Lawyers agree on order to safeguard documents
Houston Chronicle, 01/23/2002

Investigators issue four subpoenas
Two witnesses described as resisting testimony
Houston Chronicle, 01/22/2002

COMPANIES & FINANCE THE AMERICAS - Enron judge asks for a plan to stop shredding TRADER'S COLLAPSE ...
Financial Times, 01/23/2002

COMPANIES & FINANCE THE AMERICAS - Plaintiffs join to halt shredding.
Financial Times, 01/23/2002

BACK PAGE - FIRST SECTION - Shredding storm may leave Enron's defence in tatters.
Financial Times, 01/23/2002

Bush defends actions on Enron
President says his mother-in-law was one of collapse's victims
Houston Chronicle, 01/22/2002

Andersen Ex-Staffer May Invoke Fifth Amendment on Capitol Hill --- Hearings Approach as FBI Seizes Shredded Papers, Bush Defends Stance
The Wall Street Journal, 01/23/2002

Accounting for Enron: Enron Pensions Had More Room at the Top --- Executives' Benefits Grew As Retirement Plans Of Employees Were Cut
The Wall Street Journal, 01/23/2002

ENRON'S COLLAPSE: THE CHAIRMAN
Chief's Words Paint Hands-Off Image, but Actions Offer Different View
The New York Times, 01/23/2002

Enron creditors seek outside supervision
Court to review options
Houston Chronicle, 01/22/2002

Security team leaves Enron to form firm
Group to continue working through consulting contract
Houston Chronicle, 01/22/2002

ENRON'S COLLAPSE: THE OVERVIEW
In Shift, Bush Assails Enron Over Handling of Collapse
The New York Times, 01/23/2002

ENRON'S COLLAPSE
Kind Words for Andersen
The New York Times, 01/23/2002

ENRON'S COLLAPSE: THE LAWYER
Seeking Top Berth In Pursuit Of Enron
The New York Times, 01/23/2002

Cast Prepares for Congressional Curtain to Rise on Enron Scandal
The Wall Street Journal, 01/23/2002

Unaccountable in Washington
The New York Times, 01/23/2002

Bush Makes Recess Appointment to SEC
The Wall Street Journal, 01/23/2002

Enron debacle could bring problems for Gramms
Senator could face conflict of interest if his wife is questioned by lawmakers
Houston Chronicle, 01/22/2002

Auditor Independence: The SEC Chairman Doesn't Get It
The Wall Street Journal, 01/23/2002

Accounting for Enron: Resources, Power Of State Authorities Tested by Andersen
The Wall Street Journal, 01/23/2002

Accounting Industry Review Board Votes to End Its Existence in Protest
The Wall Street Journal, 01/23/2002

Bidders Circle Over Enron's Indian Unit, Raising Prospect That It May Be Split Up
The Wall Street Journal, 01/23/2002

Spinoff pays bill for sins of its parent
Enron partner bound by promises not kept
Houston Chronicle, 01/22/2002

ENRON'S COLLAPSE: REGULATIONS
Exemption Won In '97 Set Stage For Enron Woes
The New York Times, 01/23/2002

Enron: A simple question of right and wrong
USA Today, 01/22/2002

Business World: Enron For Beginners
The Wall Street Journal, 01/23/2002

The Enron scandal ; By the numbers
USA Today, 01/22/2002

ENRON'S COLLAPSE: THE INVESTORS
In 401(k) Plans, a New Rush to Diversify
The New York Times, 01/23/2002

New Order: Amid Enron's Fallout, And a Sinking Stock, Tyco Plans a Breakup --- Giant's Surprise Move Comes As More Companies Face Push for Clearer Numbers --- Suffering for Another's `Sins'
The Wall Street Journal, 01/23/2002

Letters to the Editor
Enron and the Culture of Greed
The New York Times, 01/23/2002

___________________________________________________________________________

Lawyers agree on order to safeguard documents
By ROSANNA RUIZ
Copyright 2002 Houston Chronicle
Jan. 23, 2002, 12:35AM
Attorneys for Enron shareholders agreed late Tuesday on a proposed restraining order to safeguard financial documents and investigate their destruction by employees of the company and its auditor, Arthur Andersen.
Also on Tuesday, FBI agents began an initial investigation into claims that as recently as Monday Enron employees were still shredding documents.
More than a dozen lawyers representing scores of plaintiffs hammered out the agreement after being told earlier in the day by U.S. District Judge Melinda Harmon to draft a temporary restraining order they could agree on.
The lawyers will submit the order to Arthur Andersen this morning for review. Harmon will make her decision today.
The proposed order calls for plaintiffs' attorneys to have full access to all Enron-related documents at Andersen offices or some centralized location.
The attorneys also want Harmon to allow them to expedite the discovery process and depose, among others, Enron Chairman Ken Lay and Andersen's lead auditor for the Enron account, David Duncan, who was fired last week after shredding of documents at the company's Houston office became public.
"Arthur Andersen tells us unilaterally what's going on and we won't allow that to stand," said Bill Lerach, an attorney for Amalgamated Bank, a plaintiff in the suit against Enron officials.
The attorneys had filed various motions with Harmon, seeking, among other things, the assignment of U.S. marshals to protect documents at Enron and Andersen, establishing a court-supervised repository for all documents, and allowing computer specialists to try to retrieve deleted electronic data.
During Tuesday's hearing, Lerach told Harmon that former Enron executive Maureen Castaneda had said she saw documents being shredded as recently as last week, despite a Securities and Exchange Commission investigation that began in October.
Lerach said Castaneda is only one of a handful of former Enron employees with similar accounts of document shredding and other information.
"There is no question (Enron) destroyed documents," Lerach said while standing near a box brimming with shredded paper Castaneda gave him.
"These people began shredding when they knew regulators would soon be coming after them."
New York-based Amalgamated Bank manages pension funds that lost $17 million in Enron stock. In its lawsuit, Amalgamated alleges that 29 Enron executives and board members sold $1.1 billion in Enron stock over three years knowing that the stock was overvalued.
Enron attorney Ken Marks said in court that once the allegations about the shredding surfaced, company officials went to the finance department to investigate and found shredded paper in a trash bin. Authorities were then contacted, including the SEC, Justice Department and FBI.
Marks said Enron officials are unsure what documents were destroyed and that there may be an "innocent" explanation for the shredding.
"People may have gotten rid of duplicates," Marks said. "We are treating this matter with the utmost seriousness."
Marks said during Tuesday morning's hearing that FBI agents already had secured the two finance department floors at Enron's downtown office.
But FBI spokesman Bob Doguim said that two agents arrived at the building only late Tuesday and had not been sent there at Enron's request.
"We're conducting a logical preliminary investigation," Doguim said.
In a statement, Enron officials announced that after the shredding allegations surfaced, immediate steps were taken to preserve the "site where the alleged document destruction took place" and that Enron would cooperate fully with federal investigators.
Andersen officials admitted recently that documents were shredded after the SEC began its investigation. Last week, Andersen said, it fired Duncan in the wake of disclosures that he had ordered the destruction of thousands of documents.
Andersen's attorney, Rusty Hardin, said at Tuesday's hearing that the firm promptly "self-reported" the shredding.
Hardin assured Harmon that the "shredding is over" at Andersen and that the firm could be trusted to preserve Enron documents.
Hardin also said Andersen has begun to collect laptops, Palm Pilots, 3,000 backup computer tapes of existing documents and other materials relevant to the Enron case.
Hardin also questioned the timing of Lerach's public announcement about papers being shredded at Enron just hours before Harmon was to make her ruling.
Lerach responded that the publicity had forced Enron's subsequent cooperation with investigators.
Chronicle reporter Dale Lezon contributed to this story.

Investigators issue four subpoenas
Two witnesses described as resisting testimony
By JULIE MASON
Copyright 2002 Houston Chronicle Washington Bureau
Jan. 22, 2002, 11:54PM
WASHINGTON -- Problems with two Arthur Andersen witnesses in the unfolding probe of Enron Corp. forced congressional investigators to issue subpoenas Tuesday night for a hearing on the destruction of evidence.
The House Energy and Commerce Committee subpoenaed Andersen CEO Joseph Berardino, fired auditor David Duncan, attorney Nancy Temple and risk manager Michael Odom.
While the demands for testimony from Temple and Odom are regarded as "friendly," Berardino and Duncan are throwing up roadblocks, said committee spokesman Ken Johnson.
"Mr. Duncan's attorneys have indicated he will in all likelihood invoke his Fifth Amendment constitutional right" against self-incrimination, Johnson said.
A wave of congressional hearings into the collapse of Enron start Thursday with testimony on document destruction scheduled by the oversight and investigations subcommittee of the Energy Committee.
Andersen fired Duncan last week, saying he orchestrated the destruction of thousands of documents after learning the Securities and Exchange Commission was investigating Enron's books. Duncan has since been cooperating behind the scenes with congressional investigators.
Johnson said House officials regard it as inconsistent for Duncan to provide detailed information to the committee while refusing to testify publicly.
"There are many things he told the committee that we believe he can repeat under oath without incriminating himself, and we expect him to do so," Johnson said.
Robert Giuffra, Duncan's attorney in New York, said no decision has been made regarding Duncan's testimony.
"We have not received a subpoena and we have not made a final decision on whether he will testify," Giuffra said.
If Duncan refuses to testify, Johnson said remedies under consideration by the committee include charging him with contempt of Congress, the penalty for which can be a year in jail and a $10,000 fine.
Berardino, meanwhile, also is expected to testify Thursday, but Andersen officials have told the committee he wants to postpone.
"Andersen has offered to provide the committee with the witness in a week or so, and that is not acceptable to us," Johnson said. "Mr. Berardino found time to appear on Meet the Press last weekend, and we believe he should be obliged to appear before Congress as well."
Berardino, who has been at the forefront of defending the Chicago-based Big Five accounting firm's conduct in the Enron matter, made an appearance on the Sunday talk show.
Patrick Dorton, spokesman for Andersen, said Berardino wants to cooperate with the committee.
"We have directly told the committee we are willing to testify; it's only a question of when," Dorton said.
The subpoenas follow a long weekend of back-and-forth between the committee and its would-be witnesses, and signal a heightening of tension as the investigation progresses.
Temple, Andersen's in-house counsel and author of an ambiguous Oct. 12 memo on the company's document-retention policy, is expected to cooperate with the committee summons, Johnson said.
Odom, Andersen's risk management partner in Houston who was the recipient of Temple's Oct. 12 e-mail, also is considered a friendly witness.
"They both have agreed to testify before the committee and cooperate with investigators," Johnson said. "Obviously they have certain client confidentiality concerns, and compelling them to testify provides them with some cover from any possible civil litigation by Enron."
Duncan, Temple and Odom are central figures in the probe of document destruction relating to Andersen's work on behalf of Enron.
Duncan, who was Andersen's lead partner on the Enron account, is accused by his former employer of ordering a massive destruction of documents beginning Oct. 23, after learning the SEC was investigating Enron's books.
Duncan, who has said through his attorneys that he followed company policy and did nothing wrong, was fired by Andersen Jan. 15 and began cooperating with congressional investigators the next day.
The shredding at Andersen stopped after Temple, an in-house lawyer for the firm in Chicago, wrote a memo telling employees to preserve documents.
Temple's instruction followed word on Nov. 9 that the SEC had subpoenaed Andersen -- weeks after the SEC opened its probe of Enron.
House investigators want to know whether Andersen's legal department intentionally stalled on issuing the order to preserve documents until after thousands of Enron papers and e-mails had been destroyed.
Weeks earlier, Temple sent Odom the e-mail referencing the firm's policy on document destruction and retention.
Coming as it did days before Enron's calamitous Oct. 16 third-quarter earnings report, thee-mail has been the focus of zealous scrutiny by House and Senate investigators tracking Andersen's destruction of evidence.
"Mike -- It might be useful to consider reminding the engagement team of our documentation and retention policy," Temple wrote in the Oct. 12 memo. "It will be helpful to make sure that we have complied with the policy."
Temple's e-mail included a link to the company's policy, which outlines which sorts of documents should be destroyed and which retained.
Four days later, Enron reported a $638 million third-quarter loss and disclosed a $1.2 billion reduction in shareholder equity.
The devastating report was the start of Enron's stunning free fall, culminating in the largest-ever corporate bankruptcy on Dec. 2.
Andersen has acknowledged the apparent impropriety of its document shredding, but said Temple's e-mail was aimed at preserving evidence.
Odom, who is still employed by Andersen, was moved out of management duties in Houston the day Duncan was fired.
While the destruction of documents is crucial to the probe into Enron's collapse, the central issue is likely to be how involved Andersen management was in creating a corporate structure that misled creditors and shareholders, experts and investigators said.
The House committee's investigation is one of 10 Enron-related probes under way on Capitol Hill.
The SEC and Labor Department also are investigating, and the Justice Department has opened a criminal probe.

COMPANIES & FINANCE THE AMERICAS - Enron judge asks for a plan to stop shredding TRADER'S COLLAPSE ...
By SHEILA MCNULTY.

01/23/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

COMPANIES & FINANCE THE AMERICAS - Enron judge asks for a plan to stop shredding TRADER'S COLLAPSE ARTHUR ANDERSEN MUST AGREE WITH PLAINTIFFS TO HALT DESTRUCTION OF DOCUMENTS.
A US federal judge asked plaintiffs in a series of lawsuits against Enron to agree to a plan by today with Arthur Andersen to end the shredding of Enron-related documents by Enron's former accountant.
The plaintiffs, whose representatives filled two tables in the packed courtroom of US District Judge Melinda Harmon, had offered a variety of proposals, some giving Andersen 20 days and some demanding the court take immediate custody of the remaining documents.
Rusty Hardin, representing Arthur Andersen, said there could be up to 20m documents involved. But plaintiffs were unsympathetic, noting the accounting firm had admitted documents were destroyed, while four to five former Enron employees have confirmed trash bags were routinely filled on the 19th floor of the Enron building with shredded documents.
One of the employees, Maureen Raymond Castaneda, director of foreign exchange and sovereign risk, seized a cardboard box overflowing with shredded paper when she was laid off last week, Paul Howes, of Milberg Weiss Bershad Hynes & Lerach, told the Financial Times.
Enron has denied any knowledge of shredding and vowed strict action against anyone involved, saying it had sent out four emails warning staff against destroying evidence. The company sealed off the site where the former employees said the shredding had taken place since November.
Mark Palmer, Enron spokesman, said the company's lawyer, Bob Bennett, contacted the Department of Justice yesterday and offered to co-operate in any investigation. The department and the FBI immediately sent investigators to the Enron headquarters.
The plaintiffs pointed repeatedly at the box of shredded paper in making their case. "These are not five-year-old payroll records," said Bill Lerach of Milberg, representing Enron shareholder Amalgamated Bank in the case. "They contain the names of the illicit partnerships. These were current documents."
He said it was not enough to take the word of Enron and Arthur Andersen executives that no further documents would be destroyed.
Neil Rothstein of Scott and Scott of Connecticut, which is representing the Archdiocese of Milwaukee Supporting Fund in the case against Enron, said: "This is criminal behaviour. This has to stop now, today. We have no idea whether this is going on right this minute."
(c) Copyright Financial Times Ltd. All rights reserved.
http://www.ft.com.

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

COMPANIES & FINANCE THE AMERICAS - Plaintiffs join to halt shredding.
By SHEILA MCNULTY.

01/23/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

Plaintiffs in a series of lawsuits against Enron joined yesterday to ask a federal court judge to order an immediate end to the shredding of documents by Enron and its former accountant Arthur Andersen, and to take custody of remaining documents.
The plaintiffs noted that Andersen had admitted that documents were destroyed, while several Enron employees confirmed trash bags were filled routinely on floor 19 of Enron's building with shredded documents.
One former Enron employee brought a box of shreddings to the court. "These are not five-year-old payroll records," said Bill Lerach of Milberg Weiss Bershad Hynes & Lerach, representing Enron shareholder Amalgamated Bank in the case. "They contain the names of the illicit partnerships. These were current documents."
The word of Enron and Andersen executives that no further documents would be destroyed was inadequate, Mr Lerach said, particularly as Andersen had been involved in similar cases, including that of Houston-based Waste Management.
Andersen agreed to pay the Securities and Exchange Commission $7m in June last year without admitting or denying liability to settle SEC allegations of audit fraud after Waste Management had made the largest profits restatement in US history. Andersen then agreed in November to pay a further $20m to Waste Management shareholders for failing to uncover the problems.
Neil Rothstein of Scott & Scott of Connecticut, representing the Archdiocese of Milwaukee Supporting Fund against Enron, objected to the suggestion by some plaintiffs that the companies be given 20 days to get records in order.
"This is criminal behaviour," he said pointing to the box of shreddings. "This has to stop now."
(c) Copyright Financial Times Ltd. All rights reserved.
http://www.ft.com.

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

BACK PAGE - FIRST SECTION - Shredding storm may leave Enron's defence in tatters.
By PETER SPIEGEL.

01/23/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

BACK PAGE - FIRST SECTION - Shredding storm may leave Enron's defence in tatters - Revelations raise questions about what group was trying to hide, says Peter Spiegel.
It has become axiomatic in the world of US political and financial scandals that it is not the original wrongdoing that brings down the powerful - it is the cover-up.
During Watergate, the measure by which all American scandals are judged, the break-in at Democratic party headquarters by a handful of amateur burglars would not have led to President Richard Nixon's resignation. It was his effort to conceal the burglars' ties to his campaign that forced him out of office.
Similarly, in the past week the escalating Enron controversy has shifted from a complicated inquiry into possibly improper use of accounting principles, to an examination of document-shredding at both Enron and its Andersen auditors - and what they were trying to hide.
Enron said yesterday that the question had already become the subject of a Federal Bureau of Investigation probe. Following accusations by aformer employee that Enron officials were destroying records, the company's lawyers yesterday asked the Justice Department to send in FBI agents to find out what happened.
On Capitol Hill, the shredding has also turned perceptions of Enron. Once viewed as a high-flyer with a failed business model and some questionable accounting practices, top investigators are increasingly convinced there was long-term dishonesty at the heart of the company.
"There's no question in my mind the conduct of Enron and some key figures at Andersen served to deprive investors of information they should have had," Republican James Greenwood, head of one of the most important congressional inquiries, said in an interview this week. "That was done for very unethical reasons."
When the collapse of Enron, once the US's seventh largest company, remained a question of accounting rules, defences were plausible. Off-balance sheet partnerships are, after all, perfectly legal and they enabled the company to avoid scrutiny of its debts.
But when the losses were fully disclosed on October 16, investors fled and the giant energy trader sank into bankruptcy.
The closeness of the relationships between Enron and the partnerships have led to questions about whether they were truly independent companies operating at arm's length, but Enron lawyers have repeatedly pointed out that the practice of using them can be found in any graduate accounting text book.
Shredding documents, however, is not in any text book. Record destruction by itself can be a crime, particularly when it occurs after the opening of a federal investigation or the filing of a lawsuit.
Andersen's shredding began in earnest on October 23, the day after Enron publicly acknowledged it had been contacted by the Securities and Exchange Commission, the US financial regulator. It continued until November 9, the day after Andersen received an SEC subpoena.
If former Enron employees are to be believed, Enron itself was shredding documents about the private partnerships just last week - months after the opening of a formal SEC investigation, weeks after the filings of dozens of lawsuits and days after the Justice Department acknowledged it had launched a criminal inquiry into the company.
Beyond the potential criminality of the record destruction, however, the act of shredding brings with it practical and legal assumptions which call into question the very defences Enron and Andersen have made of their accounting practices. If the partnerships were indeed perfectly legitimate, why the need to destroy documents?
There are also signals that the shredding revelations have moved the Enron controversy from the realm of hard-core scandal-watchers into US living rooms. Early last week, Gallup issued a poll that showed only 18 per cent of the American public was following Enron news very closely. But yesterday, Maureen Castaneda, the former Enron executive accusing the company of shredding, could be seen everywhere on television news.
In their defence, Enron and Andersen have insisted there was no company-wide order to destroy papers. Andersen has attempted to point the finger at its Houston office, where it has fired David Duncan, its lead Enron auditor, and disciplined seven colleagues. But it is a defence that has been difficult to maintain following revelations that officials from Andersen's Chicago head office were having frequent discussions with Mr Duncan about Enron's troubles well before the shredding began.
It is now Enron's turn to make its case, arguing that it sent repeated missives ordering staff to gather documents, as legally required of companies facing litigation. One such e-mail, obtained by the Financial Times and sent on October 31, congratulated employees on their "excellent work" at securing electronic data. "Please err on the side of retention of documents," the e-mail said.
The shredding storm may prove immaterial for the company, already in bankruptcy. But the revelations could make all the difference when the time comes to judge whether anyone at Enron should land in prison. DIY chain fraud trial, Page 3 US watchdog to vanish, Page 21 Enron collapse, Page 27 www.ft.com/enroninquiry.
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Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Bush defends actions on Enron
President says his mother-in-law was one of collapse's victims
By BENNETT ROTH
Copyright 2002 Houston Chronicle Washington Bureau
Jan. 22, 2002, 9:52PM
WASHINGTON -- President Bush on Tuesday defended his administration's handling of the Enron debacle and portrayed his mother-in-law as a victim of the sudden collapse of the energy company's once-soaring stock.
Although he visited West Virginia to promote his energy and economic plans, Bush was also forced to address the controversy over Enron, which contributed generously to his campaigns and unsuccessfully sought White House help last fall as its financial situation soured.
In his first comments on the issue since it was revealed that members of his administration had spoken with Enron chief Ken Lay last fall, Bush said he was not worried that the issue would hurt his reputation or was distracting from his agenda.
"Our administration has done the exact right thing," Bush said. "There have been a couple of contacts with people in my Cabinet. And my Cabinet officers said, `No help here.' "
The president said he sympathized with the Houston company's investors, including his mother-in-law, Jenna Welch, who lost nearly all of her investment.
"What I am outraged about is that employees didn't know all the facts about Enron. My own mother-in-law bought stock last summer, and it's not worth anything now," Bush said.
The president said his mother-in-law, like other investors, "didn't know all the facts" about the company's financial situation.
"And that's wrong," Bush said.
The White House later explained that on Sept. 21, 1999, Welch purchased 200 shares of Enron stock at $40.90 a share for a total investment of $8,180.
Last Dec. 4 -- two days after the company declared bankruptcy -- Welch sold her Enron stock at 42 cents a share for a total of $84.
The daily revelations about Enron and the company's contacts with the Bush administration have lately overshadowed the White House's efforts to focus attention on terrorism and the economy.
Even during the trip to Belle, W.Va., reporters peppered Bush with questions on Enron as he toured a machinery company.
With a number of congressional committees set to begin hearings on Enron this week, Bush warned lawmakers about dwelling too much on the issue.
"The Congress needs to stay focussed on the American people," Bush said. "We're running a war. We've got to make sure our homeland is secure. And we've got to make sure people can find work."
To respond to Enron's problems, Bush has called for more corporate disclosure of financial information and directed the Labor Department to look into tighter regulation of 401(k) retirement accounts.
But the president has balked at releasing information about all administration contacts with Enron unless there is an accusation of wrongdoing.
"If somebody has an accusation of wrongdoing, just let me know," he said. The administration recently revealed that Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans spoke with Lay last fall but concluded nothing should be done to help the company.
White House economics adviser Lawrence Lindsey also studied the Enron situation and reached the same conclusion.
Bush also defended the administration's decision not to release records of Vice President Dick Cheney's energy task force, which met six times with Enron officials last year.
"We laid out the energy report. It's fully disclosed," Bush said.
But critics, including many Democratic lawmakers and environmentalists, argued that accounts of the task force meetings may reveal how Bush's top contributors in the energy industry, including Enron, played a major role in shaping the energy blueprint.
Sen. John Kerry, D-Mass, who unveiled an alternative to Bush's energy plan on Tuesday, said that Enron and other companies were allowed an "access bonanza " to Cheney's task force.
"As a result, those most heavily invested in the current energy system have set a course for the future, which, surprisingly, champions status-quo policies at the expense of new ideas and innovation," Kerry said.
The Massachusetts senator and possible presidential contender in 2004 said energy policy should focus on raising fuel standards for large vehicles and increasing government incentives for renewable energy like wind and solar power.
Kerry opposed Bush's proposal for drilling in Alaska's environmentally sensitive Arctic National Wildlife Refuge.
The president renewed his call for drilling in Alaska in a speech to workers in West Virginia. And deep in the heart of the coal mining belt, Bush drew cheers when he said, "We need to use coal."
Bush spokesman Ari Fleischer denied the allegation by Democrats and environmentalists that Cheney's task force was largely influenced by the energy industry and said environmentalists such as the Sierra Club had equal access.
"The president thinks that access should be across the board. And that's why the Sierra Club, for example, as you know, met repeatedly with the energy task force," Fleischer said.
However, a Sierra Club official said the group met just twice with the administration and only after the energy task force report was unveiled last May.
"I think Mr. Fleischer is mistaken. Enron had three times the meetings we did," said Daniel Becker, the director of global warming and energy programs at the Sierra Club.
Becker said Sierra officials met with Cheney on June 6 after the environmental group had blasted the energy task force recommendations. The environmental group also met with administration officials in July to discuss fuel mileage standards for cars.
Chronicle reporter Julie Mason contributed to this story.

Andersen Ex-Staffer May Invoke Fifth Amendment on Capitol Hill --- Hearings Approach as FBI Seizes Shredded Papers, Bush Defends Stance
By Tom Hamburger
Staff Reporter of The Wall Street Journal

01/23/2002
The Wall Street Journal
A3
(Copyright (c) 2002, Dow Jones & Company, Inc.)

The Arthur Andersen LLP executive fired for destroying documents related to Enron Corp. has told a House committee through counsel that he may invoke his Fifth Amendment right against potential self-incrimination to avoid testifying at a hearing tomorrow, people familiar with the matter say.
David Duncan, the head of Andersen's Houston office, oversaw the auditing of Enron's books and is at the center of a congressional investigation into the destruction of documents. The shredding continued after the Securities and Exchange Commission began an inquiry during the fall into Enron's accounting practices, which helped force the giant Houston energy company into bankruptcy-court proceedings last month.
"We are sending Mr. Duncan what we call an unfriendly subpoena," said Ken Johnson, a spokesman for the House Energy and Commerce Committee's chairman, Republican Rep. Billy Tauzin of Louisiana. During talks with Mr. Duncan's lawyers, "we were told in all likelihood that he would take the Fifth," Mr. Johnson said.
A lawyer for Mr. Duncan, Vince DiBlasi, said, "No decision has been made" about whether his client would decline to testify.
The committee also plans to issue subpoenas to three other Andersen executives, including Chief Executive Joseph Berardino, who had resisted testifying again this week after appearing before another House panel late last year, Mr. Johnson said. A spokesman for Mr. Berardino said, "We have said repeatedly that we will testify. It's only a question of when."
The other two agreed to testify at tomorrow's hearing before the Oversight and Investigations Subcommittee but requested subpoenas, Mr. Johnson said. One of them is Nancy Temple, a lawyer in the firm's Chicago headquarters whose e-mailed reminder of the firm's document-destruction-and-retention policy has been cited by Mr. Duncan in explaining his actions. The other is Michael Odom, head of risk management in Andersen's Houston office, who forwarded Ms. Temple's e-mail to Mr. Duncan.
Another Andersen executive in the Houston office, meanwhile, pointed a finger yesterday at the Chicago headquarters in explaining the document destruction, according to a person familiar with the House committee's interview with him. That development followed a decision by the Federal Bureau of Investigation to begin looking into the reported shredding of documents at Enron's headquarters in Houston. Mr. Johnson said the committee plans to hold additional hearings into alleged document destruction at Enron "very soon."
Also yesterday, President Bush offered his most extensive defense to date of his administration's handling of the Enron debacle, saying officials acted properly in refusing to help the company avoid bankruptcy court and portraying his own family as a victim of the collapse.
Asked about Enron by a reporter while visiting a West Virginia factory to promote his economic agenda, Mr. Bush said Treasury Secretary Paul O'Neill and Commerce Secretary Donald Evans did the "exact right thing" in refusing to help Enron CEO Kenneth Lay when he called during the fall seeking federal intervention. "My cabinet officers said: `No help here,' " he said.
Mr. Bush said his mother-in-law, Jenna Welch, bought 200 shares of Enron stock on Sept. 21, 1999, at $40.90 each for a total of $8,180. Mrs. Welch sold them on Dec. 4, two days after Enron filed in bankruptcy court, for 42 cents a share, for a loss of $8,096. "If she had known all the facts, I don't know what her decision would have been," the president said. "But she didn't know all the facts."
One of Congress's most powerful Democrats weighed in on the scandal, too. "Enron raises serious questions about whether we can contemplate the deregulation of electric utility sales," said Michigan Rep. John Dingell, the Energy and Commerce Committee's ranking minority member, who has longstanding concerns about such proposals. Mr. Dingell also said he favors new rules to restrict the ability of accounting firms to obtain lucrative consulting contracts from companies they audit.
In Houston, FBI agents began interviewing Enron employees and seized a trash can full of shredded documents. An Enron lawyer, Kenneth Marks, disclosed the FBI action, later confirmed by FBI officials in Washington, at a packed federal court hearing in Houston on one of numerous private-investors suits against the company.
Plaintiff lawyer William Lerach brought a large cardboard box containing shredded papers that he said had been supplied by a former Enron worker, one of three who asserted in interviews during the week that documents had been destroyed after the SEC began investigating Enron in October. If intended to thwart investigators, document destruction could amount to criminal obstruction of justice.
The former employees said they saw shredded documents on the 19th floor of Enron headquarters, home to accounting operations at the center of investigations into its collapse. The shreds reportedly contained the names of private partnerships that are the focus of the probes.
Mr. Marks, the Enron attorney, said company officials "located a single trash can with shredded material." The material was "secured and bagged," and guards were stationed on the 19th and 20th floors, he said. "We don't know what happened here," he added, asserting that there were various possible explanations, some "completely innocent." Enron informed the Justice Department and the SEC about the matter, he said, adding that the Justice Department dispatched the FBI to the scene.
The House committee's investigators yesterday interviewed another Andersen executive from Houston, Thomas Bauer. Mr. Bauer's account, relayed by a person familiar with his interview, appears to bolster Mr. Duncan's defense. Mr. Duncan has told investigators he oversaw the destruction of Enron documents after receiving Ms. Temple's Oct. 12 e-mail reminder of the company's document-disposal-and-retention policy and immediately halted it after receiving word from her on Nov. 9 that Enron-related documents had been subpoenaed.
Mr. Bauer told investigators that he assumed document destruction and retention should continue per the policy until told differently by Andersen lawyers. Like Mr. Duncan, Mr. Bauer also said he didn't think it was necessary to preserve all Enron-related documents because Andersen hadn't received a subpoena at that point.
Congressional investigators are dubious of that defense, especially given that Andersen's Houston office in early November was sent a copy of a directive from Enron executives to its own employees to preserve all documents. "It sounds like they are pleading idiocy," said Mr. Johnson, the Tauzin spokesman.
Experts say Mr. Duncan appears to be preparing an "advice-of-counsel" defense -- that he had no criminal intent because he was following a policy sent by Ms. Temple, the Andersen lawyer. Reliance on counsel's advice can be "a powerful defense," says Stanley Arkin, a New York attorney not involved in the case. But "if the advice is on its face patently outrageous, patently stupid or violates common sense, it won't excuse the conduct."
---
Jeanne Cummings, John R. Emshwiller and Michael Orey contributed to this article.

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

Accounting for Enron: Enron Pensions Had More Room at the Top --- Executives' Benefits Grew As Retirement Plans Of Employees Were Cut
By Ellen E. Schultz and Theo Francis
Staff Reporters of The Wall Street Journal

01/23/2002
The Wall Street Journal
A4
(Copyright (c) 2002, Dow Jones & Company, Inc.)

At a time when Enron Corp. was cutting back on its employee retirement plans to save money, executive benefits at the energy company kept getting richer.
Beginning in the 1990s, Enron joined many other U.S. companies in trimming its employee-pension and savings-plan benefits to cut costs. But throughout the same period, Enron also was continuing to offer a lavish set of pension and retirement plans for its top executives.
Those benefits, including a lifelong pension and company-paid insurance premiums for Chief Executive Kenneth Lay, are likely to come under more scrutiny, given the effect of Enron's collapse on the company's employees. The U.S. Department of Labor today will hold a briefing on its investigation of Enron's retirement plan.
Not only did Enron workers lose their benefits when they lost their jobs, but they also have seen their retirement plans gutted as Enron's stock, which accounted for as much as 60% of the company's 401(k) plan, has dropped to about 50 cents a share from a peak of $90 last year.
At the same time that employees were locked into much of the Enron stock in their 401(k) plans, executives last year sold shares valued at about $128 million, on top of $486 million in sales in 2000, according to Thomson Financial/Lancer Analytics, which tracks insider transactions. Mr. Lay alone sold shares valued at $29.8 million during that period.
According to company filings, Enron will pay Mr. Lay a pension estimated at $475,042 a year for life. In addition, as part of an agreement Mr. Lay signed with the company in 1996, it agreed to pay a total of $1.25 million in insurance premiums through 2001 on a $12 million life insurance policy. Other executives have similar pension or insurance agreements with Enron.
Such so-called "split-dollar" policies are used to channel executive pension benefits into vehicles that executives can tap or pass on to their heirs, mostly tax-free.
Enron also has a kind of executive 401(k), established in the 1980s, which guarantees executives in the plan minimum returns of 12%.
In addition, at the time the company was reducing pensions for most of its employees, Enron set up an executive savings plan that lets participating executives contribute 25% of their salaries and 100% of their cash bonuses each year. The participants were guaranteed a 9% return on the first two years of the plan, and they were allowed to put their money into an array of investments -- not just Enron stock.
While the existence of Enron's executive benefits is outlined in company filings and Securities and Exchange Commission documents, the total cost of the pension and retirement promises to Enron executives is nearly impossible to measure. The cost of the split-dollar arrangements is largely invisible (only the premiums are reported as an expense), and the benefits that accrue in the executive savings plans (also known as deferred-compensation plans) aren't required to be disclosed. An Enron spokesman didn't respond to requests for comment.
However, filings show that the liability for the executive pensions was $56 million in 2000, or about 8% of the total pension liability for all employees and retirees.
The documents do show that at the same time that Enron was beefing up retirement benefits for its top executives, it was cutting them for its other workers.
According to SEC filings, in 1986 Enron set up an employee stock-ownership plan, which bought 8.7 million shares of Enron stock in exchange for a note of $335 million. To pay off much of this debt, the company in January 1987 terminated its overfunded pension plan, and transferred the $230 million in surplus assets, tax-free, to the ESOP.
Meanwhile, the company set up a new pension plan, transferring into it the assets and liabilities from the old plan; the new plan, though no longer overfunded, was less costly than the old one.
But even though Enron set up an ESOP and a new pension, this doesn't mean Enron employees were to enjoy benefits from both a pension and an ESOP. That is because Enron created a so-called "floor-offset" arrangement between the pension and the ESOP. That meant the benefits employees earned in one plan essentially erased benefits earned in the other. These arrangements have been used by many companies, including Hewlett-Packard Co. and Airborne Inc.
A major reason why companies set up these arrangements is to reduce their pension expense. And, indeed, the "offset" contributed to a significant decline in Enron's pension expense, which was $3.6 million in 1987. After the offset was established, instead of an expense, Enron's pension actually contributed $9.6 million to Enron's bottom line in 1988.
In an unusual step, Enron calculated the ESOP "offsets" based on the price of the stock from 1996 to 2000, when it was trading between $37.75 and $43.44. As previously reported in The Wall Street Journal, it then used the higher locked-in value of the ESOP accounts to permanently cut the value of pensions that employees had earned between January 1987 and January 1995. According to filings, employees had $116 million in ESOP assets at the end of 2000. The assets now are nearly worthless.
Some Enron employees still will receive their pensions -- albeit at the reduced values. How much employees lost depends on the size of the pensions they had earned, and the value of their ESOP accounts from 1996 to 2000.
This arrangement comes to light because Enron sought -- and received -- permission from the Labor Department to change its plan in this fashion; company documents also indicate that Mr. Lay's pension wasn't affected by the ESOP offset.
Not only were the past pensions permanently erased, but the pension going forward, in 1996, also was reduced. At that time, Enron converted the traditional pension to a cash-balance pension, which reduces the benefits build-up for longer-term, older workers.
This fall, as the company slid toward bankruptcy, Enron said it might freeze the pensions of all employees, and it stopped contributing to the 401(k).
---
Cassell Bryan-Low contributed to this article.
--- Do Unto Others . . .

What Enron did to its retirement plans:

-- Used ESOP to get surplus assets from pension plan, tax free.
-- Used ESOP to cut pension expense.
-- Used ESOP to offset pension benefits.
-- Stopped contributing to ESOPs.
-- Converted pension to cash balance pension plan.
-- Froze pension plan of union employees.
-- Locked employees in 401(k) into Enron stock until age 50.
-- In late 2001, stopped contributing to 401(k).

How this affected employees:

-- Pensions earned before 1996 are reduced.
-- Pension earned after 1996 are cut.
-- Pensions for union workers frozen; investment risk increased.
-- ESOPs are now worthless.
-- 401(k)s are devastated.

Source: company documents

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

Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE CHAIRMAN
Chief's Words Paint Hands-Off Image, but Actions Offer Different View
By ALEX BERENSON

01/23/2002
The New York Times
Page 7, Column 1
c. 2002 New York Times Company

Kenneth L. Lay, the chairman of the Enron Corporation, more than once made a point last year of telling people how little he understood about the finances of the company he has run since 1986.
In August, Mr. Lay said in an interview that questions about the deals that Enron used to shift debt off its books were ''way over my head.'' In November, Mr. Lay told Chuck Watson, the chairman of Dynegy, which at the time had agreed to buy Enron, that he had never fully read the financial statements Enron filed with federal regulators, according to Mr. Watson.
But if Mr. Lay's comments left the impression that he was a hands-off chairman, a different picture has emerged over the last 10 days as to what Mr. Lay knew about the company's accounting practices and when he knew it.
Disclosures by Congressional investigators and lawyers suing Enron showed that Mr. Lay helped create and oversee some of the company's suspect financial arrangements. He knew that doubts had been raised about Enron's accounting, even as he encouraged employees to buy Enron shares. About the same time in September and October, Mr. Lay, to avoid facing margin calls as investments in his portfolio lost value, repaid millions in loans from Enron with company stock.
Now, employees who retained their faith in Mr. Lay even as the company was collapsing are criticizing him for breaching their trust. At worst, experts in securities law say, investigators may view Mr. Lay's professions of ignorance as a deliberate effort to distance himself from Enron's problems.
''He's got a lot of trouble,'' said James D. Cox, professor of corporate and securities law at Duke University. Mr. Lay is at risk of facing criminal charges of fraud or insider trading, Mr. Cox said.
''He's going to be spending a lot of time with lawyers; the real fear is on the criminal side,'' Mr. Cox said. ''He could be the next Charles Keating,'' a reference to the savings and loan operator who pleaded guilty to fraud in the 1989 failure of Lincoln Savings and Loan.
Lawyers for Mr. Lay and Enron did not return calls seeking comment.
The first blow to Mr. Lay came Jan. 14, when the House Energy and Commerce Committee released a letter showing that as he publicly proclaimed his ignorance of Enron's financial structure in August, he had been warned by Sherron S. Watkins, an Enron vice president, that the company might ''implode in a wave of accounting scandals.'' In response to the letter, Mr. Lay directed Vinson & Elkins, Enron's law firm, to conduct a limited inquiry -- a review that a lawyer for Ms. Watkins has called a whitewash.
Last Friday, a lawyer representing employees who have sued Enron released a 10-page transcript of an online chat between Mr. Lay and Enron employees on Sept. 26. In the chat, Mr. Lay repeatedly promoted Enron's stock while promising employees that the company's financial reporting was ''legal and totally appropriate.''
Congressional investigators, meanwhile, made public the Vinson & Elkins report. It showed that Mr. Lay approved the creation in 1999 of two of the partnerships, LJM Cayman and LJM2 Co-Investments, that have figured prominently in questions about the company's accounting practices.
In the process, Enron's board, under Mr. Lay's leadership, waived the company's code of ethics to let its chief financial officer, Andrew S. Fastow, run them and profit from them. Losses at those partnerships subsequently forced Enron to erase more than $500 million in shareholders equity, a measure of the company's value.
Finally, on Sunday, Earl J. Silbert, Mr. Lay's lawyer, acknowledged that Mr. Lay had sold some of his Enron stock back to the company in September and October, while Vinson & Elkins was investigating Ms. Watkins's claims. Details of the sales, repayments of a revolving line of credit extended to Mr. Lay by Enron, do not have to be disclosed to the Securities and Exchange Commission until Feb. 14.
The revelation that Mr. Lay encouraged Enron employees to buy stock after he was warned about accounting problems may open him to charges of securities fraud, said Joel Seligman, dean of the Washington University School of Law in St. Louis and co-author of an 11-volume treatise on securities law. The fact that he was disposing of shares at the same time could open him to charges of insider trading, Mr. Seligman added.
''If he knowingly made false statements while he traded stock, he will face criminal liability,'' Mr. Seligman said. Mr. Lay may also face S.E.C. proceedings and already is a defendant in scores of lawsuits.
Even if Mr. Lay did not know the details of the partnerships used by Enron to inflate its earnings, he could be held criminally liable, Mr. Seligman said. As long as Mr. Lay ''understood why they were created, what they were intended to do,'' he said, ''the fact that he didn't know whether they were created in Panama or the Cayman Islands is a detail that would not be material.''
Ira Lee Sorkin, a former director of New York office of the S.E.C. who is now a defense lawyer, cautioned against rushing to judgment. But Mr. Sorkin said the fact that Mr. Lay had disposed of shares after the warning from Ms. Watkins might be difficult for Mr. Lay to explain.
Other securities lawyers have said the fact that Enron, which presumably had the same information about its prospects as Mr. Lay, acquired his shares might protect him from charges of insider trading.
But Mr. Sorkin disagrees. ''If he knew of the information that we now suspect he knew about and paid back the company, knowing full well that this stock is going to drop like a lead balloon,'' Mr. Sorkin said, ''then he's going to have an issue.''

Chart: ''Filling in the Details'' Last summer and fall, as energy prices and Enron's stock fell, Kenneth L. Lay, the company's chairman and chief executive, repeatedly reassured investors and employees, urging them to buy stock and telling them that he knew of no problems at the company. Recent disclosures show that he had been told of concerns about Enron's accounting practices and had disposed of millions of dollars worth of Enron stock to meet obligations on his investments. Public Comments and Disclosures AUG. 14 When Jeffrey K. Skilling suddenly resigns as chief executive, citing ''personal reasons,'' Mr. Lay retakes the job. He says, ''Absolutely no accounting issue, no trading issue, no reserve issue, no previously unknown problem issues''are behind the departure. What Was Going On Behind the Scenes AUG. 15 In the wake of Mr. Skilling's resignation, Sherron S. Watkins, a vice president for corporate development, drops a one-page letter in Mr. Lay's suggestion box. In it she raises questions about Enron's accounting practices. Public Comments and Disclosures AUG. 16 Mr. Lay meets with employees to discuss the departure of Mr. Skilling. What Was Going On Behind the Scenes AUG. 20 Ms. Watkins calls a former colleague at Arthur Andersen, Enron's accounting firm, to tell him of her concerns. Mr. Lay exercises options on 25,000 shares at $20.78 with a total value of $519,500. The stock closes at $36.25. A lawyer for Mr. Lay subsequently explains that he used some of the stock to help repay a line of credit from Enron. Public Comments and Disclosures AUG. 21 Mr. Lay sends an e-mail to employees assuring them that the company is on solid footing. He says in the e-mail that ''one of my highest priorities is to restore investor confidence in Enron. This should result in a significantly higher stock price.'' What Was Going On Behind the Scenes AUG. 21 Four Andersen officials, including David B. Duncan, the lead partner on the Enron account, meet to discuss Ms. Watkins's concerns. According to an Andersen memo, they ''agreed to consult our firm's legal adviser about what actions to take'' in regard to Ms. Watkins's accusations. Mr. Lay exercises options on 68,620 shares at $21.56 with a total value of $1,479,447. The stock closes at $36.88. A lawyer for Mr. Lay said he still holds these shares, which are now trading for less than a dollar. AUG. 22 Ms. Watkins meets with Mr. Lay. She gives him a seven-page letter in which she says that Enron may be an ''elaborate accounting hoax.'' She urges him to look into it, but not to involve the company's outside law firm, Vinson & Elkins, because it has potential conflicts of interest. Despite Ms. Watkins's concerns about Vinson & Elkins, the firm is asked to determine if a broad inquiry is necessary to deal with the accusations. It is specifically told not to spend time ''second-guessing the accounting advice and treatment.'' Public Comments and Disclosures SEPT. 26 In an online chat with employees, Mr. Lay says that Enron stock is a good buy and that the company's accounting methods are ''legal and totally appropriate.'' He also says that he and other senior executives are so confident about Enron's prospects that they have bought stock within the previous two months. He concludes by saying that the company's third-quarter results will be very good. OCT. 16 Enron reports a third-quarter loss of $618 million. One day later, it reduces shareholder equity by $1.2 billion to account for transactions involving Enron and some partnerships created by Andrew S. Fastow, Enron's chief financial officer. What Was Going On Behind the Scenes OCT. 15 The lawyers at Vinson & Elkins issue a report saying that Arthur Andersen approved of the practices mentioned in Ms. Watkins's letter. The lawyers conclude that Enron did nothing wrong. Public Comments and Disclosures OCT. 22 The Securities and Exchange Commission opens an inquiry into the partnerships. OCT. 23 In a conference call, Mr. Lay reassures investors and tells them there was no conflict of interest stemming from the transactions with the partnerships. Directors, he adds, ''continue to have the highest faith and confidence'' in Mr. Fastow. The next day, Mr. Fastow is forced out. What Was Going On Behind the Scenes OCT. 26 Mr. Lay calls the Federal Reserve chairman, Alan Greenspan, about Enron's problems. OCT. 28 Mr. Lay talks to Treasury Secretary Paul H. O'Neill. OCT. 29 Mr. Lay asks Commerce Secretary Donald L. Evans for help.
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Enron creditors seek outside supervision
Court to review options
By ERIC BERGER
Copyright 2002 Houston Chronicle
Jan. 22, 2002, 11:24PM
Lawyers for Enron creditors have asked a U.S. bankruptcy judge to appoint an outsider to supervise the current management or take control of the troubled company.
The motion, filed Tuesday by the Dallas-based Wiser Oil Company and several other energy companies, contends that Enron executives should no longer be entrusted with leading the company through the biggest bankruptcy ever.
The action by creditors is backed up by growing evidence of mass shredding of Enron's financial documents.
"Particularly disturbing are reports that employees of the debtors have been destroying Enron documents since the federal government began investigating their collapse," the motion states.
On Tuesday FBI agents visited Enron's headquarters following the latest allegations of destruction of documents that could be used as evidence of wrongdoing.
An Enron spokesperson said the company has posted security guards to restrict access to floors holding financial records.
Nancy Rapoport, dean of the University of Houston Law Center and an expert in bankruptcy law, believes it is not a coincidence Tuesday's filing by creditors was made as shredding allegations mount.
"This is a one-for-one response," she said. "They are pissed."
A hearing on the motion has been set for Feb. 20 in the court of Judge Arthur Gonzalez.
He is hearing Enron's Chapter 11 bankruptcy case.
Enron hopes to pare down its assets during the bankruptcy process to pay creditors and emerge as a smaller, profitable company. Removal of its management team may make that a more difficult goal.
Rapoport believes it's likely at least an examiner will be appointed, but she wouldn't not rule out the possibility of the judge taking the more drastic step of appointing a trustee.
An examiner is an independent counsel of sorts.
Such an appointee would have the power to look into what caused Enron's decline and investigate whether the company's officials are acting in the best interest of all the creditors during the bankruptcy process.
A trustee has much broader powers to run the company, and essentially wrests control of it from current executives.
"A judge appointing a trustee is telling a debtor we don't trust you a second longer," Rapoport said. "But my instinct is that the bankruptcy judge is going to pick the lesser of the two evils and will appoint an examiner along with giving a strong lecture to the debtors."
Bankruptcy lawyers for Wiser, who filed the motion, and Enron, who can be expected to challenge it, did not return telephone calls seeking comment Tuesday night.
The motion presents several arguments in favor of a trustee or examiner.
First, the motion says access to Enron's financial records has been limited, and it is difficult to get accurate accounts of the company's assets and debt.
The motion also objects to the sale of assets from Enron's once-robust trading business to UBS Warburg last week. Last week the judge approved the sale, which provided no money up front and will only offer revenue if the business succeeds.
Finally, the motion cites the civil and criminal investigations by the Securities and Exchange Commission, the Department of Labor, Congress and the Department of Justice.
Previously, Wiser has announced it stands to lose about $6 million because Enron will not live up to oil and gas hedges -- contracts that were supposed to ensure Wiser would reduce its risk of losses on price fluctuations.

Security team leaves Enron to form firm
Group to continue working through consulting contract
By ALAN BERNSTEIN
Copyright 2002 Houston Chronicle
Jan. 22, 2002, 11:26PM
Enron's top security team, including four former CIA officers and and ex-FBI agent, has left the company to form a private consulting firm.
An Enron spokesman said Tuesday the move is unrelated to allegations that executives hid financial problems from investors and that employees shredded documents after the company filed for bankruptcy.
The new firm, Secure Solutions International, will continue security work for Enron through a consulting contract, which enables it to work for other clients, spokesman Vance Meyer said.
He said that after Enron filed for Chapter 11 bankruptcy protection on Dec. 2, the security officers were at risk of being laid off and suggested they form an independent firm with Enron as a client.
John W. Presley of Katy, a former FBI agent who was Enron's director of corporate security and now leads SSI, could not be reached for comment.
The Enron team included Presley, four Central Intelligence Agency veterans and a former investigator for the Florida Department of Environmental Protection.
It acted as an in-house detective agency, probing a variety of allegations of fraud and other kinds of rule-breaking by Enron workers.
Other duties included guarding executives, securing Enron's computer operations and protecting the corporation's power plant in India.
Team member David M. Cromley, a former CIA agent who was Enron's director of business analysis, gave Enron executives "detailed and unique information" allowing them to make decisions on "investments, sales of assets, joint ventures and products," according to his business biography. It also says he worked for the CIA in war zones in Somalia, Liberia and Romania and specialized in counter-terrorism operations.
Andre Le Gallo, a business intelligence consultant in California, said Tuesday that he was the first person recruited from the CIA by Enron. Le Gallo worked at Enron for about five years, ending in December 1999.
"They were looking for people who knew where the international buttons were," Le Gallo said.
Enron's international projects included the politically sensitive Indian electricity generation plant. The CIA gathered information about the risks of the project and about British companies that were competing with Enron to build it, The New York Times reported in 1995.
Le Gallo said the former agents' switch to private consulting is not unusual in the security industry, especially in light of Enron's collapse.
"I'm sure they moved because they found better things to do than at a sinking firm," he said.

Business/Financial Desk; Section A
ENRON'S COLLAPSE: THE OVERVIEW
In Shift, Bush Assails Enron Over Handling of Collapse
By DAVID E. SANGER with DAVID BARBOZA

01/23/2002
The New York Times
Page 1, Column 5
c. 2002 New York Times Company

BELLE, W.Va., Jan. 22 -- Abruptly changing his tone about a company that contributed heavily to his political campaigns, President Bush said today that he was ''outraged'' that the Enron Corporation misled its employees and investors, including his mother-in-law, who he said lost more than $8,000 when its stock collapsed.
For the first time, Mr. Bush called for government action to force greater corporate disclosure of financial information.
In comments to reporters here before he toured a machinery shop, Mr. Bush also strongly defended how members of his cabinet handled calls for aid from Enron's top executives, summarizing those members' message to the company's leaders as ''no help here.''
Mr. Bush's new tone came as the scope of the Enron investigation widened. The company told a federal court in Houston today that on Monday night it had discovered more shredded documents on the 19th floor of its headquarters in Houston, suggesting that employees were destroying potential evidence despite what the company's leaders say were orders to the contrary.
The shredded remains were turned over to the Justice Department today, and the Federal Bureau of Investigation sealed off part of the headquarters building.
Meanwhile, the House Energy and Commerce committee said it would issue subpoenas to a recently dismissed partner of Arthur Andersen, the main accounting firm for Enron and the auditor of its questionable financial arrangements. The fired Andersen partner, David B. Duncan, may cite his Fifth Amendment right against self-incrimination before the committee on Thursday, investigators said. Three others at Andersen, including the firm's chief executive, were also summoned.
In his comments today, the president never mentioned Enron's chief executive, Kenneth L. Lay, a once-close friend whom he had nicknamed Kenny Boy and who was the largest single contributor to Mr. Bush's campaigns since Mr. Bush entered politics. Nonetheless, by implication the president cut the cord with Mr. Lay today, saying, ''What I'm outraged about is that shareholders and employees didn't know all the facts about Enron.''
''My own mother-in-law bought stock last summer, and it's not worth anything now,'' he said of Jenna Welch, Laura Bush's mother.
Mr. Bush added later: ''She didn't know all the facts. And a lot of shareholders didn't know all the facts. And that's wrong.''
Republican strategists said Mr. Bush's changed tone reflected a political calculation by the White House as Congressional hearings on the company's collapse begin this week. They said the administration was determined not to allow Democrats to portray Enron as a problem only for Republicans.
''The dynamic over Enron cannot be that Democrats are against Enron and for reform, and we're defending Enron and against reform,'' said one strategist who is close to the White House but who would not allow his name to be used. ''What Enron did is outrageous, and if you don't move to correct it, it becomes an indictment of the free market. The Republican Party is the free market party. And we have to demonstrate our desire to make the market fair and to crack down on abuse.''
Bill Dal Col, a Republican strategist, said Mr. Bush's comments were an appropriate response to the widening disclosures about Enron.
''When you've got a crisis that's growing like this -- every time you turn the page there's a new chapter of hocus-pocus accounting -- the stronger the outrage has to be,'' Mr. Dal Col said.
After Mr. Bush spoke, the White House corrected the president on the timing of his mother-in-law's investment. Mrs. Welch bought 200 shares of Enron on Sept. 21, 1999, for $40.90 a share, the White House said, for a total investment of $8,180. She sold her holdings on Dec. 4, two days after the company declared bankruptcy, for 42 cents a share, meaning her investment had plummeted to $84.
The White House did not say if any other members of Mr. Bush's family had held Enron stock. Some of his close aides did, but they were forced to divest their holdings shortly after they joined the administration, under federal ethics rules.
When Mr. Bush last spoke publicly about Enron on Jan. 11, he distanced himself from Mr. Lay, saying he recalled that the Texas executive had also supported Mr. Bush's rival, Ann Richards, for governor of Texas -- and expressed concern for Enron's workers. Mr. Bush also called for an investigation into ''the whys of Enron,'' focusing on changing rules to protect the life savings of workers. But in those comments, he never criticized the company or its executives, many of whom were his political and social friends in Texas. His tone suggested that he viewed Enron's collapse as an example of the ups and downs of capitalism, rather than an effort to defraud.
Today, after a stream of revelations about the company's efforts to hide its debts and overstate its profits, Mr. Bush seemed angry -- both at the company and at suggestions that his administration had been unduly influenced by a major contributor.
''If somebody has got an accusation about some wrongdoing, just let me know,'' he told reporters.
''It's like when I talked with Don Evans and O'Neill,'' he said, referring to his commerce secretary and Paul H. O'Neill, the secretary of the Treasury, ''they told me they had spoke to Enron. I said, 'Tell the people what you did.' ''
He brushed aside any suggestion that Enron officials, in several meetings with Vice President Dick Cheney and his energy task force, had influenced the administration's energy policy. ''We laid out the energy report,'' Mr. Bush said. ''It's fully disclosed.''
Mr. Bush called for action to prevent a recurrence of the Enron debacle, saying, ''Our government must do something about it.''
But he never elaborated on how oversight of companies like Enron, or their accounting firms, should change.
And just minutes later, addressing workers at the Walker Machinery Company here about the economy and his campaign against terrorism, Mr. Bush returned to one of his favorite themes: that the government overregulates the economy and should let up on American companies so they are freer to act as they see fit. He said the government should ''not overregulate those who are trying to create work.''
As Mr. Bush spoke today, new details were emerging about shredded documents at the company's headquarters. Enron said in federal court that a second batch of shredded documents was found on Monday night in a trash receptacle at the company's headquarters.
Enron officials said they knew nothing about the destruction of the documents and they insisted that the company had repeatedly ordered employees not to destroy documents after a series of lawsuits and federal investigations began looking into the collapse of the company last October and November. Destroying documents that are relevant to those investigations or to lawsuits against the company and its executives would be a crime.
But lawyers representing shareholders and employees said they doubted that explanation. ''This cannot be tolerated,'' said William Lerach, an attorney in a class-action suit against Enron and Andersen, pointing to a box of shredded Enron documents that he brought to the court hearing. ''The integrity of the civil litigation system has been insulted.''
He and others asked Judge Melinda Harmon of Federal District Court in Houston to seize the company's documents and put them under the guard of United States marshals. They argued that Enron and Andersen could not be trusted to turn over valuable evidence related to the case.
The court hearing came a day after a former Enron employee, Maureen Castaneda, said that she had found a box of shredded documents on the 19th floor of the Enron headquarters, the same floor where the company found additional evidence of shredding on Monday night. Ms. Castaneda, who was a director of foreign exchange at Enron until she was fired last week, said she took a box home to use the confetti as packing material. She said the box contained shards of paper referring to some of the secret Enron partnerships that are at the center of the accounting scandal that forced the company into bankruptcy protection.
Efforts to reach Ms. Castaneda today were unsuccessful. The company said that it was now cooperating with federal investigators and that company lawyers had interviewed several workers on the 19th floor about document shredding.
''Until yesterday, the company believed the process was working and was completely observed,'' Kenneth Marks, a lawyer for Enron, said today. ''We don't know what happened here. There could be completely innocent explanations for this.''
Rusty Hardin, a lawyer for Andersen, criticized the opposing lawyers for drumming up publicity with television interviews Monday night, a day ahead of the scheduled hearing. Mr. Hardin said lawyers for Andersen were working hard to preserve and recover documents.
''We are not suicidal,'' he said, gesturing toward Judge Harmon. ''If we were shredders and not preserving documents you could run us out of business.''
In an interview today, an Enron employee who works on the 19th floor confirmed that shredded material had filled a plastic bin beside the shredding machine for several weeks. He said that he had never seen anyone actually doing the shredding but that he had assumed it was taking place.
''It was obvious there was paper in the shredder,'' he said. ''Probably recently.''
He said the 19th floor is divided between a research division and payroll and accounting departments. The employee, who spoke on the condition that his name not be used, said he had not considered the evidence of shredding in a common room to be significant because accounting and payroll employees routinely destroy documents.
And he said that while company executives had sent three e-mail messages in October outlining restrictions on shredding, he had not interpreted those messages to be blanket prohibitions but instead were limited to documents related to the investigations. He said a fourth e-mail message sent on Jan. 14 was emphatic that all shredding cease.
Document shredding seems likely to be a main topic of the coming Congressional hearings. Tonight, the House Energy and Commerce Committee, preparing for its hearing on Thursday on shredding of documents by Andersen, Enron's auditors, was expected to subpoena four current or former Andersen officials: Joseph F. Berardino, the chief executive; Michael C. Odom, a partner in the firm's Houston office who was relieved of management responsibilities last week; Nancy Temple, a lawyer in the firm's Chicago headquarters; and Mr. Duncan, the lead partner on the Enron account.
Ms. Temple and Mr. Odom are expected to testify willingly, but Mr. Berardino and Mr. Duncan are resisting, investigators say, and Mr. Duncan may invoke his Fifth Amendment right, they said.
''Duncan remains an extremely recalcitrant witness who believes he ought to be able to take the Fifth by fax,'' said Representative James C. Greenwood, the Pennsylvania Republican who is chairman of the subcommittee that will hold the hearing. If Mr. Duncan does not at least show up to exercise his Fifth Amendment rights, Mr. Greenwood said, the subcommittee would consider citing him for contempt of Congress.

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

Business/Financial Desk; Section C
ENRON'S COLLAPSE
Kind Words for Andersen
By RICHARD A. OPPEL Jr.

01/23/2002
The New York Times
Page 7, Column 2
c. 2002 New York Times Company

WASHINGTON, Jan. 22 -- Last week, the Enron Corporation fired its longtime auditor, Arthur Andersen, during the company's accounting scandal. But not so long ago, Enron's chairman, Kenneth L. Lay, had only nice things to say about his auditors.
Andersen's ''expertise and professional skepticism,'' Mr. Lay explained in September 2000, had helped ''improve the overall control environment within'' Enron.
Mr. Lay made the comments in a letter to Arthur Levitt, who was then chairman of the Securities and Exchange Commission, to persuade Mr. Levitt to back off on plans to improve auditor independence. Specifically, one of Mr. Levitt's initiatives would have prohibited a company's external auditor from also performing internal audits, as Andersen continued to do for Enron.
Mr. Lay, in his letter, explained that Mr. Levitt's proposals were ''troubling'' because Enron had found the existing setup to be cheaper and more efficient. But, as is now understood, it is not clear that the arrangement worked so well. In November, Enron admitted overstating its profits since 1997 by nearly $600 million -- one of a series of damaging disclosures that led to its bankruptcy filing.
Today, Mr. Levitt said in an interview that the issue Mr. Lay objected to ''goes right to the heart of what we were driving at, what we were trying to eliminate.'' The most egregious conflict, he said, ''was the performance of internal audits by the external auditor; he's auditing himself.''
Had Enron had separate auditors doing their internal and external reviews, Mr. Levitt added, other auditors ''might have found something that Andersen wasn't able to uncover.''
At the bottom of Mr. Lay's letter is Enron's trademarked motto, which, with the benefit of hindsight, is quite prescient: ''Endless possibilities.''

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

Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE LAWYER
Seeking Top Berth In Pursuit Of Enron
By LESLIE WAYNE

01/23/2002
The New York Times
Page 6, Column 1
c. 2002 New York Times Company

WASHINGTON, Jan 22 -- The lawyer William Lerach was all over the television news today as he lugged a large carton of shredded Enron documents to the courthouse in Houston. Amid a sea of microphones, Mr. Lerach gave the impression he was leading the charge for angry shareholders in their legal battle against Enron.
In reality, it is a job he wants but does not yet have. Instead, Mr. Lerach, perhaps the most famous and flamboyant lawyer for shareholders, is engaged in a pitched three-way battle to be named chief legal counsel for all Enron shareholders, a job that could end up netting legal fees in the hundreds of millions of dollars for the firm selected.
Just who will be named chief counsel for the class-action suit will be determined by a federal judge next month.
In the meantime, Mr. Lerach is campaigning, appearing on morning talk shows and making dramatic statements to reporters on the courthouse steps as he filled the airwaves today.
He wants the job so badly that he has even jettisoned some clients, most famously, Amalgamated Bank of New York, in the hopes of staking his fortune with even bigger ones -- one of the criteria for deciding the lead counsel.
''Bill Lerach puts himself in the forefront in terms of publicity and fees and everything else,'' said James M. Finberg, a lawyer with a San Francisco firm that is also vying to be named chief counsel. ''But the decision of who becomes lead counsel will not be made by who has the most press attention, but will be made by a judge.'' His firm's clients include the City of New York pension fund and a State of Florida pension fund.
In the world of shareholder litigation, Mr. Lerach, who did not return calls for comment, is well known. He has won over a billion dollars for shareholders in two big financial scandals involving junk bonds and savings and loans, and brought frivolous cases like litigation over the lip-synching duo, Milli Vanilli.
Mr. Lerach has made a personal fortune and gained the lasting hatred of corporate America by bringing more than 600 suits against companies whose stock price has dropped. His firm, Milberg Weiss Bershad Hynes & Lerach, accounts for about half of all shareholder suits against corporations and has won $6 billion for its clients.
For this Mr. Lerach earned the name the ''king of strike suits,'' and corporations talk about having been ''Lerached.''
His firm once agreed to pay $50 million to settle a case in which someone he sued accused him of abusing the legal system and a federal jury agreed.
''He is a controversial figure of historic dimensions,'' said John Coffee, a securities law professor at Columbia University. ''Those who do not like him say he behaves as an extortionist, is threatening and shakes people down. Others say he is more zealous than the lazier plaintiffs' attorneys. He is the most controversial figure in a field of litigation known for its egos and flamboyant types.''
Some say Mr. Lerach's boldest move to date may be in giving the impression in the Enron case that he already has the job he wants: ''Lerach is running around like it's his case,'' said one law school professor, who insisted on not being identified. ''Why is this man smiling? He thinks he has the case, and it is not clear that he does.''
In reality there are three legal teams vying to be selected as the lead counsel for the shareholders -- mainly large pension funds who bought Enron shares, but also individual investors. Mr. Lerach's big client is the University of California Regents, which has lost about $144 million. Another is Mr. Finberg's firm, Lieff Cabraser Heimann Bernstein, whose two clients, the New York and Florida pension funds, have a combined total of $440 million in losses and which feels it has something extra. ''We have a very sympathetic group,'' Mr. Finberg said. ''We represent a lot of the families of people who died in the World Trade Center.''
A third group is composed of public pension funds from Georgia, Ohio, Washington and Alabama and is represented by a law firm in Delaware and one in Atlanta. This group is claiming losses of $330 million. Lawyers for the two firms, Grant & Eisenhofer and Chitwood & Harley, did not return calls.
Under federal securities reform legislation enacted in 1995, the criterion for selecting a lead lawyer was changed. Rather than the firm that filed a class-action case first (one of Mr. Lerach's specialties), the lawyer who represents the plaintiffs with the greatest losses, among other factors, is now favored.
The lead lawyer's firm decides on the legal strategy, directs all other lawyers and gets the biggest slice of the fees, as well as determines how much lawyers for the other plaintiffs will be paid. These fees can run into the hundreds of millions -- the $3.2 billion class-action settlement against the Cendant Corporation is expected to net legal fees of over $270 million.
''The lead law firm does most of the work and gets most of the fees,'' said Brian Borders, a spokesman for the Association of Publicly Traded Companies, which represents small and midsize companies. ''The fees in the Enron case could be in the hundreds of millions. It is going to be the grandaddy of all securities class-action cases and that will dictate the size of the fees.''
At the moment, Mr. Lerach is doing some fancy footwork to get the lead position. In court today, he argued that the selection of the lead counsel should be changed from the law firm whose clients, as a group, suffered the biggest losses to the firm with the single client who has lost the most. By the first calculation, Mr. Lerach's firm would be in third place.
By the second calculation, he contends, he would be in first place, as he says the California Regents' $144 million was the single largest loss. While the Florida pension fund lost more, $300 million, Mr. Lerach argued that Florida should be disqualified as a lead plaintiff because it brought more class-action lawsuits over the last three years than allowed by federal law. But lawyers for the State of Florida say this law does not apply to institutional investors.
To back up his legal theory that the lawyer for the single-biggest plaintiff should get the nod, he asked his other client, Amalgamated Bank, to step down, and the bank, with only $10 million in losses, agreed.
''This is something that we agreed to do so that Bill Lerach could become the lead attorney on the case,'' said Melissa Moye, chief economist for Amalgamated Bank, who reasoned that if stepping back was the only way to get Mr. Lerach selected to represent the whole class of shareholders, it would.
''We did this by mutual consent. We want the California Regents to be named as the lead plaintiff,'' Ms. Moye said.
In fact, some see Mr. Lerach's action's today, especially his courting of the press, as a smart marketing move intended to draw even bigger clients to him.
''He's been courting the pension funds by saying, you ought to pick Milberg Weiss as the lead counsel,'' said Mr. Borders of the publicly traded companies group. ''It's all about marketing.''

Photo: William Lerach, a lawyer representing shareholders suing 29 current and former executives and directors of the Enron Corporation. (James Estrin/The New York Times)
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Politics & Policy
Cast Prepares for Congressional Curtain to Rise on Enron Scandal
By Jackie Calmes and Tom Hamburger
Staff Reporters of The Wall Street Journal

01/23/2002
The Wall Street Journal
A24
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- Congress returns for a new year today with its agenda once again reshaped by events: The Enron Corp. scandal has joined war and recession on center stage, commanding lawmakers' legislative attention and throwing yet another variable into their election-year calculations.
Some lawmakers, of course, will be more prominent than others. Since Congress recessed a month ago, Enron and its now-fired auditor, Arthur Andersen LLP, have faced a torrent of reports alleging financial shenanigans and paper-shredding involving both. Now, Congress watchers need a cheat-sheet to keep track of the myriad House and Senate committees probing the mess. What follows is a guide to those who will play lead roles.
-- Rep. W.J. "Billy" Tauzin. For all of Democrats' hopes that Enron could tar the company's political favorites -- chiefly President Bush and his party -- this Louisiana Democrat-turned-Republican so far has been the most aggressive congressional prosecutor. He has been responsible for recent disclosures on potentially criminal document destruction.
Mr. Tauzin has the right platform, as chairman of the powerful House Energy and Commerce Committee. He is inclined to use it: A savvy politician and media performer, he is a populist sympathetic to Main Street, not Wall Street, and to independent oil and gas companies rather than corporate behemoths.
A prodigious fund-raiser, Mr. Tauzin has pocketed checks from both companies: $57,000 from Andersen since 1989, according to the nonpartisan Center for Responsive Politics, and $6,464 from Enron. Unlike some other politicians of late, his spokesman says he won't be returning any of it.
-- Rep. John Dingell. The pugnacious Michigander is Mr. Tauzin's Democratic opposite at the Energy and Commerce Committee. He long headed the panel, and sometimes acts -- and is treated -- as if he still does.
"Big John," as colleagues call him, will focus on document shredding and other potential evidence of obstruction of justice. Also watch for him to use Enron hearings to raise longstanding concerns about the perils of energy deregulation, formerly Enron's top legislative priority, and about auditors' independence. Of Andersen's role as both Enron consultant and auditor, he said in an interview, "It is impossible for any intelligent man to look at this and not come to the conclusion that this is a serious conflict of interest."
His take since 1989: $9,000 from Enron, $6,500 from Andersen.
-- Rep. Henry Waxman. The California Democrat has been far ahead of the pack on Enron, though he is handicapped by being in the House's minority party -- and thus lacking the GOP chairmen's power to set hearings and subpoena witnesses. The liberal activist set up a Web site in December for whistle-blowers. He and Mr. Dingell triggered an investigation by Congress's nonpartisan General Accounting Office into the secret deliberations of Vice President Dick Cheney's task force with energy-industry representatives -- notably Enron Chairman Kenneth Lay -- as Mr. Cheney drafted the administration's energy plan.
Mr. Waxman will be an interrogator on Energy and Commerce, but his own Enron-Andersen probes have been from his perch as top Democrat on the House Government Reform and Oversight Committee. His tenaciousness contrasts with the unusually low profile of Indiana Rep. Dan Burton, the panel's GOP chairman who was arch-inquisitor of the Clinton administration. Privately, White House aides have warned that Mr. Waxman could end up as "the next Dan Burton," reflecting the widespread view that Mr. Burton's tenacity backfired. Democrats scoff.
Mr. Waxman's take from the companies, according to federal records: 0.
-- Sen. Joseph Lieberman. The Connecticut Democrat gavels the opening of hearings of his Senate Governmental Affairs Committee tomorrow. His celebrity is enhanced by his creditable, if losing, run for vice president in 2000, but his motives inevitably will be viewed through the prism of 2004's presidential politics.
Many Democrats had feared the sober centrist would be reluctant to use his influential chairmanship to plumb the Enron scandal; some still question how aggressive he will be. An early draft of Mr. Lieberman's opening statement suggests he will play the tough but fair "big picture" investigator, warning against leaping to conclusions and focusing on what government regulators could have done.
Mr. Lieberman has satisfied Democratic activists by vowing to press for information on the Cheney task force's Enron contacts. He got an assist last weekend from his committee's top Republican, Sen. Fred Thompson of Tennessee, who said the White House should "get the information out."
Mr. Lieberman received $11,500 from Andersen and $2,000 from Enron since 1989. Mr. Thompson accepted $8,800 from Andersen, according to the center's records, and nothing from Enron.
-- Sen. Carl Levin. At the Governmental Affairs Committee, Mr. Levin's investigations subcommittee actually will take the lead in digging for insider details about Enron's spectacular flame-out, which culminated in the largest U.S. bankruptcy filing ever. Mr. Levin received nothing from Enron, according to the center's records, and $3,200 from Andersen.
The Michigan Democrat's panel already has sent out 51 subpoenas to Enron and Andersen officials. Among them is one to Wendy Gramm, a member of the Enron board's audit committee and wife of Texas Sen. Phil Gramm -- the Senate's second-largest recipient of Enron funds, with $97,350 since 1989. Mr. Gramm's personal and political ties to Enron raised questions about his role in coming hearings of the Senate Banking Committee, where he is the top Republican; yesterday, his office said he will skip hearings that focus on the company. The panel, led by Democratic Sen. Paul Sarbanes of Maryland, also will be looking at financial aspects of the scandal.
Separately, the tax-writing House Ways and Means and Senate Finance panels have jurisdiction over a number of issues raised in the financial debacle -- and the power to probe Enron's Internal Revenue Service records. The lead actors at Ways and Means have been relatively mute. Montana Sen. Max Baucus, the Finance chairman, this week is asking Enron to voluntarily release income-tax records. That move could signal the start of a fuller committee investigation into Enron's use of offshore entities as tax shelters, its preparation of tax returns, and overall compliance with federal tax laws.
Mr. Baucus has taken $3,200 from Enron, but a spokesman says he will give the sum to a fund for Enron workers.
---
Greg Hitt and Shailagh Murray contributed to this article.

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

Editorial Desk; Section A
Unaccountable in Washington
By Michael H. Granof and Stephen A. Zeff

01/23/2002
The New York Times
Page 19, Column 2
c. 2002 New York Times Company

AUSTIN, Tex. -- The first of at least 11 Congressional hearings into the largest corporate bankruptcy in United States history begins tomorrow. Although Enron's executives and accountants have much to answer for, they can be forgiven for cracking a wry smile when members of Congress begin lecturing them on their dereliction of duty: Congress itself, as much as Enron and Arthur Andersen, bears some responsibility for the current state of affairs.
The story begins in the 1970's and 1980's, when members of Congress, most from oil-producing states, pressured the Financial Accounting Standards Board and the Securities and Exchange Commission not to demand tougher standards for financial reporting in the petroleum industry. At the time, it was clear that the lawmakers were serving corporate interests, not those of investors. Now it's clear that this was only a warm-up act.
While the F.A.S.B. is a private organization financed by industry, the board's authority comes from the S.E.C. requirement that corporations follow the standards it sets. If Congress is unhappy with an F.A.S.B. standard, it can pass a law directing the S.E.C. to ignore it.
From 1991 to 1994, members of Congress prevented the F.A.S.B. from issuing a standard that would have forced companies to take a charge against earnings when they issue employee stock options. Congress persisted in this course of action even though investors like Warren Buffett and the S.E.C. itself supported the F.A.S.B.'s initiative, saying options should be counted as an expense on earnings statements in the same way other forms of compensation are.
The driving forces behind the Congressional opposition were major industrial corporations and special-interest groups representing small, high-tech companies. If companies counted options as compensation, they argued, earnings would decline and stock prices would suffer. Members of both houses called for hearings and introduced bills that would have hamstrung the F.A.S.B. in its attempt to bring clarity to this important issue. In fact, in 1994, 88 members of the Senate voted for a ''sense of the Senate'' resolution in which they informed the F.A.S.B. that its proposed standard would have ''grave economic consequences'' for entrepreneurial ventures.
At one point in the debate, Senator Joseph Lieberman, Democrat of Connecticut and now chairman of the committee that will convene tomorrow's first hearing, introduced a bill that would have effectively destroyed the F.A.S.B.'s authority to set standards for financial reporting. The bill, proposed as an amendment to the Securities Exchange Act of 1934, would have required the S.E.C. to vote on every statement issued by the board. In the face of this proposed legislation, the F.A.S.B. had no choice but to drop its proposal to amend the way options are accounted for.
In the 1997-1998 session, the F.A.S.B. tried to rewrite the rules affecting derivatives, financial devices whose worth is determined by the value of another entity, whether it be government bonds, pork bellies or, as was the case with some of Enron's derivatives, the price of natural gas. Derivatives are complicated and risky, and the F.A.S.B. in its new rules sought to ensure that corporate financial statements accurately reflected those risks. This time, in the face of opposition from members of both parties in Congress, the F.A.S.B. was able to withstand the pressure. It issued its new standards in 1998.
But adversity quickly followed this minor success. In the 1999-2000 session, members of Congress once again intervened, this time to place barriers in the path of proposed standards on mergers and acquisitions and the way corporations involved in them account for the value of intangible assets like good will. The F.A.S.B. had wanted to change the way companies account for some costs in such deals, forcing them to write them off over a shorter period of time. Companies opposed the change, saying the increased costs would reduce their earnings, and lobbied Congress against the change. In the face of such opposition, once again the F.A.S.B. was required to make a strategic retreat.
Yet the true cost of all this Congressional meddling is even greater than the sum of its parts. Taken collectively, these proposed standards would have merely tweaked the existing accounting model. What is necessary is a comprehensive overhaul of the model itself. The model was designed for the industrial era. It worked fine when plants, equipment, inventories, accounts receivable -- stuff you could see and touch -- were what made a company tick. It fails miserably when the critical resources of a firm are software, intellectual capital, brand names and fiscal wizardry.
Few accountants will deny that the F.A.S.B. was unable to close accounting loopholes as rapidly as Enron and Andersen created them. And few will deny that fast and loose reporting practices are all too common in the corporate world.
Yet Congress has not allowed even a modest tweaking. Imagine, then, the outcry if the F.A.S.B. actually got serious about true reform of the current accounting model. Among the changes it might propose are restoring to the balance sheet many liabilities, like certain kinds of leases, that are now considered ''off balance sheet''; adjusting reported earnings for changes in current prices of assets; and recognizing and amortizing the many intangible assets that are currently not even seen on balance sheets.
Each of these changes could have helped regulators and investors see the Enron-Andersen debacle coming, or even helped to prevent it. By sending a message that such changes are not remotely welcome or politically possible, Congress paved the way for the current crisis. Congressional involvement in financial standard-setting has been pure politics, fueled by a system of campaign financing that distorts the pursuit of the nation's legislative agenda. If members of Congress are sincere about identifying and correcting weaknesses in the standards used for financial reporting, then they should investigate the old-fashioned way: follow the money. They are likely to find a trail that leads to the nearest mirror.

Drawing (Milan Trenc)
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Bush Makes Recess Appointment to SEC

01/23/2002
The Wall Street Journal
B12
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- Amid a flurry of last-minute recess appointments, President Bush put a top accounting-firm executive on the Securities and Exchange Commission, which is playing a lead role in the investigation of Enron Corp.'s collapse.
Mr. Bush, using his power to avoid Senate confirmation of top government officials, tapped Cynthia A. Glassman of Ernst & Young to serve at the SEC at least until year end. The SEC, which has proposed revamping oversight of the accounting industry, is investigating Arthur Andersen LLP's auditing of Enron's books and disclosures that the accounting firm shredded documents related to its work on behalf of the energy company, which has filed for bankruptcy.
Ms. Glassman, a Republican, has worked at Ernst & Young since 1997 and was the firm's director of commercial-bank risk management for two years.
Perhaps trying to lessen Democrats' ire, Mr. Bush reappointed Isaac Hunt, who was originally appointed by former President Clinton in 1996. Mr. Hunt, whose term expired more than a year ago, has seen his stock rise of late, as Republicans have been unable to settle on an alternative Democratic replacement.
In other appointments, Mr. Bush put Michael J. Bartlett, director of labor law policy at the U.S. Chamber of Commerce, on the National Labor Relations Board. He also named Iowa State Sen. JoAnn Johnson and Deborah Matz, executive officer of the Food and Agriculture Organization of the United Nations, to the National Credit Union Administration's board.

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

Enron debacle could bring problems for Gramms
Senator could face conflict of interest if his wife is questioned by lawmakers
By DAVID IVANOVICH
Copyright 2002 Houston Chronicle Washington Bureau
Jan. 22, 2002, 9:35PM
WASHINGTON -- Wendy Gramm, a member of Enron's board of directors, stands to lose more than $686,000 in retirement funds because of the company's bankruptcy filing.
Besides being an unsecured creditor, the one-time head of the Commodity Futures Trading Commission likely will be called to testify before one of a myriad of congressional panels looking into the Enron debacle.
And as a member of the board's audit committee, Gramm is sure to be questioned about what and when she knew about the company's financial problems.
Her husband, Sen. Phil Gramm, R-Texas, said Tuesday that he will not take part in congressional investigations into Enron's collapse, but will join the discussions about what should be done to avoid similar debacles.
"I'm not going to recuse myself on issues that are relevant to all business," said Gramm, the ranking Republican on the Senate Banking Committee.
That panel, chaired by Sen. Paul Sarbanes, D-Md., plans to hold a hearing Feb. 12 to examine accounting and retirement investment issues raised by Enron's collapse.
Many current and former Enron employees lost their life savings because their 401(k) retirement plans were wholly invested in Enron stock.
Lawmakers will examine proposals that would force participants in retirement plans to diversify their portfolios.
Such issues, Gramm said, "are not Enron-specific."
Sarbanes agrees that Gramm should be able to take part in committee activities, a spokesman said.
But some critics contend Gramm will not be able to draw the line neatly between Enron issues and those that apply to all businesses.
"He should recuse himself, given that his wife is on the board and his wife, potentially, could be in serious trouble," said Tyson Slocum of consumer activist Ralph Nader's Public Citizen.
As a member of the audit committee with strong government and academic credentials, "she's got some serious explaining to do," added Slocum, who serves as research director for Public Citizen's Critical Mass Energy and Environment Program.
Larry Noble, executive director of the Center for Responsive Politics, a self-styled government watchdog group, said he doesn't know how Gramm can avoid creating at least the appearance of a conflict of interest.
Even when discussing issues such as accounting changes and 401(k) retirement rules, Noble said, "Enron is going to be the 3,000-pound elephant sitting in the middle of the room."
Wendy Gramm first joined Enron's board in 1993, just weeks after stepping down as head of the federal Commodity Futures Trading Commission. While at the commission, she had championed deregulation of commodities trading, including energy.
The Gramms contend they have separate business lives and do not discuss such work-related concerns at home.
"We talk about my taking out the garbage and Texas A&M football," Phil Gramm said.
Back in 1998, Wendy Gramm sold $207,000 in stock -- her entire Enron holdings -- and asked the company to pay her for her board work in cash payments to a deferred-compensation plan, rather than in Enron shares.
The idea was to eliminate any conflict-of-interest problems, so that her husband could freely participate in the debate over the nation's energy policy.
Wendy Gramm sold that stock, her husband points out, before Enron's stock price rocketed up in 1999 and 2000. Her deferred-compensation fund is now tied up in the Enron bankruptcy.
The conflict-of-interest issue resurfaced in December 2000, when lawmakers, with Sen. Gramm's blessing, approved the Commodity Futures Modernization Act.
That bill essentially codified regulations pushed at the Commodity Futures Trading Commission as far back as 1989, when Wendy Gramm was a member. The measure exempted energy and metals commodities trading from government regulation.
The language of interest to Enron, Sen. Gramm noted, was written by lawmakers in the House. The Senate Agriculture Committee, which had jurisdiction over that portion of the bill, did not change the House language.
Gramm, at that time chairman of the Senate Banking Committee, objected to the bill because of some banking provisions he found unacceptable. Under the rules of the Senate, Gramm held up progress on the bill for four months.
Wendy Gramm, who heads a regulatory studies program at George Mason University in Virginia, had done her own critique of the Commodity Futures Trading Commission's work and raised separate objections to the legislation.
Sen. Gramm does not remember being lobbied directly by Enron on the Commodity Futures Modernization bill, although he was aware of a letter Enron Chairman Ken Lay had written to House Speaker Dennis Hastert, R-Ill., in September 2000, urging passage of the measure. The bill, Lay wrote, would provide "critical legal certainty" for Enron's commodity-trading businesses.
Eventually, Gramm and the Clinton administration reached a compromise on the banking provisions and the measure was attached to a spending bill.

Auditor Independence: The SEC Chairman Doesn't Get It
By Roger Lowenstein

01/23/2002
The Wall Street Journal
A22
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Securities and Exchange Commission Chairman Harvey Pitt doesn't get it. "Auditor independence is not the cause of the problems that we are witnessing," Mr. Pitt insisted recently. The "problems," of course, refer to Enron, and "the bigger issues" in that unhappy saga relate to "the quality of our disclosures, the penetrability [or lack thereof] of financial reports."
No doubt about it, Mr. Pitt, Enron's reports were lacking in quality and impenetrable to boot. And anyone who took weeks or months to plough through them would have figured it out. Especially if they had access to Enron's books, had been party to explanations on how its affiliated partnerships related to the mothership, and had maybe gotten invited to dinner at Ken Lay's house.
But most of us in the public didn't. That's why we rely on public accountants to audit financial statements and certify that they are in keeping with generally accepted accounting principles.
What principles Arthur Andersen was following lord only knows. But the firm that blessed not only Enron's books but also Waste Management's and Sunbeam's has somewhere in its employ auditors who can tell right from wrong and quality from its opposite. If auditors have the right incentives they will do so.
Mr. Pitt, who in private practice represented, among others, Arthur Andersen, and who, in general, never saw a government action he didn't find worthy of challenging, says now that he doesn't want to throw armies of lawyers and bucketfuls of taxpayer money at "every problem." Nor does he desire new legislation. All that is needed is an outside monitoring group and better disclosure.
Indeed, the beauty of disclosure, which lies at the heart of our system of public markets, is that it does the work of cops better (usually) than legions of investigators. Just as a street thug is unlikely to commit a mugging in a well-lit park, a corporate criminal won't often steal if he knows his actions will soon be disclosed.
The question is who shines the lamp on corporate activity and -- just as important -- who makes sure that the beacon does not resort to a lampshade at inconvenient moments? In Enron's case, managers had the audacity to report $425 million of net income in the first quarter of 2001 -- a period in which it also reported cash flow from operations of negative $464 million.
This bald disparity between cash flow, which is virtually impossible to manipulate, and reported earnings was a clear red flag that something was amiss. Andersen, from its own memos at the time, knew it -- and let it go.
Enron has been widely compared to Long Term Capital Management, the bond-trading hedge fund that imploded in 1998. But it is the contrast between the two that is illustrative. It demonstrates the difference between problems spawned by poor judgment and those involving conflicts of interest -- in Mr. Pitt's phrase, "auditor independence."
At first blush, the two cases seem much alike. Both LTCM and Enron were big, complex and secretive. LTCM's traders cut their teeth in financial derivatives, when those markets were new, inefficient and ripe with opportunity. Enron, somewhat similarly, was a pioneer in energy derivatives.
Over time, and largely thanks to LTCM's success, bond arbitrage became crowded and hedging opportunities narrowed, leading LTCM to branch into new arenas, including equities. Enron, similarly, forged into virgin markets, including fiber-optic bandwidth, data storage and snow protection for ski resorts -- the latter reminiscent of LTCM's monster trade in "equity volatility" (stock market insurance). Each firm was held in awe by investors and creditors and by legions of worshipful admirers until -- quite suddenly -- it collapsed.
But these similarities shouldn't blind us to the fact that Enron and LTCM were wholly dissimilar in their degree of moral culpability. LTCM's results, when the firm was making money, were genuine, and its traders were the biggest losers in the firm's downfall. That they went down with the ship tells us they genuinely believed in the product.
Enron's managers, on the other hand, unloaded bucketfuls of stock even while they were publicly touting it. That's why a criminal investigation is warranted, and why conflict of interest is at the heart of the Enron case.
Enron's managers had to know -- indeed, were warned -- that their accounting was highly, highly dubious. Had they feared an accounting in the Biblical sense they never would have tried to report such "results" -- which, of course, have since been reversed. What made them so certain of Andersen's protection?
For one, Andersen was co-opted by the $27 million it was paid by Enron for other, non-audit work and by the reasonable expectation that more such gravy would follow. There is an easy solution to this particular conflict: ban it. Enron should not be able to otherwise pay off the firm that is supposedly serving as the guardian of its integrity.
Mr. Pitt belittles the problem, saying that auditors are conflicted anyhow, just by the fees they receive for audits. Who wants to anger the client by being a pain in the neck and lose the job for next year?
But again, the chairman misses the point. Auditors don't work for managers; they work for the directors. Hiring and firing auditors is solely up to the audit committee of the board. But owing to the consulting-type payoffs Andersen received and, more seriously, long cultural tradition, auditors behave as though the client is management.
This problem is deeply embedded in our corporate culture. It is why executives at top corporations from General Electric on down routinely try to "manage" their earnings and why their auditors routinely help them. If auditors understood that their true client is the board -- and through it, the investing public -- they would see that their interest is in disclosing a true picture, not a prettified one.
But this sort of cultural change is never easy -- in this case only a total overhaul can get the job done. We need an independent watchdog with legislative teeth, not the administrative wand-waving proposed by Mr. Pitt. In short, Congress should create a body that could set standards in public auditing and would also have real disciplinary and enforcement powers to monitor public auditors.
Mr. Pitt can still undo the harm from his comment that "there is nothing rotten with the accounting profession." None less than his boss, George W. Bush, found a new sense of purpose -- an enlarged appreciation for his job and for the meaning of leadership -- when events interrupted what had seemed to be a placid era.
Harvey Pitt, this is your Afghanistan.
---
Mr. Lowenstein is the author of "When Genius Failed: The Rise and Fall of Long-Term Capital Management" (Random House, 2001).

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

Accounting for Enron: Resources, Power Of State Authorities Tested by Andersen
By Russell Gold
Staff Reporter of The Wall Street Journal

01/23/2002
The Wall Street Journal
A4
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Tiny state boards of accountancy are the latest players to step into the widening investigation of Arthur Andersen LLP following the collapse of Enron Corp.
Theoretically, they have formidable strength -- subpoena power and statutory authority to take away Andersen's permit to practice accounting in a state. But that would be a huge leap for thinly staffed agencies that usually spend their time administering Certified Public Accountant exams and disciplining local accountants who have been convicted of crimes. The agencies have no ability to pursue criminal charges, but can pursue civil penalties through an administrative-law procedure.
In Texas, where Andersen fired its lead auditor for Enron last week for overseeing document destruction, the State Board of Public Accountancy has opened an inquiry to determine whether "possible misdeeds, omissions or malfeasance" took place. State Rep. Steven Wolens, who requested the investigation, said if the board recommends the revoking of Andersen's permit, that would have "a domino effect. All the eyes would be on New York and California to act next."
Already other states, including Connecticut and Illinois, have begun their own investigations. Other states also may be taking action, but state professional regulation laws generally prohibit disclosure of pending matters. David Costello, president of the National Association of State Boards of Accountancy, has said state boards "throughout the U.S. are vigilantly tracking" reports about Enron and Andersen. Governors typically appoint board directors who then hire permanent staff.
Michael Kozik, an attorney with the Connecticut State Board of Accountancy, wouldn't say whether the states were working together. "We have opened a file and we are starting to explore the legal and accounting issues involved," he says. The matter was initiated at the request of state Attorney General Richard Blumenthal, who said in a letter to the board that the state and its citizens already have suffered "serious and possibly irretrievable financial losses." A state pension fund and agency lost a combined $235 million.
Meanwhile, attorneys general from Georgia, Washington, Ohio and Alabama have asked the U.S. District Court in Houston to name them lead plaintiffs in a nationwide class-action lawsuit against Enron and Andersen. The four states' retirement pension boards lost a combined $331 million because of the collapsed value of Enron's stock and bonds. Other states could join as members of the class.
Amid this case and myriad other investigations, can the Texas accountancy board -- an agency with five lawyers (the state attorney general can help out in major cases) and a $550,000 investigation budget intended to resolve complaints "emphasizing voluntary compliance and education" -- realistically be expected to build its own case?
"I think they will be absolutely overwhelmed," says Wayne Shaw, an accounting professor at Southern Methodist University in Dallas. "Almost always what you see is them going after an individual already convicted of something, or investigating a one- or two-person firm. They have never had to deal with anything like this. I don't think they have the structure or expertise to deal with this."
While Mr. Wolens's letter directs the board to investigate the Big Five accounting firm, Mr. Shaw says it is more likely the board will focus on a handful of Andersen auditors. Andersen lawyers so far have taken steps to separate the Chicago firm from the activities of its Houston office, which handled the Enron account.
William Treacy, executive director of the state board, declines to comment on the Andersen matter, but says "we have the necessary resources to investigate and prosecute cases of a major nature."

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

Accounting Industry Review Board Votes to End Its Existence in Protest
By Scot J. Paltrow and Jonathan Weil
Staff Reporters of The Wall Street Journal

01/23/2002
The Wall Street Journal
A2
(Copyright (c) 2002, Dow Jones & Company, Inc.)

The accounting industry's Public Oversight Board, which oversees auditors' "peer review" method of self-regulation, unexpectedly voted itself out of existence, a move that at least temporarily would leave no mechanism in place for policing audits of public companies.
The board's chairman, Charles A. Bowsher, said the abrupt move was meant as a protest to plans announced last week by SEC Chairman Harvey Pitt to devise a new body that eventually would replace the oversight board in monitoring the industry.
The announcement, which caught the Securities and Exchange Commission and the Big Five accounting firms by surprise, comes as the accounting industry, in the wake of Enron Corp.'s collapse, faces unprecedented criticism for failing to supervise itself effectively amid repeated failure by auditors to detect major accounting irregularities.
"We thought that in the public interest we just had to speak up" by voting to shut down, said Mr. Bowsher, adding that "it just isn't true" that Mr. Pitt's proposal would increase independent oversight of auditors.
The oversight board, founded in 1977, reviews and must approve the peer reviews accounting firms do of one another. Its staff also investigates "failed audits" in which auditors failed to ferret out companies' violations of accounting rules. The system has been heavily criticized because no large accounting firm has ever been given an unfavorable review. Mr. Bowsher had argued that the board could have been a much more effective regulator if the industry had allowed it to have real powers to demand records and impose disciplinary measures on firms.
The five-member board voted unanimously to "terminate its existence" no later than March 31. The decision was made in a telephone meeting of the board on Sunday, but was announced yesterday. Although Mr. Pitt has announced broad outlines of his plan for a new body with stronger powers to discipline the industry, no formal proposal has been drawn up. If the oversight board shuts down as planned, that threatens to leave the industry without an overseer of audits at least for several months.
Mr. Bowsher said the board felt that Mr. Pitt's plan, rather than increasing independent oversight of the profession, actually would tighten accounting firms' control. For example, he noted, the proposal is for a new board that would have a large minority of its members from the accounting industry. The five members of the current oversight board are prominent people from the business world who have no direct ties to the big accounting firms. In a letter to Mr. Pitt notifying him of the board's decision, Mr. Bowsher also faulted Mr. Pitt for holding a series of private meetings in recent weeks with officials of the Big Five accounting firms and the industry's trade association, the American Institute of Certified Public Accountants, before he announced his plan on Jan. 17.
The AICPA and Big Five firms were Mr. Pitt's clients while he was in private legal practice before he became SEC chairman.
Mr. Bowsher said the SEC and AICPA have contacted him asking whether the board would reconsider its decision. He said the board will listen to their proposals but "I would be surprised if we reversed our decision."
In a letter to Mr. Bowsher today, Mr. Pitt said the new regime he envisions would have a role for the oversight board and said, "The issues, I think, are too important for the POB simply to walk away."
KPMG LLP said, "We believe it's irresponsible for the Public Oversight Board simply to resign."
A spokesman for PricewaterhouseCoopers LLP confirmed that chief executives of the Big Five firms, including Pricewaterhouse, had held a series of private meetings with Mr. Pitt in Washington between Dec. 4 and Jan. 17. He said the gatherings took place at Mr. Pitt's invitation. He said the firms reported on progress they had made in response to Mr. Pitt's call in early December for them to come up with a better plan for policing the industry.
The SEC plan calls for a new board with stronger powers to oversee audits, but it wouldn't be a formal self-regulatory organization like the New York Stock Exchange or National Association of Securities Dealers, which derive their disciplinary authority from laws passed by Congress, and which themselves are formally subject to SEC oversight.
SEC spokeswoman Christi Harlan said Mr. Pitt's private meetings with the Big Five officials, which included Andersen representatives, didn't violate conflict-of-interest rules because he "just got the process rolling" and wasn't taking official action.
John Coffee, a Columbia Law School professor who has written about regulation of the accounting industry, faulted Mr. Pitt for holding the private gatherings. "It's not the high watermark of public accountability when the industry to be regulated designs its own regulatory structure in negotiations with its former lawyer."
Lynn Turner, who was the SEC's chief accountant under former SEC Chairman Arthur Levitt, yesterday also faulted Mr. Pitt's proposal and the private negotiations. The Public Oversight Board's decision to disband "shows you that what the SEC has proposed is what the accounting profession wants, and has nothing to do with the public," says Mr. Turner, now an accounting professor at Colorado State University. "What the POB is saying here is that the SEC's proposal was a deal cut with the accounting profession and not with the investing public."
Ms. Harlan, the SEC spokeswoman, stressed that Mr. Pitt plans to get input from interests besides the accounting industry before the SEC issues a formal proposal.

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

International
Bidders Circle Over Enron's Indian Unit, Raising Prospect That It May Be Split Up
A Wall Street Journal News Roundup

01/23/2002
The Wall Street Journal
A18
(Copyright (c) 2002, Dow Jones & Company, Inc.)

NEW DELHI -- The bidding process for the troubled Indian unit of energy trader Enron Corp., which has filed for bankruptcy, could begin early next month, according to a representative of one of the potential buyers.
Some prospective bidders appear most interested in the unit's liquefied-natural-gas facilities. While creditors have said they want to sell the Indian power plant and LNG business together, this raises the prospect that the Indian unit could be split after it is sold.
Jean-Claude Breton, chief representative in India for European oil company TotalFina Elf, said that the bidders and Dabhol Power Co., Enron's Indian arm, might begin due diligence in early February. He said TotalFina was studying whether to bid. "We need some more time to convince ourselves whether or not this project can be made commercially viable," he said.
At $2.9 billion, Dabhol is India's largest foreign investment. But it has been plagued by controversy. Last May, the local electricity board -- the plant's sole customer -- stopped paying Dabhol for power in a dispute largely about pricing.
Royal Dutch/Shell last month also expressed an interest in the Dabhol project -- primarily its LNG pier and storage depot. A Shell spokesman in London said he couldn't immediately comment on whether Shell would bid for Dabhol.
French state-owned Gaz de France has a 10% stake in Petronet LNG, which is planning to bring liquefied gas from the Middle East to India. A spokeswoman said the company is examining other opportunities in India, although she couldn't immediately comment on whether Gaz de France might bid for Dabhol. Indian power utilities BSES Ltd. and Tata Power Co. have also expressed interest in bidding. Enron owns 65% of Dabhol, General Electric Co. and Bechtel Corp. each own 10%, and the Maharashtra State Electricity Board owns 15%.

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

Spinoff pays bill for sins of its parent
Enron partner bound by promises not kept
By NELSON ANTOSH
Copyright 2002 Houston Chronicle
Jan. 22, 2002, 11:25PM
EOTT Energy Partners was battered on the New York Stock Exchange Tuesday, mainly because of problems related to its former parent, Enron Corp.
The publicly traded units of one of the nation's largest independent gatherers and marketers of crude oil closed at $10.19, off by $4.86. Early in the day they fell as low as $8.40.
Although EOTT itself isn't part of the Enron bankruptcy, Enron's inability to pay on past promises will hurt EOTT in several ways.
One of the Enron subsidiaries in Chapter 11, Enron Gas Liquids, has a long-term contract to sell products for EOTT that can't be honored, which increases its exposure to price swings.
Additionally, Enron can't make up a 22.5-cents-per-unit shortfall on EOTT's cash distribution for the fourth quarter, which leaves holders considerably short of the 47.5 cents they were promised. The period that ended Dec. 31 was the last quarter for this arrangement.
EOTT announced Tuesday that the cash distribution for the quarter will be 25 cents. It will make a claim for Enron's 22.5 cents in bankruptcy court.
This further weakens earnings at a time when slumping crude oil prices are shrinking the profit margins on the approximately 350,000 barrels per day the company handles.
EOTT officials warned that earnings for 2001 will be below the earlier estimates of 90 cents to 94 cents per unit, while declining to elaborate or to provide estimates for 2002.
On Tuesday, Moody's placed EOTT's credit ratings under review for a possible downgrade.
"The first weak quarter in two years for our marketing and transportation business comes at the worst possible time," said President and Chief Executive Officer Dana Gibbs.
"Although our uncommitted credit lines continue to meet our immediate working capital and supplier credit needs, cash requirements over the next several months are at a historic high, and Enron's bankruptcy has significantly impacted the partnership's financing alternatives," he said in a written statement.
The company won't disclose more until its fourth-quarter results are released in the latter half of February, Gibbs told analysts in a conference call.
Enron is "a large part of its problems" said analyst David LaBonte of Salomon Smith Barney.
The publicly traded partnership is independent, but Enron is still the general partner. LaBonte of Salomon Smith Barney said in an earlier analysis that he expects the general partnership interest to be put up for sale.
Included are the $117 million purchase last year from Enron of an MTBE plant plus liquefied natural gas pipeline and storage facilities.
Part of the deal was a 10-year "tolling agreement" with Enron. With this type of arrangement EOTT receives a fixed fee, with Enron serving as a middleman who doesn't use the MTBE or handle natural gas liquids. MTBE is a key chemical used in gasoline formulas in areas with pollution problems, like Houston.
The bankrupt Enron Gas Liquids dropped out of the agreement, so EOTT began marketing the MTBE itself Nov. 29. This exposes the company to swings in the marketplace, said Gibbs.
On the storage side there are problems as well. Enron Gas Liquids has the sole right to lease the facilities and until this is resolved EOTT can't negotiate with third parties, he added.
EOTT plans to take a $30 million noncash charge to write down the value of these tolling and storage agreements.
Enron was also supposed to foot the bill to convert the MTBE plant to one that makes a different additive if the Environmental Protection Agency decides to phase out MTBE, said an analyst who asked not to be identified.
There was also speculation that EOTT may have overpaid for these facilities, which will be written down on the next financial report.
Finally, suppliers who are concerned about Enron's bankruptcy have been requiring more letters of credit from EOTT. A very limited amount of business has been lost to people who decided to buy their crude elsewhere, said Gibbs.
EOTT was formed in 1994 when Enron combined Enron Oil Trading & Transportation, renamed EOTT Energy, with Enron Products Marketing Co., according to Hoover's Inc.

Business/Financial Desk; Section A
ENRON'S COLLAPSE: REGULATIONS
Exemption Won In '97 Set Stage For Enron Woes
By STEPHEN LABATON

01/23/2002
The New York Times
Page 1, Column 6
c. 2002 New York Times Company

WASHINGTON, Jan. 22 -- As it expanded aggressively overseas in the 1990's, the Enron Corporation won an exemption from a Depression-era law that would have prevented its foreign operations from shifting debt off their books and that barred executives from investing in partnerships affiliated with the company.
The exemption enabled Enron's foreign operations to engage in the kind of financial engineering that experts now say was reminiscent of some of the corporate excesses of the 1920's that led to the 1940 law and that were an important element of the company's meteoric rise and startling collapse.
Had Enron not been granted the exemption, some of its operations in South America and in Europe would not have been able to structure financial operations to both conceal them from investors and shift debt off their books.
Enron's initial efforts in 1996 to persuade Congress to change the law were thwarted by opposition from a powerful trade group and some federal regulators. The company responded by hiring the former boss of a leading staff official at the Securities and Exchange Commission to represent it in negotiations with the agency. In an unheralded five-paragraph order in March 1997, the S.E.C. official, Barry P. Barbash, gave Enron's foreign operations a broad exemption from the law -- the Investment Company Act of 1940.
How Enron came to get its exemption from the severe restrictions of the law clearly illustrates the ways the company lobbied Washington and the response by the regulatory system. That system was devised during the Depression to protect investors and customers of utilities from a wide range of corporate abuses that investigators think ultimately took place at Enron.
Both Congress and the S.E.C. are reviewing the exemption to the Investment Company Act and earlier exemptions that were given to the company by the agency, including a 1993 exemption from the tough restrictions imposed by the Public Utility Holding Company Act of 1935.
Experts say that the S.E.C. rulings unshackled the company from significant accounting restraints and business dealings between the Enron companies and their executives. The 1997 exemption, in particular, cleared the path for the company to both expand overseas and make greater use of the special partnerships that have caused the company so much turmoil.
''From a regulatory standpoint, this raises a flag,'' said Joseph V. Del Raso, a former official at the S.E.C. in the 1980's and an expert on the Investment Company Act. ''It gave them carte blanche to go all over the world and set up subsidiaries and affiliated entities that would have been prohibited under the act.''
Another expert on the act, Mark A. Sargent, the dean of the Villanova law school, agreed.
''The Enron structure was not a single company with stockholders engaged in operations like an ordinary corporation,'' he said. ''It was similar to an investment company with investments in a bunch of different companies. The decision to exempt those from the kind of protections to investors is now coming home to roost.''
Arthur Levitt, who was the chairman of the S.E.C. when the 1997 exemption was granted, said today that he had no recollection of it. But he said it could be a potentially significant part of the agency's role in failing to oversee Enron.
''It may be one of those cases of the nail in the shoe of the horse,'' he said. ''It may be one of those things that seemed insignificant at the time but can wind up being determinative.''
Mr. Barbash, the lawyer at the S.E.C. who approved the exemption, said in an interview this week that he viewed the exemption as narrow because it applied only to the foreign operations of Enron and some of its subsidiaries. He said that it was successful in that it managed to head off Enron's efforts to have a broadly worded exemption written into the law ''that companies could have then driven trucks through.''
''Enron knew the regulatory boxes, and they tried to fashion their businesses to fall outside of those boxes,'' Mr. Barbash said. ''Much of what's been written so far about the company is that it turned itself inside out like a pretzel to fall outside of restrictions -- accounting restrictions, taxpayer restrictions and regulatory restrictions.''
Another former S.E.C. official who is an authority on the Investment Company Act, was more critical.
''This was a case of giving Enron an inch and they took miles,'' said the former official, who spoke on the condition of anonymity. ''They were given a significant new opportunity, and they took it and flew it smasho into the ground.''
Mark Palmer, an Enron spokesman, did not return a call seeking comment.
Mr. Barbash, who at the time was director of the investment management division at the S.E.C., said that Enron's lawyers came to him in 1996 after the company had failed to persuade Congress to grant the company broad exemption to the 1940 law.
Enron and several of its subsidiaries said they needed the exemption because their foreign operations were quickly taking on the characteristics of investment companies. The act, which regulates mutual funds and other kinds of investment companies, generally applies to companies that hold at least 40 percent of their assets in securities that are passive investments and not controlling interests.
A lawyer who represented Enron said that although the company and its foreign subsidiaries had actually controlled many of their overseas ventures, like power plants, they were unable to have a 51 percent stake in them because of local rules and political constraints.
In 1996, Congress rewrote parts of the act but refused to grant an exemption to Enron because of significant opposition from both the S.E.C. and the Investment Company Institute, the main trade organization for the mutual fund industry and a strong supporter of the law. Mr. Barbash said that in 1996, Congressional aides advised Enron's lawyers to seek an exemption directly from the agency.
The company decided to retain Joel H. Goldberg, a former director of the investment management division at the S.E.C., who said today that he did not know how the company came to hire him.
An Enron official said the company had retained Mr. Goldberg knowing that he had previously been Mr. Barbash's boss and was his predecessor at the S.E.C. Mr. Goldberg had been Mr. Barbash's supervisor at the S.E.C. in the 1980's and the Labor Department in the 1970's. The two lawyers are now partners at the international law firm of Shearman & Sterling.
Mr. Goldberg said he viewed the exemption as a narrowly tailored one intended to permit the company to continue its overseas projects. But he acknowledged that had the company not been granted the exemption, it would have been constrained from using any partnerships or shifting debt off the books in its foreign operations.
''I guess on the one hand, if they had been subject to the Investment Company Act, they probably could not have done these transactions,'' he said. ''The subsidiaries would not have existed, and they would have had to make another plan.''

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

NEWS
DEBATE
Enron: A simple question of right and wrong

01/22/2002
USA Today
FINAL
A.12
(Copyright 2002)

"To my knowledge, there is nothing that we have found that was illegal."
That was Joseph Berardino, CEO of Arthur Andersen, on Sunday's Meet the Press, trying to comfort viewers about the integrity of the audits his company performed on the once-mighty energy firm, Enron. Enron's collapse, Berardino said, was a result of a bad business plan. "It failed because the economics didn't work."
Both statements may very well be true. But they're hardly reassuring. Quite the opposite, in fact. The less illegality found in the Enron debacle, the more chilling the picture becomes for investors.
Just look at what Enron, often with the blessing of Andersen, managed to accomplish, apparently within the comfortable confines of today's laws:
* For nearly five years, Enron inflated earnings by a total of almost $600 million. This "legal" practice forced investors to make decisions about the value of Enron's stock using bogus profit figures.
* Using off-the-books partnerships and maddeningly opaque accounting, with Andersen's approval, Enron shielded about $500 million in debt. That helped keep Enron's credit rating high, but at the expense of misleading anyone foolish enough to trust the numbers coming from the company and the private credit-ratings agencies.
To be sure, at least one high-level Enron official tried to do the right thing, raising concerns with Enron's CEO Kenneth Lay about the company's accounting practices. And some Andersen officials expressed concern about Enron's now-famous "partnerships" and how Enron was crunching its numbers back in February 2001. Even some stock analysts openly puzzled over how Enron made its money.
But since everything looked legal on paper, those asking pointed questions were ignored. On Sept. 26, Lay was urging employees to buy company shares, telling them it was an "incredible bargain" and emphasizing that Andersen had signed off on the off-the-books partnerships. Just 20 days later, Enron announced a substantial third- quarter loss and a $1.2-billion drop in shareholder equity.
Andersen continued to OK Enron's books. And stock analysts were busy touting its stock right up to the bitter end. As late as Oct. 25, all but two of 17 analysts were giving Enron stock a thumbs-up.
Even if the nation's laws weren't so permissive, Enron very well may have met the same end. In a free-market economy, no business is guaranteed a successful future. But Berardino's defense that he couldn't find any illegality among all of these acts provides little solace to the thousands of Enron employees and countless investors who banked on Enron and Andersen for honest numbers and lost billions. Had everyone involved used an ethical compass, rather than a strictly legal one, investors would have been armed with accurate information about Enron's business and the risks it entailed when deciding whether or not to buy its stock.
If investors and workers are to be spared calamitous surprises in the future, merely passing a raft of new legislation won't solve the problem. A change of attitude about what is acceptable in executive suites and on accounting desks is at least as vital.

PHOTO, B/W, Alex Wong, Meet the Press, via Reuters; Caption: Joseph Berardino: CEO of Arthur Andersen talks about Enron's collapse Sunday on NBC's Meet the Press.
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business World: Enron For Beginners
By Holman W. Jenkins Jr.

01/23/2002
The Wall Street Journal
A23
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Let's help the congressfolks who begin their multiple hearings into the Enron bankruptcy tomorrow.
The problem wasn't Enron's trading business, which many have associated with deregulation and therefore with Satanism. Enron's problem was bad assets of a conventional variety: a power plant in India, utility and pipeline investments in Brazil, a waterworks in Britain, unused and inoperable telecommunications assets in this country.
Traditional accounting would have required the company to mark down its current earnings to cover the declining value of these assets. Instead, Enron chose to avail itself of a dodge, creating outside partnerships to buy the assets at list price. Banks put up the money, but the loans were secured with promises of Enron stock, and if the stock price fell, with promises of cash. That is, shareholders were still on the hook for the bad assets but they didn't know it.
The standard view, that Enron executives were simple crooks, tends to overlook that they were also the company's biggest individual shareholders. If these were crooks, they were dumb crooks.
We might understand, though not approve, if Ken Lay were sitting on a beach in the Bahamas now, his purloined millions in an untraceable Cayman Island bank account. But when the normally dexterous and astute Mr. Lay is handed a loaded gun and manages to shoot off most of his toes before the gun is taken away from him, then the questions get really interesting.
We've seen the same scenario with other companies that weren't nearly so famous for political connections. Cendant almost imploded after it was found to have falsely accounted for its customer acquisition costs. Sunbeam under Al Dunlap shipped unwanted barbecue grills to shopkeepers and called them sales. These cases (and many like them) had nothing to do with deregulation or campaign finance yet they are of a single species with the Enron disaster.
One can readily imagine what went through executives' minds: The assets will bounce back. Our new trading ventures will grow so fast as to dwarf the losses when we eventually are obliged to recognize them.
The company had big plans for brokering advertising time, Internet bandwidth and other imagined "new economy" commodities, none of which were working out as quickly as hoped. In accounting logic, though, a theory can trump a fact if you believe hard enough, and Enron was full of believers (as news this week of Mr. Lay's soured investments in other new economy wonders shows).
Worse, margins were eroding in Enron's core energy trading business. As we noted last June, revenues had quadrupled in a year but profits were up only 31% -- a sign that the business was going backward and would be in bad shape if revenues didn't keep growing spectacularly.
Unfortunately, even the quadrupling was largely a function of idiosyncratic conditions in California, which were soon reversed. The sad truth is that Enron's business was maturing. There would be no great profusion of new earnings to make up the losses. Enron's accounting gamble had come a cropper. The roof finally fell in when the stock plummeted, causing lenders to demand cash Enron didn't have.
Why Enron did what it did may, in some sense, be unknowable, but two factors seem to explain why high-growth companies in particular find it hard to take cognizance of dimming prospects.
The Wall Street factor: Enron ran into the dilemma that comes to companies whose share prices reflect extravagant hopes about the future that prove unfounded -- how do you let the air out of your own stock? Our legal system and the ethos of shareholder capitalism make it very hard for companies to do that, so some stretch accounting logic in an attempt to protect the share price.
The psychological factor: Ken Lay's name may be mud among Enron employees now, but an earlier generation remembers him as a decent guy and irrepressible visionary. But as the Rebecca Mark episode seemed to demonstrate, he had a weakness for the meteoric personalities in his midst. Ms. Mark was the bombshell and livewire who led the company's investment in the Dabhol power plant in India, which turned into a political and financial disaster, and then its foray into the water business, which became another disaster.
Everything we've learned about Jeffrey Skilling, Mr. Lay's protege and the wunderkind CEO who mysteriously resigned last August, suggests he was another personality that Mr. Lay fell in love with. He moved Enron into losing investments in fiber-optic bandwidth and other new markets, and oversaw the debt-hiding strategy. When Enron's share price began unraveling, he claimed outlandishly that investors should be willing to pay twice the share price for Enron's shrinking earnings.
Notice that we don't mention a lack of regulation or the need for campaign finance laws. Harrumphing in Washington won't stop the occasional Enron from falling off the edge.
Accountants are right when they say accounting conventions haven't kept up with the world. Most of a company's value these days resides in assets not measured on a balance sheet, such as management's alertness to opportunity (which many saw as Enron's chief virtue). Indeed, an irony that will surely escape Congressional sleuths is that Enron wouldn't have failed if investors had not rewarded it with an excessively optimistic stock price in the first place.
The fact is, as trading becomes cheaper and as investors diversify their risks with mutual funds, the public's appetite for risk has been growing stronger. We push companies to live more dangerously now, to roll the dice on inspired innovation. That's why we dangle large stock rewards in front of managements: to overcome their bias in favor of caution and self-protectiveness.
The Enron hearings can serve a useful purpose if they foster a realistic view of the new, quicksilver corporate order. For instance, high-risk, high-reward, eggs-in-one-basket stock incentives are an excellent tool of behavior of modification when aimed at top executives, who can affect a company's share price with every decision. They make no sense for the average employee, who can't.
The typical worker is already exposed enough to his firm's fortunes through his job. His pension savings should be put safely out of harm's way. We'll be lucky, though, if the hullabaloo over Enron, which is turning sillier and shriller by the day, doesn't run right past this obvious lesson and result in something truly unwise.

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

MONEY
The Enron scandal ; By the numbers

01/22/2002
USA Today
FINAL
B.03
(Copyright 2002)

* Enron's stock price at its January 2001 peak: $83
* Enron's stock price at last NYSE close: 67 cents
* Shares outstanding: 754.3 million
* Total shareholder value lost: $63,101,519,000
* Number of employees: 20,600
* Percent of employee 401(k) assets in Enron stock: 62% in January 2001
* Enron's rank in size before the drop: 7th largest
* Enron's reported net income in 2000: $979 million
* Federal income taxes paid in 2000: $0
* Profit Enron restated over four years: nearly $600 million
* Number of outside partnerships it had: more than 3,000
* Partnerships based offshore: about 900
* Members of the board of directors: 15
* Directors on the board's audit committee: 6
* Average 2001 compensation in stock and cash per director: nearly $400,000
* Company created: 1985
* Date of Chapter 11 filing: Dec. 2, 2001
* Number of Aspen, Colo., resort properties that CEO Kenneth Lay put up for sale just days before the bankruptcy filing: 3
* Reported date of warning letter Sherron Watkins sent to Lay: Aug. 15, 2001
* Total shares sold by corporate insiders last year: 9,447,659, valued at $130,972,228
* Total shares bought by corporate insiders last year: 10,000, valued at $369,800
* Total debt listed on the books based on its bankruptcy filing: $13.12 billion
* Contributions by Enron employees and its political action committee to the Bush presidential campaign: $113,800
* Contributions by Arthur Andersen employees and its PAC to the Bush campaign: $145,650
* Contributions by Enron's attorneys, Houston-based Vinson & Elkins or PAC, to the Bush campaign: $202,850
* Congressional committees holding inquiries: at least 9
* Federal agencies investigating: at least 3
* Year Arthur Andersen began auditing Enron: 1985
* Securities and Exchange Commission-registered companies Andersen has as clients: 2,407
* Andersen partners/employees worldwide: about 4,700/84,000
* Andersen's rank among accounting firms: 5
* Countries it operates in: 85
* Earliest date reported that Enron concerns were raised at Andersen: Feb. 6, 2001
Sources: USA TODAY research; Center for Responsive Politics; Thomson Financial

PHOTO, B/W, James Nielsen, AFP; PHOTOS, B/W, Reuters (2); Caption: Enron CEO Ken Lay Sherron Watkins
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE INVESTORS
In 401(k) Plans, a New Rush to Diversify
By PETER T. KILBORN

01/23/2002
The New York Times
Page 6, Column 1
c. 2002 New York Times Company

BALTIMORE, Jan. 22 -- People were thinking about the safety of their 401(k) retirement funds long before the fall of Enron -- the drop in the stock market over the last two years had assured that.
But the Enron collapse, in which many of the company's employees lost their retirement savings, has moved people, including those having lunch at Jimmy's Famous Seafood Restaurant here, to take action.
''I've got an appointment Wednesday to talk with the representative at Metropolitan Life,'' said Pam, a Baltimore school system employee, who declined to give her full name. Sitting at another table was Roxanne, a state port employee, who also refused to give her last name. ''I've got plans to meet with my financial adviser to talk about diversity,'' she said.
Across the country, from the docks of this industrial city, to Detroit, Chicago, Denver and Silicon Alley, people who once boasted of 20 percent year-by-year increases in their 401(k) retirement plans are on the move. They are making appointments with brokers and their human resources offices, reworking their portfolios and shifting money from the market's fallen stars. They are allocating more of their money to safer fixed-income securities and blue chip stocks -- companies that retain some of their trust.
Donald Clarke, 56, a senior electrical engineer at Bethlehem Steel, was having Jimmy's sour beef and dumplings plate. The Enron scandal, he said, should put all investors on alert. ''All companies try to put a rosy picture on themselves for the stockholders,'' Mr. Clarke said. ''But they're still supposed to be truthful. Enron wasn't.''
Reports of the collapse of Enron employees' 401(k) accounts are stirring particular scrutiny of employers that require investment in their own stock. ''That's something that I'm really going to look into when I find my next job,'' said Sue Becker, 51, of Evanston, Ill., who recently left a job with a food processing company. ''That would definitely be a question I would ask in the interview.''
Michael Sachs, 28, a lawyer at Sonnenschein, Nath & Rosenthal in Chicago who has $12,000 to 15,000 in a 401(k) account, agreed. ''I'd be asking that question,'' he said.''
Paul Colwell, a history teacher at Lincoln Park High School outside Detroit, said Enron ''makes me wonder about some of the companies I'm invested in.''
Mr. Colwell added: ''What have they been doing? Are they as solid as I thought they were?''
Linda Schultz, 46, of Rosemont, Ill., works for Sears, Roebuck & Company in Chicago. Like Enron employees, she is required to hold stock in her company and has 30 percent of her 401(k) in Sears stock. Unlike Enron employees, her stock is worth something: at about $54 a share, it is far above the $15 Ms. Schultz paid when she began working at Sears 24 years ago.
But in this climate she said she would get rid of the stock if her retirement plan permitted her to. Arthur Andersen, Enron's accounting firm, has done work for Sears in the past, Ms. Schultz said. ''People started wondering about what was going on with us, and they started getting nervous. You just don't know what's going to happen with the company.''
Some investors have thicker skins. Rory MacDonald, 53, who said he works for a ''worldwide big deal oil and gas company'' he wouldn't name, was taking a cigarette break in Denver's 16 Street Mall. He said his 401(k) account plunged $100,000 last year.
Mr. MacDonald, who plans to retire at 63, said he considered directing the account into less volatile securities but did not change anything. ''I expect before my 10 years are up and I retire, the stock market will go back up and I will recoup that loss,'' he said.
At Jimmy's, Mr. Clarke was having lunch with Terry Moore, 58, an engineer who retired from Bethlehem in 1994 after 30 years with the company.
Except for the apparent corruption, they said, Enron has nothing on Bethlehem, which has also filed for bankruptcy protection.
''Bethlehem was 48 cents today,'' Mr. Clarke said. ''When I started buying it, it was about $35 a share.'' The decline has meant a $70,000 loss in his retirement account.
Before dumping it all, Mr. Moore made money with his Bethlehem stock. ''I bought and sold, bought and sold,'' he said, and managed to get his timing right.
Unlike the many workers whose only retirement fund is a 401(k) account, Mr. Clarke and Mr. Moore also have fixed-benefit pensions, financed entirely by the company, that ensures them a monthly check of a fixed amount throughout their retirements. Mr. Moore collects about $2,000 a month, about $600 less than he would have received had he not retired early.
But those plans, are not as safe as they seem. ''They can change it in a heartbeat,'' Mr. Moore said. If Bethlehem was shut down, the government would pick up the pension plan but reduce the benefit.
For Barbara Friedman, who was having lunch at Jimmy's, Enron signifies the end of an era. ''Two years ago the market was fun,'' said Ms. Friedman, 59, whose two grown children are invested in sunken 401(k) plans. ''Win or lose, it was fun. Now it's not fun.''
As she paid her check, she continued. ''It isn't just Enron,'' she said. ''You had all these high-flying stocks. The worst thing was how attuned we became to those investment managers and television pundits, hanging on their every word. That trust has gone.''

Photo: Enron has raised concerns of a number of workers, including Harold Goodman, left, and Donald Clarke, who discussed 401(k) plans over lunch yesterday in Baltimore. (Marty Katz for The New York Times)
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

New Order: Amid Enron's Fallout, And a Sinking Stock, Tyco Plans a Breakup --- Giant's Surprise Move Comes As More Companies Face Push for Clearer Numbers --- Suffering for Another's `Sins'
By Wall Street Journal staff reporters Mark Maremont, John Hechinger and Karen Damato

01/23/2002
The Wall Street Journal
A1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

As the collapse of Enron Corp. triggers widespread investor anxiety about companies with inscrutable finances, giant Tyco International Ltd. -- its stock price depressed amid persistent questions about its books -- announced a surprise plan to split into four separate companies.
The breakup represents a sharp departure from nearly a decade of acquisition-fueled growth that transformed Tyco from an obscure maker of fire-protection devices into one of the world's biggest conglomerates, with $38 billion in annual revenue and a stock-market value of about $95 billion.
The move is an about-face for L. Dennis Kozlowski, Tyco's ambitious chairman and chief executive, who last year said he was aiming for $100 billion in revenues by 2006. Now, Tyco is worth at least 50% more broken up than as a whole, he said. While saying that Tyco's accounting practices are spotless, Mr. Kozlowski told investors that separating the company into smaller, independent entities will offer investors "greatly increased simplicity, clarity and transparency."
Mr. Kozlowski declared: "A lot of companies are going to suffer for Enron's sins." But he said his spinoff wasn't planned in reaction to the recent drop in Tyco's stock price. Rather, he said, for the past 18 months or so, Tyco executives have been frustrated by the low ratio of the company's stock price to its earnings, even as the company has continued to deliver strong earnings growth.
Transparency was exactly what some investors believed was lacking at Tyco, whose chief businesses include security gear, medical products, and financial services. The company's acquisitions, while generally regarded as well executed, made its financial statements increasingly difficult to analyze. Acquired companies disappeared into much bigger Tyco units, making their subsequent performance impossible to track. Some smaller acquisitions were never even announced.
Tyco's breakup marks the latest sign that investors and regulators are demanding more clarity from companies' disclosures to the public. In the wake of the Enron debacle, jittery investors have been fleeing any stock with even a whiff of accounting controversy. When a wave of fresh accounting rumors about Tyco started soon after Jan. 1, the company's shares tumbled nearly 25% in less than three weeks, wiping almost $30 billion from its market value. That created profits for short sellers, whose trading strategy bets on a stock's decline.
"Enron and others have really shaken things up, and it's provided fuel for shorts who have been all over [Tyco] for years," said Bruce Bartlett, director of growth investing at Oppenheimer Funds, which owns about 5.5 million shares of Tyco in eight different mutual funds. Mr. Bartlett said he doesn't believe any of the buzz about possible accounting problems at Tyco. But investors, he said, "hate stories that don't have accounting transparency."
The Securities and Exchange Commission yesterday reminded public companies of the need to clearly disclose financial transactions, including off-balance-sheet financings, in their forthcoming annual reports. Enron used such arrangements to keep large amounts of debt off of its books. There is no suggestion, even from Tyco's critics, that it has employed off-balance-sheet financing or secret partnerships.
Moody's Investors Service, the big credit-rating agency, has made an unusual demand of more than 4,000 bond issuers: to provide new information on any off-balance-sheet arrangements that could pose financial risks.
"We need better disclosure about these matters in this reporting season," SEC Chief Accountant Robert K. Herdman said in the commission's statement. He urged companies to exceed minimum legal disclosure requirements and also said the SEC is continuing to study how it can improve disclosure of esoteric financial arrangements.
Auditing firms also are clearly feeling pressure from the very public pillorying of Enron auditor Arthur Andersen LLP. That harsh spotlight is "stiffening the spines of auditors in other companies," said James Gipson, lead manager of Clipper Fund, a mutual fund with about $2.5 billion in assets. "Audits taking place right now are likely to be very diligent, much more so than they were a year or two ago," he said. "In the long run, investors will be well served by that."
Professional investors say they are stepping up their own vigilance because of the Enron meltdown. "We are paying more attention to" companies' more complex financial engineering, said Steve Fossel, a portfolio manager and vice president with Berger LLC, a unit of Stilwell Financial Inc. While Berger has always made an effort to analyze such arrangements, recent events have moved that "more toward the front of your mind," he said.
Tyco's announcement last week of results for its fiscal first quarter, which ended Dec. 31, provided a prime example of what some investors have called the company's preference for baffling disclosures. The results featured three separate changes in accounting practices and a "pro forma" section on hypothetical year-earlier earnings. There were also numerous charges and credits Tyco treated as extraordinary, even though some are considered part of operating results under generally accepted accounting principles.
Although the accounting-practice changes were adopted to conform with recent changes in general standards, even some accounting professors were left shaking their heads at the complexity of the results.
Meanwhile, the Bermuda-registered Tyco has also been lowering its taxes and interest costs through a complex international structure that, in part, involves issuing debt through a Luxembourg subsidiary. Befuddled investors have found themselves wading through numerous lengthy footnotes in an attempt to decipher all of this. Some wonder how Tyco has been able to report 40% average annual growth in per-share earnings over the last five years with a grab-bag collection of businesses, ranging from disposable diapers to home-alarm systems.
Tyco's response has been that it chooses the right businesses to acquire, cuts costs to maximize efficiency and provides generous incentives to keep its managers at the top of their game. It has also said that its free cash flow -- which it put at $4.8 billion last year -- demonstrates the integrity and authenticity of its earning power.
Until the Enron scandal, questions about Tyco's accounting seemed to have subsided. An SEC investigation of its merger-related accounting ended in 2000, when the SEC essentially cleared the company, and the stock had recovered.
Mr. Kozlowski said Tyco executives began seriously considering a breakup more than a year ago but didn't move forward with it until he began informally approaching some directors last month. The company then engaged Goldman Sachs & Co. to analyze a potential breakup. The final decision took place at a two-day board meeting in Bermuda that ended Monday. "We didn't just wake up a week ago and say, `Hey, the stock is going down. Let's break up the company," the Tyco chief said.
Under the plan to separate the company into four parts, the security and electronics units, with $17.6 billion in 2001 revenue, will form the core of a slimmed-down Tyco run by Mr. Kozlowski. Three other units -- a finance subsidiary, a health-care business, and a unit making fire-protection devices and "flow-control" equipment, such as valves and pipes -- will each be split off into a new company. As much as 20% of each new company will be sold in initial public offerings.
After the IPOs, Mr. Kozlowski said Tyco plans to spin the remainder of the three companies out to shareholders by the end of 2002. In addition, Tyco plans to sell its plastics unit, which Mr. Kozlowski predicted could bring $3 billion to $4 billion. If all goes as planned, Tyco plans to eliminate $11 billion of its $23 billion in debt, excluding obligations of its finance arm.
Investors reacted cautiously to the breakup plan, pushing Tyco shares up just $1.10, to $47.55, in 4 p.m. New York Stock Exchange composite trading. That's still far below the nearly $59 level at which Tyco started 2002, and well short of Mr. Kozlowski's prediction that the breakup plan would add 50% in value for investors.
Don MacDougall, an analyst with J.P. Morgan, praised Tyco's plan, estimating the breakup value of the company at $90 a share. Mr. MacDougall said investors will be eager to snap up shares in the IPOs, especially of the company's health-care business, a Wall Street favorite these days. That business makes medical products such as sutures, syringes, and diagnostic-imaging supplies.
Mr. MacDougall said dividing the company into smaller pieces should allay investor suspicion about Tyco's complexity, because each segment will disclose far more detailed information. "Acquisitions at Tyco created financial statements that are far more complex than the average company's," he said. That depressed Tyco's share price, he added. "We've long felt that discount is inappropriate."
But some investors reacted more skeptically. Kevin McCloskey, a portfolio manager at Federated Investors Inc. in Pittsburgh, which owns 4.3 million Tyco shares, said the plan could deliver higher share prices, but he added, "I have to question whether this is the time to give up on their [prior] strategy." He said he suspects that Tyco executives were afraid they wouldn't be able to meet their own earnings projections, and with the stock price so low, couldn't make new acquisitions. "So they come up with Plan C, which is split up the company," he said.
Piloting the audacious breakup plan through his board in just a month is characteristic behavior for Mr. Kozlowski, the son of a Newark, N.J., detective who joined Tyco as assistant controller in 1976. After running three divisions, he took the reins as chief executive in 1992. The company then had $3 billion in annual revenue from such operations as valves, pipes and fire-sprinkler systems. By last year, he had expanded revenue 12-fold, gobbling up scores of companies along the way, including ADT alarm systems, AMP electrical connectors and U.S. Surgical.
In making deals, Mr. Kozlowski insists on a simple formula: Tyco doesn't do hostile deals, and every acquisition has to add to earnings immediately. Once Tyco acquires a firm, it cuts costs, sometimes ruthlessly. On the same day in 1999 it bought Batts Inc., a family-run maker of plastic hangers, Tyco executives stunned the company's employees by announcing the closure of all three factories in its Michigan hometown. Tyco executives said the closures helped integrate Batts into its other hanger operations.
Tyco is highly decentralized, run from a simple, two-story wooden building in Exeter, N.H., staffed with top executives and a few dozen accountants, lawyers and acquisition specialists. Unit managers are given considerable leeway -- and paid handsomely for delivering results. During much of the 1990s, the formula was a spectacular success, with the stock rising more than 12-fold between the day Mr. Kozlowski took the helm and early October 1999.
That was about the time the first serious questions about Tyco's accounting arose. The concerns were aired in a newsletter, published by Dallas money manager David Tice. Mr. Tice claimed that Tyco had a history of taking huge acquisition-related charges that could be used to pump up profits later. He also warned that investors weren't paying enough attention to the charges, which he said were obscuring the company's actual results.
Tyco executives hotly disputed the allegations, but its stock took a steep fall after the SEC began an informal inquiry into the company's accounting practices. In mid-2000, after Tyco made some minor adjustments in restating its books, the SEC ended its inquiry without taking any action. Bullish investors saw that as vindication of Tyco's bookkeeping.
After the SEC inquiry ended, Tyco kept chugging along, delivering a 42% increase in per-share earnings in fiscal 2000, before what Tyco called restructuring and other "non-recurring" items, and another 29% increase on a similar basis last year. But the stock didn't take off as Tyco executives hoped. Instead, it bounced up and down with the market. It closed yesterday below its October 1999 level, prior to Mr. Tice's report.
Tyco executives believe they have been victimized, in part, by short sellers, who try to profit from a stock's decline by selling borrowed shares in hopes of replacing them with shares bought later at a lower price. The company has been a favorite of the shorts, who have contended that Tyco's numbers are simply too good to be believed.
For starters, Tyco critics have said the company has been improving its performance by having acquired companies take inflated writeoffs and otherwise manipulate their books in their last few months of independence before being gobbled up by Tyco. This period typically isn't subject to any scrutiny by outsiders because the acquired company usually doesn't file financial statements for the period.
For example, some cite a series of charges by finance company CIT Group Inc. last year in the two months before it was acquired by Tyco. CIT posted a net loss of $78.8 million in its final two months of independence, when investors didn't much care. Then, after being absorbed by Tyco, it posted net income of $71.2 million in the remaining month of its June quarter. Tyco executives have said the accounting was proper, and that they told investors that CIT's one-month results were artificially high owing in part to large quarter-end revenue.
Others have noted Tyco's seemingly uncanny ability to keep lowering its tax rate, especially in quarters in which it needs extra income. In last year's fourth quarter, the company reported a tax rate of just 19.2%, down from 24.7% for the first nine months, and 24.2% in the year-earlier period. Tyco has said it had overestimated its tax rate earlier in the year and had to adjust it in the fourth quarter. The lower rate added about five cents per share to earnings in a quarter in which it beat analysts' expectations by two cents.
Even many veteran money managers have said Tyco's financial statements have been so complex that they didn't understand them fully. Alfred Harrison, a manager of Alliance Premier Growth Fund in New York, which has $12 billion in assets, including Tyco shares, said recently that "nobody knows how they put it together, but they do." Mr. Harrison likened Tyco's complexity in some senses to Enron, saying "to some degree, they become faith stocks."
When that faith started to diminish in recent weeks, Mr. Kozlowski vowed that he would no longer use Tyco stock to make acquisitions. With the company shouldering $23 billion in debt -- mostly from prior deals -- many wondered how Tyco would be able to keep gobbling up companies. The fear was that without dealmaking, the company's growth would begin to falter.
Mr. Tice, the Dallas money manager, said yesterday's announcement suggested a repudiation of the company' strategy of growing through serial acquisitions, financed with a rising stock price and growing debt levels. "This is essentially Tyco's dream exploding," he said. "The company always wanted to get big -- to grow -- not break up."
About a month and half ago, Mr. Tice also started shorting Tyco shares in his Prudent Bear mutual fund. He said he did so in part because he believed investors were starting to grow more skeptical of companies with obscure financial statements. "We just felt like earnings would slow down and that there would be more concern about accounting issues after Enron," he said.
Mr. Kozlowski denied any "defensive" reason for the breakup plan, saying the company was on track to make its earnings targets for this year. He said Tyco would deliver $5.5 billion next year in free cash flow -- a measure tracked by many Tyco analysts and investors, who consider it a key indicator of earnings quality. Mr. Kozlowski also said Tyco had no reason to be concerned about its debt, which was low considering the size of its total balance sheet.
But at some point, the Tyco chief said, investors were going to start clamoring for a breakup. Instead of waiting two or three years to prove to skeptical investors that its model works, he decided on the breakup plan. Sometimes, he added, "you just have to pull the trigger and do it."

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

Editorial Desk; Section A
Letters to the Editor
Enron and the Culture of Greed

01/23/2002
The New York Times
Page 18, Column 4
c. 2002 New York Times Company

To the Editor:
Re ''Web of Safeguards Failed as Enron Fell'' (front page, Jan. 20):
It is undoubtedly true that ''there is likely to be plenty of blame to go around'' for the failure of the Enron Corporation, but a general explanation is already apparent.
Enron's collapse was a product of the culture of greed, dishonesty, ethical blindness and wishful thinking that has characterized much of corporate America since the advent of the Reagan administration and that has been allowed to flourish essentially unchecked for the last 20 years (largely because politicians from both parties are dependent on campaign contributions from big business).
The inevitable ''criminal, civil and Congressional investigations'' will merely be sorting out the details.
JOHN S. KOPPEL
Bethesda, Md., Jan. 22, 2002

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

Editorial Desk; Section A
Letters to the Editor
Enron and the Culture of Greed

01/23/2002
The New York Times
Page 18, Column 4
c. 2002 New York Times Company

To the Editor:
Re ''The Enron Hearings: Cleaning Up After the Debacle'' (editorial, Jan. 20): In addition to punishing the wrongdoers, we should see to it that the money they made in this scandal is taken from them and returned to the investors they duped, especially their own employees. Shame on them!
ANNE N. KIRBY
Palo Alto, Calif., Jan. 20, 2002

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

Editorial Desk; Section A
Letters to the Editor
Enron and the Culture of Greed

01/23/2002
The New York Times
Page 18, Column 4
c. 2002 New York Times Company

To the Editor:
Re ''The United States of Enron,'' by Frank Rich (column, Jan. 19):
Ann Richards, the former Texas governor, is exactly right; the Enron scandal calls for a special prosecutor. When all hands are dirty, it is clear that an independent investigation is required.
I do not believe that the American people will settle for less.
Oh, yes, we little people understand exactly what happened at Enron, and we are furious about it. If the administration and Congress are sincere in wanting to find the truth, then our course of action is crystal clear: appoint a special prosecutor who is acceptable to both parties.
C. L. FINCHER
Little Rock, Ark., Jan. 19, 2002

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

Editorial Desk; Section A
Letters to the Editor
Enron and the Culture of Greed

01/23/2002
The New York Times
Page 18, Column 5
c. 2002 New York Times Company

To the Editor:
Re ''Senate Bill Showed Complexities of Power Couple's Ties to Enron'' (Business Day, Jan. 18):
I remember that throughout the 2000 elections, and for a while after that, campaign finance reform appeared as a top priority on more than one senator's agenda, on both sides of the aisle.
Now that the Sept. 11 aftermath has subsided, and Enron is the top issue being debated nationally, shouldn't some of those good, healthy sentiments be revived for the sake of our country's future?
ANNA PRANDO
Los Angeles, Jan. 18, 2002

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

Editorial Desk; Section A
Letters to the Editor
Enron and the Culture of Greed

01/23/2002
The New York Times
Page 18, Column 5
c. 2002 New York Times Company

To the Editor:
In all the duplicity involving Enron, I find it particularly troubling that Enron paid no corporate income taxes in four of the last five years (front page, Jan. 17).
Here is a company that claimed to be a leading corporate citizen and that could not possibly have done more to pervert our democratic, free-market system.
My sincere hope is that the pernicious system of corporate influence in Washington and in the state capitols that permitted this debacle to occur will continue to be exposed so that it can be dismantled.
FRED LAZARE
Houston, Jan. 19, 2002

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

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