders are slumped," he said. "The swagger is gone."

Crippled energy trader's workers consider futures amid gloom

01/28/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

HOUSTON (AP) - In the wake of America's largest bankruptcy ever, remaining employees at Enron Corp. can't help but wonder about their futures with the crippled energy trader.
They were some of the thousands of employees and big and small investors around the country who lost fortunes in the company's plunging stock. And, even though they still have jobs, it's small consolation for some. They're grieving, apprehensive - even embarrassed.
"The stress has gotten so bad on me, so intense and so sustained, my brain could no longer take it," one Enron employee, who spoke on condition of anonymity, told the Houston Chronicle in Monday's editions.
He's quit watching and reading the gloomy news, like former Enron company Vice Chairman Cliff Baxter's suicide, because it had begun to affect him physically. But he knows he's missing out on information that could be important to him.
"I feel like I'm flying blind," he said, adding that when his future is at stake along with Enron's, "it's mostly about survival - our own and the company's."
When Enron reported big third-quarter losses and the Securities and Exchange Commission began its inquiry in mid-October, an unidentified trader told the newspaper he began to see in his colleagues' eyes "a desolate, transparent, stare-out-in-space look."
"People were losing an enormous amount of money" in stock holdings and 401(k) plans, the trader said.
Apprehension intensified by early November, when Dynegy announced its plan to buy Enron. The trader said he started getting 25 to 30 e-mails a day from people stating, "If I'm not here tomorrow, here's my home phone number. In case you hear of a new group starting up, here's how you can get ahold of me."
When 4,200 people were laid off on Black Monday, those who kept their jobs were still shocked and mourning for lost co-workers.
An unidentified woman who works in Enron's pipeline group told the newspaper she wanted to stay at her desk with her head buried.
"I felt guilt and hurt," the woman said. "Now, I'm more depressed. You definitely don't want to be here anymore. Everyone I know has their resumes out."
A consulting and business psychologist said some workers felt angry and betrayed while others became scared about what's coming next.
"There is probably a tremendous range of feelings," said Jonathan Kramer, director of businesspsychologist.com, based in La Jolla, Calif. "Certainly, it's got to be stressful for almost everyone."
Another trader described his situation as "a strange Catch-22: Hey, the only reason I'm being kept around is because I have physical inventory. The faster I move it, the faster I'm out of a job."
Employees have gone from being envied for the jobs with a company described as a corporate Harvard to being the butt of jokes.
"We've talked about how embarrassing it is to work here," said an unidentified woman who works in the pipeline division.

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

Fedl Judge Gives Enron 60 Days To Decide On Commodities
By Kathy Chu

01/28/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- A federal judge will give bankrupt Enron Corp. (ENRNQ) 60 days, or until April 2, to decide whether it wants to commit to five commodities contracts.
"Forcing an early decision to accept or reject could result in a loss of value to the estate," said Judge Arthur Gonzalez, during a Friday hearing at the U.S. Bankruptcy Court of the Southern District of New York.
With this ruling, the judge rejected motions by Enron's creditors - Natural Gas Pipeline of America, Trailblazer Pipeline Co., Southern California Gas Co., San Diego Gas & Electric Co. and Superior Industries International Inc. (SUP) - aimed at forcing the company to immediately decide upon the agreements.
The creditors claim that since Enron's bankruptcy, the company hasn't fully honored its commitments. This has required third parties to step in to supply natural gas and electricity.
But Judge Gonzalez told creditors Friday that their businesses haven't been significantly impaired by Enron's bankruptcy, as sufficient supplies of gas and electricity continue to be available.
Also, Enron has said that its supply of the commodities to two California public utilities - Southern California Gas Co. and San Diego Gas & Electric Co. - as well as other creditors are nearing 100% of levels prior to the Dec. 2 bankruptcy filing.
-Kathy Chu; Dow Jones Newswires; 201-938-5392;
e-mail: kathy.chu@dowjones.com

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

Cheney refuses to release energy plan documents to Enron investigators
GAO may bring rare lawsuit over refusal
By KAREN MASTERSON
Copyright 2002 Houston Chronicle Washington Bureau
Jan. 28, 2002, 7:39AM
WASHINGTON -- In the face of political pressure to comply with congressional investigators, Vice President Dick Cheney said Sunday he will not release internal documents connected to the development of President Bush's energy plan.
That refusal is expected to fuel political outcries that the administration is hiding information about its relationship with Enron Corp., and may prompt the General Accounting Office -- Congress' nonpartisan investigative arm -- to file a rare lawsuit against the White House.
Cheney, who was asked on Sunday-morning news programs to defend his position, said White House attorneys looked into the matter and concluded that documents gathered by the task force he headed are protected by the rules of executive privilege. The GAO contends that U.S. taxpayers paid for the task force and have a right to the information.
The GAO's jurisdiction "extends to agencies created by statute. That's not me," Cheney said on Fox News Sunday. "I'm a constitutional officer. The authority of the GAO does not extend in that case to my office."
Cheney showed no sign of compromising on the issue, and indicated he was unmoved by recent polls that showed a majority of Americans distrust the administration's relationship with Enron.
Bush's comprehensive energy plan, released in May and subsequently passed by the Republican-controlled House, calls for more oil and gas drilling, particularly in the Alaskan wilderness, and a revival of the nuclear power industry.
Democrats have since charged that the policies promoted in the plan were a payoff to industry executives, including Enron's, who had given generously to Bush's 2000 election campaign. For months, Democrats have demanded more details on who attended the meetings where the plan was forged and what was said.
The collapse of Enron has complicated the administration's refusal to comply, and given Democrats a second opportunity to draw attention to those meetings.
"The General Accounting Office is on solid ground in demanding that these records be turned over," Senate Majority Leader Tom Daschle, D-S.D., said Sunday on CBS' Face the Nation. "The American people have a right to know what the facts are."
Sen. Joseph Lieberman, D-Conn., speaking on CNN's Late Edition, said Cheney's most recent refusal to cooperate "raises more suspicions" and suggests the White House may be hiding something. Lieberman chairs the Senate Governmental Affairs Committee, which is investigating certain aspects of the Enron debacle.
Cheney, who was put on the defensive on two nationally televised programs, said the White House has nothing to hide. Rather, he said that by rebuffing the GAO's threat of legal action, the White House hopes to preserve the power of the presidency.
On ABC's This Week, Cheney said that giving in to the GAO would put "a chill over the ability of the president and vice president to receive unvarnished advice. ... It would make it virtually impossible for me to have confidential conversations with anybody."
But one Republican said the appearance of impropriety would grow as a consequence of not cooperating.
"Unfortunately, as a result of Richard Nixon years ago, when anybody hears the term `executive privilege,' they assume something bad was going on," said Sen. Mitch McConnell, R-Ky. "There's no evidence anything bad was going on here; there's not a scintilla of evidence that the administration was doing Enron's bidding."
But polls suggest the public doesn't need a causal link between campaign contributions and pro-Enron policies to distrust the process. In a newly released New York Times/CBS poll, a majority of those surveyed said they see Republicans as far more enmeshed in Enron's problems than Democrats.
Only 17 percent of those polled said they thought the Bush administration was telling the truth; 58 percent said the administration was mostly telling the truth but hiding something, and 9 percent said officials were lying.
In December, Enron, once ranked No. 7 on the Fortune 500 big businesses list, filed for the largest bankruptcy in U.S. history. The company's collapse devastated retirement accounts, eliminated thousands of jobs and raised questions about Bush's close ties to the company and its former head, Ken Lay.
And it gave Democrats an issue they hope to use against Republicans in the upcoming midterm elections.
"The issue is not what they took, but what did Enron get," Terry McAuliffe, Democratic Party chairman, said on Late Edition. "It seems clear that what they got is an energy policy, 17 different specific proposals that helped Enron."
McAuliffe was referring to a report issued by the head Democrat on the House Governmental Reform Committee, Rep. Henry Waxman of California, that suggested Enron's influence was evident in 17 measures included in the Bush policies.
But Republicans have called the document a partisan attempt to create a scandal that does not exist. GOP leaders indicated Sunday that they will continue to deflect any hint of scandal by emphasizing that the criminal and congressional investigations of Enron are not yet complete.
"The bottom line is, the president wants to understand all of the facts just as much as anyone else does," Montana Gov. Marc Racicot, Republican Party chairman, said on Late Edition. "The administration does, and clearly Congress does. And I think that is what we ought to be focusing on."

Investing
Did Andersen Speed Up the Shredding? Documents just released by a House subcommittee suggest the firm may have rushed its document destruction after learning of the SEC probe
By Mike McNamee in Washington

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

The Houston office of accountant Arthur Andersen may have accelerated its efforts to destroy Enron's audit records -- requiring staffers to work overtime -- after it learned the Securities & Exchange Commission was investigating Enron's accounting, documents released on Jan. 24 by a House Energy & Commerce subcommittee suggest.
The documents -- e-mail messages obtained by BusinessWeek -- show that David B. Duncan, Andersen's lead partner on the Enron account, called a "mandatory" meeting on Oct. 23, 2001, "to discuss the current events of Enron." That was the day after Enron issued a press release disclosing the SEC had requested information about the accounting treatment of the partnership deals that ended up costing Enron $588 million in profit writedowns.
On Oct. 24, the day after the Andersen meeting, Kimberly H. Latham, an Andersen manager on the Enron account, instructed her staff to cooperate with efforts "to insure that our team is in compliance with the Andersen documentation retention guidelines." The staffer who Latham delegated to follow through was less politic: He referred to his task as a "cleanup" of computer files, and on Oct. 25 he gave his colleagues a list of computer directories "that I would like you to clean out," according to the e-mails.
REGARDING "RETENTION." While they're called "retention guidelines," Andersen's rules regarding records actually call for disposing of documents on a regular schedule. According to Andersen officials, the firm keeps only the papers it deems to be essential to the audit. The guidelines contain exceptions -- including instructions that routine document disposal should cease when the firm learns of "threatened or actual commencement of litigation, governmental, and/or professional investigations."
That makes the wording and timing of the e-mails significant. Congressional probers investigating the Enron affair believe the memos suggest that the destruction of records may have been a deliberate attempt to sweep away the history of the Enron audits. Andersen has acknowledged its Houston office destroyed thousands of documents relating to Enron, stopping only when the firm was subpoenaed by the SEC on Nov. 8.
The computer files referred to in the Oct. 24 and Oct. 25 e-mails weren't yet subject to subpoena, but they appear to fall under Andersen's policies requiring a freeze when an audit is under investigation, the congressional probers believe.
COVERING TRACKS? A House Energy & Commerce Committee subcommittee has subpoenaed Andersen officials, including Duncan and CEO Joseph Berardino, to testify about the shredding and discarding of documents. The panel has copies of the e-mails and is investigating them, says Ken Johnson, committee spokesman. "This has all the outward appearance of people desperately trying to cover their tracks," Johnson says.
After reviewing copies of the e-mails, an Andersen official said they back up the firm's contention that Duncan directed the shredding campaign. Andersen fired Duncan on Jan. 15 and put partner Thomas H. Bauer, who convened the Oct. 23 meeting with Duncan, on administrative leave. "It's clear that David Duncan, a certified public accountant with full knowledge of an SEC investigation, ordered a full-scale document-destruction campaign," says the Andersen official, who spoke on the condition he not be named. "That's consistent with what we found in our internal review."
Duncan's attorney could not be reached for comment.
But the e-mails put the cleanup in the context of Andersen's document retention policies, which could pose problems for the firm. On Oct. 12, an Andersen attorney sent an e-mail to Houston reminding partners and managers of the need to keep up with disposal of outdated documents. Andersen has insisted the lawyer's reminder was routine and unrelated to Enron -- but that Duncan's directions to his staff were not.
"DO WHAT IS NECESSARY." Indeed, the e-mails present the cleanup as an urgent matter. In her Oct. 24 note, Latham told her staff that her supervisor "expects everyone to do what is necessary to adhere to the guidelines. Obviously this should not interfere with client obligations...; however, we do expect that people will be able to do this on an overtime basis, if necessary, for the remainder of the week, or for however long it takes."
Contacted by BusinessWeek Online, Latham said she could not immediately comment on questions about her e-mails.
The Andersen official says no action has been taken against Latham or her supervisor, partner Michael P. Schultz.

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

NATIONAL
ENRON'S TROUBLES ENSNARE LEADING TEXAS LAW FIRM
DAVID KOENIG, THE ASSOCIATED PRESS

01/28/2002
Pittsburgh Post-Gazette
SOONER
A-5
(Copyright 2002)

Vinson & Elkins' reputation took 80 years to polish and one client to smudge.
The largest law firm in Houston and the most profitable in Texas, Vinson & Elkins has been stung by accusations it showed poor judgment -- or worse -- in work for Enron Corp.
An Enron insider claims Vinson & Elkins blessed partnership deals that hid the energy trading company's shaky financial situation until it collapsed into bankruptcy.
Outside lawyers say the firm violated ethical standards by reviewing the accusations itself instead of demanding an impartial, outside review.
V&E has worked for Enron since the energy company's founding in the mid-1980s and Enron is now its biggest client, accounting for $35 million of its $450 million in billings last year.
Vinson & Elkins' work for Enron might not have attracted much attention but for an Enron executive's letter written in August to chairman Kenneth Lay.
The executive, Sherron Watkins, fretted that Enron could "implode in a wave of accounting scandals," and urged the company to hire a law firm to investigate murky accounting and partnership deals that helped keep billions in debt off Enron's books.
"Can't use V&E due to conflict -- they provided some true sale opinions on some of the deals," Watkins wrote. Lawyers write true sale opinions on the legality of transactions.
Enron ignored Watkins' plea and turned back to Vinson & Elkins. In October, V&E partner Max Hendrick III wrote to Enron's general counsel James Derrick Jr., a former V&E partner, that Watkins' charges could prove embarrassing but merited no further investigation.
A spokesman for Vinson & Elkins, Joe Householder, said the firm couldn't discuss its work for Enron because it still represents the company.
Founded in 1917, the firm specialized in working with banks to provide legal advice and financing to Texas' then-young oil industry, and it grew rapidly as the energy sector boomed.
Vinson & Elkins partners, who once included former Texas Gov. John Connally, grew rich. The law firm forged close ties with many Texas politicians, especially President Bush.
But the firm also developed a progressive reputation for doing pro bono work on civil-liberties cases and for hiring female, black and Jewish partners in the 1970s, before many other Texas law firms did.

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

Politics
"Enron Is Just the Worst Example"; Billy Tauzin says his panel's probe has alerted him to "real problems...in the structure of Corporate America"
Cohn writes for BusinessWeek in Washington

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

Billy Tauzin likes the spotlight. Last year, the Louisiana Republican, who chairs the House Energy & Commerce Committee, held high-profile hearings on the failure of network TV to call the 2000 Presidential results correctly on election night. Later, he honed in on the Ford Explorer/Firestone tire fiasco. And remember California's blackouts? He held hearings on that issue, too.
Known as the "Cagey Cajun" on Capitol Hill, Tauzin's latest mission will be getting to the bottom of the rapid demise of Enron, the energy trader that became the biggest corporate bankruptcy in the nation's history on Dec. 2. And while his panel is one of several probing Enron, he has been first out of the box with hearings (see "The Swamp Fox on Enron's Tail"). Tauzin has 15 of his staffers on the case, and so far they've collected 80 boxes of documents, interviewed several key officials at Enron and its auditor, Arthur Andersen, and traveled to Houston to dig up information on the company's home base.
On Jan. 18, Tauzin took time to talk with BusinessWeek Correspondent Laura Cohn about what he expects to emerge from his latest investigation and what policy changes might be needed. Here are edited excerpts from their conversation:
Q: What are your expectations here?
A: The first thing we have to do is, obviously, get the facts the best we can. We want to get a sense of what Enron was doing, how they were doing it, and what went wrong. Obviously, a lot of people got burned, and so we need to know why. We need to know the good, the bad, and the ugly.
Q: Will people go to jail as a result of the Enron debacle?
A: There may well be. [The] Justice [Dept.] would not be launching an investigation if there were not at least some possibility of criminal wrongdoing. We know there has been some document destruction. It may have all been innocent, it may have all been stupid, or it may have all been criminal. We just don't know yet.
Q: Will there be policy changes as a result of this?
A: Almost certainly. For a long time, I have defended the practice of accounting firms doing both the audit function and the consulting function [for the same client]. We'd assumed those functions could be conducted without the kind of conflicts of interest that may have been present here. We're learning differently.
We're learning that maybe there are some problems here, maybe those rules need to be changed. We're going to most likely see some changes in the way in which the accounting rules are enforced and, in all probability, in the rules themselves.
Q: In the past, you've been a big backer of the accounting industry, and you disagreed with former Securities & Exchange Commission Chairman Arthur Levitt Jr.'s push to clamp down on conflicts of interest in the industry. Have you changed your view?
A: Several years ago, when he was making the case, we didn't see evidence of the problem. Today, it's kind of hard to say there isn't evidence of a problem. Arthur Levitt was right. We need to make some changes.
Q: What sort of changes?
A: There's clearly a need for more disclosure. We're finding out that there are real problems endemic in the structure of Corporate America that we need to deal with. Enron is just the worst example that we're going to have to take into the lab and completely dissect in order to find out what went wrong.
Q: I understand you're quite a hunter. What are you hunting these days?
A: I'm on a deer hunt right now. I'm an avid fisherman, hunter, and outdoorsman. Whenever I get a break, I try to do that.
Q: I understand you're quite a chef as well.
A: Yeah. I don't hunt anything I can't cook, let me put it that way. My rule is if you take it, you cook it.

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

UK govt denies wrongdoing in connection with Enron, Arthur Andersen

01/28/2002
AFX News
(c) 2002 by AFP-Extel News Ltd

LONDON (AFX) - Prime Minister Tony Blair's spokesman denied the government had committed any wrongdoing in connection with failed US energy group Enron Corp and its accountants Arthur Andersen.
"We would refute absolutely that there has been any impropriety," he told reporters, after opposition Liberal Democrat Treasury spokesman Matthew Taylor called for an inquiry into the Labour Party's "extremely close links" with both Enron and Arthur Andersen.
The Labour government spokesman said: "Yes, Enron representatives have met government ministers from the DTI (Department of Trade and Industry) over the course of the years since the government came to power.
"They are not alone in that and at some meetings they were there with representatives of other companies."
Taylor told BBC radio: "Labour have chosen to build very close links with business on a pretty dubious basis where they have received money and help on the one hand from businesses benefiting very much from government policy on the other."
He added: "We know that in the United States, Enron used extensive political contacts to seek to further its interests and there is good evidence of the same happening here in the UK."
Taylor said former Labour employees were taken on by Enron to lobby for a change in gas policy -- changes which were subsequently pushed through. He added that Enron may have curried favour at the time of its takeover of Wessex Water by paying for tables at the Labour Party conference.
Taylor also called for an investigation into Labour's links with Arthur Andersen, the accountancy firm which failed to spot the black hole in Enron's finances before its collapse late last year.
Taylor said Arthur Andersen, which had been barred from doing business with previous UK governments for 12 years after being blacklisted for its work as auditor to failed carmaker De Lorean, had built very close links with the Labour Party since then.
He said the accountants' "free work" for the Labour Party between 1992-1997 "appears to have paid off, because just after the general election they were brought back into government business and have been absolutely at the centre of what has been happening in government since and with some very questionable reports that have backed the Labour government."
The current trade minister, Patricia Hewitt, was Andersen's head of research until the current Labour government came to power in 1997.
dr-mro/wai/cmr/jsa

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

SEC's Top Cop Says Enron 'Not Going To Distract Us'
By Judith Burns

01/28/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of DOW JONES NEWSWIRES

SAN DIEGO -(Dow Jones)- Investigation into the collapse of Enron Corp. (ENRNQ) won't stop regulators from pursuing other cases, the top cop at the Securities and Exchange Commission said Friday.
"Enron's not going to distract us," SEC enforcement division director Stephen Cutler said at a Northwestern University legal conference here. He gave the usual disclaimer that his remarks reflect his own views, not those of the SEC.
The SEC began investigating Enron last October, after the Houston energy company announced it had overstated four-and-a-half years of earnings. The SEC later expanded the probe to include document destruction by Enron's outside auditor, Arthur Andersen. A criminal investigation by the Justice Department also is under way, along with investigation by numerous congressional committees.
"People may have a sense that all we care about is Enron," said Cutler.
While he acknowledged the case is getting a lot of attention, he said it won't stop other SEC investigations in their tracks, and promised that in coming months, "you'll be seeing lots of good cases from us."
Connections between SEC commissioners and accounting firms won't stop the agency from cracking down on accounting fraud, Cutler indicated.
Some critics have questioned whether the SEC may adopt a softer touch on accountants given that Chairman Harvey Pitt represented accounting firms in his past law practice, and the newly named commissioner Cynthia Glassman worked for a Big Five accounting firm.
"I think there's a misperception out there about this new commission and its willingness to be tough" in fighting financial fraud, Cutler said.
Accounting cases account for the bulk of the SEC's enforcement actions now. Last year, the agency brought more than 100 cases alleging financial fraud and in case, obtained a record $7 million settlement from Andersen for its role in auditing Waste Management Inc., another big accounting blowup.
Cutler said the fine, the largest ever paid by a Big Five accounting firm, shows that in financial fraud cases, audit firms "will be held accountable" along with audit partners.
Independence is another area getting close scrutiny from SEC attorneys, Cutler indicated. The SEC recently settled a case against KPMG that alleged it violated independence rules by investing in a mutual fund that was an audit client.
"There will be other independence cases to come," Cutler added. He said the agency is concerned when a "web of relationships" or business deals might cloud an auditor's judgment or undermine independence.
-By Judith Burns, Dow Jones Newswires, 202-862-6692; judith.burns@dowjones.com

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

UBS' Wuffli says Enron trading ops takeover to level out earnings fluctuations

01/28/2002
AFX News
(c) 2002 by AFP-Extel News Ltd

DUESSELDORF (AFX) - UBS AG chief executive Peter Wuffli said the acquisition of Enron Corp's wholesale energy trading business will help the bank to level out earnings fluctuations, German newspaper Handelszeitung reported.
In an interview with the newspaper, Wuffli said there is no correlation between profits from the energy trading business and the development of the capital markets.
Moreover, Wuffli said an acquisition of Enron's energy trading operation does not mean UBS intends to change its current risk limit structure.
at/cmr

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

INDIA: Gaz de France to bid for Enron with Indian partner.
By Himangshu Watts

01/28/2002
Reuters English News Service
(C) Reuters Limited 2002.

DAHEJ, India, Jan 28 (Reuters) - Gaz de France would find a partner to bid jointly for Enron Corp's $2.9 billion power project in India, as it is only interested in the LNG portion of the project, an official of the French utility said on Monday.
"Probably we would participate in the bidding with an Indian parter," Jacques Gautier, project director of Gaz de France, told reporters at the foundation stone laying ceremony of a LNG import terminal at the port of Dahej, Gujarat, on India's west coast.
So far six major companies - three foreign and three Indian - have expressed interest in bidding for the massive 2,184 MW Dabhol plant and LNG facility located about 250 km (155 miles) south of Bombay.
The bidding process for the power plant and adjacent liquified natural gas (LNG) facility is expected to start later this week.
In addition to Gaz de France, the potential foreign bidders are Royal Dutch/Shell and European oil major TotalFinaElf . The possible Indian bidders are private power utilities BSES Ltd , Tata Power Company , and Gas Authority of India .
Gautier said Gaz de France was interested only in Dabhol's LNG facility and added the firm was discussing this with the Indian lenders to the power project.
"We have no intention to enter the electricity market in India," Gautier said.
Lenders led by India's Industrial Development Bank of India (IDBI) have made it clear that they intend to sell the facility as a whole, instead of accepting separate bids for the power plant and the LNG landing jetty and storage depot.
But parties could form a consortium to bid jointly for the project and then split it up, lenders say.
Gautier said if Gaz De France were successful in bidding for the LNG facility, it would find additional customers. Currently, Dabhol Power Co, the company set up to build and operate the plant, is the sole customer for the LNG facility.
ESSENTIAL BACKGROUND
The entire Dabhol facility has lain idle since June due to a dispute over the cost of power provided to its sole customer, a nearly bankrupt Indian state utility.
The power plant was almost complete when construction on the 1,444 MW second phase was halted after the state electricity board fell $240 million behind in payments for power provided. The 740 MW first phase began operating in May 1999.
Enron, the Houston-based energy trader which collapsed late last year, becoming the largest bankruptcy in U.S. history, owns a 65 percent stake in Dabhol Power Co.
General Electric Co and U.S.-based contractor Bechtel Corp each own 10 percent, and the Maharashtra State Electricity Board (MSEB) the remaining 15 percent.
Gaz de France owns 10 percent of Petronet LNG import terminal at Dahej. The remainder is owned by four Indian state-run oil and gas companies and Qatar's Ras Laffan Liquified Natural Gas Co.
.

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

A year of good luck.
By SWAMINOMICS/SWAMINATHAN S ANKLESARIA AIYAR.

01/28/2002
The Times of India
Copyright (C) 2002 The Times of India

Republic Day is an occasion for ruminating on events of the past year. We can hardly claim that it was a year of good political or economic management. Yet India ended the year a clear winner because good luck overcame the losses caused by poor management.
The two major strokes of luck both related to events in America. One was the bombing of the World Trade Centre last September. President Bush declared war on terrorism. He forced Pakistan to turn against the Taliban and ban the Lashkar-e-Toiba and Jaish-e-Muhammad. This laid the ground for President Musharraf to declare war on jehad and call for a new secular Pakistan. This is an astonishingly favourable turn of events for India. We could never have achieved it through the most astute political or diplomatic stratagems. It fell into our laps like manna from heaven. Osama bin Laden, thanks very much.
On the economic side, the biggest mess continues to be non-reform of the power sector. This was exemplified in Maharashtra's refusal to buy power at the contracted rate from the Dabhol plant of Enron. Many questions have been raised about the Dabhol contract in the past, but all efforts to establish corruption have failed, and the contract was anyway revised to rectify supposed shortcomings.
From the viewpoint of the global business, Maharashtra was guilty of wilful default, and India's name became mud to global investors. All other foreign power companies operating in India decided to quit because the mind-set of other state governments was not materially different from Maharashtra's. The culture of non-payment in the sector is deeply entrenched: The state electricity boards have payment arrears of a whopping Rs 40,000 crore, as much as the GNP of many developing countries. And then manna fell from the heavens again.
In the US, Enron collapsed with lightning speed in the last quarter of 2001, amid accusations of fudged accounts, collusion with auditors, and attempts to fool investors and lenders. In the case of Dabhol, Americans saw Enron as a victim and India as an oppressor. But after its collapse in December, Enron's image became that of an oppressor. Indeed, the word Enron has now become part of the English language as a synonym for lying and swindling. A US Senator said the other day that he would not allow the US president to do an Enron to the tax bill.
Now, the Enron scandal in the US had nothing to do with its Dabhol operation. At Dabhol, Maharashtra accused Enron of making exorbitant profits. But the accusation in the US was the very opposite, that Enron lost huge sums in foreign ventures like Dabhol and then cooked its books to keep its losses and debts off its books. The company collapsed when the truth came to light.
From the US viewpoint, the scandal was not that Enron made too much profit from infrastructure investments abroad, but too heavy losses, and so had to dress up its balance sheet. Yet Enron has got such a bad name in the process that this has let Maharashtra (and India) off the hook. It is a classic case of India's gross mismanagement being offset by sheer good luck.
The story on the political side is much the same. Atal Behari Vajpayee started 2001 with strong talk about Pakistani perfidy at Kargil, saying it was pointless to start a dialogue with Pakistan unless it foreswore support to militants in Kashmir. Pakistan did not oblige.
Yet Vajpayee then did a U-turn and invited Musharraf for a summit at Agra. There was much excitement at the possibility of a breakthrough. But Vajpayee bungled the negotiation, was outmanoeuvred by Musharraf in the drafting of an Agra Declaration, and suffered the ignominy of having the draft shot down by his own Cabinet colleagues. Agra ended with Musharraf in high spirits, having got the better by far of the exchange.
Yet within months bin Laden struck at New York, and President Bush declared war on international terrorism. Suddenly the Agra fiasco no longer mattered. The US obliged Pakistan to disown first the Taliban and then all terrorist groups including those it had used as its storm troopers in Kashmir, like the Lashkar-e-Toiba and Jaish-e-Muhammad. Vajpayee's mismanagement at Agra was more than offset by his good luck.
A famous story tells how Napoleon chose a leading general for the French Army. The credentials of one candidate were explained to him at great length. That's all very well, said Napoleon, but is he lucky? Napoleon, it seems, would have regarded Vajpayee as a good candidate.
Yet history proves that good luck soon runs out. Pakistan is a case in point. Under General Ayub Khan in the 1960s it ran a successful economy, and its GDP growth was much faster than India's. But after he fell, economic mismanagement and corruption grew. Yet Pakistan thrived for another two decades because of luck.
The loss of its eastern wing in 1971 was a political disaster, but an economic boon: It got rid of most of its poor and raised average living standards. Then came the oil crisis of 1973, which initially seemed bad luck. But it created a huge demand for Pakistani labour, and soon remittances from Pakistanis in the Gulf became the country's biggest export, papering over its growing failure in other export sectors. Luck seemed to be running out when General Zia turned Islamic, and the US cut off foreign aid. But good luck returned with the Soviet invasion of Afghanistan. This fetched Pakistan massive foreign aid.
But its run of good luck ended with the Soviet withdrawal from Afghanistan. After that, Pakistan has gone from one financial crisis to another, a beggar in thrall to the IMF. That holds a lesson for India. Good luck has saved our bacon in 2001. But we need in the coming year to depend on good management rather than good luck. Otherwise we too will go the Pakistan way.

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

News - International - Americans `do not believe the White House'.
By Toby Harnden.

01/28/2002
The Daily Telegraph
P12
(c) Telegraph Group Limited, London, 2002

MORE than two thirds of Americans believe that the Bush administration is hiding something or lying about its relationship with Enron, according to a CBS-New York Times poll.
Although no allegations of wrongdoing have been made against the White House, the poll underlined the potential political damage to Mr Bush by the collapse of Enron, a major contributor to his election campaign. Dick Cheney, the vice-president, yesterday refused to release a list of business leaders he met while formulating energy policy, saying that it would be "unprecedented".
Congressional investigators have insisted that he should be compelled to disclose the information and his refusal may add to suspicions of a cover-up.

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

Energy Trading: Still Thriving: Enron could become what Drexel was to junk market that survived it
Christopher O'Leary (christopher.oleary@tfn.com)

01/28/2002
Investment Dealers Digest
Copyright (c) 2002 Thomson Financial, Inc. All Rights Reserved.

Despite the ever-lengthening woes of Enron Corp., whose stock has been delisted and whose chief executive has just resigned, the energy trading market that Enron essentially put on the map surprisingly has been thriving.
Many market players initially had been wary that the Enron scandal, which has been a regular fixture of newspapers and television for the last two months, would sully the whole concept of energy deregulation and the trading of such esoteric properties as energy and weather derivatives. Some feared Enron rivals would be sitting in bankruptcy courts if the market entirely fell apart.
Yet so far, despite all the angry editorials and ominous Congressional speeches about the practice of energy trading, the market has performed without a hitch. The scandal "has not destroyed the industry that Enron had a role in establishing-the energy derivatives market is still in good shape and even credit derivatives seem to have come out well," said John McCormack, a senior vp and head of the energy practice at Stern, Stewart & Co. "It's a great tragedy for Enron shareholders, but it's not had tremendous impact on the overall industry."
For some energy players, Enron's collapse has been the chance of a lifetime to build market share and win business. Sources estimate about six to a dozen players are now working like mad to win over former Enron clients and fill in the vacuum left behind by the once-colossal company. Those players include Dynegy Inc., which very nearly bought Enron late last year, El Paso Corp., Williams Cos., Koch Energy Trading, Reliant Resources Inc. and Sempra Energy, the holding company of San Diego Gas & Electric.
In addition, the scandal hasn't apparently scared off the Street either. While Citigroup and J.P. Morgan Chase, the two banks most directly tied to Enron, have understandably been not visible in recent months, sources said, many of their rivals have been busy. UBS Warburg, which now owns Enron's trading operations, Deutsche Banc Alex. Brown and Goldman Sachs are among the banks looking for new opportunities. While there will likely be fewer big-ticket mergers this year, the companies that most benefit from Enron's absence could gain market share and be in an optimum position to pounce on rivals.
Nor has the day-to-day business of energy trading been greatly affected. Much energy trading that had been conducted through such avenues as Enron's proprietary online system has moved to such places as the New York Mercantile Exchange or the Intercontinental Exchange.
Yet bankers noted that despite the apparent calm in the energy trading market, some fundamental changes are occurring. McCormack noted a "growing skepticism that now greets any mention of special-purpose entities," the type of off-balance-sheet devices that Enron officials used essentially to disguise their company's bleeding. "The call for transparency is much higher. I think companies are now erring on the side of more and not less disclosure," he said.
At the end of the day, the ultimate fate of energy trading is still up in the air, though at least for the short-term, the market has survived and even prospered. Rather than being the market's cause of death, Enron is instead seen by some players as an equivalent to Drexel Burnham Lambert. Like Enron, Drexel came to embody and master its particular niche, high-yield bond underwriting; like Enron, Drexel spectacularly fell from grace. Yet high yield went on to become an established wing of structured finance, and bankers believe energy trading is on its way to permanence as well.

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

News
Enron's Web site shows irony of a ruined regime --- In virtual world, everyone's smiling and all's well for discredited company
Scott Shane
SPECIAL TO THE STAR; The Baltimore Sun

01/28/2002
The Toronto Star
Ontario
02
Copyright (c) 2002 The Toronto Star

U.S. Senate staffers moving back into anthrax-decontaminated offices last week are passing around a grim joke: "We have to evacuate again. They found traces of Enron in the air vents."
For Enron, it's fair to say, things are going from awful to horrible. The visionary company has become the butt of wisecracks, the prey of plaintiffs' lawyers, the target of countless investigators.
The U.S. Congress and the FBI are doggedly pursuing document shredders. Enron chairman (and friend of all elected Washington) Kenneth L. Lay has resigned, explaining drolly that multiple investigations "currently require much of my time." The company's dwindling workforce is job-hunting and suing to recover vanished retirement funds.
Yet, in the virtual world of Enron's Web site, the outlook is far, far brighter.
"It's difficult to define Enron in a sentence," says a welcome message that, like so much at enron.com, is intriguing in a way its authors never anticipated. "It's difficult, too, to talk about Enron without using the word 'innovative.' Most of the things we do have never been done before. We believe in the economic benefits of open, competitive wholesale markets, and we play a leading role in creating them. No wonder Fortune surveys have named Enron the most innovative company in America for six years in a row."
There's a winning streak that may be endangered.
Clicking through Enron's Web site today is like touring the half-ruined palace of some vanquished regime that imagined its reign would never end. Everywhere there are ironic reminders of the glory that was, or at least was claimed.
Like the hundreds of pairs of shoes the Philippines' first lady Imelda Marcos left behind when she fled the presidential mansion or the gaudy sculptures left in Romanian dictator Nicolae Ceausescu's gargantuan palace, they are a bracing reminder of the dangers of hubris and the fleeting nature of human triumph.
True, here and there on enron.com you can find indications that all is not well: Above the speeding bicyclist on the opening page is a link to "Information for Former Enron Employees Affected by Chapter 11 Filing." But most of the site - as of Thursday - remained cheerfully intact.
Everyone's still smiling as they bustle about the new economy. Shirt-sleeved managers introduce Web slide shows to explain the intricacies of weather derivatives and bandwidth trading. The slightly blurred, bright colour photos give the impression of a company going places.
In the "Most Requested" section, you can jump to "Corporate Responsibility," where you will learn that the company is "dedicated to the highest professional and ethical standards."
Employees and shareholders who feel they were fleeced may be surprised to read the details: "We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness and arrogance don't belong here. We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we cannot or will not do something, then we won't do it."
The bottom line in Enron's "Vision and Values" statement: "The great fun here will be for all of us to discover just how good we can really be."
Or check out the Letter to Shareholders from the 2000 Annual Report: "At a minimum, we see our market opportunities companywide tripling over the next five years. Enron is laser-focused on earnings per share, and we expect to continue strong earnings performance."
"If you're on irony watch, this is the place," says Steve Baldwin, a Yonkers, N.Y., Web writer, as he surfs the Enron site.
Brewster Kahle, a computer pioneer and director of the Internet Archive (archive.org), an online collection of old Web pages of all kinds, says the deceptive nature of Web sites extends far beyond the corporate world.
"On the Web, everything always looks brand-spanking new," says Kahle, of San Francisco. "The question is, can I trust it? If companies go under, their Web sites can just live on and on."
You can ride the Wayback Machine at Kahle's archive, named for a time-travel device in the old Rocky and Bullwinkle cartoons, back to Web sites that have long been off-line.
At taleban.com, you can study the public relations messages the ousted Afghan regime put out to the world in 1999: "The case is often made that Osama bin Laden is living in Kandahar under the administration of the Islamic Emirate of Afghanistan. However the Islamic Emirate of Afghanistan has moved him to Kandahar to keep him under strict limitations. He is no longer allowed to use Afghan soil to cause harm to any country."
'Most of the things we do have never been done before. We believe in the economic benefits of open, competitive wholesale markets, and we play a leading role in creating them."Ruthlessness, callousness and arrogance don't belong here. We work with customers and prospects openly, honestly and sincerely.'

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

BUSINESS
Enron: even the grammar is bankrupt

01/28/2002
Kitchener-Waterloo Record
Final
C8
Copyright (c) 2002 Kitchener-Waterloo Record.

It was inevitable: Enron the verb, Enron the adjective.
The bankrupt energy company's past imperfect behaviour has given us licence to use Enron as something other than a noun in our daily language.
It happens all the time: O.J. Simpson's flight from justice became "doing an O.J,'' just as Monica Lewinsky's Oval Office hijinks begat "getting Lewinskyed.''
From Watergate to Whitewater to Enron's dramatic collapse, words that are pop-culture milestones invariably enter the popular vernacular in various forms.
Enron, justifiably, is today's hottest co-opted word.
In a recent debate on the U.S. Senate floor, Senate Majority Leader Tom Daschle compared the financial scandals surrounding Enron to Bush's budget and tax policies: "I think that we are slowly "Enronizing'' the economy, Enronizing the budget,'' he said.
In a New York Times story on the demise of Tina Brown's Talk magazine, media critic Michael Wolff said of Brown:
"This is no ordinary failure. She staked everything and was wiped out. She's a little Enron ish.''
Get it? Now try it yourself: "The Enronization of our country.'' "My company Enroned me.'' "He handled our accounts Enronishly.''

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

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