Enron Names Stephen F. Cooper Interim CEO and Chief
PRNewswire, 01/29/02

Enron names Stephen Cooper interim CEO, chief restructuring officer
AFX News, 01/29/2002

What Did He Know?; Wife Says Enron CEO Was Out of Loop
The Washington Post, 01/29/2002

Wife: Lay did no wrong but couldn't stop crash
Houston Chronicle, 01/29/2002

The Informer; Alan Greenspan's advice for Ken Lay; Bear Stearns calls out J.P. Morgan Chase.
Forbes Magazine, 02/04/2002

Enron Workers File Suit Over 'Staggering Losses'
Los Angeles Times, 01/29/2002

Enron's System Has New Owners, But Will It Fly?
The Wall Street Journal, 01/29/2002

Doubts Increasing About Enron's Ability To Reorganize
Dow Jones News Service, 01/29/2002

DYNEGY INC.: Set to acquire Enron pipeline this week
Chicago Tribune, 01/29/2002

DESTRUCTION OF ENRON AUDIT DOCUMENTS
Congressional Testimony by Federal Document Clearing House, 02/24/2002

Texas Atty Genl To Rule On Release Of Baxter Suicide Note
Dow Jones News Service, 01/29/2002

EBay Sellers Offering 'Never Used' Enron Ethics Manual
Dow Jones News Service, 01/29/2002

Monster Mess ; The Enron fallout has just begun. Things can't stay the same, can they?
Fortune Magazine, 02/04/2002

You're On Your Own That Enron workers lost life savings is just another sign that the short era of economic security is over.
Fortune Magazine, 02/04/2002

Pension Plans Are Adjusted After Enron --- Workers, Firms Shy Away From Owning Too Much of 1 Thing
The Wall Street Journal, 01/29/2002

The Analyst Who Warned About Enron
The Wall Street Journal, 01/29/2002

Accounting for Enron: Enron's Hiring of One Firm to Represent Forty Employees Raises Some Concerns
The Wall Street Journal, 01/29/2002

THE FALL OF ENRON Firm Did Not Get His Help, President Says Enron: Bush also defends refusal to release energy task force's records. GOP lawmakers concerned about fallout from company's collapse.
Los Angeles Times, 01/29/2002

Enron Collapse Has Congress Backing Off Deregulation --- Better Financial Reporting, Tighter Accounting Rules Top Bipartisan Call for Changes
The Wall Street Journal, 01/29/2002

"The stunning collapse of a Fortune 10 company in such a short period
Financial Executive's News, 02/01/2002

Whistle-Blowers
To Tell the Truth Sherron Watkins gave Enron a piece of her mind-- and investigators a smoking gun
People Magazine, 02/04/2002

Two 'Evildoers' Meet at the Bar of Justice
Los Angeles Times, 01/29/2002

_________________________________________________________________________________

Enron Names Stephen F. Cooper Interim CEO and Chief
2002-01-29 09:02 (New York)

Restructuring Officer; Retains Zolfo Cooper for Company Restructuring; Names Members of Office Of Chief Executive

    HOUSTON, Jan. 29 /PRNewswire-FirstCall/ -- Enron (OTC Bulletin Board: ENRNQ) announced today that Stephen F. Cooper has been named interim CEO and chief restructuring officer.  Cooper is the managing partner of Zolfo Cooper, LLC, a corporate recovery and crisis management firm, and has more than 30 years experience leading companies through operational and financial reorganizations.  Cooper will be joined by a team of Zolfo
Cooper professionals who will assist with Enron's restructuring effort.
    Enron's Board of Directors, working in cooperation with its Creditors Committee, made the decision after a review of candidates last week.
    In addition, the company also named members of the Office of the Chief Executive, which will include Cooper, Jeff McMahon, who has been named president and chief operating officer, and Ray Bowen, who has been named executive vice president and chief financial officer.  McMahon formerly was chief financial officer, and Bowen had been treasurer.
    The members of Enron's Office of the Chief Executive are scheduled to hold a media call later today, details of which will be released separately.
    Cooper and his team are expected to begin working immediately with Enron's current management and its Creditors Committee on the company's continuing efforts to reorganize and emerge from bankruptcy.
    "Our focus is on the future of Enron.  With more than 19,000 employees worldwide, Enron has real businesses with real value," said Cooper.  "We will work closely with the Board of Directors, management, and the Creditors Committee to develop a reorganization plan to maximize value for the company's stakeholders."
    Following the resignation last week of former Enron Chairman and CEO Kenneth L. Lay, the Board intends to promptly focus on the selection of a new chairman.
    Enron also announced, in accordance with the previously disclosed Master Agreement with UBS Warburg concerning its purchase of Enron's North American wholesale natural gas and power trading business, that Lawrence G. Whalley has resigned his position as president and chief operating officer of Enron and will accept a position with UBS Warburg.  Details of the UBS transaction were announced on Jan. 15 and can be accessed in the pressroom of Enron's web site .
    Zolfo Cooper has worked on more than 500 engagements, including Federated Department Stores, Sunbeam, Laidlaw, Washington Group International, Polaroid Corporation, Morrison Knudsen, Pegasus Gold, NationsRent, and ICG Communications.
    Zolfo Cooper's 85 professionals have in-depth expertise in operational and financial management.  Working with senior management, Zolfo Cooper has a demonstrated track record in rapidly stabilizing businesses while developing a tactical plan to meet short-term financial needs and a strategic plan for long-term financial viability.  Founded in 1982, Zolfo Cooper is headquartered in New York, with offices in New Jersey and Los Angeles.  Zolfo Cooper's Internet address is www.zolfocooper.com .

Enron names Stephen Cooper interim CEO, chief restructuring officer

01/29/2002
AFX News
(c) 2002 by AFP-Extel News Ltd

HOUSTON (AFX) - Enron Cop said it has appointed Stephen Cooper, a managing partner at Zolfo Cooper LLC, as interim chief executive and chief restructuring officer, following the resignation last week of former CEO and chairman Kenneth Lay.
Cooper will be joined by a team of colleagues from Zolfo, a corporate recovery and crisis management firm, to work on Enron's restructuring.
At the same time, Enron said it is setting up an Office of the Chief Executive, which will include Cooper, Jeff McMahon and Ray Bowen.
McMahon, who was formerly chief financial officer, has been named president and chief operating officer, replacing Lawrence Whalley, who has accepted a position with UBS Warburg as part of its agreement to acquire Enron's wholesale energy trading operations.
Bowen, who was formerly treasurer, has been made CFO.
The company said it will host a conference call later today to discuss the changes.
Cooper and his team are expected to being working immediately with Enron's existing management and its creditors committee.
Enron will now focus on finding a suitable candidate to replace Lay in his role as chairman of the board.
cl/lj

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

A Section
What Did He Know?; Wife Says Enron CEO Was Out of Loop
Lois Romano
Washington Post Staff Writer

01/29/2002
The Washington Post
FINAL
A01
Copyright 2002, The Washington Post Co. All Rights Reserved

The defense of former Enron chief executive Kenneth L. Lay began yesterday when his wife suggested on national television that her husband was kept in the dark as the nation's largest energy-trading company slipped into debilitating debt and collapsed, leaving thousands without jobs and life savings.
"There's some things that weren't -- that he wasn't told," Linda Lay told NBC's "Today" show.
Lay, alternately weepy and defiant, provided the first window into what her husband's stance is likely to be if he testifies as scheduled before the Senate Commerce Committee on Monday. He faces congressional and Justice Department investigations and a barrage of civil suits charging that he misled shareholders, employees and the government about the well-being of Enron Corp.
"Never, never, not for one second would he have allowed anything to go on that was illegal," Linda Lay said. "If those people had come to him and told him that there was something wrong, he would have stopped it and fixed it."
She maintained that her husband did not realize until "two or three days, maybe, before everything fell apart" that he couldn't save Enron. She also said that she and her husband lost substantial amounts of money in the firm's demise and are fighting personal bankruptcy.
Linda Lay's comments bluntly put into the public domain what Kenneth Lay's friends, family members and attorneys have been saying in recent weeks: The man who helped build the aggressive, innovative energy company was not involved in the day-to-day details of its operations, trusting his executives, former chief executive Jeffrey Skilling and former chief financial officer Andrew Fastow, to make the right choices. Today, Enron is expected to appoint an interim CEO to help restructure the company.
Some involved in the crisis scoffed at the notion that Lay was that far out of the loop. "Enron's senior management had full knowledge of the transactions and approved every aspect of them," Fastow's spokesman, Gordon Andrew, said yesterday.
But Lay's defenders maintain that it's plausible that some things slipped by him. "It's not that he wasn't in charge," said one member of Enron's vast legal team said. "He was in charge, but a lot of things were kept from him and procedures were put in place that didn't work, and he didn't know it until it was too late."
According to this source, Lay relied heavily on the judgments of Skilling and Fastow, both of whom were involved in creating the partnerships that shielded hundreds of millions of dollars in losses and overstated profits by nearly $600 million since 1997. "Ken did not know that Fastow took out $30 million [in compensation] from [one such] partnership," the source said.
Lay himself, asked last year by the New York Times about the complicated partnerships, said, "You're getting way over my head."
Everyone concedes that Lay spent an enormous amount of time on civic projects in recent years. A generous and high-profile activist and philanthropist, he assiduously worked the Houston community as well as the national political scene. He and Enron were among President Bush's largest financial backers.
"He has this persona as kind of a goodwill ambassador, so people want to believe that he didn't have his hands on the wheel of the ship when it went down. The captain of the Exxon Valdez didn't get off easy," said one source familiar with Enron's inner workings.
Enron disclosed in November that the board had required Lay and other top executives to review and approve every transaction of Fastow's partnerships. But the company's outside counsel, Vinson & Elkins, reported that "in most instances, there was no approval signature" by Enron's Office of the Chairman, headed by Lay. Whether the reviews were properly done is now under investigation by a special committee appointed by the board.
Lay received at least two warning memos from employees fearful that the company would be ruined by its complex and secretive accounting practices. In November, Enron admitted that accounting errors had led it to overstate profits.
Lay's detractors question why he did not push harder to investigate the employees' concerns.
Lay's defenders, however, said he relied on Vinson & Elkins, who advised Enron that the concerns of Vice President Sherron Watkins did not, "in our judgment, warrant a further widespread investigation by independent counsel and auditors."
But the law firm also said "there is serious risk of adverse publicity and litigation" over the partnerships' activities. The V&E reviewers said they briefed Lay about their findings.
Lay helped form Enron in 1985, when Houston Natural Gas, which he headed, merged with InterNorth Inc. He took over as CEO in 1986, helping to transform a sleepy pipeline company into one of the globe's largest, most aggressive energy-trading firms.
He stepped down as CEO about a year ago, passing the reins to Skilling -- a brash former business consultant hired by Enron in 1990. Lay remained chairman of the board, and when Skilling unexpectedly resigned six months later, Lay returned as CEO, at a time -- his family maintains -- that he was trying to retire.
Linda Lay yesterday also defended her husband's public comments made as late as October assuring employees that everything was okay with the company and encouraging people to buy stock even as the price spiraled downward. "He totally 100 percent believed in it," she said. "He believed it would be okay."
Enron filed for bankruptcy Dec. 2. Lay resigned from the company last week at the urging of Enron's creditors and is spending all his time dealing with lawyers, auditors and accountants preparing for his congressional testimony. One lawyer close to Lay, who requested anonymity, said that Lay was still committed to testifying even though some of his attorneys have advised him that speaking publicly could be risky legally.
In the NBC interview, taped over the weekend, Linda Lay also painted a bleak picture of her husband's personal finances, saying that the couple were heavily invested in Enron and they are now "fighting for liquidity."
"We don't want to go bankrupt," she said. "Other than the home we live in, everything we own is for sale." That includes three multimillion-dollar homes in Aspen, Colo., as well as a weekend getaway in Galveston, Tex.
"By anyone's standards it was a massive amount of money, and it's gone," Lay said of her husband's $300 million in compensation and stocks from Enron over the past four years. "There's nothing left. Everything we had was mostly in Enron stock."
In Sugar Land, Tex.,, police still declined to disclose the contents of the note left by former Enron vice chairman J. Clifford Baxter, who was found dead of a gunshot wound in his Mercedes-Benz on Friday. They said that while the autopsy reports had ruled the death a suicide, the investigation would remain open until all the evidence is tested.
Staff writers Peter Behr and Jennifer Frey contributed to this report.

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

Wife: Lay did no wrong but couldn't stop crash
By BILL MURPHY
Copyright 2002 Houston Chronicle
Jan. 29, 2002, 12:42AM
The wife of former Enron Chairman Ken Lay said he would have acted to fix the company's problems if he hadn't been kept in the dark by accountants from Arthur Andersen and outside legal counsel.
"There's some things that weren't -- that he wasn't told," Linda Lay said during an interview aired on NBC's Today show Monday. "There's some things that the board of directors weren't -- didn't know. But that will come out in the investigation."
During the interview, Lay described her and her husband's attempt to stave off personal bankruptcy, defended her husband's integrity and said he believes Enron can recover.
The Lays declined to be interviewed by the Chronicle. A public relations firm representing the family said Linda Lay and her children would do no more interviews for the time being.
She said she understands why her husband is the focal point of many people's anger.
"He is at the top. That's where it ought to be," Lay said. "If I were back there listening to all the things that were being said, I would absolutely have to say that: `What is wrong here? How can all of this be happening without something -- someone doing something terribly evil?' "
She praised Sherron Watkins, Enron vice president of corporate development, for sending her husband a memo Aug. 15 and later meeting with him to discuss her concerns about the company's practice of hiding losses in off-the-book accounts.
"He had their, their outside counsel (Vinson & Elkins law firm) come in and the accounting firm look at it," Lay said, "and they came back and told him it was fine."
Asked if her husband, who resigned as Enron's chairman last week, felt let down by accountants and lawyers, she replied, "Absolutely. Absolutely. Never, never, not for one second would he have allowed anything to go on that was illegal. If those people had come back to him and told him there was something wrong, he would have stopped and fixed it."
Days after receiving Watkins' memo, Ken Lay exercised options on more than 92,000 shares of Enron stock but did not sell it. That effectively repaid a $2 million loan from the company.
A month after Watkins warned about looming financial scandal, Lay told employees in an e-mail session that the company was sound and urged them to buy stock. Less than three weeks later, the company reported a third-quarter loss of $618 million and and a $1.2 billion reduction in shareholder equity.
"My husband tells the truth," Linda Lay said. "He's not a liar. He totally, 100 percent believed in it. He believed it would be OK."
She said "everything we own is for sale" in an effort to stave off personal bankruptcy, even though her husband earned more than $300 million in compensation and salary the past four years.
"By anyone's standards, it was a massive amount of money," Linda Lay said, "and it's gone. It's gone. There's nothing left. Everything we had mostly was in Enron stock."
The Lays did not diversify their investments much, including their 401(k), she said.
"Why wouldn't I put it in Enron? Why wouldn't I?" she said. "My husband was Enron. He believed in it."
The Lays own substantial property. In Harris and Galveston counties and Aspen, Colo., they have homes and properties worth at least $27 million.
Three of their four Aspen properties were up for sale earlier this month: a 4,500-square-foot home listed at $6.8 million; a 4,500-square-foot riverfront home listed at $6.5 million; and a 20,000-square-foot vacant lot listed at $2.9 million.
Their Houston home, a 12,800-square-foot condominium in the Huntingdon luxury high-rise, has five bedrooms and 6 1/2 baths. It has an assessed market value of $7.1 million.
They own jointly or separately at least 13 homes and apartment homes in Harris and Galveston counties. Those include a home on Avalon Place assessed at $742,000, a home on Sul Ross Street assessed at $320,000 and a home in Galveston assessed at $790,000.
"We're fighting for liquidity," she said. "We, we don't want to go bankrupt. And we've had long-term investments, and those long-term investments have cash calls. Other than the home we live in, everything we own is for sale."
She began crying when she recounted a conversation with her husband after he realized bankruptcy was inevitable.
"He was very emotional about it," she said. "He said he just didn't think he could stop it. He said he tried everything, everything he could think of, and he couldn't stop it."
She said she and her husband were devastated by the suicide of former Enron Vice Chairman Cliff Baxter on Friday.
"My husband has spoken to him not too long ago, and Cliff is a, a -- was a wonderful man."
Most analysts say Enron -- under investigation by the Justice Department for possible criminal wrongdoing and by 11 congressional committees -- has no chance of avoiding liquidation. But Lay says her husband remains optimistic that the company can emerge from Chapter 11 bankruptcy protection to become profitable again.
Consultants who specialize in corporate and political damage control were divided on whether Lay's interview will help her husband's cause.
Ken Fairchild, principal owner of Fairchild Consulting in Dallas, said the Lays should tell their side of the story since there has been so much negative coverage of Ken Lay's role in Enron's collapse. Ken Lay's lawyers have advised him not to do interviews.
Ken Lay would have been grilled by an interviewer, but Linda Lay got much easier questions because she is his wife and claims to be a victim as well because her own retirement has evaporated, said Fairchild, author of Sunday Showdowns with 60 Minutes, an account of how he prepared more than 30 corporate executives for appearances on the news show.
"Obviously, it was a good move," said Fairchild. "It doesn't work unless the person really believes what she is saying. They have to believe they are telling the truth, and they have to look like they are telling the truth. And that certainly sounds like the case here."
But Houston political consultant Allen Blakemore said there is little to be gained by calling on your wife to defend your integrity.
"She's being trotted out to make an appeal to people's emotions," Blakemore said. "Should we go ask his mother if he cleaned up his room or picked up his bath towel? None of this stuff is relevant."
Gloria Alvarez, who was laid off from her job as senior administrative assistant for Enron Global Strategic Sourcing, said Linda Lay's interview was predictable.
"She's the wife of the CEO," Alvarez said. "Of course she's going to defend her husband, as any wife would."
Nathan Childs, who was laid off from Enron's information technology hardware department, is living in a trailer on his parents' property in Kempner.
"I can't cry for the Lays right now. They have a home to go to every night," Childs said. "It doesn't matter what she says; Ken Lay's got more than ex-Enron employees."

Chronicle reporter Kristen Mack contributed to this story.

OutFront
The Informer; Alan Greenspan's advice for Ken Lay; Bear Stearns calls out J.P. Morgan Chase.
William P. Barrett, Robert Lenzner, Janet Novack, Daniel Lyons & Kiri Blakeley

02/04/2002
Forbes Magazine
42
Copyright 2002 Forbes Inc.

No Trouble Getting This Drift
Eyebrows arched in November when Alan Greenspan visited Houston's Rice University to get the Baker Institute's Enron Prize for public service just as Enron was becoming synonymous with financial deceit. But the Fed head's advice for students went largely unnoticed. "The best chance you have of making a big success in this world is to decide from square one that you are going to do it ethically," he told an audience that included Enron boss Kenneth Lay. "What you're going to find is not necessarily that if you are ethical you will succeed, but the probability that you will is significantly greater than if you are not." --William P. Barrett
Time to Call Marshal Matt Dillon
Meanwhile, in deliciously nasty Wall Street mudslinging, Bear Stearns & Co. insurance analysts Michael A. Smith and Brian M. Wright write that pending lawsuits suggest big Enron lender J.P. Morgan Chase "had at the very least obfuscated" its total exposure by using two Channel Island entities for "sham transactions that in reality were loans." Morgan Chase faces a $1 billion exposure on that deal in the wake of Enron's startling bankruptcy because several insurers are balking at honoring surety bonds; it denies any wrongdoing. Declare the analysts: "As Gunsmoke's Festus used to say, 'Ugly goes clear to the bone.'" --Robert Lenzner

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

Business; Business Desk
Enron Workers File Suit Over 'Staggering Losses'
NANCY RIVERA BROOKS
TIMES STAFF WRITER

01/29/2002
Los Angeles Times
Home Edition
C-6
Copyright 2002 / The Times Mirror Company

Enron Corp. employees past and present who said they suffered "staggering losses" in their retirement funds filed a lawsuit Monday seeking reimbursement from top company executives.
The legal action came as the wife of ousted Chairman and Chief Executive Kenneth L. Lay was claiming in a television appearance that the couple are nearly broke.
The group of more than 400 Enron employees, whose 401(k) retirement plans are now virtually worthless, contends in the federal lawsuit filed in Houston that employees were urged to invest in Enron stock but were not told how fragile the company's financial condition was. Enron filed for Chapter 11 bankruptcy protection Dec. 2.
The suit names as defendants Lay, former CEO Jeffrey K. Skilling and former Chief Financial Officer Andrew S. Fastow, among others. Those three executives sold more than $198 million in stock, the suit alleges. The suit also names Northern Trust Co., trustee for the retirement plan, and Andersen, Enron's former accountant.
"Enron executives were profiting from an elaborate shell game, using the hard-earned retirement savings of their loyal employees," Randy McClanahan, a lawyer representing the group, said in a statement.
This is the latest in dozens of lawsuits filed against current and former Enron executives, accusing them of misleading investors. The company and its officers have repeatedly denied any wrongdoing.
So did Linda Lay, who defended her husband, in a taped interview aired Monday on NBC's "Today" show, as an "honest, decent, moral human being who would do absolutely nothing wrong."
Lay, appearing bitter and emotional, told NBC News correspondent Lisa Myers that everything the family owns is for sale except the opulent Houston home where the interview took place over the weekend. Ken Lay, Myers noted, has been advised by his lawyers to avoid speaking to the media.
Lay acknowledged that her husband earned "a massive amount of money." However, she added: "It's all gone. There's nothing left. Everything we had mostly was in Enron stock."
The couple's wealth has been further drained by cash calls on other long-term investments, and the Lays are nearly bankrupt, she said. Lay said that she understands the anger being focused on her husband but that he did not know all that occurred at Enron before the company crumbled into insolvency.
Public relations professionals, who asked not to be identified, saw the interview as a desperate move to humanize Ken Lay--but one that may not play well.
"I don't know what ... they were thinking," one said.
*
RELATED STORY
Andersen suffering: The former Enron auditor is losing clients. A1

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

Enron's System Has New Owners, But Will It Fly?
By Mitchell Pacelle and Peter A. McKay
Staff Reporters of The Wall Street Journal

01/29/2002
The Wall Street Journal
C1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

As UBS AG prepares to take over Enron Corp.'s once-powerful energy trading operation, the Swiss bank faces a question: When the trading system flicks back on, will Enron's former customers come with it?
Since Enron's meltdown late last year, competitors have been whittling at the flagship oil, natural-gas and electricity trading business that UBS is taking over. While some customers will go over to the new entity, which has been dormant for two months, others say they may stay away.
"I can't imagine us dealing with them," said George Hickox, chief executive of Wiser Oil Co., a former customer and current Enron creditor that has since taken its trading business to Morgan Stanley. Mr. Hickox said he'd be inclined not to go back unless the Enron bankruptcy plan "is good enough to make us feel that we're not doing business with someone who shafted us."
While companies like Reliant Energy Inc., El Paso Corp. and Duke Energy Corp. have stepped up their energy-trading operations since the Enron collapse -- as have the energy trading desks at Morgan Stanley and J.P. Morgan Chase & Co. -- other Enron trading operations may have simply evaporated. Trading in fiber-optic bandwidth and weather derivatives, for instance, weren't bought by UBS and aren't being picked up by others, raising questions about how vibrant the businesses were in the first place.
The fortunes of Enron's former energy-trading business are being closely watched on Wall Street. Historically, it has been difficult for trading companiess to stop operating, as Enron has done since filing for bankruptcy-court protection on Dec. 2, and then ratchet up the business again.
In addition, revitalizing the Enron trading operation is critical to maximizing the recovery by Enron's creditors, who are owed billions. At its peak, Enron enjoyed a 15% market share in natual-gas trading, and 20% in power, competitors estimate.
In an interview, UBS Warburg Chief Executive Officer John Costas expressed confidence that with a new name -- UBS Warburg Energy -- and UBS's credit rating behind the operation, customers will return. "You have to win clients one by one," said Mr. Costas. "If we're able to replicate everything they had in terms of capabilities on a AA+ credit-rated platform, there's a pretty high probability of success."
The trading unit, which includes its EnronOnline Internet-based trading platform, generated roughly 90% of Enron's earnings in the most recent quarter, although accounting questions have clouded Enron's financial results. Mr. Costas declined to comment on how Enron accounted for the unit's trading revenues.
Some traders expect UBS to take a much more cautious approach than Enron as it rebuilds the trading operation. Moreoever, many of the companies that were stuck in trading contracts with Enron itself may be gun-shy about doing business with its successor, having struggled to unwind their Enron trades. "At the end of the day, nobody is going to undo the efforts they just went through to come back to Enron," said Charlie Sanchez, energy-markets manager for Gelber & Associates, an energy consulting firm in Houston.
In bidding on the unit, UBS beat out Citigroup Inc. in a bankruptcy-court auction that concluded Jan. 11. Under the deal, UBS isn't offering any cash to Enron for its trading operations and isn't taking over its trading portfolio. Instead, it agreed to pay royalties to Enron amounting to one-third of the energy-trading operation's pretax profit for a 10-year period. UBS has an option to eliminate the royalty payments by buying out Enron's stake in the profits. The agreement doesn't require UBS to inject any minimum amount of capital, nor supply any minimum amount of credit.
While the terms of the deal seem to limit UBS's risk in taking over a spectacularly tainted business, some trading experts say the deal poses other perils.
"UBS is taking a fair degree of risk in buying this operation," maintained Henry T. C. Hu, professor of banking law and finance law at the University of Texas School of Law. "They've invested, in a sense, their reputation. If it turns out they misjudged the plusses of the Enron deal, it may undermine their image in the eyes of customers and potential customers."
UBS hasn't yet spelled out how it will restart the Enron unit, which will be run by Michael Hutchins, UBS Warburg's co-head of bond operations. UBS said it intends to use its assets to back the trades of the new operation. "We're going to provide the necessary capital and credit support to ensure the success of the business," said Mr. Costas.
Since winning the auction, UBS has been working to hire Enron trading employees it deems key to the new operation. UBS said yesterday it had signed on about 625 of the Enron trading group's 800 employees.
Enron's competitors are also in the hunt for talent. "The number of resumes flying around this industry from Enron traders is amazing," says Harvey Padewer, president of the energy-services unit of Duke Energy, an Enron competitor. Mr. Padewer said his company has received more than 500 resumes, and hired about two dozen, including a dozen traders.
As Enron's woes unfolded, industry analysts say the trading activity quickly shifted from its online platform to several competitors. In a few cases, smaller companies that couldn't find companies like Enron to guarantee their trades simply got out of the market.
The online IntercontinentalExchange seems to be the biggest winner, with its overall volume up about 65% since the Enron collapse began. On the New York Mercantile Exchange's trading floor, energy trading volume is up 71% this month, while Duke Energy reported a 77% year-over-year increase in electricity trading in the fourth quarter, due in part to Enron's collapse.
Despite such an abundance of busy trading outlets, Mr. Costas contends that the widening of spreads on energy trades since the collapse of Enron indicates that there isn't enough liquidity in the marketplace. "The markets are telling us if we restore liquidity, we're going to be able to capture market share," he said.
Nymex President J. Robert Collins cautioned against attributing his exchange's recent volume gains entirely to Enron, considering that natural-gas trading tends to be busiest during the winter heating season anyway.
"It's hard to characterize whether we've seen a lot of business or a little," because of Enron, said Mr. Collins. "It's definitely helped, but just how much is very difficult to know."
---
Alexei Barrionuevo contributed to this article.

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

Doubts Increasing About Enron's Ability To Reorganize
By Kathy Chu

01/29/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- What little confidence remains in Enron Corp.'s (ENRNQ) ability to reorganize itself is rapidly waning.
Amid allegations of document shredding and other misdeeds by Enron executives, creditors are becoming more aggressive in their criticism of the company, and more vocal in their demands for information.
In the past week, a movement to appoint an independent trustee to take control of the company or an examiner to investigate wrongdoing has been brewing. Also, creditors are petitioning the court to segregate the cash flowing into one of Enron's units, saying that the parent company can't be trusted to keep accurate records and to divvy up funds appropriately among its subsidiaries.
They also want detailed accounting of cash flows for some of the bankrupt subsidiaries - information that Enron isn't required to submit to federal Judge Arthur J. Gonzalez, of the U.S. Bankruptcy Court of the Southern District of New York, for another five months.
The continuing source of Enron's troubles: a colossal collapse of confidence that first brought the company to its knees late last year, and now is threatening to endanger its reorganization efforts.
Andrew Entwistle, of the Entwistle & Cappucci law firm, which represents a Florida state pension fund that lost $334 million in Enron-related investments, said he has "very grave concerns" about the company's ability to oversee its own operations in light of recent disclosures.
The Florida State Board of Administration hasn't joined the movement to get a trustee named, according to Entwistle, but "may yet find that it's necessary."
Lately, even Enron has been less optimistic about prospects for getting back on its feet quickly.
When asked a little more than a week ago about whether Enron will emerge from bankruptcy within a year - as the company had previously said it would - Chief Financial Officer Jeffrey McMahon said that reorganization will be completed "as soon as possible." He declined to give a specific timeframe.
Examiner More Likely Than Trustee

The naming of a trustee to wrench Enron North America out of the hands of the parent company isn't likely because of the disruption this would have on already complex bankruptcy proceedings, according to legal experts.
But the odds are increasing for having an examiner assigned to the case to investigate wrongdoing, according to experts, as allegations of corporate misconduct by Enron executives pile up.
Under Chapter 11 of the bankruptcy code, "fraud, dishonesty, incompetence or gross mismanagement" are grounds that could warrant the appointment of an independent trustee or examiner.
Pending investigations by the Department of Justice and at least 10 congressional committees could yield information useful to Enron's bankruptcy proceedings, but these probes could take months, if not years, to be completed, according to Jack Williams, the outgoing scholar at the American Bankruptcy Institute, a nonprofit think tank in Alexandria, Va.
This may provide justification for Judge Gonzalez to name an examiner, in order to investigate specific aspects of Enron's complex business operations on a court-dictated timeline.
Also, if the judge feels that ongoing investigations aren't "full or fair," he may revert to this legal option, said Williams.
A half-dozen energy concerns and the Regents of the University of California are spearheading the effort to name either a trustee or examiner in the case, the largest bankruptcy in history.
Some of these same creditors also are taking issue with Enron's cash management system, and are petitioning the bankruptcy court to segregate Enron North America's funds for that unit's creditors.
This will prevent "future plundering" of the estate by other bankrupt entities, according to Wiser Oil Co. (WZR), an Enron creditor owed about $7 million on energy trades.
The Enron North America unit includes the core wholesale trading operations, which comprised about 90% of the company's $101 billion in revenue last year. This business was recently sold to UBS Warburg for future profit payouts, with no cash up front.
Under the current cash management system, funds are swept up to the parent company, which is charged with keeping track of which unit is owed money. This system is commonly used to centralize a company's finances and keep the accounting simple, according to legal experts.
Requiring Enron to implement a separate system for Enron North America will entail "a significant expenditure of time and effort on the part of the Debtors' employees and retained professionals," the company said in a court filing on Sunday.
It also would be a wasted step if Enron ever decides to enact a substantive consolidation, which would sweep all of the company's assets into one pot and allocate them to a greater pool of creditors.
"It's too early to think about" this possibility, Enron attorney Brian Rosen, of Weil Gotshal & Manges, said earlier this month.
The company believes that the cash management system is sufficient to protect creditors because a subsidiary's cash flow will "continue to be subject to the guidelines of budgets and business plans for each individual Debtor."
Also, because most of the company's units have been pledged as collateral under a debtor-in-possession facility led by J.P. Morgan Chase Inc. (JPM) and Citigroup Inc. (C), any money borrowed will be "repaid by entities whose creditors benefit" from the loan, according to Enron.
The final size of Enron's financing has yet to be decided, but banking sources familiar with the deal have said it could be less than $500 million. This compares with $1.5 billion originally expected under the facility, which Enron has yet to draw upon.
-By Kathy Chu, Dow Jones Newswires; 201-938-5392; kathy.chu@dowjones.com
(Carol S. Remond contributed to this report.)

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

Business
THE TICKER
DYNEGY INC.: Set to acquire Enron pipeline this week
Associated Press

01/29/2002
Chicago Tribune
North Sports Final ; N
2
(Copyright 2002 by the Chicago Tribune)

Dynegy Inc., once a prospective savior for Enron Corp., expects to officially acquire one of the fallen energy giant's most prized assets by the end of the week, a spokesman said.
Enron agreed Jan. 3 to surrender the 16,500-mile Northern Natural Gas Pipeline in exchange for $1.5 billion that Dynegy invested in Enron before a proposed merger of the two Houston-based competitors fell apart in late November. Enron filed the largest bankruptcy in history Dec. 2.
As agreed in November, Dynegy will pay a $23 million excise fee for invoking its option to acquire the pipeline. Dynegy also will assume roughly $750 million in debt and liabilities.
Enron maintains its option to buy the pipeline back by June 30.

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

DESTRUCTION OF ENRON AUDIT DOCUMENTS
EDWARD J. MARKEY

02/24/2002
Congressional Testimony by Federal Document Clearing House
(Copyright 2002 by Federal Document Clearing House, Inc.)

JANUARY 24, 2002
OPENING STATEMENT OF REPRESENTATIVE EDWARD J. MARKEY (D-MA)
OVERSIGHT AND INVESTIGATIONS SUBCOMMITTEE
HEARING ON DESTRUCTION OF ENRON-RELATED DOCUMENTS OF ARTHUR ANDERSON PERSONNEL THURSDAY,
Thank you, Mr. Chairman, for extending to me the courtesy of participating in today's hearing.
I think it is outrageous that the same executives who may be responsible for the destruction of workers' pensions -- and the destruction of documents that might prove their guilt -- are currently protected by Congress when defrauded worker's actually try to recover their life savings. But, sadly, it is true. Why? Because in 1995, Arthur Anderson and the other big accounting firms succeeded in lobbying Congress to strictly limit their future liability for securities fraud. That bill passed over the President's veto as part of the Republican Contract with America. And today, we are seeing the grim results -- Arthur Anderson can no longer be held jointly and severally liable when a court has found them guilty of securities fraud. I believe that this ill-advised law has directly contributed to a rising tide of accounting failures, culminating in the Enron-Arthur Anderson fiasco. The types of internal checks and balances that a healthy concern about litigation risk used to create within each accounting firm has been undermined. The many honest and decent people who want to do the right thing get overruled, and the increasing revenues coming from consulting and non-audit businesses put growing pressure to sign off on the `cooked books' of major clients.
Yesterday, I introduced legislation aimed helping to address this problem. This bill would, among other things, require auditors to retain copies of all documents generated during the course of an audit for a period of four years and establish criminal penalties of up to ten years imprisonment for auditors that knowingly and willfully destroy such documents. The bill also would reform the liability standards applicable to accountants in securities fraud cases and provide an exemption from the "Catch 22" discovery stay that allows accounting firms to escape accountability for their actions. I look forward to working with Members on this and other reforms. Clearly, we have a system that is very broken, and we need to work together to fix it.
Today's hearing is focused on the disturbing reports that employees of Arthur Anderson have destroyed documents in connection with the Enron debacle. I think it's appalling that Anderson CEO Joseph Berardino has declined the Subcommittee's invitation to testify on this matter, when he was somehow able to make an appearance on Meet the Press last Sunday. I have also read that Mr. Berardino has agreed to appear before the House Financial Services Committee on February 4th. If Mr. Berardino can appear to answer questions on national television and before other Committees, it seems to me that he should be able to appear before this Subcommittee so that we can get to the bottom of why his firm destroyed documents being sought by the SEC, by the Justice Department, and by defrauded workers and investors.
Now, I have many questions about the underlying transactions and investments whose accounting treatment helped to bring Enron to bankruptcy, but I understand that this is not the subject of today's hearing. I would merely hope, Mr. Chairman, that we will have a chance to thoroughly examine Enron's investments in broadband, its energy trading operations, and its derivatives and other structured financings in the detail needed to understand just what happened here and what lessons we can learn from this massive fraud and misbehavior. That will require more than a single hearing of all of the principals to do properly.
Thanks again, Mr. Chairman, for allowing me to participate in today's hearing. I look forward to the testimony.

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

Texas Atty Genl To Rule On Release Of Baxter Suicide Note

01/29/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

NEW YORK -(Dow Jones)- The city of Sugar Land, Texas, has requested that the Texas Attorney General decide whether the contents of a suicide note found in the car of former Enron Corp. (ENRNQ) executive J. Clifford Baxter will be released to the public.
Baxter, 43 years old, was found dead early Friday morning in his parked Mercedes Benz by police on a routine patrol in the affluent Houston suburb.
Although a coroner has ruled Baxter's death a suicide, the Sugar Land Police Department is continuing a full investigation in accordance with procedure. The investigation includes ballistic tests, fingerprinting and hair and fiber analysis, police said.
The police department had not yet received the medical examiner's official report as of Tuesday morning.
The suicide note found in the vehicle has been under seal while the investigation proceeds.
The police department has completed its review of the note and doesn't object to the release of its contents, said Sugar Land city attorney Joe Morris. "However, under Texas law, the contents of the note raise confidentially issues, including right-to-privacy questions that prohibit the city from releasing the note without first receiving a determination from the Texas Attorney General."
According to Morris, the city must submit a request for an Attorney General ruling within 10 business days from the first request for the note. The first request was received Jan. 25.
The Attorney General has 45 business days to make a determination, unless extended.
Baxter, who resigned as vice chairman of Enron last May, was reported to have complained about Enron's questionable accounting practices. Baxter was subpoenaed to appear in front of two congressional committees and was named in an insider trading lawsuit.
Enron filed for bankruptcy protection in early December, the largest in the U.S. to date.

-By Christina Cheddar, Dow Jones Newswires; 201-938-5166 christina.cheddar@dowjones.com

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

EBay Sellers Offering 'Never Used' Enron Ethics Manual
By Erik Ahlberg

01/29/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

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

CHICAGO -(Dow Jones)- Among the rare books, Beanie Babies and fine china on eBay Inc.'s (EBAY) Web site, a new collectible has emerged: Enron Corp.'s (ENRNQ) code of ethics.
As of Monday afternoon, at least 20 copies of the soft-cover booklet, complete with forward by former Chief Executive Kenneth Lay, were available for sale online. The top bid was $61.51.
"Own a piece of history from the largest corporate bankruptcy in history," advertises one seller. "Help me recoup my 401k losses."
"This item must have been hidden along with the debt for the past three years," another seller said. "Never been used," said another.
Sections of the book include business ethics, governmental affairs and political contributions, and consulting fees.
Other Enron-related items for sale on the site included sleeves of logo-emblazoned golf balls, stainless steel coffee mugs and wristwatches.
Enron spokesman Vance Meyer said some employees have been surprised - and amused - to find everyday office items popping up for sale.
"People have fun talking about it, which is a good thing given the position that we're in," Meyer said.
Enron, Houston, filed for Chapter 11 bankruptcy protection in December after disclosures about its finances led to debt downgrades and a failed merger attempt. The company's business practices are being investigated by Congress and the Department of Justice.
-By Erik Ahlberg, Dow Jones Newswires; 312-750-4141; erik.ahlberg@dowjones.com

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

Features/Enron
Monster Mess ; The Enron fallout has just begun. Things can't stay the same, can they?
Bethany McLean; Additional reporting by Jeffrey H. Birnbaum and Jeremy Kahn

02/04/2002
Fortune Magazine
Time Inc.
93
(Copyright 2002)

Anytime a stock market bubble bursts, a business scandal that epitomizes the excesses of that particular period is seldom far behind. The Roaring '20s had Teapot Dome. The end of the bull market in the early 1970s was marked by the collapse of Equity Funding Corp. The 1980s, of course, had Michael Milken.
Until recently it wasn't easy to choose the scandal that encapsulated the 1990s bubble. That's not because there was a shortage of sleazy behavior but rather because there was an abundance of it. Rampant conflicts of interest on Wall Street. Wildly creative accounting. Auditors who didn't audit. Money managers who didn't manage. A stunning lack of oversight by regulators. We could go on.
But now the wait is over: Enron's bankruptcy is, without doubt, the grand finale of the last decade of the 20th century. The company's rise and fall was made possible by a willingness to overlook--and indeed, for a time, even to reward--all of the above behavior.
Then there's the politics. The hint of impropriety at the highest levels of government has cemented the energy giant's place in history, producing a barrage of coverage that has even supplanted the war in Afghanistan as the lead story in newspapers. That alone, in today's weird circular logic, would be enough to make a nonresponse by the political system nearly impossible.
But politics are almost beside the point. As a financial scandal, Enron is much bigger than anyone imagined--and, more important, the factors that enabled it haven't gone away. "Systemic conflicts of interest are more pervasive and corrosive than either Congress, regulators, investors, or the press appreciate," Scott Cleland, CEO of the Precursor Group, an independent research firm, said in congressional testimony. "The breathtakingly swift collapse of Enron is no isolated incident that can be dismissed as unique, brushed under the rug, and ignored." The real question should be not whether the Enron debacle will change anything, but how much and how soon?
The most scintillating Enron tidbits are emerging from a nondescript set of rooms on Capitol Hill, filled with some 40 boxes of documents from the company and its auditor, Arthur Andersen. Over the past few weeks as many as ten people, four of them working full- time, have been combing through the boxes. On the wall of a room is a map laying out details of Enron's controversial myriad partnerships. The investigation is being conducted by the House Energy and Commerce Committee, chaired by Louisiana's Billy Tauzin, whose work makes it seem unlikely that the financial story will be buried by either its sheer complexity or the unfolding political sideshow.
What has the committee discovered? For one thing, founder and chairman Ken Lay, who often came across as clueless as Enron unraveled, deserves a great deal of blame. If nothing else, Lay allowed a culture of rule breaking to flourish, and he obviously misled investors. Enron's adventures in creative accounting are not a recent development. Back in mid-1995, Jim Alexander, then CFO of Enron Global Power & Pipelines, walked into Lay's office to report concerns he had about Enron's numbers for overseas projects. "I told him I had heard there were manifold serious problems with the [accounting on] international projects," Alexander recalls. Lay's reaction? Nothing.
That wasn't the only warning. One of the most remarkable documents unearthed by Energy and Commerce researchers was an unsigned seven- page letter from Enron vice president Sherron Watkins to Lay, written on Aug. 15, 2001. The letter informed him, among other things, that Enron executives "consistently and constantly" questioned the company's accounting methods to senior officials, including former CEO Jeff Skilling. "I am incredibly nervous that we will implode in a wave of accounting scandals," she wrote. That was around the same time Lay was telling Wall Street that there weren't any "accounting issues, trading issues, or reserve issues" at Enron. Two months later, when Enron announced its quarterly financial results, Lay had this to say: "The continued excellent prospects in these businesses and Enron's leading market position make us very confident in our strong earnings outlook."
In reality, of course, Enron was a bigger financial scandal than even the most critical observers believed. Watkins' letter makes it clear that the partnerships and off-balance-sheet entities that Enron created weren't used just to "reduce risk," as the company claimed repeatedly last fall. They were used to cook the books, plain and simple. "That's just too bad, too fraudulent, surely AA&Co. wouldn't let them get away with that," wrote Watkins, anticipating the reaction should outsiders begin to dig into the accounting.
If Arthur Andersen hadn't "let them get away with it," what would Enron's earnings have looked like? How much of the $101 billion in revenues that Enron reported in 2000 were created via multiple transactions with entities that weren't independent third parties? And the partnerships are only part of the story. The other issue is Enron's overly aggressive use of mark-to-market accounting. There's nothing wrong with this method of accounting, which entails pricing securities at their fair value and running gains or losses through the income statement. But in illiquid markets, like those for long- term energy contracts, there's no benchmark of fair value. So Enron often relied on internal models--which creates serious potential for abuse. And because Skilling and Lay had established a culture in which earnings growth was paramount, managers had plenty of incentive to push the limits.
Enron's much-hyped North American trading operation, which at one point accounted for the majority of its reported earnings and $70 billion valuation, is now nearly worthless. After the company declared bankruptcy, it set out to find a well-capitalized third party and create a joint venture to restart the trading operation. Only two firms--UBS Warburg and Citigroup--were interested (although BP Amoco did offer $25 million for some pieces of Enron's technology). UBS Warburg, the winning bidder, will pay Enron a third of any pretax profits for ten years and has the option to buy the business outright for a multiple of the previous years' profits--but UBS is not assuming any of the business' liabilities. In other words, UBS basically got a free option on the business.
All this makes Enron a political issue, but not for the obvious reasons. Much has been made of the multiple phone calls that Enron executives placed during the company's dying days to Administration officials--including Treasury Secretary Paul O'Neill, Fed Chairman Alan Greenspan, Commerce Secretary Don Evans, and Treasury's Under Secretary for Domestic Finance Peter Fisher. But despite the money that Enron lavished on all sorts of people, no one came to its rescue. And whatever influence Enron had on energy policy (according to one former employee, Vice President Dick Cheney had only one sit- down meeting with Lay in early 2001, and he opposed Enron on such key issues as the Kyoto Accord and nuclear power), the company isn't around to enjoy the benefits.
The bigger political issue is not Enron's input on energy matters but rather its earlier influence on financial policies. Most notably, Enron lobbied for legislation, passed in 2000, that exempted much of its energy-trading business from oversight. That legislation passed through the Senate Banking Committee, which was chaired by Phil Gramm, a big recipient of Enron funds; his wife, Wendy, sat on Enron's board. Enron also lobbied for mark-to-market accounting; in 1998 the Emerging Issues Task Force, which is backed by the Financial Accounting Standards Board, said that energy-trading contracts should be booked on that basis--but the agency included few guidelines for valuing illiquid contracts.
Clearly, the fallout from Enron has only just begun. One obvious candidate for change is the accounting business. Enron is just the latest in a long string of disasters for the industry--remember Waste Management, Sunbeam, and Cendant?--but it's by far the biggest. And Arthur Andersen is facing not just a slap on the wrist but a battle for survival. That won't be easy, given that Andersen is the only one with deep pockets left standing--and Enron's legal strategy will be to say that complicated transactions were left to the judgment of its accounting firm. Mark L. Cheffers, a former accounting litigation consultant who is now CEO of Accountingmalpractice.com, estimates that Andersen may be exposed to $10 billion to $20 billion in liabilities. The previous largest settlement of an accounting case was the $335 million Ernst & Young paid to settle claims related to Cendant. Putting legal liabilities aside, Andersen may not have much of a business left. "The tremendous damage done to their credibility will make it extremely difficult to attract business to their firm," says Lynn Turner, the SEC's former chief accountant. One portfolio manager says that if a company is audited by Andersen, he simply won't invest in it.
All that may finally be enough to give accountants backbone. The fact that even lay people now realize that the profession is a mess may give regulators the clout they didn't have when Arthur Levitt, the former head of the SEC, tried to enact reforms a few years ago. At that time the cognoscenti were well aware of the conflicts that accounting firms faced--but no one cared enough to make the situation change. SEC Chairman Harvey Pitt has now called for an organization that would discipline accountants for ethical violations.
But while Arthur Andersen has much to answer for, current accounting rules allowed Enron a great deal of latitude. In the view of some, there are actually too many rules, because rules inevitably leave loopholes that can be exploited and create a mindset where form is more important than substance. Contrast that with Britain, where accountants have a "true and fair" override, which they use if the accounting treatment follows the letter of the law but doesn't fully reflect the economics of a transaction.
Another good candidate for reform is retirement plans. The talk is that Congress will finally put limits on what percent of a plan's total assets can be in company stock--perhaps 20%--and make it easier for ordinary employees to sell their shares. Oddly enough, there's less discussion about options, although the fact that Enron executives were able to sell $1 billion in stock over the past decade is precisely because they were given such generous option grants. If accounting laws had mandated that the cost of those options be reflected in reported earnings, would Enron--which cared deeply about reported earnings--have enriched its executives to such an extent?
But the area most in need of reform is the one that is least likely to change. That's Wall Street. Although Enron's inadequate financial disclosure made it impossible to ascertain the company's true condition, those who bothered to read its documents saw enough-- including curious mentions of the partnerships as early as 2000--to be suspicious. Despite the professions of shock about Enron's liberal use of off-balance-sheet entities, when CFO magazine bestowed the "Excellence Award for Capital Structure Management" on former CFO Andy Fastow in 1999, analysts and rating agencies raved about his creative use of such "unique" financing techniques. And the fact that executives were selling stock at a frightening pace was publicly available information. Skeptics eventually made fortunes shorting the stock. Why didn't anyone else care? Perhaps because when everyone-- money managers, analysts, banks, management--benefits from a soaring stock, no one has any incentive to ask disturbing questions. "A lot of knowledgeable people on Wall Street were duped, didn't care, or purposefully went along for the ride at the expense of thousands of others," said Senator Carl Levin, a Michigan Democrat.
You only have to look at Citigroup to see the multiple roles that Wall Street firms can play today. Analyst Ray Niles of Salomon Smith Barney (which is owned by Citigroup) was one of Enron's biggest bulls. Citigroup (along with J.P. Morgan) led most of Enron's financings in the '90s, and was owed around $1 billion by Enron. Why did the banks, which have access to information that equity investors don't, keep handing Enron money? And Citigroup is an investor in LJM2, one of the Enron partnerships that was run by Andy Fastow. Of all the phone calls that were placed during Enron's final days, the one that seems most inappropriate was made by Robert Rubin, former Treasury Secretary and current Citigroup chairman of the executive committee, to Under Secretary Fisher, raising the possibility that he intervene with the rating agencies on behalf of Enron.
So far all the major players in this drama are doing whatever they can to dodge responsibility. "Lay, Skilling, Fastow et al. have demonstrated a remarkable ability to ignore their personal responsibility for this," says University of Houston management professor J. Timothy McMahon. If it weren't so tragic, it would be comical: In Skilling's one public appearance since he abruptly resigned from the company last August for undisclosed "personal reasons," he said, "I had no idea the company was in anything but excellent shape." Watkins' letter suggests otherwise: Skilling "knew this stuff was unfixable and would rather abandon ship now than resign in shame in two years," she wrote. All the stories can't conflict forever, and at some point, we'll know the answer to the biggest question of all: Who's going to jail?
FEEDBACK: bmclean@fortunemail.com
Quote: This scandal isn't an isolated incident that can be dismissed as unique. Many Wall Streeters were either duped or went along for the ride.

COLOR ILLUSTRATION: ROBERT NEUBECKER
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

First; Value Driven
You're On Your Own That Enron workers lost life savings is just another sign that the short era of economic security is over.
Geoffrey Colvin

02/04/2002
Fortune Magazine
Time Inc.
42
(Copyright 2002)

The miserable fate of Enron's employees will be a landmark in business history, one of those awful events that everyone agrees must never be allowed to happen again. This urge is understandable and noble: Thousands have lost virtually all their retirement savings with the demise of Enron stock. But making sure it never happens again may not be possible, because the sudden impoverishment of those Enron workers represents something even larger than it seems. It's the latest turn in the unwinding of one of the most audacious promises of the 20th century.
The promise was assured economic security--even comfort--for essentially everyone in the developed world. With the explosion of wealth that began in the 19th century it became possible to think about a possibility no one had dared to dream before. The fear at the center of daily living since caveman days--lack of food, warmth, shelter--would at last lose its power to terrify. That remarkable promise became reality in many ways. Governments created welfare systems for anyone in need and separate programs for the elderly (Social Security in the U.S.). Labor unions promised not only better pay for workers but also pensions for retirees. Giant corporations came into being and offered the possibility--in some cases the promise--of lifetime employment plus guaranteed pensions. The cumulative effect was a fundamental change in how millions of people approached life itself, a reversal of attitude that must rank as one of the largest in human history. For millennia the average person's stance toward providing for himself had been, Ultimately I'm on my own. Now it became, Ultimately I'll be taken care of.
The early hints that this promise might be broken on a large scale came in the '80s. U.S. business had become uncompetitive globally and began restructuring massively, with huge layoffs. The trend accelerated in the '90s as the bastions of corporate welfare faced reality. IBM ended its no-layoff policy. AT&T fired thousands, many of whom found such a thing simply incomprehensible, and a few of whom killed themselves. The other supposed guarantors of our economic security were also in decline. Labor-union membership and power fell to their lowest levels in decades. President Clinton signed a historic bill scaling back welfare. Americans realized that Social Security won't provide social security for any of us.
A less visible but equally significant trend affected pensions. To make costs easier to control, companies moved away from defined- benefit pension plans, which obligate them to pay out specified amounts years in the future, to defined-contribution plans, which specify only how much goes into the plan today. The most common type of defined-contribution plan is the 401(k). The significance of the 401(k) is that it puts most of the responsibility for a person's economic fate back on the employee. Within limits the employee must decide how much goes into the plan each year and how it gets invested- -the two factors that will determine how much it's worth when the employee retires.
Which brings us back to Enron. Those billions of dollars in vaporized retirement savings were in employees' 401(k) accounts. That is, the employees chose how much money to put into those accounts and then chose how to invest it. Enron matched a certain proportion of each employee's 401(k) contribution with company stock, so everyone was going to end up with some Enron in his or her portfolio; but that could be regarded as a freebie, since nothing compels a company to match employee contributions at all.
At least two special features complicate the Enron case. First, some shareholders charge top management with illegally covering up the company's problems, prompting investors to hang on when they should have sold. Second, Enron's 401(k) accounts were locked while the company changed plan administrators in October, when the stock was tanking, so employees could not have bailed out if they wanted to.
But by far the largest cause of this human tragedy is that thousands of employees were heavily overweighted in Enron stock. Many had placed 100% of their 401(k) assets in the stock rather than in the 18 other investment options they were offered. Of course that wasn't prudent, but it's what some of them did.
The Enron employees' retirement disaster is part of the larger trend away from guaranteed economic security. That's why preventing such a thing from ever happening again may be impossible. The huge attitudinal shift to I'll-be-taken-care-of took at least a generation. The shift back may take just as long. It won't be complete until a new generation of employees see assured economic comfort as a 20th-century quirk, and understand not just intellectually but in their bones that, like most people in most times and places, they're on their own.

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

Economy
Pension Plans Are Adjusted After Enron --- Workers, Firms Shy Away From Owning Too Much of 1 Thing
By Kathy Chen
Staff Reporter of The Wall Street Journal

01/29/2002
The Wall Street Journal
A2
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- After thousands of Enron Corp. workers lost their nest eggs in the energy company's collapse, employees at other companies are looking to diversify their retirement savings -- sometimes with the help of their employers.
Enron employees were hit hard because their 401(k) plans were stacked with Enron stock, to the tune of 60% of total assets at the end of 2000. But if Enron's combustion was spectacular, its pension situation was hardly unusual. Many other major companies, including General Electric Co., Texas Instruments Inc. and William Wrigley Jr. Co., also have most of their 401(k) assets in company stock, say 401(k) industry analysts.
In many cases, the companies match employee contributions with their own stock and impose restrictions on selling the stock. Workers themselves often choose to bet heavily on their companies. Even former Enron Chairman Kenneth Lay is now facing bankruptcy after failing to diversify his portfolio, according to his wife, Linda, who was speaking on NBC's "Today" show.
Now the situation is starting to change.
Leslie Sewell, a former television producer for NBC, a GE affiliate, voluntarily put all of her 401(k) holdings in GE and rode the stock as its value more than quadrupled since the mid-1980s. GE stock continues to perform well, but she isn't taking any chances. "The Enron thing is like the vampire in the bedroom," says Ms. Sewell, who is in her 50s. "If you survive it and wake up the next morning, you should do something about it." She says she will probably leave only 10% to 20% of her 401(k) assets in GE, and put the rest into stock or bond funds.
Diebold Inc., a Canton, Ohio, maker of automated teller machines, last week announced that it will ease restrictions that require employees to hold company-matched Diebold stock in their defined contribution plan until they turn 55, and instead require them to hold such stock for one year.
Diebold has invited the Vanguard Group, a 401(k) provider, to speak to employees about the need to diversify, especially targeting those with heavy concentrations in any one instrument.
These moves are part of a continuing plan to increase employees' investment options, says Chuck Sheurer, Diebold's vice president for human resources, but "I can't say we weren't influenced by Enron."
To be sure, for many companies the benefits of matching in company stock, which is cheaper than contributing cash and keeps the stock in friendly hands, are attractive and numerous companies are unlikely to pay more than lip service to change.
But political pressure from the Enron bankruptcy-proceedings could force change upon them, so some companies are contemplating loosening restrictions to fend off potential legislation, says John Doyle, vice president of marketing and communications for T. Rowe Price's retirement-plan service.
Congress has scheduled numerous hearings on pension reform, and a number of lawmakers have proposed bills that would cap the amount of employer-company stock in 401(k) plans.
Mr. Doyle says T. Rowe Price is helping clients that are talking about loosening their rules to understand the pros and cons of such a move. In addition, "a lot of pressure will come from employees," he says, adding that his company's phone banks have fielded a number of calls from plan participants who are asking, "Can this happen to me?"
That is certainly a question being asked by some workers at Sam's Club, a chain of warehouse stores owned by Wal-Mart Stores Inc. Wal-Mart allows employees to participate in both a profit-sharing program, which is heavily weighted in company stock, and a 401(k) plan, where Wal-Mart makes cash contributions to employees who then may choose how to invest the money from a number of options, including Wal-Mart stock.
Alan Peto, a 28-year-old Sam's Club cashier in Las Vegas, says he had been planning to increase his allocation of Wal-Mart stock to as much as half of his 401(k) assets from the current 5% -- until Enron collapsed. "There's a lot of tongue-in-cheek comments, `If this happens to Enron, what about us?' " he says.
Other worried Wal-Mart employees are turning to unions for advice. Greg Denier, assistant to the president of the United Food and Commercial Workers International Union, says its Web site aimed at wooing Wal-Mart workers has averaged 250 hits a day in the wake of the Enron debacle, with many questions focused on the security of workers' retirement savings.
Wal-Mart spokesman Tom Williams says, "Wal-Mart is known as a very solid company that thinks of its employees first." He adds that it provides 14 different investment choices, including company stock, for its 401(k) plan.
At Textron Inc., one-fifth of the company's 35,000 employees have changed their 401(k) asset allocation in the past few weeks -- most choosing to reduce the ratio of their company holdings -- after the Providence, R.I., company eased investment restrictions late last year, says company spokeswoman Susan Bishop.
Some companies that already have flexible investment policies are pushing harder the importance of diversification. Texas Instruments' stock accounts for about three-quarters of the $3 billion in assets in the Dallas company's 401(k) plan, even though it matches employee contributions in cash and gives employees flexibility to shift holdings among a dozen investment options, including company stock. While the company doesn't plan to change its approach, it is intensifying messages to workers about the need to diversify, says Melendy Lovett, a human-resources vice president at Texas Instruments. It has posted a report on its internal company Web site outlining how its pension policy differs from Enron's, she says.
Not all employees are embracing the diversification message. Paul Feaser, Diebold's director of corporate services and security, says some older employees at the company plan to take advantage of the company's new relaxed retirement plan policy. Not Mr. Feaser, who is 55 and has been putting half of his contributions into Diebold stock for years. Though the stock has recently fallen from its highs, "I'm still very satisfied with the profits it's shown," he says. "My diversification comes from other holdings," such as stock and bond funds he has invested in on his own.
Dan Larson, Texas Instruments' director of government and media relations, admits that, "I'm probably not diversified as much as I should be," with half of his 401(k) assets in Texas Instruments stock. But he says Enron hasn't changed his mind about unloading company shares, some of which he bought at a higher price than they are currently valued. While Texas Instruments hasn't taken a stand on legislation that would cap the share of employer-company stocks in 401(k) plans, Mr. Larson personally is concerned that such a bill could force him to sell some of his company stocks prematurely. But any bill is unlikely to force employees to sell shares purchased with their own funds, experts say, and will instead concentrate on company contributions.
Other companies and business and industry groups also are opposing such legislation. "What happened in Enron has nothing to do with GE," says Jeffrey R. Immelt, GE's chairman, in a recent interview. "The fact is that having GE stock has done damn well for our employees over the last 10 or 15 years."
---
Jerry Guidera of Boston, Bob Davis in Brussels and Elliot Spagat and Ann Zimmerman in Dallas contributed to this article.

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

The Analyst Who Warned About Enron
By Rebecca Smith
Staff Reporter of The Wall Street Journal

01/29/2002
The Wall Street Journal
C1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Financial analysts who tracked Enron Corp. have taken a pounding for being company "shills" and for failing to concede they didn't fully understand the Houston energy-trading concern's complex finances.
Then there is Daniel Scotto.
The bond analyst in New York for BNP Paribas says he was forced out of the French securities firm because he told his clients in August that Enron securities "should be sold at all costs and sold now." That warning came about two weeks after Enron Chief Executive Jeffrey Skilling suddenly quit and a couple of months before Enron began the plunge that ended in federal bankruptcy court on Dec. 2.
Mr. Scotto, 49 years old, issued a research report on Aug. 23 to his clients that lowered his firm's recommendation on Enron to "neutral" from "buy." He pushed that designation even further by suggesting Enron might be a "source of funds." Translation: Consider selling Enron securities to raise money for other investments.
If he had gone with a "sell" rating, he says, "I'd have been taken out to the guillotine that very day."
BNP Paribas declined to elaborate on the reasons for Mr. Scotto's departure. A spokesman says the move "was completely unrelated to any research he wrote on any company, including Enron." Spokesman Mark Wisniewski, reading from a statement, added that the securities firm "is committed to the integrity of its research product" and said the securities firm was surprised by Mr. Scotto's allegations, as "he has not raised this issue with us."
Mr. Scotto's experience highlights one of the oldest pressure points on Wall Street involving financial analysts, who traditionally act as a filter between investors and the financial markets. During the past decade, Wall Street securities firms increasingly have pushed their research analysts to actively trumpet stocks and bonds, not impartially analyze them.
The side benefits to the securities firms can be enormous: If an analyst touts a company's securities, the securities firm stands a greater chance at becoming an adviser to that company, and garnering the fees that will follow. Nowadays, analysts can be stars, receiving bonuses of several hundred thousand dollars for helping their firm to win big underwriting deals. Bash the securities of a corporate client, though, and the securities firm could be shut out of lucrative deals. Enron issued billions of dollars worth of securities in recent years, generating huge fees for its financial advisers and bankers.
Some analysts say Enron wasn't hesitant to complain about research conclusions it didn't like. Some of these people say they now are under orders not to talk about Enron, in view of its stunning collapse.
For his part, Mr. Scotto says Paribas didn't want him to say negative things about Enron because the securities firm had an investment-banking relationship with the energy trader.
Still, Mr. Scotto says he followed up his August written report with an investor conference call -- recorded because it took place from the firm's trading floor -- that he says was much blunter. He says he decided to flatly advise his clients to dump Enron securities because Enron's profit margins "were flattening out and starting to decline. This wasn't a company with hard assets; it was built on paper and highly leveraged."
A few days after the brouhaha, Mr. Scotto says he was told "you're demoted, and we don't think it was a good recommendation or a reasonable one."
After the flap and reprimand, Mr. Scotto says, he was put on family leave, at full pay, for 120 days. He says he checked in frequently but was told he wasn't needed back at work and to take time to "cool off." He then received a termination letter dated Dec. 5. That letter said, in part, that due to a lack of documentation "justifying your continued absence from work, as well as the indeterminate nature of your extended leave, BNP Paribas is left with no choice but to terminate your employment effective December 5, 2001."
Mr. Scotto says he is looking at other options and has no intention of returning to Wall Street. He once worked at New York investment bank Bear Stearns Cos. and the bond-rating division of Standard & Poor's Corp. He says he is considering writing a whistleblower-type book on how Wall Street "really works." He says he wants investors to understand that companies like Enron won't tolerate dissension. "You couldn't ask hard questions, because it was viewed as offensive," he says.
Consider an April conference call Enron had with analysts. Mr. Skilling, then Enron's chief executive, called a questioner -- upset because the energy concern's balance sheet wasn't available when the quarterly earnings were released -- a vulgar term.
In another call that followed the release of Enron's disastrous third-quarter financial results in October, Enron's former chairman, Kenneth Lay, cut off an analyst widely regarded as "short" on the stock, meaning the analyst's firm was betting on a continued decline in Enron's stock. Mr. Lay moved on to others with more sympathetic questions.
"All I can say," Mr. Scotto says, "is it's been a long 30 years on Wall Street for me." He adds that the motto for the Street should be: "Don't ask, don't tell."

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

Accounting for Enron: Enron's Hiring of One Firm to Represent Forty Employees Raises Some Concerns
By Richard B. Schmitt and Tom Hamburger
Staff Reporters of The Wall Street Journal

01/29/2002
The Wall Street Journal
A6
(Copyright (c) 2002, Dow Jones & Company, Inc.)

A Washington law firm hired by Enron Corp. is representing about 40 company employees and managers in probes arising from Enron's collapse, raising potential conflicts of interest and concerns that the company is trying to coordinate responses to investigators.
The law firm, Swidler Berlin Shereff Friedman, represented the late J. Clifford Baxter, the former Enron vice chairman who was found dead in his car near Houston last week, in an apparent suicide. Swidler Berlin also represents a wide range of other Enron employees, including the chiefs of its accounting and risk-management units, among others, people familiar with the firm's involvement said. Any fees the firm receives have to be approved by the New York bankruptcy-court judge overseeing the company's Chapter 11 proceeding.
Legal ethics rules permit -- and corporate targets increasingly seek out -- single law firms to represent multiple employees in a matter. The theory is that so long as the clients are neither subjects nor targets of any investigation, and thus only have an interest in telling the truth, a single law firm is able to represent them aggressively without being conflicted.
But the system quickly breaks down when one client starts pointing the finger at others. A client might decide to strike a deal with the government that includes giving testimony that implicates other clients. Swidler could have trouble, for instance, if lower-level employees it represents begin to implicate their bosses also represented by the law firm.
Some companies are required under indemnification agreements to pay for attorneys to represent employees who are caught up in job-related criminal probes. Hiring a single firm is often a cost-efficient approach to meeting that duty.
But some defense lawyers, who themselves have clients in the Enron case, say the number represented by Enron seems unusually high, and that the chances of conflicts emerging, given the early stages of the Enron inquiries, seem high, too.
Such agreements, others note, also limit the ability of investigators to question employees because so many of them now have lawyers.
"Prosecutors hate it. They prefer to play one person off the other. That is harder to do if a single law firm is representing everybody," said Stephen Gillers, an ethics specialist at New York University law school. While saying that he wasn't familiar with details of Swidler Berlin's retention, Mr. Gillers added that another common concern is that "the law firm paid for by the employer will really be working covertly for the employer."
Guy Petrillo, a Swidler Berlin partner in New York, said the firm is carefully monitoring the situation, and is fully complying with ethics rules. "If a conflict of interest presents itself, then our firm will address the conflict and act appropriately," he said. Of the idea that Enron might be attempting to coordinate testimony, he added, "Clients who are called to testify and who elect to do so are under an obligation to testify truthfully. What some call coordination, others call due diligence." Lawyers for Enron couldn't be immediately reached.
"Forty is a lot, but not inconceivable," said Peter Romatowski, a white-collar specialist at Jones, Davis, Reavis & Pogue in Washington, who isn't representing any Enron entities or employees. A major risk, he added, is that a law firm will be disqualified from representing some, and possibly all the clients, if a conflict emerges later.
In extreme cases, people ultimately convicted of crimes have challenged their convictions based on concerns that their employer-financed lawyers weren't independent, according to NYU's Mr. Gillers.
None of Swidler's clients are believed to be the focus of any of the myriad inquiries into Enron's demise. The most senior company executives, moreover, such as former chairman and chief executive Kenneth Lay, have retained their own counsel. And not all of Swidler's clients have been sought out for questioning.
Michael Levy, another Swidler partner, who represented Mr. Baxter, was contacted by investigators from the House Energy and Commerce Committee Wednesday, two days before Mr. Baxter's apparent suicide. The investigators requested an interview but no date had been set.
Mr. Levy, a former federal prosecutor, previously worked at Skadden, Arps, Slate, Meagher & Flom, with white-collar specialist Robert Bennett, who currently represents Enron.
Other Enron managers represented by Swidler include Richard Causey, the company's chief accounting officer, and Richard Buy, its chief risk officer.

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

National Desk
THE FALL OF ENRON Firm Did Not Get His Help, President Says Enron: Bush also defends refusal to release energy task force's records. GOP lawmakers concerned about fallout from company's collapse.
EDWIN CHEN
TIMES STAFF WRITER

01/29/2002
Los Angeles Times
Home Edition
A-12
Copyright 2002 / The Times Mirror Company

WASHINGTON -- President Bush on Monday called the Enron Corp. debacle "a corporate governance issue . . . not a political issue," and he declared unequivocally that his administration provided no help to the now-bankrupt energy company despite large contributions from its employees, directors and political action committee to his presidential campaign.
"There are some on Capitol Hill who want to politicize this issue," Bush said, clearly seeking to inoculate himself against political fallout in the burgeoning controversy.
"And, you know, Enron had made contributions to a lot of people around Washington, D.C. And if they came to this administration looking for help, they didn't find any," the president added.
Bush's comments--his most extensive yet on Enron--came a day after a poll showed that 45% of those surveyed believe Enron had closer ties to Republicans than Democrats; only 10% believed Democrats had closer ties. In the CBS/New York Times poll, more than half also said the Bush administration is either hiding something or lying about the Enron matter.
President Defends Stance on Records
Republicans on Capitol Hill are growing deeply concerned over such perceptions, fearful that Enron could derail key Bush priorities--including a national energy policy--as the president enters his second year in office.
That angst was further fueled by Bush's adamant refusal Monday to disclose White House contacts last year with Enron and other energy industry executives while Vice President Dick Cheney developed the administration's controversial energy policy.
With nearly a dozen congressional committees looking into various aspects of the Enron collapse, the matter is likely to hang heavily over the administration, even as Bush delivers his State of the Union address tonight and then campaigns for his agenda around the country.
At a Rose Garden news conference on Monday, the president spoke animatedly as he defended his refusal to release details of Cheney's energy task force.
Pivoting from his lectern, Bush pointed to the Oval Office and asked rhetorically: "Should an administration be allowed to have private conversations in this office without everybody knowing about it?"
With fervor, the president answered his own question, saying:
"This is part of how you make decisions, is to call people in and say, 'What's your opinion? What's your opinion on stem cell? What's your opinion on energy? What's your opinion on the war?' "
Demands by Congress for such information amount to an "encroachment on the executive branch's ability to conduct business," Bush said.
"We're not going to let the ability for us to discuss matters between ourselves to become eroded. It's not only important for us, for this administration, it's an important principle for future administrations," he continued.
"In order for me to be able to get good, sound opinions, those who offer me opinions, or offer the vice president opinions, must know that every word they say is not going to be put into the public record," the president added.
Friendship With Lay Poses Another Problem
The General Accounting Office, the nonpartisan investigative arm of Congress, is threatening to sue the administration to gain access to those task force records.
In his State of the Union address tonight, Bush is not expected to mention Enron directly. He may call for pension reform--an Enron-related topic, since the company's bankruptcy left thousands of its employees with retirement plans that are all but worthless.
The president made his remarks on Enron and the looming legal battle with the GAO during a wide-ranging joint news conference with visiting Afghan interim leader Hamid Karzai.
As the repercussions of Enron's collapse continue to spread, the White House has become increasingly defensive--in part because of campaign contributions to Bush and other Republicans, and in part because of a friendship between the president and Enron's just-ousted chairman, Kenneth L. Lay.
It was unclear to whom Bush was referring Monday when he accused "some" of seeking to politicize the issue. The committees probing the Enron matter in the House are chaired by Republicans.
Bush's comment about contacts between Enron and his administration was a reference to previously disclosed calls from Lay to Commerce Secretary Don Evans and Treasury Secretary Paul H. O'Neill. Both Cabinet secretaries said they did nothing after the calls that could be construed as helping Enron.
The Houston-based company, the seventh-largest in the country until its sudden demise, has been the source of large campaign donations for the last decade or more. While its employees, directors and political action committee gave to Democrats as well, 74% of nearly $6 million in various types of contributions went to Republicans. Bush personally raised more than $114,000 in PAC and individual contributions from Enron in the 1999-2000 election cycle. Bush's inauguration fund received $300,000 from the company.
'This Is Not a Political Issue'
Presidential counselor Karen Hughes, one of Bush's top advisors, further sought on Monday to distance the president from Lay, whom Bush had once nicknamed "Kenny Boy."
In an interview on CNN, Hughes said Bush was "understandably outraged" over Enron's accounting practices and treatment of its employees, and she quoted him as having said: "This stinks."
During the Rose Garden session, Bush characterized Enron's collapse as "a corporate governance issue. This is a business problem that our country must deal with and must fix--that is, full disclosure of liabilities, full understanding of the effects of decisions on pension funds, reform of the pension system, perhaps."
"This is not a political issue," he added.
The president said Enron "went bust" for one simple reason. "It seems like to me--and we'll wait for the facts to come out--it went broke because there was not full disclosure of finances."

PHOTO: Former Enron employee Sonia Garcia and other protesters make their feelings known during a rally Monday outside the Mickey Leland Federal Building in Houston. President Bush was "outraged" over Enron's treatment of its employees, one of his advisors said.; ; PHOTOGRAPHER: BRETT COOMER / For The Times
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Politics & Policy
Enron Collapse Has Congress Backing Off Deregulation --- Better Financial Reporting, Tighter Accounting Rules Top Bipartisan Call for Changes
By Michael Schroeder and Cassell Bryan-Low
Staff Reporters of The Wall Street Journal

01/29/2002
The Wall Street Journal
A22
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- Enron Corp.'s collapse has Congress taking its finger off the deregulation button, as members instead suddenly queue up to push for new controls on the financial community.
A dizzying array of bills seek tougher regulation on financial disclosures, auditor conflicts, insider trading and pension investments.
Most of them may fail to reach floor votes, but in the new atmosphere what doesn't become law could well get adopted instead by industry regulators.
Though Democrats are sponsoring most of the bills, prominent Republicans normally against regulation are saying they favor stepped-up oversight from federal regulators and industries' self-policing bodies -- if only to blunt the drive for new regulatory laws. And the Senate Finance Committee's top Republican, Iowa's Charles Grassley, is calling for a crackdown on corporate tax shelters and protections for worker retirement savings in Enron's wake.
The complicated scandal also has muted the antiregulatory rhetoric of the Bush administration, even on unrelated issues. But powerful business groups are mobilizing to scuttle any new regulations, or at least soften them.
Improved financial reporting and tighter accounting rules top the bipartisan calls for changes.
For instance, one narrow proposal with wide appeal is Sen. Jean Carnahan's bill to overhaul the system for company executives' reports of their insider-trading transactions. News accounts of Enron executives' sales of its stock, before the energy-trading company's dramatic demise, has spotlighted that issue.
"Enron executives told the world the company was on solid footing, while at the same time they sold off their own stock," Mrs. Carnahan, a Missouri Democrat, said in a statement. "Such a dramatic insider selloff would have been a big warning sign to investors, but this information was not readily accessible to them."
Among the current system's problems is that insiders enjoy lax filing deadlines; weeks-old information isn't of much use to small investors.
The Carnahan bill proposes that insiders report trades the day they occur, and file them electronically to the Securities and Exchange Commission so that the SEC can immediately post the information on its Web site.
Currently, forms filed by corporate executives, directors and other insiders reporting the sale or purchase of their own companies' stock are among the few reports for which electronic filing is optional.
Public companies have been required to file other corporate documents, such as quarterly and annual reports, on the SEC's Edgar system since 1996, but at least 90% of insider-trading forms still arrive by mail.
Companies and their insiders have argued that immediate electronic filing creates an unnecessary burden.
Some corporate analysts have questioned whether the SEC's current database could handle the added volume of insider filings. About 350,000 forms are filed annually, according to Edgar Online, Norwalk, Conn.
"The idea of more electronic filing and greater dissemination is a good thing," says Stuart Kaswell, general counsel of the Securities Industry Association.
But, he adds, "We need to make sure the reporting time period is realistic . . . so individuals are able to gather and report information accurately."
If the Carnahan bill fails, the SEC has the authority to impose such new reporting requirements.
With accounting irregularities getting much of the blame in Enron's fall, Democratic Sens. Christopher J. Dodd of Connecticut and Jon Corzine of New Jersey propose to restrict accounting firms from offering other services to their audit clients.
Their bill has the support of Senate Majority Leader Thomas Daschle of South Dakota; it would prohibit accounting firms from auditing companies whose executives recently worked for the auditor.
Just over a year ago, the accounting industry successfully fought off a similar conflict-of-interest ban that former SEC Chairman Arthur Levitt advocated.
The American Institute of Certified Public Accountants opposes the new measure, and argues that no evidence suggests that a ban on such relationships would have made a difference in the Enron case.
AICPA President Barry Melancon says he backs new SEC Chairman Harvey Pitt's plan to overhaul the existing system of industry self-regulation, to create an independent oversight panel.
Mr. Pitt, who represented big accounting firms as a private attorney before his SEC appointment by President Bush, says he is developing an industry-funded response to the accounting problems, rather than beefing up the SEC staff and budget to directly regulate the accounting industry.
Although the chairman has said he would work with Congress if a consensus develops for some accounting legislation, he noted that the SEC could approve new disclosure rules and oversee the new private-regulatory body more quickly than Congress would get new legislation to Mr. Bush's desk.
The Enron investigation also has revived the debate about whether complicated derivatives investments should be regulated.
In late 2000, Congress exempted from nearly any regulation these over-the-counter derivatives, which are contracts whose value is derived from the underlying assets such as commodities or currencies. Enron led the massive lobbying effort on Capitol Hill and, with the exemption, escaped federal oversight of its trading activities.
Rep. Peter DeFazio, a liberal Democrat from Oregon, says he is drafting legislation to require detailed disclosure.
Derivatives played a big role in Enron's alleged misrepresentation of its true financial condition.
Mr. DeFazio is joining with Reps. Dennis Kucinich, an Ohio Democrat, and Bernie Sanders, a Vermont Independent, on two other bills to change corporate auditing and protect worker pensions.
Enron employees' losses in retirement funds, heavily invested in the company's now-worthless stock, have spawned at least a half-dozen pension-reform bills.
Sens. Corzine and Barbara Boxer, a California Democrat, have teamed on a bill aimed at more-diversified worker accounts.
It would limit to 20% the investment employees can have in any one stock in their 401(k)s.
The U.S. Chamber of Commerce, National Association of Manufacturers and other business groups oppose pension changes, contending they should not be punished because of the misdeeds of one company.
They also are pressing Congress for legislation to shield from liability those companies that hire advisers to help employees develop retirement plans.
Their argument: Employers don't give investment advice to employees for fear of being sued if the advice leads to big losses, but such advice could have kept Enron workers from relying so heavily on Enron stock.
--- Out Of The Woodwork

The Enron-Andersen scandal is spawning new bills, and giving new life
to old ones, as lawmakers react to the unfolding story of the fallen
energy giant and its auditor. A sampling:

WHO WHAT
Sens. Dodd (D., Conn.) Ban accounting firms from auditing
and Corzine (D., N.J.) companies their executives once
worked for

Sens. Boxer (D., Calif.) Limit employees' holdings of
and Corzine their employers' stock in
retirement accounts, and allow
them to sell it

Sens. Baucus (D., Mont.) Restrict tax shelters (three
Grassley, (R., Iowa); separate bills)
Rep. Doggett (D., Texas)

Rep. Rangel (D., N.Y.) Penalize executives for selling
their company's stock if employees
are restricted from doing the same

Sen. Carnahan (D., Mo.) Require all corporate executives
to file insider-trading reports
to SEC the same day as trades

Sen. Fitzgerald Require stock analysts to more
(R., Ill.) fully disclose ties to companies
about which they give advice

Rep. Bentsen (D., Texas) Restore retirement accounts of
Enron employees

Rep. Boehner (R., Ohio) Allow pension-fund managers to
give advice when they disclose
potential conflicts of interest

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

"The stunning collapse of a Fortune 10 company in such a short period

02/01/2002
Financial Executive's News
Copyright c 2002 by the Institute of Management & Administration (IOMA). Reproduction without permission is strictly prohibited.

"The stunning collapse of a Fortune 10 company in such a short period of time gives pause to all of us who care about financial reporting." So said Robert Herdman, the new chief accountant of the SEC, as he spoke about the Enron debacle at a recent AICPA conference.
In his speech, Herdman noted that he and other SEC staff members are barred from commenting on the specifics of the energy company's troubles, due to the commission's pending probe. Even so, numerous speakers at this AICPA conference referred to the problematic role of Andersen LLP, in what has become the largest bankruptcy in U.S. history. In particular, they referred to the pattern of misstatements in Enron's financial reports. Apparently, these are not fine-point controversies over judgment calls in gray areas, but violations of fundamental accounting principles.
Breaking Basic Rules
In mid-October, for example, Enron announced a $1.2 billion reduction in shareholder equity. According to The Wall Street Journal, Enron said the reduction developed from its decision to unwind certain transactions with some limited partnerships. Shortly thereafter, the company announced the original accounting for the transactions violated GAAP.
Details: Starting in 2000, the company issued shares of its own common stock to four "special purpose entities." In exchange, it received a note receivable. In doing so, Enron said it increased both its notes-receivable assets and shareholder equity, a move it later admitted was an accounting error.
Explanation: Under GAAP, the payment a company receives when issuing stock only counts as equity if it is cash. Upshot: Enron's 2000 audited financial statements overstated the company's notes-receivable assets and shareholder equity by $172 million. Meanwhile, Enron's 2001 unaudited statements overstated them by $828 million.
"It is basic accounting that you don't record equity until you get cash, and a note doesn't count as cash," remarked Lynn Turner, a former chief accountant for the SEC, in an interview in The Wall Street Journal. "The question this raises is: How did both [the Andersen] partners and the manager on this audit miss this simple Accounting 101 rule?"
De'ja Vu All Over Again
Unfortunately, Andersen's sign-off on these accounting decisions has a familiar ring. Indeed, multiple accounting disasters at large companies have hit every Big Five auditor in recent years. But at Andersen, the reporting problems at Enron appear remarkably similar to those at former client Sunbeam, another large bankruptcy.
Enron, for example, reported net income of $105 million for 1997, a figure the company reduced last November to $9 million. Here, Enron said the primary cause of this restatement was $51 million in audit adjustments and reclassifications that its auditor had proposed in 1997 but had later determined to be immaterial. Key point: Cumulatively, those immaterial adjustments totaled nearly half of the company's 1997 net income.
At Sunbeam, this issue of immateriality was remarkably similar. Reason: According to the SEC's May settlement order, Andersen's auditors routinely dismissed numerous violations of GAAP as immaterial. But eventually, these piled up to produce significant distortions in Sunbeam's financial statements. Altogether, they made this barely solvent company look profitable.
In May, the SEC filed a civil lawsuit against five former Sunbeam executives and the Andersen partner in charge of the audit, accusing them of engaging in financial fraud.
Key point: In certain situations, the SEC says intentional immaterial misstatements are unlawful. Reason: When immaterial misstatements are combined with other misstatements, they can render the financial statements, as a whole, to be materially misleading. Upshot: Under GAAP, misstatements aren't immaterial simply because they fall beneath a numerical threshold.
Response From the Accounting Establishment
In his speech at the AICPA conference, Herdman primarily focused on preventing future accounting debacles. In this activity, he praised the Big Five for their pledge to submit specific recommendations to the SEC for improving corporate financial disclosures, in the wake of things gone awry with Enron's financial reporting.
The Big Five submitted this document on December 31. Available on the SEC Web site, the document offers reporting improvement suggestions for: (1) management's discussion and analysis of financial condition (MD&A); (2) disclosures for the liquidity and capital resources of off-balance sheet arrangements; (3) disclosures of trading activities that include nonexchange traded contracts accounted for a fair market value; and (4) disclosures about relationships and transactions with persons who are not independent third parties.
Meanwhile, Herdman also praised the AICPA for "detailing initiatives that are designed to improve financial disclosure and audit performance in the near term." As announced by James G. Castellano, AICPA chairman, and Barry Melancon, AICPA president and CEO, these include:
An exposure draft covering a new audit standard for detecting fraud, including more precise guidance on auditing for material misstatements due to fraud (first quarter of 2002);
Guidance for company managements and audit committees on the new measures for deterring fraud, such as internal control procedures;
Revised auditor standards on review of quarterly financial statements (first quarter of 2002); and
An exposure draft focusing on the risks of material misstatements. Technically, this draft will detail improved audit standards for guiding auditors through the audit process. But, its heart will be an approach for assessing the risks of material misstatements.

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

Whistle-Blowers
To Tell the Truth Sherron Watkins gave Enron a piece of her mind-- and investigators a smoking gun
Samantha Miller Gabrielle Cosgriff in Houston

02/04/2002
People Magazine
Time Inc.
63
(Copyright 2002)

On Aug. 14 Sherron Watkins sat down at her computer and began typing a scathing--and now famous--memo to her boss. "I am incredibly nervous that we will implode in a wave of accounting scandals," she wrote in the missive to Enron chairman Kenneth Lay. Worried about the wisdom of such blunt talk, the 42-year-old vice president for corporate development sought out colleagues and got mixed advice on whether she should send the note. But her mother did not waffle. "I told her," says Shirley Klein Harrington, 67, "to stick with her convictions."
Watkins did just that, and the seven-page memo has become a smoking gun in the unfolding investigation of alleged financial chicanery at Enron and its accounting firm, Arthur Andersen. On Dec. 2 the formerly high-flying Houston corporation became the largest company in U.S. history to file for bankruptcy. Watkins's memo, made public on Jan. 14 by congressional leaders who found it buried in 40 boxes of subpoenaed documents, had proven prescient. Now, more than a dozen federal agencies and Capitol Hill committees are probing the mushrooming morass--the latest news being that Enron and Andersen employees continued to shred documents even after it was clear that Congress was opening what could become a criminal investigation.
More important to hundreds of employees who saw their retirement packages collapse with the failing stock price, Watkins's memo was also key evidence that Lay and other Enron execs knew about the company's precarious finances well before they alerted the staff or the public. "She's one of the few ethical bright spots," says Barbara Shook, a Houston energy-industry analyst, of Watkins. Adds Watkins's sister, homemaker Julie Reagan, 40: "She couldn't believe what people were getting away with, and she didn't think it was right. I'm so proud of her I'm about to pop."
Watkins, who lives in Houston with husband Rick, 51, an executive for a Canadian oil and gas firm, and their daughter Marion, 2, doesn't regret sending the memo. "The die was already cast," she says through her lawyer, Philip Hilder. "My take on it changed nothing." Life at Enron, where she is still employed, has been "extremely painful, as it is for everybody, with the company under fire," she adds. Watkins has been subpoenaed to testify before the Securities and Exchange Commission, and more subpoenas are likely.
In and out of the office, Watkins has left a variety of impressions--some good and some bad, but all forceful. Friends say they value her sometimes rough honesty: She once told her sister Julie that a picture frame Julie had given her was "the tackiest thing I've ever seen." Coworkers see her as hard-driving, with one Enron employee likening her to "a bull in a china shop." Her former secretary Wilma Williams, 60, disagrees. "Sherron wasn't abrasive; she just expected people to do their job," Williams recalls.
Her frankness and salty language even had some coworkers buzzing that she was a New Yorker. In fact, Watkins was raised in the Houston suburb of Tomball, Texas. (Singer Lyle Lovett is her second cousin.) Her mother, a retired accounting teacher divorced from her daughters' attorney father, Dan C. Smith, 67, encouraged Sherron to go into accounting. "It's an area in which women can be accepted on an equal basis," Harrington says. Watkins earned bachelor's and master's degrees at the University of Texas. "She was brilliant," says friend Anne Benolken, 42. "You know the way girls in college often act more stupid than they are or try not to make waves? Not Sherron, she'd always stir the pot."
Watkins began her career as an auditor for Arthur Andersen. She then moved to a firm in New York City, MG Trade Finance Group, before returning to Houston to work for up-and-coming energy wholesaler Enron in 1993. In 1997 she wed Rick, whom she had met at Houston's First Presbyterian Church.
By last summer Watkins had come to suspect that Enron, which FORTUNE ranked as the seventh-largest company in the U.S. last year, was a house of cards. When Enron CEO Jeffrey Skilling resigned in August, chairman Lay invited employees to forward any concerns to him. Watkins sent him the first page of her memo detailing her uneasiness about "funny" accounting to hide company losses. "Has Enron become a risky place to work?" she asked.
On Aug. 22 Watkins met with Lay, who told the company's law firm to look into the matter. The firm reported in October that the practices might make the company look bad but did not appear to be illegal. But Watkins's fears rapidly came to pass. Since December, Enron has fired more than 4,000 employees, and thousands of others have lost much of their life savings. Watkins was fortunate in having sold some stock in 1999 to buy her house.
Watkins doesn't relish the prospect of playing a pivotal and highly visible role in the ongoing investigation. "The only good thing that might come out of all this," she says, "is there may be certain reforms so that there won't be another Enron."
--Samantha Miller --Gabrielle Cosgriff in Houston

COLOR PHOTO: STEVE LISS/GAMMA "It's difficult to be thrust into the spotlight," says Watkins (at home in Houston). "It all happened so quickly I haven't had time to reflect." COLOR PHOTO: JAMES NIELSEN/GETTY IMAGES Enron was once worth $60 billion. COLOR PHOTO: COURTESY WATKINS FAMILY "Sherron did something very courageous," says her husband, Rick (with her and Marion in 1999).
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

California; Editorial Pages Desk
Two 'Evildoers' Meet at the Bar of Justice

01/29/2002
Los Angeles Times
Home Edition
B-12
Copyright 2002 / The Times Mirror Company

Re "Enron Auditor Says Fired Partner Drove Shredding," Jan. 25: The difference between "evildoers" and the sheep who follow became apparent last week. David Duncan, former partner of the Andersen accounting firm, appeared before Congress in an expensive suit, protected by lawyers, and refused to answer any questions that were put to him, and he walked out.
On the sheep side, John Walker Lindh was brought to court in chains, sporting the latest in prison jumpsuits, and was returned to his maximum security cell ("U.S. Talib Goes to Court on Conspiracy Counts," Jan. 25). My guess is that Duncan will cut a deal and serve no time for ratting out the other Enron evildoers. And Lindh will be on the fast track for life in a federal prison.
Bill Parish
Ontario
*
Johnny the Kid came from good stock. As an adventurous young lad he chose the excitement of riding with the notorious Osama bin Laden gang. The sheriff and his posse combed the hills until they rounded up the gang--minus the leader. The townspeople were outraged to find Johnny hiding out with the band of outlaws. They found the Kid guilty, by public opinion, and hung him in the town square for all to see.
Meanwhile, across town, due to lack of funds, the bank of Enron was shutting its doors. As the local ranchers were pounding on the front door demanding their money, the banker and his assistants were stuffing their satchels with cash. The dirty sidewinders ducked out the back door and caught the first stage out of town.
The sheriff and his deputies were torn as they formed a posse to give chase. They were good pals of the banker, for he had contributed greatly in getting them their jobs. So, when they returned empty-handed, saying they lost the trail, the townsfolk eyed them suspiciously. Rumor has it that the banker settled in another town and opened a new bank.
To be continued. . . .
Albert Obregon
Sunland
*
Ain't that the pot calling the kettle black?
While the actions of Enron and its auditor Andersen are deplorable, I can't help but be amused at our government's posturing and outrage. The U.S. government is the master of creative accounting. Billions are accounted for off balance sheets and the financial condition of the country is grossly misrepresented.
Unfortunately, average Americans don't appear to be overly concerned with the big picture as long as they get theirs and life continues along in the same pattern. I fear that one day the charade of governmental accounting will catch up to us (possibly when Social Security goes bankrupt) and, like Enron investors, the public will be left wondering how this could have happened.
Erik Messinger
Anaheim Hills
*
It was a fast, great decision to freeze the assets of the backers of terrorism. The administration would hardly make the same decision against the executive class no matter how crooked and conniving members of the Enron hierarchy were to their own workers.
It would be too simple to freeze the assets on stock traded as of a set date in volume over 1,000 shares and give that money back to the pension fund. It would certainly take fewer lawyers, who are about to drain away whatever is left.
Lou Bock
Santa Monica
*
Re "Federal Agents Probe Shredding Inside Enron," Jan. 23: "I'm absolutely confident the American people know that my administration has acted the right way," President Bush said. Then, Dubya, you wouldn't mind turning over all printed, recorded and digital information taken before, during and after your administration's energy meetings with Kenneth Lay or his agents, would you? As a voting American about to be stiffed for your bankrupt pal's losses, I have a right to know.
Stephen Pitt
Moreno Valley

PHOTO: David Duncan; ; PHOTOGRAPHER: Reuters
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

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