Enron Board Learned Of Executive's Concerns In Oct -Atty
Dow Jones Energy Service, 01/23/2002

Enron's Board Ignored Signs of Losses, Dorgan Says
Bloomberg, 01/23/2002

Enron Board Protected From Lawsuits, Experts Say
Bloomberg, 01/23/2002

What Did They Know And...When Did They Know It?; Meet Sherron Watkins, who sounded the alarm on Enron long before its collapse
Time Magazine, 01/28/2002

Enron affiliate challenges PUC call for suspension, revocation
Associated Press Newswires, 01/23/2002

USA: FACTBOX-US congressional hearings schedule on Enron.
Reuters English News Service, 01/23/2002

Judge to consider lawyers' plan to investigate Arthur Andersen
Associated Press Newswires, 01/23/2002

Enron suit cites racketeering charges
CBS Marketwatch.com, 01/23/2002

Enron Employees Sue Andersen, Claiming Auditor Violated Racketeering Laws
Dow Jones Business News, 01/23/2002

On Capitol Hill, Members of Congress Taking Up Where They Left Off; Enron Employees Scheduled Meeting Won't Happen Today
CNN: Live Today, 01/23/2002

Judge Won't Allow Insurers Immediate Access To Enron Info
Dow Jones News Service, 01/23/2002

Senate panel asks Enron to authorize public disclosure of tax returns since 1985
Associated Press Newswires, 01/23/2002

Enron Asked to Release Its Tax Records Dating Back to 1985
Bloomberg, 01/23/2002

USA: U.S. Senate panel wants to release Enron tax data.
Reuters English News Service, 01/23/2002

White House Cites Urgency In SEC Appointments
Dow Jones International News, 01/23/2002

Andersen CEO won't show
CNN, 01/23/2002

Auditor Refuses To Testify In Enron Hearing
KPRC Channel 2 Houston, 01/23/2002

USA: Former Andersen partner seeks to defer testimony.
Reuters English News Service, 01/23/2002

Perspectives
Newsweek, 01/28/2002

You're On Your Own ; The Enron lesson: in making critical decisions, consumers are at sea. Here is a survival guide
Time Magazine, 01/28/2002

Your Money: Old Safety Nets Are Gone. Here's What To Do
Time Magazine, 01/28/2002

What $6 Million Can Buy
Time Magazine, 01/28/2002

The Enron Effect; As the accounting scandal spreads, regulators and politicians are pounding the table for reform. But will anything really change?
Newsweek, 01/28/2002

The Great Giveback; Enron's turned a capital pastime upside down: the Beltway's racing to give away, not pocket, the giant's cash
Newsweek, 01/28/2002

'Events, Dear Boy, Events'; Enron is not--yet--much of a political scandal, but has many facets awkward for Republicans
Newsweek, 01/28/2002

Judicial nominee to face questions about Enron contributions
Associated Press Newswires, 01/23/2002

Congress's Enron Hearings May Open Way to New Laws
Bloomberg, 01/23/2002

State GOP sends $15,000 Enron contribution to employees' fund
Associated Press Newswires, 01/23/2002

LOU DOBBS MONEYLINE; CNNfn
CNNfn: Moneyline News Hour, 01/22/2002

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Enron Board Learned Of Executive's Concerns In Oct -Atty
By Jason Leopold

01/23/2002
Dow Jones Energy Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of DOW JONES NEWSWIRES

LOS ANGELES -(Dow Jones)- Enron Corp.'s (ENRNQ) board of directors didn't learn until October that an Enron executive had serious concerns that accounting improprieties could bring down the company, according to an attorney for the board, although word of those concerns had spread throughout the company by early September.
The executive, Sherron Watkins, raised her concerns with Chairman and Chief Executive Ken Lay in August. But they weren't shared with board members besides Lay until it was too late to do anything, said attorney Neil Eggleston, who represents Enron's board in federal investigations of the company.
"The first they remember hearing of this issue is in early October in connection with the Vinson & Elkins review," Eggleston said.
Vinson & Elkins, Enron's outside law firm, conducted a review of Watkins' concerns at Lay's request. The firm submitted its findings in a report dated Oct. 15, concluding that the company's handling of its off-balance-sheet partnerships was proper but could be portrayed in a way that could be damaging to Enron.
Enron's board is named in a number of civil and class action lawsuits associated with the company's collapse. The audit committee had reviewed some of the off-balance sheet partnerships now at the center of federal investigations, and the full board voted twice to suspend Enron's code of ethics to allow former Chief Financial Officer Andrew Fastow to run partnerships even as he served as an officer for Enron.
Robert Jaedicke, the chairman of the board's audit committee, became aware of Watkins' concerns a few days before the committee met on Oct. 8, Eggleston said. Vinson & Elkins advised others on the committee at the meeting, and the rest of the board was informed a couple of days before the firm released its report.
The text of the Vinson & Elkins report supports that chain of events. Robert Bennett, an attorney representing Enron in federal investigations of the company, wasn't sure when management first notified the board, but deferred to Eggleston's account.

Board Committee Established Later

On Oct. 31, after news of losses related to transactions with partnerships run by Enron executives had set off the energy company's spiral into bankruptcy court, Enron established a special board committee to look into the transactions. William Powers, dean of the University of Texas Law School, was named to head the committee.
Watkins' concerns about accounting practices related to the off-balance sheet partnerships were already known in August by the company's general counsel, Enron auditor Arthur Andersen and the company's top management.
Watkins detailed her concerns in a letter to Lay on Aug. 15. She met with Lay on Aug. 22 to discuss the letter, in which she specifically cautioned Lay against using Vinson & Elkins to look into the matter "due to conflict."
By September, lower-level employees at the company were also aware.
"I heard in September, maybe the first week in September, for the first time that someone accused Enron of shady practices," said Inderpal Singh, a manager of finance who works for Enron global markets in the finance and structuring department. "Everybody in my division started talking about it, and we were worried because we all thought everything was OK at Enron."
Philip Hilder, Watkins attorney, said his client tried in September and October to contact other people in Enron, including the board of directors, to warn them about accounting improprieties, because she wasn't satisfied with the steps Lay was taking to ensure Enron's financial health.
"Yes, she did write additional letters to others at Enron about her concerns after she met with Mr. Lay," Hilder said in an interview Sunday.
Eggleston said Monday that board members don't recall having received a phone call, fax or email from Watkins.
"But then again, if the board received a call from Sherron Watkins, they wouldn't necessarily know who she is," Eggleston added.

Other Letters

Ken Johnson, a spokesman for the House Energy and Commerce Committee, which released Watkins' Aug. 15 letter last week, said late Tuesday that the committee is aware of additional written warnings sent by Watkins to others at the company following her contacts with Lay.
"I can't say specifically who she sent them to at Enron, but we're in the process of reviewing them and at some point we intend to discuss them with her," Johnson said.
One Enron executive said Watkins appeared to be on a "mission," warning "everyone she came in contact with" about the partnerships and questionable accounting practices she believed would ruin the company.
One of the letters Watkins wrote was sent to Enron Chief Financial Officer Jeff McMahon on Oct. 16, the day Enron released third-quarter earnings that showed a $618 million loss due in part to transactions with off-balance sheet partnerships run by the company's executives, Hilder said.
Watkins, 42, who currently earns $165,000 a year as a vice president of communications at Enron, wrote that her "worst nightmare" had come true, referring to the scenario she had described in her much-publicized August letter to Lay, Hilder said.
Watkins, who has done work for four off-balance sheet partnerships including JEDI, Cash, Cactus I and Caribou, was upset that Enron officers made only scant reference to the partnerships in the earnings announcement and failed to explain adequately the reasons behind the writeoffs, Hilder said.
McMahon didn't return a call seeking comment.
Richard Watkins, Sherron Watkins' husband, said his wife called him Oct. 16 after the earnings report to express her concerns.
"She was disappointed and frustrated no one listened to her," Richard Watkins said in an interview.
Sherron Watkins met with Lay again at the end of October, at which time Lay told her a special board committee would be formed to look into her allegations, Hilder said.
Bennett confirmed the meeting.
According to Richard Watkins, when Enron said in early November that it was restating four years' worth of earnings, his wife told him: "I'm going to have to look for another job. This company is going to go bankrupt."
-By Jason Leopold, Dow Jones Newswires; 323-658-3874; jason.leopold@dowjones.com

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

Enron's Board Ignored Signs of Losses, Dorgan Says
2002-01-23 14:46 (New York)

     Washington, Jan. 23 (Bloomberg) -- Enron Corp.'s board failed to act when it knew partnerships that were used to hide debt and unprofitable investments were leading to losses that shareholders would eventually absorb, Senator Byron Dorgan said.
     ``It seems to me they had some warnings, and probably even considered those warnings and must have discarded them,'' Dorgan, who is leading an investigation into Enron's bankruptcy, said in an interview. ``I'm very surprised.''
     The Consumer Affairs Subcommittee, led by Dorgan, a North Dakota Democrat, has received transcripts and minutes of meetings that show Enron's board discussed the roles played by former Chief Financial Officer Andrew Fastow and Chief Executive Officer Jeffrey Skilling in setting and running Enron's partnerships.
     Those partnerships had losses that forced Enron to restate $586 million in income since 1996. That led lenders to cut off credit, impairing the company's main business, trading electricity and natural gas. Shareholders lost $26 billion in market value and $850 million in pension funds vanished.
     Dorgan, who will chair a hearing Feb. 4, said his panel received 41 boxes of documents from Enron. Chairman Kenneth Lay has agreed to testify. Fastow, who Enron ousted Oct. 24, and Skilling, who resigned Aug. 14, haven't responded to requests they testify, Dorgan said.

Information Needed

     The committee is still seeking some documents Enron hasn't supplied, including details about who invested in the partnerships and evidence of the board's approval, Dorgan said. He said he didn't have any independent information about document shredding at Enron that may have happened as recently as two weeks ago.
     ``One would expect what has happened here probably includes some violation of law,'' Dorgan said. ``At this point we don't know enough.''
     Dorgan plans several hearings that will investigate possible conflicts of interest in the accounting and investment banking industries that were highlighted by the Enron bankruptcy, the largest in U.S. history. Nine other House and Senate committees are examining other aspects of Enron's failure.
     Auditor Arthur Andersen LLP's acceptance of Enron's accounting has renewed interest in passing laws preventing auditors from consulting and accounting for the same client.
     ``It's likely we'll want to evaluate some legislative changes,'' said Dorgan, who served as North Dakota's tax commissioner from 1966 until 1980.

Pensions, Analysts and Partnerships

     Dorgan said he saw good chances for legislation to restrict 401(k) retirement plans from being heavily invested in one stock. He said rules should also be changed to remove conflicts of interest in large investment banking firms that may have caused stock analysts to rate Enron a ``buy'' or better until shares collapsed.
       The Senate Commerce Committee asked Enron in a Jan. 8 letter for a full accounting of all affiliated partnerships the company formed. The partnerships, set up throughout the 1990s, hid
debt and investment losses and created buyers for power plants. Some of them were capitalized only with Enron stock, according to a letter an Enron executive sent Lay in August.
     ``The construct of those partnerships played a significant role in the destruction of this company,'' Dorgan said.
     The role of the board of directors in Enron's downfall has received new scrutiny since the disclosure last week that an internal probe by the law firm of Vinson & Elkins last October said the board's audit committee reviewed some partnerships.
     The directors approved the partnerships and they suspended the company ethics code to allow partnerships to be created, the report says. The law firm said it didn't uncover any wrongdoing.

Conflict of Interest

     Enron lawyer Robert Bennett repeated earlier claims that many of the details of the questionable transactions weren't shared with the board.
     ``What will become clear if the good senator is prepared to wait for the completion of his investigation is that a tremendous amount of information was not known by members of the board,'' Bennett said. ``Why are we having hearings if conclusions have already been reached?''
     Citing transcripts, Dorgan disagreed.  ``They clearly talked about the conflict of interest,'' he said. ``They actually had some discussions about what Fastow was doing and what Skilling was
learning.''
     Under one arrangement, controlled by Fastow, Enron avoided $550 million in losses through a partnership called Raptor, according to the letter sent to Lay. Raptor agreed to pay Enron if the energy trader's investment portfolio of Internet and energy shares fell. If those shares rose, Raptor booked the gain and paid the income to Enron. Raptor's only asset was the promise that Enron would issue enough shares to pay back the partnership for whatever it had paid to cover stock losses.

`What Was Their Risk'

     In another case, Enron used stock to set up a partnership that sold $1.2 billion in bonds and paid Enron $800 million for 14 power plants. Enron booked the money as net income.
     ``We need to get information on who invested in the partnerships, what are the names, what were their investment stakes, what were their returns, what was their risk,'' Dorgan
said.
     Besides Lay and Skilling, directors named in lawsuits include Wendy Lee Gramm, a professor at George Mason University and wife of U.S. Senator Phil Gramm; Norman P. Blake Jr., the chief executive officer of Comdisco Inc.; Robert A. Belfer, former chairman of Belco Oil & Gas Corp.; Ronnie Chan Chichung, chairman of Grand Hotel Holdings Ltd.; John H. Duncan, former president of Gulf & Western Industries Inc.; Charles Lemaistre, former chancellor of the University of Texas system; and Robert Jaedicke, a Stanford University professor Emeritus.
     Those directors allowed Fastow to ``profit handsomely'' from managing two partnerships known as LJM, receiving his salary and $30 million in commissions for overseeing them, Dorgan said.
     According to Dorgan, the transcripts show directors didn't know how much Fastow was being paid. ``It looks like they were surprised at the kind of compensation he received when they
discovered later,'' he said.
     The board also oversaw Enron's transformation from a pipeline operator into a trader dependent on income from derivatives transactions that were hard for investors to understand, Dorgan said.
     ``Part of the fallout of this could very well be an interest in some concern about regulation of hedge funds and derivatives,'' Dorgan said.

--Alex Canizares and Russell Hubbard in Washington at (202) 624-1820 or acanizares@bloomberg.net. Editors: Willen, Sobczyk

Enron Board Protected From Lawsuits, Experts Say
2002-01-23 14:50 (New York)

     New York, Jan. 23 (Bloomberg) -- Enron Corp.'s directors enjoy legal protection that may make it difficult for investors to sue them successfully, legal experts say.
     The directors are named as defendants in 40 investor lawsuits claiming the company concealed losses that led to Enron's bankruptcy. The company and its officials also are targets of government criminal and civil investigations.
     ``All it takes is a pencil to sue a board of directors,'' said Larry Hamermesh, a corporate law professor at Widener University.  ``Making a case against directors is a lot harder.''
     Federal and state laws hold boards responsible for only the most serious fraud and misrepresentation, experts say. They are designed to shield directors from legal liability to make service on the board more attractive.
     U.S. Senator Byron Dorgan said transcripts of Enron board meetings show that directors discussed conflicts of interest and
the roles of senior executives in partnerships used to shield the company's debt. The transcripts show they ignored warnings about
the company's problems, said Dorgan, a North Dakota Democrat leading a Senate Commerce Committee investigation.
     W. Neil Eggleston, attorney for Enron's outside directors, declined to comment on the suits against his clients. He said none
has been asked to testify before any congressional committee investigating Enron. Robert S. Bennett, who represents board members who also are corporate officers, wasn't available for comment, his office said.
     Eggleston said a ``motion to dismiss'' for lack of grounds to sue is typically the first step a lawyer for directors will take when a corporate board is sued. ``In this suit, it is hard to say what will happen,'' he said.

Liability Insurance

     The Enron board and officers have liability insurance with the St. Paul Companies and the Associated Electric & Gas Insurance
Services Ltd. ``We can't discuss the terms of the policy,'' said Pat Hirigoyen, a spokesman for St. Paul. St. Paul said its policies provide Enron officers and directors with $19 million in coverage.
     The AEGIS policy provides $35 million in coverage for legal fees and related expenses, according to the policy filed in the
bankruptcy documents.
     Mark Palmer, a spokesman for Enron, said the company provides insurance for the legal costs of directors and executives. He
declined to comment on liability coverage.
     Elson said most policies don't pay off if the directors are successfully sued for fraud but may cover reckless behavior.
     Enron, once the largest energy trader and the nation's seventh largest company, filed for bankruptcy in December after reporting its earnings over five years were inflated by $586 million. The company admitted it hid much of its debt in off-the- books partnerships.

`Poor Judgment'

     ``Just having poor judgment or being sloppy isn't enough'' for a successful suit against the directors, said Charles Elson,
director of the Center for Corporate Governance at the University of Delaware. ``If it was easy to sue directors, it would be hard
to get anyone to sit on a board.''
     Elson said shareholders, to be successful, must show directors were ``reckless or fraudulent.''
     Still, the board approved the partnerships and, according to a report by Enron's counsel, Vinson & Elkins, suspended the
company ethics code to let former Chief Financial Officer Andrew Fastow create partnerships between himself and Enron.
     ``The board determined that Mr. Fastow's participation in the partnerships would not adversely affect the interest of Enron,''
the company said in a securities filing in November.
     Seven of 12 outside board members received consulting fees or business deals from Enron, and four board members sold stock while Enron was issuing inaccurate financial statements.

Material Disclosure

     ``This may make a securities action a little easier,'' Elson said. ``For it raises the question of whether the board failed to
make a material disclosure it should have.''
     Two corporate officers, Kenneth Lay, the chairman and founder of Enron, and Jeffrey Skilling, chief executive officer before he
resigned in August, also sat on the board.
     Besides Lay, Enron directors named in some of the lawsuits include Wendy Lee Gramm, a professor at George Mason University and wife of U.S. Senator Phil Gramm; Norman P. Blake Jr., the chief executive officer of Comdisco Inc.; Enron Vice Chairman Mark A. Frevert; Robert A. Belfer, former chairman of Belco Oil & Gas Corp.; Ronnie Chan Chichung, chairman of Grand Hotel Holdings Ltd.; John H. Duncan, former president of Gulf & Western Industries Inc.; Charles LeMaistre, former chancellor of the University of Texas system; and Robert Jaedicke, a former Stanford University accounting professor.

Former Directors

     In addition to Skilling, former directors named in the suits include Richard Causey, Enron's chief accounting officer; Enron
General Counsel James Vinson Derrick Jr.; former Enron Vice Chairman J. Clifford Baxter; Joe H. Foy, retired senior partner at
the Bracewell & Patterson law firm; Ken L. Harrison, former chairman of Enron's Portland General Electric Co. unit; and former
Enron Chairman Joseph W. Sutton.
     Federal securities laws say directors may be liable if they fail to responsibly disclose all information, their behavior widely departs from accepted standards or as ``controlling individuals'' of the corporation.
     Dorgan said in an interview that the transcripts of board meetings that his committee has obtained demonstrates that
directors ``had some warnings, and probably even considered those warnings and must have discarded them.''
     Most state laws hold board members responsible for overseeing a company and making timely disclosures of information. They also have to offer accurate information in their recommendations to stockholders.
     Hamermesh said that board members would be liable if they intentionally failed to disclose information to stockholders on an
issue up for a vote. ``This doesn't seem to be the case with Enron,'' he said.

Self-Dealing

     Evidence of self-dealing by directors, taking official actions that benefit them personally, would also be grounds for a successful suit. Board members also may be legally accountable if they demonstrated bad faith, experts said.
     Both those tests impose standards of proof that are hard to meet, Elson said. ``It can't just be a bad decision or bad
behavior,'' he said. ``It has to be really, really bad.''
     Still, he said, evidence of conflicts of interest and insider trading would aid any claim of self-dealing.
     Eli Gottesdiner, a lawyer for Enron employees who lost their retirement savings in the company 401(k) stock plan, said board
members would be listed as defendants in his clients' suit.
     ``We believe that there is evidence suggesting that the board aided and abetted others in breaching their fiduciary responsibility,'' he said.

An Easier Case

     Elson said the directors may be able to withstand attack by saying management misinformed the board. ``Now if management was telling them the sky was red, and they accepted that, it wouldn't work,'' he said.
     That principle may make it easier to win a case against corporate officers who serve on the board. They ``have much deeper
liability than the outside members because of their information advantage,'' Elson said.
     Enron board members have refused to comment on the company's collapse and didn't return calls regarding their liability.
     Jaedicke, chairman of the board's audit committee, declined to comment on legal issues. ``I'm sorry. I can't discuss anything,'' he said from his home in Bozeman, Montana.

-- Mark Jaffe in New York at (212)-893-4159 or at mjaffe3@bloomberg.net, with reporting by Alex Canizares and Jeff St. Onge in Washington, through the Washington newsroom (202) 624-1862. Editor: Rubin/Hendrie.

Business
What Did They Know And...When Did They Know It?; Meet Sherron Watkins, who sounded the alarm on Enron long before its collapse
Michael Duffy; Reported by Cathy Booth Thomas/Houston, Bernard Baumohl ; and Deirdre van Dyk/New York, James Carney, ; Michael Weisskopf and Adam Zagorin/Washington, and ; Sally Duros and David Thigpen/Chicago

01/28/2002
Time Magazine
Time Inc.
16
(Copyright 2002)

You can smell the fish sticks from lunch in Sherron Watkins' 60- year-old house near downtown Houston, see the framed pictures of the family vacation and the baby in bunny ears and even one of her country-crooning second cousin, Lyle Lovett. Things have been so hectic, Watkins apologizes, that the Christmas ornaments haven't been put away yet. The daughter of two educators, Watkins grew up in nearby Tomball, where she worked the cash register at the family grocery store and began saving her money. By 1982, she'd picked up two accounting degrees in Austin and quickly found a job with Arthur Andersen. She eventually landed a job with Enron, Houston's red-hot energy trading firm, rising in eight years to vice president for corporate development. Her quick ascent surprised no one, says her husband Rick: "She always had a flair for numbers."
That flair led Watkins last summer to conclude there was something rotten at Enron. The numbers didn't add up. A pair of letters that she wrote to Chairman Kenneth Lay exposed top officials--perhaps including Lay himself--who for months had been trying to hide a mountain of debt, and started a chain reaction of events that brought down the company. Watkins' letters, along with thousands of other documents, are now in the hands of congressional and criminal investigators who are probing how Enron, its pet-rock auditors at Andersen and a host of other supporting actors allowed the country's seventh largest company to suddenly go bankrupt in December. "I am incredibly nervous that we will implode in a wave of accounting scandals," Watkins wrote of Enron's financial health. "I have heard one manager-level employee from the principal investments group say, 'I know it would be devastating to all of us, but I wish we would get caught. We're such a crooked company.'"
Maybe you can only glimpse the soul of a company when it breaks open right before your eyes. But we know now, thanks to Watkins, that Enron hid billions of dollars in debts and operating losses inside private partnerships and dizzyingly complex accounting schemes that were intended to pump up the buzz about the company and support its inflated stock price. We also learned last week that executives at Andersen, the accounting giant that enabled Enron's every move, fretted about the arrangement but saw the chance to double their fees if they just kept their heads down. And now that the party's over and the damage control is in full swing from Houston to Chicago to Washington, just about everyone who helped create this mess is busy pointing fingers, scapegoating the other guys, firing the lower- downs and diming out the higher-ups. Last week what was once envisioned as a new kind of company resembled little more than a circular firing squad of executives, accountants, consultants and lawyers, all fighting to stay in business or, at least, out of jail.
As these characters tell their self-serving stories, the fall of Enron is the most revealing sort of failure. It is a failure of the old-fashioned idea that auditors, directors and stock analysts are supposed to put the interests of shareholders above their own thirst for fees. It is a failure of government: having greased nearly every campaigner's palm in Washington, Enron worked overtime to keep the regulators from looking too closely at a balance sheet gone bad. And it is a failure of character, especially inside Enron, where managers who knew something was badly wrong did not say anything publicly until the subpoenas began to arrive.
About the only thing that didn't fail was Sherron Watkins' flair for numbers. In the sad tale of Enron's collapse, Watkins is the closest thing to a hero in sight. When she goes out for coffee, strangers stop to give her "attagirls" and ask for her autograph. She still goes to work each day at the company's headquarters in downtown Houston, where the tilted logo out front has yielded Enron a new nickname: the Crooked E.
Normally when public companies flame out in scandal, top executives can be seen running from headquarters mumbling that they are shocked to learn that there was gambling going on in the casino. But there's not much of that here. Enron and Andersen officials hardly deny the dubious deals, the 881 offshore tax havens or the stupid accounting tricks. That's partly because nobody can be sure that those dodges were inherently illegal. Many companies maintain similar arrangements, usually intended to avoid taxes--a benefit of interest to Enron too. Enron avoided paying federal income tax for four out of the last five years and instead received millions of dollars in federal-tax refunds.
For now, the House Energy and Commerce Committee and federal agents probing Enron's fall are skipping over the accounting schemes and other questionable business practices--including a bizarre sex angle: a scheme to offer pornography via the Internet. The investigators instead have zeroed in on what officials from Enron and Andersen did and did not do once they realized that the debts were mounting, that the stock price was falling and that the last people to learn of the looming reckoning were going to be millions of Enron shareholders. Watkins' two letters provide the road map for their inquiry.
It took Watkins weeks to work up the nerve to write her first letter to Lay. She had been working for chief financial officer Andrew Fastow last summer, looking for assets to sell as Enron ran into financial trouble while transforming itself into a company that traded energy, water, weather derivatives and anything else it could turn into a commodity. Watkins wanted to help, but everywhere she looked she ran into off-the-books arrangements that no one could explain or seemed to want to investigate. She knew that others who had pressed then CEO Jeffrey Skilling about the investments had run into trouble. One of her friends, then company treasurer Jeff McMahon, had been transferred when he "complained mightily" to Skilling about the "veil of secrecy" surrounding the outside deals.
Watkins learned Enron was losing money on two equity investments: network-equipment supplier Avici lost 98% of its value, and another, New Power, an energy retailer that had Ken Lay on the board, dropped more than 80%. Because both firms were backed by Enron stock, Watkins knew their downfall was dragging down Enron too. None of that was being reflected in the company's public filings, as far as she could tell. As her lawyer Philip Hilder explains, "The numbers just didn't add up."
Already known as outspoken, Watkins didn't want to approach Skilling directly for fear of losing her job, Hilder says. "She thought it would be fruitless while he was there." When Skilling suddenly quit on Aug. 14, Lay called an all-employees meeting two days later and asked for comments from workers beforehand. That's when Watkins finally sat down to write a one-page anonymous letter on her computer at work. She dropped it in the box at headquarters the next day.
The letter laid out what many executives knew but no one had the courage to say. Watkins homed in on two sets of transactions called Condor and Raptor (Enron had a penchant for names inspired by Jurassic Park and Star Wars) and argued that the accounting treatment was unsound, if not dishonest. Enron had booked huge profits from these entities while its stock price soared in 2000, despite the fact that neither Condor nor Raptor had any hard assets. But now that Enron's price was dropping, the company had to note these devaluations or pour more money into the companies when cash was short. "It sure looks to the layman on the street that we are hiding losses in a related company and will compensate that company with Enron stock in the future."
But what gave the brief letter its power was its overwhelming sense of doom. "Skilling is resigning now for 'personal reasons' but I would think he wasn't having fun, looked down the road and knew this stuff was unfixable and would rather abandon ship now than resign in shame in two years."
At the Aug. 16 companywide meeting, Lay invited anyone troubled by Skilling's departure to meet with him. Four days later Watkins called a friend at Andersen and asked for advice. On Aug. 21 the friend drafted a memo detailing Watkins' concerns for Andersen auditors on the Enron account. Meanwhile, Watkins went to Lay seeking a meeting. The next day she met with the chairman.
The session was businesslike, and Lay seemed genuinely concerned. Watkins brought along a six-page letter detailing her worries, and Lay promised to have a team of lawyers review the controversial deals. But he decided to use Enron's law firm, Vinson & Elkins, despite Watkins' unease about a conflict of interest. Vinson & Elkins had been paid for work on Condor and Raptor transactions. But Lay went ahead with the review--whose scope he kept strictly limited.
By then, Lay was in the middle of a personal stock sell-off. On Aug. 20 he exercised options to buy 25,000 shares at $20.78 a share. The next day he exercised an additional 68,000 shares at $21.56. On both days, the stock closed around $36, which meant Lay netted nearly $1.5 million before taxes. He continued to be a huge booster for the stock for another month. As late as Sept. 26, Lay would try to reassure Enron employees that "our financial liquidity has never been stronger." But as the stock fell last fall, company employees were told that they would be unable to move any assets held in Enron stock into other securities in their 401(k) plan while the company switched plan administrators.
The end was near. On Oct. 15 Vinson & Elkins issued a nine-page report stating that Andersen approved of the Condor and Raptor deals and that Enron had done nothing wrong. On Oct. 16 the company announced a $618 million third-quarter loss and a $1.2 billion reduction in shareholder equity. On Oct. 31 the SEC opened a formal inquiry into Enron. Last week, a Vinson & Elkins spokesman said the law firm was "not in a position to talk about our engagement with Enron or any other client."
Enron too said as little as possible last week as the company tried to reorganize itself and as Lay and other top executives tried to fend off lawsuits filed by angry employees and other investors. The law makes it extremely difficult to confiscate the personal assets of corporate officers in punishment for actions on behalf of the company, but if there were ever a chairman who courted that fate, it is Lay. Last week he put three properties in Aspen up for sale, for $16 million, and huddled with his lawyers in preparation for congressional hearings next month. Few in business have ever fallen so far so fast: the man who once could raise Cabinet officials with a single telephone call and rated the only one-on-one meeting with the Vice President on energy policy last year can't show his face in Houston for fear of reprisals.
While Enron suffered in silence last week, Andersen was tripping over its own attempts at damage control. Andersen has the most to gain by coming clean because if it doesn't, it stands to lose a lot of business. So with help from an army of just-hired p.r. agents, the Chicago company worked overtime to show that in its work for Enron, it was merely trying to serve a secretive and aggressive client who was pushing the envelope on accounting rules that aren't very clear anyway. Last week, two days after TIME reported that Andersen ordered the destruction of documents in October, the company sent CEO Joe Berardino out in public to strike a contrite tone. Andersen placed three auditors in its Houston office on leave and took out full-page ads in the newspapers promising to "deal with these issues, candidly and directly... Without question, this is the most difficult and challenging episode in our firm's history."
And it abruptly fired David Duncan, who managed the Enron account in Houston, saying he had "without any consultation with others in the firm" organized the destruction of documents as Enron's losses mounted in October. Seeking to put as much distance as possible between the home office and a wayward Houston branch, the company pointed out that all shredding had ceased once the SEC issued a subpoena in the Enron matter. As a former Andersen partner in Chicago told TIME, "The issue of document deletion is entirely dependent on when the organization was aware that there might be a liability issue. Liability begins once there is knowledge."
Which explains why things got worse--much worse--for Andersen a few days later, when it was revealed that officials at the company's headquarters in Chicago had discussed the questionable Enron accounting very early in the game--in a conference call last Feb. 5. Enron was no longer a problem that Andersen's Houston office had kept to itself.
Nor were the top Andersen officials worrying about the actions of some low-level, rogue Enron trader back on Feb. 5. What concerned the auditors that morning was how to account for losses piling up in an off-the-books partnership between the company and a firm called LJM. The manager of LJM was none other than Enron's chief financial officer, Fastow. Putting aside the Texas-size conflict of interest for Fastow--whose day job involved vouching for Enron's financial health--Andersen knew that Enron's debts to LJM were rising to a level that required public disclosure no matter who was in charge. Such a disclosure would have sent Enron's stock into a dive. But no disclosure was made in the company's next quarterly report. Why not? One memo of the Feb. 5 conference call noted that Enron "often is creating industries and markets and transactions for which there are no specific rules."
And yet Andersen's understanding of Enron's strange business practices was extensive enough that Andersen executives, during the same conference call, contemplated dropping Enron as a client. That would have been a kick in the teeth for the auditing firm: Enron was paying Andersen some $50 million a year in auditing and "consulting" fees--and officials said in the conference call that they envisioned billings doubling in the coming years. Ultimately, Andersen decided to stick with Enron because, according to an e-mail record of the call, "we had the appropriate people and processes in place to serve Enron and manage our engagement risks." That engagement ended late last week when, in a largely symbolic move, Enron fired Andersen instead.
In Washington, of course, the politicians weren't just firing Enron and Andersen; they were plucking them from their Rolodexes and sending back their gifts. Lawmakers of both parties--led by those in close contests this November--scrambled to give back hundreds of thousands of dollars in campaign contributions Enron employees had sprinkled across the political landscape last year. Just for good measure, lawmakers have launched seven separate Enron probes.
The Republican White House, which received the vast majority of the Enron money, struck an unbothered pose, relieved that neither Treasury Secretary Paul O'Neill nor Commerce Secretary Don Evans had lifted a finger when Enron came calling for help last fall. Still, the Bush team made one tiny bow to the explosive potential of the Enron scandal, hinting for the first time that it might fork over the details of Vice President Cheney's closed-door meetings with energy- industry officials last spring if a congressional committee requested them. Bush spokesman Dan Bartlett predicted that those papers, if released, would provide no evidence of a smoking quid pro quo between the Administration and Enron. "News flash," dry-quipped Bartlett. "We want to increase domestic natural-gas production. Tell me what Democrat doesn't."
If anyone was having trouble making Enron go away, it was Harvey Pitt, a lawyer who represented the Big Five accounting firms before Bush named him to chair the Securities and Exchange Commission last year. Until the Enron scandal broke, Pitt had waved away demands for stronger regulation of corporate accounting and auditing. There were calls from lawmakers for Pitt to recuse himself from the SEC probe of Enron, but Pitt refused--after a fashion, anyway--saying that such a step would hurt the agency's standing. He added, however, that director of enforcement Stephen Cutler would run the probe anyway. Bush last month named two other accounting executives to empty seats on the SEC: Paul Atkins, a partner with Pricewaterhouse Coopers, and Cynthia Glassman of Ernst & Young.
These rookies, like Pitt, face a rough season. "There could be other Enron-like situations out there," says Arthur Levitt, the activist former SEC chairman. "Financial legerdemain from seduced audit committees, compromised accountants and inadequate standards could certainly crop up again at other U.S. companies." At the moment, the public's best protection against that sort of surprise is other brave whistle-blowers like Sherron Watkins.
--Reported by Cathy Booth Thomas/Houston, Bernard Baumohl and Deirdre van Dyk/New York, James Carney, Michael Weisskopf and Adam Zagorin/Washington, and Sally Duros and David Thigpen/Chicago
Feb. 5: In a meeting and subsequent e-mail, some senior Andersen officials discuss dropping Enron as a client
Feb. 12: Jeffrey Skilling becomes Enron's CEO. Kenneth Lay stays as chairman
May: Vice-Chair Clifford Baxter complains of the "inappropriateness" of Enron's partnership deals, one of three executives to do so. He later resigns
June 26: $44
Aug. 15: Lay receives Watkins' warning letter
Aug. 20, 21: Lay sells 93,000 shares, earns $2 million
Through August 2001, Lay cashes out $16.1 million in stock. Skilling gets $15.5 million from selling his shares
Sept. 26: $25 Lay urges employees to buy stock
Oct. 16: Enron reveals $1.2 billion decrease in company value
Oct. 23: Arthur Andersen accelerates disposal of Enron-related documents
Nov. 8: Andersen receives a subpoena from the SEC. Enron admits inflating income almost $600 million since 1997
Nov. 9: Duncan's assistant e-mails other secretaries to "stop the shredding"
Nov. 30: 26[cents]
Dec. 2: Enron files for bankruptcy
Jan. 15: Enron suspended from New York Stock Exchange
PLAYING THE BLAME GAME As information trickles out and the finger pointing begins, it's clear that many people involved had spotted warning signs of Enron's accounting malfeasance long before the company's fall
AUGUST Rising Suspicions
AUG. 14 CEO Jeffrey Skilling resigns abruptly, and Kenneth Lay takes over. As Enron's Broadband division reports losses of $137 million, Lay tries to calm investors. Unappeased, analysts lower Enron's rating.
AUG. 15 Enron vice president Sherron Watkins anonymously sends a brief letter to Lay, warning him that Skilling's sudden departure could "raise suspicions of accounting improprieties."
AUG. 20 Watkins voices her worries in a call to a former Andersen colleague.
AUG. 21 Lay assures Enron employees in an e-mail that the company is on solid footing. Over two days, though, Lay makes $1.5 million by exercising options. Four Andersen officials, including lead partner David Duncan, meet to discuss Watkins' concerns.
AUG. 22 After telling her bosses that she wrote the memo, Watkins is invited to meet with Lay and hands him a more detailed letter.
OCTOBER Shredding, Calling, Crumbling
MID-OCTOBER A White House study, led by top economic adviser and former Enron consultant Lawrence Lindsey, looks at the possible economic consequences of an Enron failure.
OCT. 15 As a result of the Watkins letter, Enron commissions a report from law firm Vinson & Elkins. It concludes that Enron did no wrong.
OCT. 16 Enron discloses a $618 million loss in the third quarter and a $1.2 billion value write-off, tied mostly to its investment partnerships, run by Enron CFO Andrew Fastow.
OCT 23 Lay reassures investors in a conference call. Andersen's Duncan calls an urgent meeting to step up disposal of Enron documents.
OCT. 24 Enron ousts CFO Fastow.
OCT. 31 Enron announces the SEC has begun an inquiry.
LATE OCTOBER-EARLY NOVEMBER Lay phones various Administration officials to warn of Enron's dire straits.
LATE OCTOBER Treasury officials conclude Enron's collapse won't hurt markets. Lindsey's White House study concurs.
JANUARY Clear Culpability
JAN. 10 Andersen admits destroying documents.
JAN. 15 Andersen fires Duncan for shredding documents. N.Y.S.E. takes Enron off the board, saying "the company's securities are no longer suitable for trading on the N.Y.S.E."
JAN. 16 Duncan tells congressional investigators that Andersen officials talked about Enron last February and says he was aware that the account posed a "significant risk."
JAN. 17 White House reveals it conducted a review of Enron's troubles in mid-October. Enron fires Andersen.
JAN. 18 White House confirms that Vice President Cheney met in June with a politician from India about an Enron project.
AGGRESSIVE ACCOUNTING By capitalizing its web of complex partnerships with its own stock, Enron managed to make losses look like gains
THE STRATEGY When Enron wanted to invest in other companies' stocks--a commonplace transaction for large corporations--it could have negotiated a fair price with a competitor to raise capital to make the stock purchases. Instead, it created thousands of complex partnerships, including two called Condor and Raptor, to allow the transactions to be treated as gains rather than liabilities on Enron's books. According to Enron vice president Sherron Watkins' August memo, here's how these partnerships worked:
THE TACTIC In order to sell its own assets at the price it wanted, Enron lent Condor $800 million in Enron stock, which Condor then used to buy the assets. Enron listed the transaction as a cash gain.
Enron lent the Raptor partnership more than $550 million in stock so Raptor could invest in entities like the New Power Co. and Avici. Enron listed the Raptor loan as an asset. As guarantor of its own loan, Enron promised to issue more stock if Raptor defaulted. The tactic worked as long as stock prices rose.
THE COMPLICATION Instead of rising, Raptor's stock holdings plummeted in value. Whistle-blower Watkins warned in her memo that to offset Raptor's significant losses--Avici's stock dropped 98%, from $178 million to $5 million, and the New Power Co. shares dropped from $40 to $6--Enron would have to issue even more stock to keep Raptor afloat.
THE WRITE-DOWN As of last week, these transactions were not accounted for on Enron's books. What this means is that Enron may have to restate its earnings yet again, posting even bigger losses.
Quote: Skilling's abrupt departure will raise suspicions of accounting improprieties and valuation issues... --Excerpts from the letter Watkins sent to Lay on Aug. 15, 2001 I am incredibly nervous that we will implode in a wave of accounting scandals... It sure looks to the layman on the street that we are hiding losses in a related company...

COLOR PHOTO: JAMES MCGOON--GAMMA JEFF SKILLING: Former CEO, Enron COLOR PHOTO: STEVE LISS--GAMMA FOR TIME SHERRON WATKINS: Enron vice president COLOR PHOTO: GREG SMITH--CORBIS SABA FOR FORTUNE KENNETH LAY: CEO, Enron COLOR PHOTO: JAY MALLIN--PICTUREDESK INTERNATIONAL Duncan COLOR PHOTO: MIKE SEGAR--REUTERS Fastow COLOR CHART COLOR PHOTO: SHAWN THEW--AFP FEDS MOVE IN House investigators pore over documents in the Enron case COLOR PHOTO: GRAHAM/ROLL CALL--CORBIS SYGMA Berardino FOUR COLOR ILLUSTRATIONS COLOR PHOTO: MICHAEL BRANDS ON THE BLOCK This $6.5 million home is one of three Aspen properties Lay is selling COLOR PHOTO BIDDING ON ENRON The name now fetches profits on eBay, where opportunists are capitalizing on the company's demise by selling its goods Firm manual COLOR PHOTO [See caption above] Tiffany key ring COLOR PHOTO [See caption above] Quartz watch COLOR PHOTO [See caption above] Candleholder bearing the name of a shell company
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Enron affiliate challenges PUC call for suspension, revocation

01/23/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

AUSTIN (AP) - An Enron Corp. affiliate is challenging the Texas Public Utility Commission's attempt to block it from marketing power as a retail electric provider.
Enron Energy Services had about 11,600 customers, mostly small business customers, the PUC staff said in a petition this month.
The PUC claims the company should have its retail electric provider certificate suspended or revoked because it has failed to meet the minimum level of financial resources.
Enron Energy Services relied on the investment credit rating of Enron for its financial qualifications as a power provider, but Enron lost its investment grade rating on Nov. 28, the PUC petition said. The company and some of its subsidiaries, including Enron Energy Services, filed for bankruptcy on Dec. 2.
In a filing with the PUC last week, an EES attorney said the company has not violated the public utility regulatory act "such that its (retail electric provider) certificate should be suspended or revoked."
The filing said that while EES has experienced "material changes in the financial and technical conditions" since it was certified as a retail electric provider, it still meets the criteria necessary to retain its certificate to operate in Texas.
An attorney for the company did not immediately return telephone calls from The Associated Press.
A hearing before PUC commissioners is scheduled for Feb. 27.

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

USA: FACTBOX-US congressional hearings schedule on Enron.

01/23/2002
Reuters English News Service
(C) Reuters Limited 2002.

WASHINGTON, Jan 23 (Reuters) - Following are the eight hearings which Congress has firmly scheduled on the collapse of Enron Corp. and related regulatory issues over the next four weeks.
Jan 24, 9:30 a.m. EST (1430 GMT), House of Representatives Energy and Commerce Subcommittee on Oversight and Investigations. Chairman Pennsylvania Republican Rep. James Greenwood. Witness list undetermined. Focus on Andersen, Enron and destruction of documents sought by investigators.
Jan 24, 10:00 a.m EST (1500 GMT), Senate Governmental Affairs Committee. Chairman Connecticut Democratic Sen. Joseph Lieberman. Witnesses: former SEC Chairman Arthur Levitt, former SEC Chief Accountant Lynn Turner. Focus on pensions rules, investor confidence, derivatives trading and the energy market.
Jan 29, 9:30 a.m. EST (1430 GMT), Senate Energy and Natural Resources. Chairman New Mexico Democratic Sen. Jeff Bingaman. Witnesses: Federal Energy Regulatory Commission Chairman Pat Wood, federal and state energy market regulators. Focus on energy markets.
Jan. 29, 3:30 p.m. EST (2030 GMT), House Energy and Commerce Committee. Chairman Louisiana Republican Rep. Billy Tauzin. Takes opening statements for Jan. 30 full hearing.
Jan. 30, 9:30 a.m. EST (1430 GMT), House Energy and Commerce Committee. Chairman Tauzin leads full hearing. Focus on Enron and its relationship with Andersen.
Feb 4, 9:30 a.m. EST (1430 GMT), Senate Commerce Committee. Chairman South Carolina Democratic Sen. Ernest Hollings. Witnesses: Enron Chairman Kenneth Lay has agreed to testify. Broad focus.
Feb 7, 10:00 a.m. EST (1500 GMT), Senate Health, Education, Labor and Pensions Committee. Chairman Massachusetts Democratic Sen. Edward Kennedy. Witness list undetermined. Focus on pension law, 401(k) retirement plans and how to better protect investors.
Feb 12, 10:00 a.m. (1500 GMT), Senate Banking, Housing and Urban Affairs Committee. Chairman Maryland Democratic Sen. Paul Sarbanes. Witnesses include five former SEC chairmen: Arthur Levitt, Richard Breeden, David Ruder, Harold Williams and Roderick Hills. Focus on accounting and investor protection issues related to Enron.
Feb 26, 10:00 a.m. (1500 GMT), Senate Banking, Housing and Urban Affairs Committee. Chairman Maryland Democratic Sen. Paul Sarbanes. Witnesses include three former SEC chief accountants: Walter Schuetze, Michael Sutton and Lynn Turner; and former Financial Accounting Standards Board chairman Dennis Beresford. Focus on accounting and investor protection issues.
In addition to the above, several other congressional panels are probing the Enron affair, but have not firmly established dates for public hearings:
Senate Finance Committee: Investigating Enron compliance with tax laws.
Senate Governmental Affairs Committee's Permanent Subcommittee on Investigations: Investigating ties between Enron and Andersen. Has issued 51 document subpoenas.
House Education and the Work Force Committee: Tentative initial hearing in a series beginning week of Feb. 4. Focus on oversight of retirement plan laws.
House Financial Services Committee: Focused on impact on commodities markets, 401(k) plans, potential securities fraud and accounting irregularities.

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

Judge to consider lawyers' plan to investigate Arthur Andersen
By KRISTEN HAYS
Associated Press Writer

01/23/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

HOUSTON (AP) - Lawyers for shareholders suing 29 current and former Enron Corp. executives and board members added finishing touches Wednesday to a plan intended to bar the fallen energy giant's auditor from any further shredding of documents related to its audits.
U.S. District Judge Melinda Harmon scheduled an afternoon hearing to consider the plan.
Plaintiffs include Amalgamated Bank, the University of California Regents and pension funds for Florida, New York City, Georgia, Ohio and other states.
William Lerach, who represents Amalgamated, said lawyers want Harmon to allow them to inspect Arthur Andersen's Enron-related documents and their storage; eliminate any Andersen policies that would allow shredding of Enron documents after a certain amount of time; and allow them to take depositions from top Andersen personnel.
Meanwhile, former Enron employees who lost $1.3 billion in retirement funds when the company collapsed late last year sued the Chicago-based auditor, Arthur Andersen LLP, and several current and former Enron executives, alleging that they violated federal racketeering laws by conspiring to hide Enron's true financial condition.
Andersen's acknowledgment two weeks ago that its Houston office had destroyed a significant but undetermined number of Enron-related documents prompted the racketeering lawsuit filed Tuesday in federal court.
"That kind of tipped the scale," said Seattle attorney Steve Berman. "Andersen has admitted that it knew of serious accounting issues."
Neither Rusty Hardin, a Houston attorney representing Andersen, nor an Andersen spokesman immediately returned calls for comment Wednesday.
Hardin assured Judge Harmon Tuesday that Andersen's Enron-related documents were under guard, and nothing more is being destroyed.
Berman also is suing Enron in a separate case on behalf of its employees. That lawsuit, like many of the more than 60 others filed across the country that name Enron as a defendant, is on hold as Enron works to emerge from bankruptcy. The company filed the largest Chapter 11 reorganization in history on Dec. 2 in New York.
Lerach's lawsuit names individuals rather than Enron Corp. as defendants, so it can proceed despite the bankruptcy. The plaintiffs seek more than $1 billion in proceeds executives and board members made by selling Enron stock from October 1998 through November 2001.
Andersen is under a Texas judge's order prohibiting any further shredding of Enron-related documents. Lerach's team wants Harmon to issue a similar order to help them investigate its case.
Lerach also wants to take depositions from Enron chairman and chief executive Kenneth Lay and others regarding Andersen shredding. He said Harmon should consider that issue later.
On Tuesday, Enron invited the FBI to investigate allegations from a former executive that employees shredded their own financial documents from Halloween through as recently as last week. The executive, Maureen Raymond Castaneda, said she saw the shredding until she was laid off last week.
FBI spokesman Jay Spadafore declined comment on whether agents remained at Enron on Wednesday. Spokespeople for Enron and the Justice Department did not immediately return calls about the FBI investigation.
The Rev. Al Sharpton appeared briefly at Enron Wednesday morning, calling for a government bailout of employees left without retirement funds after the company's collapse.
"Why can't we bail out people we allow to be victimized?" he asked. "Had they been more proficient in regulating this, it would not have been such a debacle."

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

Enron suit cites racketeering charges
By Lisa Sanders, CBS.MarketWatch.com
Last Update: 12:53 PM ET Jan. 23, 2002
HOUSTON (CBS.MW) -- Enron employees are citing alleged violations of racketeering laws in a new lawsuit that blames company officers and fired auditor Andersen for employees losing some $1.3 billion in retirement savings.
The litigation marks the first Enron-related class-action lawsuit, among dozens, to cite the Racketeering Influences and Corrupt Organizations Act. Hagens Berman, a Seattle-based law firm, filed the suit in U.S. District Court in Houston on Tuesday.
An Andersen spokesperson did not immediately have a comment. Enron declined to comment.
In addition to Andersen, the suit names Ken Lay, Enron's chairman, Jeffrey Skilling, Enron's former chief executive, Andrew Fastow, the former chief financial officer, the Northern Trust Co., and David Duncan, the former Enron audit partner fired by Andersen last week.
The suit charges the parties with conspiring to hide Enron's true financial status by "withholding critical information."
"Now that the facts of Andersen are coming to light, it shows that Andersen was well aware of the accounting problems, and it was so bad that Andersen was destroying documents," attorney Steve Berman said in an interview.
"We have a strong basis for suing Andersen for racketeering. There is a specific provision of RICO, which makes it a crime to embezzle or convert the asset of any employee welfare benefit plan, and we're alleging that Andersen engaged in a conspiracy with Enron to do just that."
The suit also claims that Northern Trust and administrators of the Enron savings plan breached their fiduciary duty to company employees by locking down the retirement savings plan.
Judge Melinda Harmon, who's overseeing all the Enron-related lawsuits filed in Houston, has scheduled a Feb. 25 hearing to come up with a case management plan, Berman said.
Lisa Sanders is a Dallas-based reporter for CBS.MarketWatch.com.

Enron Employees Sue Andersen, Claiming Auditor Violated Racketeering Laws

01/23/2002
Dow Jones Business News
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Dow Jones Newswires
HOUSTON -- Enron Corp. employees filed suit against Enron officials and the energy trader's auditor, Arthur Andersen LLP, alleging violations of federal racketeering laws by illegal manipulation of retirement funds.
Wednesday's action is the latest in a flurry of lawsuits related to the collapse of Enron, but it is the first suit to charge Andersen with violations under the Racketeering Influences and Corrupt Organizations law, known as the RICO Act.
The law firm Hagens Berman said in a news release that it filed the action on behalf of more than 100 named plaintiffs and seeks to represent an estimated 21,000 Enron savings plans participants.
The suit claims Andersen and individual Enron officers conspired to hide Enron's true financial condition by withholding critical information, causing employees to lose more than $1.3 billion from their retirement funds.
It also alleges David Duncan, Andersen's chief Enron auditor, repeatedly certified financial statements he knew were false in an attempt to cover debts and losses. Enron Chief Executive Kenneth Lay then knowingly used that false information to promote the overvalued Enron stock to employees as "compensation," to secure their loyalty and to have stock holdings available to fend off any hostile takeovers, the suit contends.
The 1970 RICO law increases penalties against enterprises that carry out criminal acts that affect interstate commerce and prohibits any person from using the assets of an employee pension plan for personal gain.
The suit charges that Mr. Lay and several Enron officers violated RICO by conspiring to defraud Enron employees by contributing worthless Enron stock to retirement plans as part of what the suit calls a "retirement plan conspiracy."
The suit also claims wrongdoing by Northern Trust Corp. (NTRS), a trustee of the Enron retirement plan, as well as by retirement plan administrators.
Representatives from Andersen and Enron weren't immediately available for comment.
Enron faces suits from shareholders as well as former employees over billions of dollars lost in the company's collapse, while the company's Chapter 11 filing promises to be one of the largest and most complex bankruptcy cases in U.S. history.
In addition, eight congressional committees and three federal agencies are investigating various aspects of Enron and its collapse. The Justice Department is leading a criminal investigation, the Department of Labor is probing Enron's retirement plan and the Securities and Exchange Commission is looking into the auditing practices of Andersen.
Also this week, the House Subcommittee on Oversight and Investigations set a hearing for Thursday on alleged shredding of thousands of company documents by Enron officials.
In late-morning trading, shares of Enron (ENRNQ) were down seven cents to 36.5 cents on the over-the-counter Bulletin Board. Enron traded at more than $90 a share a year ago on the New York Stock Exchange; the Big Board delisted the stock earlier this month as a result of Enron's bankruptcy filing.
-By Bill Platt; Dow Jones Newswires; 201-938-5400
Copyright (c) 2002 Dow Jones & Company, Inc.
All Rights Reserved.

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

News; Domestic
On Capitol Hill, Members of Congress Taking Up Where They Left Off; Enron Employees Scheduled Meeting Won't Happen Today
Leon Harris, Jonathan Karl, Ed Lavandera

01/23/2002
CNN: Live Today
(c) Copyright eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.). All Rights Reserved.

On Capitol Hill, members of Congress are taking up pretty much where they left off a month ago. Enron employees are looking to a scheduled meeting today to ease their concerns about the company's future, but that meeting did not happen.
--excerpts only--
KARL: One big issue up here, perhaps the big issue, aside from the question of the economy, is going to be Enron. The first Enron hearings kickoff tomorrow, Leon, one on the Senate side with Senator Joseph Lieberman, one over on the House side with Representative Billy Tauzin, and what's interesting here is that we also heard from Trent Lott who talked about the various -- here is Trent Lott, the Republican leader -- here is what Trent Lott had to say.
(BEGIN VIDEO CLIP)
SEN. TRENT LOTT (R-MS), MINORITY LEADER: I do think that the Congress has a responsibility to ask questions and inquire about what happened here. Obviously, there were problems with business transactions. We need to know more about what caused this problem, and why the employees were put in the position that they were in, and do we need some sort of a legislation or reform as a result of that?
(END VIDEO CLIP)
KARL: And Lott and the other Republican leaders in the Senate were also asked about the controversy regarding Vice President Dick Cheney and the information regarding his energy task force. As you know, the Government Accounting Office is considering suing the White House to get information about who was consulting the vice president on the issue of energy policy. The vice president, the White House has said that they do not want to turn that information to the GAO, but Trent Lott asked about this, said that he expects in the next few days that we will hear from the vice president, that he will have more to say on this issue, so that's something we will clearly be watching for, Leon.
HARRIS: Good deal. Thanks, Jon. Jon Karl on Capitol Hill.
We've got more on Enron right now, though, from ground zero of Enron. Employees of that company are looking to a scheduled meeting today to ease their concerns about the company's future. However, that meeting did not happen.
CNN's Ed Lavandera is covering Enron development. He joins us now live from Houston. He's got the latest -- Ed.
ED LAVANDERA, CNN CORRESPONDENT: Well, Leon, these company-wide meetings are not unusual at Enron over the course of the last several months. We reported about a meeting that happened in August when Ken Lay resumed the power as chairman of the company, and another one in September, where Ken Lay received a rather terse reception from a lot of the employees, who started asking some very difficult questions and started expressing publicly their displeasure with the way the company was going. We had reported last Friday that Enron executives, four Enron executives, were meeting with Enron employees, the ones that are left working inside the budding, to meet at a hotel just across the street, where they would be able to answer questions of employees. Ken Lay, was, we are told by sources, not going to be a part of that meeting, but that four hiring executives were be going to be able to.
We obtained an e-mail that was sent out to employees in the last couple of hours, that said, "We had planned to hold an all-employee meeting. However, we don't want to subject you to the media frenzy that would certainly surround such a meeting, so we've decided to postpone it. We are currently making arrangements to hold a series of employee meetings within the building to protect your privacy."
The e-mail goes onto say, that with all of the issues and the pending litigation in the investigations that are happening right now, it would be very difficult for them, if not impossible, to answer some of the more specific and of course the more difficult questions that many of these employees still have about the direction and future of their company. They say they would not be able to answer any of those e-mails, and that the meeting would be focusing on the overview of Enron's organizational structure, and they're told to expect a memo on that shortly.
So a lot of movement here at Enron, and behind me, you might be able to see as well, the Reverend Al Sharpton has just showed up, and he's back there talking to reporters as well, and that is the latest from here in Houston.
Leon, back to you.
HARRIS: Thanks, Ed. We will let you go back and listen and see what he has to say.
Ed Lavandera in Houston, we will check back with you later on.
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Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Judge Won't Allow Insurers Immediate Access To Enron Info
By Kathy Chu

01/23/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Enron Corp. (ENRNQ) and its official creditors committee asked a federal judge here to stop a class-action proceeding in Houston that seeks to take control of the bankrupt company's financial books and records.
"I am very concerned that a court other than this bankruptcy court may decide this matter," said Luc Despins of Milbank Tweed, which represents Enron's creditors committee. "This goes directly to the issue of Your Honor's jurisdiction," he told the judge.
While having guidelines to preserve documents is important, these guidelines should be decided upon in the New York court, according to Despins. Judge Arthur Gonzalez of the U.S. Bankruptcy Court of the Southern District of New York is presiding over Enron's bankruptcy case.

In Houston, where Enron is headquartered, a shareholders' class-action lawsuit led by Amalgamated Bank has been filed, seeking to freeze the proceeds of alleged insider trading by 29 Enron executives.
As part of these proceedings, some shareholders have filed a motion to prevent Enron and auditor Arthur Andersen from destroying information related to the distressed company's financial condition.
Three former Enron employees claimed that the company shredded documents well after federal investigators started a probe into alleged accounting irregularities.
Tuesday afternoon, U.S. District Judge Melinda Harmon in Houston postponed a ruling on the document-preservation motion.
At a bankruptcy court hearing in New York Wednesday, Judge Gonzalez told Enron and its creditor committee - both of whom participated in the proceedings via telephone - that he would talk to Judge Harmon about these parties' concerns.

Also Wednesday, the bankruptcy court declined to give nine insurers immediate access to Enron's financial information.
Continental Casualty Co., National Fire Insurance Co. and others have questioned whether forward sales contracts guaranteed by $2 billion in Enron-related surety bonds ever existed. The insurers believe that opening the bankrupt company's books will allow them to make this determination.
The insurers also want to know the relationships between J.P. Morgan Chase & Co. (JPM), one of Enron's largest lenders, and two Enron-related offshore entities that participated in the forward contracts.
J.P. Morgan filed a lawsuit in a New York state court last month, after the insurers declined to pay $1.1 billion owed under the surety bonds, including about $965 million to J.P. Morgan. The lawsuit has been moved to the U.S. District Court for the Southern District of New York.
On Wednesday, Judge Gonzalez told Enron and its insurers that the request for information is likely to be heard in the district court.
He delayed a decision on the insurers' motion, and scheduled another hearing for Jan. 25. The judge also asked Enron to provide the insurers with the location of relevant documents and the names of witnesses by Feb. 1, in case this information is needed later.
-By Kathy Chu, Dow Jones Newswires; 201-938-5392

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

Senate panel asks Enron to authorize public disclosure of tax returns since 1985
By CURT ANDERSON
AP Tax Writer

01/23/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

WASHINGTON (AP) - A Senate committee asked Enron Corp. on Wednesday to authorize release of its tax returns to give the public and Congress a "more informed understanding" of the bankrupt energy trader's financial dealings.
The Senate Finance Committee is in the beginning stages of a probe into Enron's possible use of tax shelters, its creation of more than 800 subsidiaries and the impact they may have had on the company's bottom line. The panel is also looking into Enron's pension programs, including its 401(k) plan and employer stock ownership plan.
In a letter to Enron Chief Financial Officer Jeffrey McMahon, Finance Committee Chairman Max Baucus, D-Mont., and the panel's senior Republican, Sen. Charles Grassley of Iowa, sought company authorization to make public Enron tax records since 1985 - including those of its affiliated companies or partnerships.
Although the Finance Committee and the House Ways and Means Committee already have access to the tax records, their release to the public is limited due to privacy laws. This could restrict any hearings or public comments on the company's tax situation.
"It is critical that the public and the Congress have a more informed understanding of the activities and transactions related to Enron's tax returns and pension programs," the senators said in their letter.
Enron officials did not immediately return a telephone call seeking comment. The company and Arthur Andersen, the accounting firm that audited its books, are already involved in numerous congressional investigations stemming from Enron's rapid financial downfall last year.
The Finance Committee has not yet scheduled any hearings, but a spokesman said they could occur within a matter of weeks. Committee investigators are planning to meet this week with the Internal Revenue Service to begin the process of obtaining Enron tax records.
Citizens for Tax Justice, a liberal tax research organization, has estimated that Enron paid no corporate income taxes in four of the past five years. Enron paid $17 million in taxes in 1997 and got refunds totaling $381 million in all other years between 1996 to 2000, according to the group's analysis.

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

Enron Asked to Release Its Tax Records Dating Back to 1985
2002-01-23 16:04 (New York)

     Washington, Jan. 23 (Bloomberg) -- The Senate Finance Committee asked Enron Corp. to publicly release all tax records for the company, its partnerships and affiliated companies.
     Senate Finance Chairman Max Baucus, Democrat of Montana, and Senator Charles Grassley of Iowa, the committee's top Republican, made the request in a letter to Enron Chief Financial Officer Jeffrey McMahon. They asked McMahon for permission to release tax information the committee has dating to Enron's creation in 1985.
     ``It is critical that the public and the Congress have a more informed understanding of the activities and transactions related to Enron's tax returns and pension programs,'' Baucus and Grassley's letter said.
     The Finance Committee has authority to review tax returns of Enron. Taxpayer confidentiality laws prevent it from releasing that information unless the company grants permission. An Enron spokesman wasn't immediately available for comment.
     The Finance Committee is investigating Enron pension losses and its use of corporate tax shelters. Release of tax information would provide investigators and shareholders details about the company's financial health and underpinnings of its decline.
     Enron was once the largest U.S. energy trader until it filed for bankruptcy last month. Shareholders and creditors lost $60 billion in the collapse of the Houston-based Enron.
     The Senate Finance Committee, which oversees tax policy, is one of at least 10 congressional panels examining Enron's bankruptcy. The Senate Banking Committee today said it will hold a Feb. 26 hearing on accounting failures in cases such as Enron's and proposals to improve oversight. Three former Securities and Exchange Commission chief accountants and the former head of the Financial Accounting Standards Board were asked to testify.
     Senate Banking Committee Chairman Paul Sarbanes, Democrat of Maryland, asked the investigative arm of Congress, the General Accounting Office, to examine the numerous earnings restatements by companies such as Enron, Cendant Corp. and Waste Management Inc.
     ``Frequent restatements of earnings go directly to the heart of our financial system,'' Sarbanes said in a statement. ``Because by raising questions about the reliability of published financial statements, they threaten to undermine investors' confidence in
the way our securities markets operate.''
     He asked the GAO to examine all earnings restatements between 1997 and 2000, their affect on investors and recommendations for reform.
     The Senate Banking Committee previously announced a Feb. 12 hearing at which it would listen to five former SEC chairmen discuss accounting issues.

--Rob Wells in the Washington newsroom (202) 624-1933 or rwells@bloomberg.net. Editor: Gettinger.

USA: U.S. Senate panel wants to release Enron tax data.

01/23/2002
Reuters English News Service
(C) Reuters Limited 2002.

WASHINGTON, Jan 23 (Reuters) - The Senate Finance Committee on Wednesday sought permission from Enron Corp. to release the collapsed company's tax returns to the public.
"It is critical that the public and the Congress have a more informed understanding of the activities and transactions related to Enron's tax returns and pension programs," the panel said in a letter to Enron's chief financial officer, Jeffrey McMahon.
The committee said it had the authority under the law to review Enron's consolidated tax returns as well as those of its affiliated companies and partnerships, and expects to exercise that authority.
But it said there were limitations on its ability to release the information to the public without Enron's authorization.
"Therefore, we request that you please provide the Finance committee written authorization to release to the public information contained in Enron's federal consolidated tax returns or any tax information related to Enron's affiliated companies or partnerships that is not included in the consolidated tax returns," said the letter, from the committee chairman, Montana Democrat Sen. Max Baucus, and the ranking Republican on the panel, Charles Grassley of Iowa.
"This would be for all time periods since the creation of Enron in 1985," it added.
Last week, the head of a tax watchdog group said Enron had not paid U.S. income taxes in four of five years through 2000, receiving tax refunds close to $400 million in the period.
Robert McIntyre, director of Citizens for Tax Justice, a labor-backed tax research group, said he had analyzed Enron's financial reports for 1996 to 2000, the most recent year for which they were available.
The Senate Finance Committee is one of several panels on Capitol Hill looking into the fall of the energy-trading giant. In particular, it is investigating whether Enron has been complying with federal tax laws, aides say.

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

White House Cites Urgency In SEC Appointments

01/23/2002
Dow Jones International News
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -(Dow Jones)- The Bush administration said Wednesday that President George W. Bush felt a sense of urgency in filling empty slots on the U.S. Securities and Exchange Commission when he announced two people would be placed on the board as recess appointments.
"There are critical issues facing the SEC and it was important to get them in there and do their work," said deputy White House spokesman Scott McClellan.
Asked if the White House were concerned either of the appointees would face opposition in a Senate vote, McClellan said, "I would emphasize the importance of getting these people in there immediately.
McClellan didn't specifically mention the scandal surrounding the collapse of Enron but clearly securities regulators will have their hands full in dealing with the fallout from the bankruptcy.
Late Tuesday, the White House announced that Bush had appointed Cynthia A. Glassman and Isaac C. Hunt Jr. to the SEC.
Glassman has been with Ernst and Young since 1997 and is their principal in the National Tax Department. Bush originally announced his intention to nominate Glassman to the SEC on Dec. 20.
Hunt has completed a term at the SEC and was nominated to the SEC first by former President Bill Clinton in 1995. He was sworn into office Feb. 29, 1996.
-By Alex Keto, Dow Jones Newswires; 202-862-9256; Alex.Keto@dowjones.com

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

Andersen CEO won't show
January 23, 2002: 2:29 p.m. ET
Fired Andersen auditor David Duncan wants immunity while CEO not subpoenaed.
NEW YORK (CNN/Money) - Fired Andersen partner David Duncan wants immunity from prosecution or he will not testify at a Congressional hearing Thursday while the firm's CEO Joseph Berardino won't appear at the hearing and will send a replacement instead.
Berardino did not receive a subpoena to testify Thursday before the Subcommittee on Oversight and Investigation. Instead, Andersen executive Dorsey Baskin, who is in charge of Andersen's document retention and disposal policy, will appear to explain the policy, Congressman James Greenwood (R-PA), who heads the subcommittee, told CNNfn.
The change came after the committee negotiated with the accounting firm.
Separately, former Andersen auditor Duncan is relying on his Fifth Amendment constitutional right to protect himself from self-incrimination as a reason not to testify at the hearing.
"Mr. Duncan will testify on Jan. 24 if the Committee votes to grant him immunity," attorney Robert Giuffra, who is representing Duncan, said in a letter to the Subcommittee.
But Andersen's embattled in-house counsel Nancy Temple will appear at the hearing. Temple sent an Oct. 12 memo reminding Andersen's Houston office of the firm's document retention policy, which executives claim, caused staff to start shredding Enron documents.
Michael Odom, a partner at Andersen's Houston office who has been stripped of managerial responsibilities, will also be present. Both Temple and Odom have requested subpoenas which provides legal protection from employers when testifying.
Also Wednesday, Senate Finance Committee Chairman Max Baucus and Ranking Member Chuck Grassley asked Enron Corp. Wednesday to publicly disclose all company tax records, including those related to Enron's affiliated companies or partnerships.

Auditor Refuses To Testify In Enron Hearing
Duncan Was Fired By Andersen For Destroying Documents
KPRC Channel 2, Houston
Posted: 11:49 p.m. EST January 22, 2002
Updated: 1:33 p.m. EST January 23, 2002
The former chief auditor at Andersen is refusing to tell a congressional panel what he knows about the destruction of Enron-related documents.
The lawyer for David Duncan, who was fired last week by accounting firm Andersen for supervising the shredding of documents related to the troubles of the now-bankrupt energy-trading giant Enron Corp., told the House Commerce Committee that Duncan will rely on his "constitutional right not to testify" unless he's given immunity.
Congress can compel witnesses to show up, but it can't force them to answer potentially incriminating questions without granting them immunity from criminal prosecution.
The House committee is holding a hearing Thursday, and Duncan wanted a delay in order to prepare.
Andersen officials said last week that Duncan began destroying documents shortly after learning the government was asking Enron for accounting information.
Duncan's lawyers say he did nothing wrong -- that he followed the instructions of an Andersen lawyer in handling documents.
Congressional investigators subpoenaed senior officials of Andersen, including the Chief Executive Joseph Berardino, Duncan, attorney Nancy Temple and Risk Manager Michael Odom in an effort to force their testimony Thursday.
Temple and Odom, while expressing willingness to testify, have raised concerns about protecting confidential information relating to the investigation. The firm's chief executive had been interviewed over the weekend on television.
Berardino voluntarily testified at the first congressional hearings on Enron last month, defending Andersen's work for Enron but acknowledging that financial reporting practices must change.
He said Andersen notified Enron's audit committee on Nov. 2 of "possible illegal acts within the company.'' Berardino did not mention the document shredding. More recently, he said executives of the Chicago-based firm didn't learn of the destruction until shortly after New Year's.
Patrick Dorton, an Andersen spokesman, said, "We have not received a subpoena. We have told the committee that we would testify but the only question is when.''
News of the planned subpoenas came as FBI agents and federal prosecutors entered Enron's Houston headquarters to investigate allegations that massive document destruction took place at the company starting after Thanksgiving and continuing until as recently as last week. According to a CNN report, FBI placed guards inside the Enron building to prevent any further shredding of documents.
The Securities and Exchange Commission started looking into Enron's accounting in mid-October, after the company reported a third-quarter loss of more than $600 million. The SEC's inquiry eventually included demands for financial documents from Enron and Andersen.
Enron filed the largest bankruptcy in U.S. history on Dec. 2.
New Appointee To SEC
As the controversy swirled, President George W. Bush used his recess appointment power Tuesday to put an official from another major accounting firm on the SEC, bypassing the Senate approval process. Bush appointed Cynthia A. Glassman, a principal at Ernst and Young, to fill a Republican vacancy on the five-member commission a day before Congress convened.
Bush also reappointed Isaac Hunt, a Democrat named to the SEC by former President Bill Clinton in 1996. Hunt's term recently expired.
The Energy and Commerce panel is one of two committees holding Enron hearings on Thursday. The Senate Governmental Affairs Committee is calling officials from the SEC, the Federal Energy Regulatory Commission and the Commodity Futures Trading Commission to determine whether regulators missed signs of trouble at Enron.
In another development Tuesday, Sen. Phil Gramm, one of Congress' biggest recipients of Enron campaign donations, has decided to remove himself from part of the wide-ranging congressional investigations.
Gramm will be absent from hearings focusing on what went wrong at Enron but will take part in more general inquiries into accounting standards, investor protection issues and other matters, spokesman Larry Neal said.
In a sprawling inquiry with both financial and political overtones, 11 House and Senate committees are investigating the Enron debacle, while the Justice Department and the SEC pursue their own less visible probes.
Bush urged Congress on Tuesday not to be distracted by the Enron investigation.
"I'm confident that all the facts will come out on Enron. And I'm also confident that if Congress has the right attitude, we can get a lot done,'' Bush said in a pitch for his economic revival plan.
He said his mother-in-law, Jenna Welch, had lost about $8,000 on an investment in Enron stock.
"A lot of the stockholders didn't know all of the facts, and that's wrong,'' Bush said.
The president has received large political contributions over the years from Enron Chief Executive Officer and Chairman Kenneth Lay, who is expected to testify before two congressional committees on Feb. 4.
Bush said Tuesday that officials in his administration had done "the exact right thing'' in response to Enron's pleas for help as the company was collapsing last year. Treasury Secretary Paul O'Neill and Commerce Secretary Donald Evans have said they received calls from Lay but took no action.
Enron Manager Fired For Computer Use
An Enron manager said he deserved to be fired.
Clayton Vernon told the New York Times he was fired for posting a message online that criticized Lay as "the sorriest sack of garbage I have ever been associated with."
Vernon was at work when he posted the message using an Enron computer. He said he knew that violated company policy prohibiting personal use of computers.
In a September in-house online chat, Vernon questioned Lay about the company's accounting practices. Lay disagreed when Vernon suggested the company was sacrificing its future for the sake of present earnings.
Vernon is suing Enron over its business practices.

USA: Former Andersen partner seeks to defer testimony.

01/23/2002
Reuters English News Service
(C) Reuters Limited 2002.

WASHINGTON, Jan 23 (Reuters) - The former Andersen partner who led the auditor's work at Enron Corp. has advised lawmakers he will not testify at a hearing on Thursday unless his testimony is protected from use in court against him.
David Duncan was subpoenaed late Tuesday by the House Energy and Commerce investigations subcommittee to help shed light on Enron's rapid collapse last year from an energy colossus to the biggest U.S. bankruptcy amid questionable company bookkeeping.
But a lawyer for Duncan wrote the committee on Wednesday, saying it was premature to require Duncan to testify "at this hearing at this time."
Complaining that Duncan had just, on Tuesday, gotten access to documents from his own files at Andersen, the letter said Duncan would invoke his constitutional Fifth Amendment right not to testify on Jan. 24.
However, "Mr Duncan will testify on January 24 if the committee votes to grant him immunity...," said Robert Giuffra of the law firm Sullivan & Cromwell.
Giuffra said Duncan sought full disclosure of the truth and remained committed to cooperating with all pending investigations concerning Enron, including those in Congress, the Justice Department and the Securities and Exchange Commission (SEC).
Duncan was fired earlier this month by Andersen, which alleged he had ordered the destruction of documents once he learned of a request by the SEC for information on Enron's financial reporting.
Legal experts have said that immunity offered in exchange for congressional testimony could play havoc with the Justice Department's criminal probe of Enron and Andersen.
House Energy and Commerce Committee spokesman Ken Johnson said on Tuesday that although immunity was one option for witnesses there would be consultations with the Justice Department before it was offered.

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

Perspectives
Perspectives

01/28/2002
Newsweek
17
Copyright (C) 2002 Newsweek Inc. All Rights Reserved.

"I am incredibly nervous we will implode in a wave of accounting scandals." Enron exec Sherron Watkins, in an August memo to CEO Kenneth Lay, suggesting that company leaders knew of its precarious financial situation long before they've admitted they did
"All the facts that you know now are just the tip of the iceberg." A lawyer involved in the Enron bankruptcy, on the energy company's unfolding financial scandal
"We may never know why he turned his back on our country and our values, but we cannot ignore that he did. Youth is not absolution for treachery." Attorney General John Ashcroft, on charging Taliban fighter John Walker with conspiring to kill U.S. citizens in Afghanistan
"Always chew your pretzels before you swallow." President George W. Bush's warning to a heartland crowd after his choking-fainting spell
THANK YOU JAMES EARL RAY FOR KEEPING THE DREAM ALIVE. A plaque ordered by Lauderhill, Fla., for its Martin Luther King Day celebration. It was supposed to honor acting legend James Earl Jones, not Ray--the man who assassinated the civil-rights leader in 1968.
"Reassurance is good. Cash is better." Ahmad Fawzi, spokesman for the United Nations special envoy to Afghanistan, on long-term American support for the nation
"Israel will not remain indifferent when our people are killed... We are going to respond in a manner which will teach the Palestinians a lesson they will not forget." Israeli government spokesman Avi Pazner, on last week's suicide bombing at a bat mitzvah. In retaliation, Israel leveled the Palestinian government headquarters in Tulkarem.
"He was a time bomb waiting to go off." Dr. Jack Briggs, a coroner for Buchanan County, Va., where a suspended student at the Appalachian School of Law apparently went on a shooting spree, killing three and wounding three others. Briggs had treated the alleged shooter, Peter Odighizuwa, for stress.
"Luxury disgusts me." Billionaire fashion designer Giorgio Armani, on his new proletariat-inspired--though still very expensive--men's collection
"Everything has changed in America, but Groundhog Day is one way of showing the world we are getting back to normal." Bill Cooper, president of the Punxsutawney Groundhog Club in Pennsylvania, which sponsors Phil's annual shadow-spotting expedition
Quotation sources from top to bottom, left to right: Enron memorandum, New York Times, Ashcroft press conference, The Washington Post, Reuters, New York Times, MSNBC, press conference, Armani's Milan show, Reuters

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

Business/Cover Stories
You're On Your Own ; The Enron lesson: in making critical decisions, consumers are at sea. Here is a survival guide
Daniel Kadlec

01/28/2002
Time Magazine
Time Inc.
24
(Copyright 2002)

Choice is good. We Americans consider it a measure of our freedom and a source of our innovation and prosperity. Riches flow to the person who builds a better mousetrap--or computer mouse. Yet a grocery shopper blankly staring at hundreds of varieties of toothpaste might reasonably conclude that there can be too much of a good thing. Mark Lepper, a psychology professor at Stanford, and Sheena Iyengar, an associate professor of management at Columbia, illustrated this point with a simple study. In a grocery store, they set up tasting booths that offered either six or 24 types of jam. Shoppers found the wider selection more enticing: 60% who passed it stopped and tasted, while only 40% stopped at the booth with fewer flavors. Yet the wider selection was confounding; just 3% who sampled there bought anything, while 30% made a purchase at the other booth.
The tendency to feel overwhelmed and do nothing probably saves us money on jam. But it is becoming increasingly dangerous as society hands us more and more responsibility for vital and complex decisions about our savings for college and retirement, our family's health care and the providers of utilities ranging from electricity to cellular-phone service. Responsibility is always the price of freedom. But we are now responsible for so many decisions requiring so much homework that many of us feel helpless and paralyzed. The risks of inaction or unwise action are rising, even as many of the professionals on whom we would like to rely for guidance are proving untrustworthy and even corrupt.
Then came Enron. What makes this case so scary is that the shady ethics and the deception that suddenly bankrupted one of the world's most innovative companies have become pervasive--and much of it is legal. It's not unreasonable to fear that the next Enron could be lurking in your 401(k) account or paying your salary. If the corporate directors and auditors and stock analysts who were supposed to be looking out for the interests of shareholders at Enron could be bought off with consulting and underwriting fees, we know they are probably being bought off elsewhere too. From 1998 to 2000, 397 publicly traded companies had to restate their financial results, and big firms like Sunbeam and Cendant have paid to settle shareholder suits alleging fraud.
The social safety net for the unemployed is not the only thing that the government has loosened. It has also pulled back from the regulation of business. That's a direction we have chosen through our own elections, and in many ways it has served us well. But what we didn't anticipate was the degree to which lightly regulated companies would be able to corrupt the professionals on whom we have relied to guide us through complex financial and medical matters and to look out for our interests. We now know that we can't trust stock analysts and financial planners, who often get paid more for selling us shaky stocks and mutual funds than for selling us solid ones.
For several months after Sept. 11, Americans have felt ourselves pulling together. But the Enron scandal has shown us or perhaps reminded us that when money is involved, we are truly on our own.
Consider retirement. In 1985 the number of U.S. companies offering guaranteed pensions to their workers was 114,000. Only 38,000 did so in 2000. Filling the gap are 401(k) and other employer-sponsored plans that have introduced millions of Americans to the benefits of stock investing in the 1990s and created many millionaires, at least on paper. But these savings plans don't guarantee anything. Future benefits depend on how wisely we invest--which looked pretty easy until the market turned south two years ago. Now we are learning how much we don't know about risk and diversification and how poorly equipped most of us are to choose among 8,282 U.S. mutual funds. The yearning for reliable advice is so widespread that a Charles Schwab commercial shows a family doctor who makes a house call (remember those?) and winds up giving investment advice. "Wouldn't it be nice," goes the ad slogan, "if the person you trusted most was your financial adviser?"
Homeowners, meanwhile, must figure out whether they are better off with a traditional 30-year fixed-rate mortgage, a straight adjustable rate or a 3/1 hybrid. Parents must decide whether they should save for college in a Section 529 plan (who on earth names these things?) or a Coverdell ESA. We all want Marcus Welby for our doctor, but he is not among the options offered by our employer. Instead, we must choose among an HMO, a PPO or a POS. And if we lose our jobs, we must learn to get insurance through COBRA. Read a 4-in. pile of paper, and call me in the morning.
We are accustomed to having our dinners (not to mention our HMO homework) interrupted by the peddlers of long-distance phone plans. But now they have been joined by folks pushing wireless service and, in more and more communities, by sellers of competing local phone service. As a result of the deregulation movement championed by Enron, some Americans must choose among competing electricity suppliers. If you pick the cheap one, does the power go out more often? Who knows? And to access the wonders of the high-speed Internet, heads of household must choose among a cable-TV modem, a DSL phone line and a satellite link.
Having such choices should be a blessing. And we would probably see it that way if we could somehow manage to schedule one gnarly piece of homework at a time--or get some reliable help. What's the answer? Some call for more government oversight. For now, responding to the anxiety in the air, Republicans have set aside their plans for private investment accounts for Social Security. In the long run there is no turning back this age of self-determinism. Sooner or later, your Social Security income will be partly a function of how well you choose stocks--and in many other areas too your choices will make or break you.
Some cope by focusing their research not on the best investments or health plan or broadband provider but on experts to guide them-- preferably friends or colleagues, but failing that, professionals paid in a way that puts them on your side, not serving someone else's agenda. The following articles examine three areas in which research is often the most daunting--investing, health care and wiring your home--and offer some helpful resources. So do your homework. The choice is yours.

B/W PHOTO: PHOTOGRAPH BY WHITE.PACKERT--THE IMAGE BANK COVER So many choices, and no one to trust. In today's world... YOU'RE ON YOUR OWN, BABY Could an Enron happen to me? Can I count on my broker? Can I trust my HMO? Is my phone service ripping me off? Who's looking after my 401(k)? B/W PHOTO ILLUSTRATION: PHOTO-ILLUSTRATIONS FOR TIME BY AARON GOODMAN
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business/Cover Stories
Your Money: Old Safety Nets Are Gone. Here's What To Do
Daniel Kadlec; With reporting by Bernard Baumohl and Eric Roston/New York; and Jeffrey Ressner/Los Angeles

01/28/2002
Time Magazine
Time Inc.
26
(Copyright 2002)

The little guy was let down by all of them--executives, board members, auditors and stock analysts. They all failed to signal trouble at Enron before it collapsed, and their negligence (or worse) offers the single broadest example of how workers and individual investors have been abandoned by so many of the people they have relied on to look out for their interests in complex financial matters. Each of these groups of professionals had a conflict of interest--a financial stake in keeping investor dollars flowing into Enron stock. And the erstwhile government and industry watchdogs over these professionals face similar conflicts at other big companies.
As Enron's stock dropped from $80 to under $1 in less than a year, thousands of employees saw their life savings wiped out in the company's 401(k) retirement plan. They weren't the first to suffer that fate. Devastating stock declines have hammered the 401(k) savings of workers at such companies as Lucent, Waste Management and Xerox. And other big plans are vulnerable. Coca-Cola, for example, has 81% of its 401(k) assets in Coke stock. The venerable beverage company is no Enron, yet Coke's slumping stock has been pinching 401(k) participants for years, sliding 49% from its peak in July 1998. Other firms that have more than 70% of plan assets tied up in company shares include McDonald's, Procter & Gamble and Texas Instruments.
Protecting the $1.8 trillion that 37 million Americans have in 401(k) plans is suddenly a hot issue in Washington. Senators Barbara Boxer of California and Jon Corzine of New Jersey propose forbidding plans to invest more than 20% in any one stock. In an opinion last month, the Labor Department made clear that it won't hold firms liable for third-party advice they make available to 401(k) investors, which could encourage them to offer it, and a bill from Representative John Boehner of Ohio would advance the ball by legally removing liability for specific asset allocation and other employer- sponsored advice. President Bush ordered "a policy review to protect people's pensions," which is vague but moving in the same direction. Calpers, the big public-employee pension fund in California, says it will press firms it invests in to reform their plans to encourage broad diversification.
Michael Sparno, a midlevel manager for Xerox, wishes such reforms had come a couple of years sooner. As the shares of his once mighty employer tumbled in price from $60 to $10 in less than two years, his 401(k) account--roughly 30% invested in Xerox stock--took a big hit. "I'm reviewing things now with a much more hands-on approach," he says. He is contributing less to the 401(k) and investing more in real estate and alternative tax-favored accounts like a Roth IRA.
Yet Sparno and other 401(k) victims must accept some responsibility for their troubles. In most plans, the only stock you must hold are shares the company gives you as a matching contribution. Where retirement-fund disasters have occurred, employees have generally been found to own more company stock than necessary. That was the case at Enron, where management's do-no- wrong hubris filtered down to employees, who rode their 401(k)s to huge paper gains between 1998 and 2001. Even as the stock began to slide, many believed it would come back stronger than ever--or were too dumbfounded to sell.
None of this exonerates Enron management, which hid the depth of the firm's financial problems and talked up the stock while top managers were selling their personal stakes. The rank and file had an additional problem: the 401(k) plan was in a lockdown--assets were frozen during an administrator change--for part of the stock's collapse. "Not only are you on your own, but you have to watch your back," advises Eli Gottesdiener, a Washington attorney who represents 401(k) participants at Enron.
What can you do? Start by telling your Congressman and Senators that you support efforts to lift restrictions on when you can sell company shares that have been given to you and to place limits on how much employer stock can be stuffed into a 401(k) or other employer- sponsored plan. But the most important step is for you to take charge of your retirement account. First, make sure you're safely in a mix of diversified stock and bond mutual funds at all times, in case one of your investments drops suddenly or your plan is locked down for several weeks.
Next, hold as little as possible of the stock of your employer, whose fortunes already affect your job security and career advancement. Most big companies match part of each worker's 401(k) contributions in company stock, which can't be shifted into other investments until you reach age 50. As soon as you hit that magic birthday, shift those holdings into diversified stock and bond funds. If your employer gives you options to buy company stock, cash them in periodically after the stock has made a strong move higher. You'll owe tax. But you can take what's left and diversify. And if you buy stocks outside your 401(k) plan, avoid the shares of companies in the same industry as your employer.
The Enron scandal has revealed that many auditors and accountants- -at that company and elsewhere--are rubber-stamping stooges of management. It's common practice for accounting firms to collect consulting fees from companies whose books they audit, often doubling their revenue from one client, as was the case with Arthur Andersen and Enron. Any accountant who raises flags in an audit puts his firm's consulting fees at risk. That's a clear conflict of interest and should be outlawed. Short of that, publicly traded companies should be required to change auditors every few years. A new auditor would have a strong incentive to point out, and not get blamed for, any questionable work by his predecessor. Some have suggested that regulators stop requiring annual audits altogether. "An audited financial statement used to mean something," sniffs Ed Cowart, a money manager at Eagle Asset Management. "Things have deteriorated to where auditor comments are meaningless."
Audits haven't slowed an epidemic of misstated corporate earnings reports. From 1990 to '97, an average of 49 companies a year had to restate their results. That number jumped to 91, 150 and 156 over the next three years, reports Financial Executives International, which studies accounting issues. In each case, shareholders were deceived. The firms that restated earnings between 1997 and 2000 lost a collective $41 billion of market value the week following their announcements. With the problem growing so broad, it might be just as well to skip the independent audits, which have turned into sham endorsements that mislead investors.
Until the system is reformed, what can an individual investor do? Watch for independent analysis from agencies like Moody's, Standard & Poor's and Value Line. Look skeptically on any stock for which accounting issues have been raised. Tyco International has been the subject of accounting questions for two years, during which the stock has gone nowhere. New questions flared last week, and the stock tumbled 8%.
Sarah Teslik, executive director of the Council of Institutional Investors, is worried that for all the clamor in Washington, not much will change. The Securities and Exchange Commission's proposal to set up an independent oversight board for the accounting industry is just another form of self-policing and won't be effective, she says. "Too many people have a real interest in keeping things the way they are," she says, noting that many former lawmakers end up as corporate- board members while officials at the SEC are often accountants themselves or, like SEC chairman Harvey Pitt, former lawyers for accountants.
Teslik is especially concerned about corporate-board reform, and would like to see board members held personally liable for gross mismanagement. At a minimum, she wants greater disclosure of conflicts of interest. At Enron, for example, directors were partners with management in various side investments or earned big fees as consultants. Employees and investors should look out for such conflicts. "Almost uniformly, when companies go bad, there is a pattern like this," Teslik says. "The company is trying to buy silence."
Another way investors can monitor a company is by listening in on analyst conference calls, which are open to the public via the Internet. You will get a sense of the questions that management is dodging.
The conflicts of stock analysts at big brokerage firms have been well aired since the dotcom collapse. Too many serve the investment bankers at their firms rather than investors. That was a big problem with Enron. The company floated billions of dollars of debt and spent billions more gobbling up smaller companies--all of it amounting to a fountain of fees for Wall Street firms that stayed in the company's good graces. Analysts, who often get paid on the basis of the underwriting business they help secure rather than on good stock picking, were under tremendous pressure not to ask tough questions and to maintain their buy rating.
This subject was probed in Congress last summer, and the brokerage industry has responded with guidelines for ethical behavior. As a result, many firms are disclosing more conflicts. So take a close look at research documents to see whether an analyst has bought or sold any of the stock under review or if the firm is or has been an underwriter of the company's stock or debt. When in doubt, the wise investor should be skeptical about stocks touted by brokers or other representatives of big firms like Merrill Lynch and J.P. Morgan Chase. Instead, seek independent information and advice from StandardandPoors.com, and from good financial websites like Morningstar.com and Fool.com.
Financial conflicts are also common among experts who advise us closer to home. Ask Laura and Barry Marks, who lost their stationery store, Fine Lines, in Katonah, N.Y., after their insurance agent told them they couldn't get flood insurance--and they were flooded. "We asked for a complete commercial package to cover any type of inevitability, down to a letter falling off of our sign," Barry Marks says. But their insurer didn't offer flood insurance; only Uncle Sam does. That means private insurers have no incentive to market it, which is why many agents are misinformed.
In recent years, insurance companies have found new ways to shift risk to policyholders. Fast disappearing is homeowner coverage that guarantees replacement. Among the very largest underwriters, only Chubb still offers this once common policy. Others shift the risk of miscalculating a home's value to the homeowner. But careful shoppers can still find replacement coverage at smaller firms.
Your financial planner may be selling you poorly performing annuities and other products that earn him a fat commission. One solution: hire a fee-only planner who agrees to be paid by no one but you. Similarly, the real estate agent helping you buy a home may try to rush you into one that's not appropriate just to get a deal done quickly. One solution: hire a buyer's agent who works only for you. In these cases and others, you often have to pay a little more on the front end to save on the back end. And you're wise to invest time researching the person who will guide you. That way you won't have to research every new issue that arises in your financial life.
--With reporting by Bernard Baumohl and Eric Roston/New York and Jeffrey Ressner/Los Angeles
IS YOUR BROKER ON THE MONEY?
Number of stocks in the benchmark S&P 500 index that one or more analysts (usually at a small firm) rated "sell" or "strong sell" last year: 89
Number of S&P 500 stocks that are down over the past 52 weeks: 272
Market value lost in all publicly traded U.S. stocks, past 52 weeks: $2 trillion
Sources: Zachs Investment Research (2); Wilshire 5000

B/W PHOTO ILLUSTRATION: PHOTO-ILLUSTRATIONS FOR TIME BY AARON GOODMAN COLOR PHOTO: CHERYL HIMMELSTEIN FOR TIME 401 K-O Sparno was burned by heavy investment in his own employer's stock. He's now diversifying his portfolio
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business/Political Favors
What $6 Million Can Buy
Karen Tumulty and Michael Weisskopf

01/28/2002
Time Magazine
Time Inc.
20
(Copyright 2002)

For argument's sake, let's concede the point that everyone in the White House has been at such pains to make: No one in the Bush Administration lifted a finger to save Enron from collapse. But that doesn't mean the $6 million in campaign contributions the company and its executives gave to politicians over the past 12 years should be written off as a bad investment. For most of that time, Enron's Washington friends did pretty much whatever the company wanted.
What Enron wanted most was to be left alone, free of both regulation and scrutiny as it transformed itself from a dowdy natural- gas-pipeline company into a freewheeling energy-and-communications giant. In the early 1990s Enron became a new kind of business, selling not just energy but exotic financial instruments such as energy futures and options. The company moved the heart of its operations from the oil patch to the trading floor--largely free of regulatory baggage, thanks to allies such as Wendy Gramm. In 1993, as chairwoman of the Commodities Futures Trading Commission, Gramm helped design rules that exempted energy trades from government regulation. That meant Enron could operate an online energy market that, unlike traditional stock and commodity exchanges, did not have to disclose the price, volume or terms of the contracts it sold. Gramm left government that year and was given a lucrative spot on the Enron board. She is the wife of Texas Senator Phil Gramm, to whom the company has donated $97,000 since 1989.
There were also times Enron found a little government intervention came in handy. When India delayed approval of Enron's $3 billion power plant in Dabhol in 1996, Clinton White House counselor Mack McLarty instructed the U.S. ambassador in New Delhi to monitor it and gave regular progress reports to Enron chairman Ken Lay. (Four days before the project received its final O.K., Enron gave $100,000 to the Democratic National Committee.) And when Enron was trying to sell its interest in the Indian project, the New York Daily News reported, Vice President Dick Cheney raised the issue in a meeting last June with Indian opposition leader Sonia Gandhi. The White House says he was acting not at Enron's behest but on the need to protect $640 million in federal money.
More often than not, Enron's interests and the agenda of George W. Bush have been happily congruent. Enron has given Bush more than $700,000 in contributions over the years. Lay was disappointed last year when Bush backed away from a global-warming plan that would have been good for the natural-gas business, but Bush sided with the company in refusing to back price caps on California energy, of which Enron was a major supplier. Larry Lindsey, Bush's top economic adviser and a former Enron consultant, has battled on free-market grounds to preserve the kind of overseas tax shelters that hid Enron's true financial condition for so long. And in August Lay's backing helped put his friend Patrick Wood at the head of the Federal Energy Regulatory Commission, replacing a chairman who had opposed Enron's deregulation timetable.
Enron also found plenty to like in the controversial White House energy plan that Cheney produced last year: open access to electric- utility transmission lines, more deregulation initiatives and support for Enron's arcane financial instruments. "There is no company in the country that stood to gain as much from the White House plan as Enron," wrote California Congressman Henry Waxman, a leading Democratic critic, in a letter to Cheney last week. In the recent battle over an economic-stimulus bill, Lay lobbied for--and Bush supported--retroactive corporate tax relief. Enron would have been one of many beneficiaries, reaping a $254 million rebate from the government.
For more than a decade, Enron spent lavishly to untether itself from government oversight. But it became so notorious that it gave up any chance of a political lifeline. Last fall, when the company was begging for rescue, Bush Administration officials say it was unanimously rebuffed. Enron had hired the best lobbyists-- powerhouses such as Republican chairman Marc Racicot and Bush adviser Ed Gillespie, who can usually make things happen--but they too are distancing themselves, saying they were kept in the dark about the depth of the company's problems. For the first time, what Enron needs is more than money can buy.

B/W PHOTO: BROOKS KRAFT--GAMMA TEAMMATES Before he was a Bush aide, Lindsey, right, served as a consultant for Lay's company COLOR PHOTO: ROGER WOLLENBERG--UPI POLITICAL GAIN Gramm and wife, Enron allies, at a state dinner last fall
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business
The Enron Effect; As the accounting scandal spreads, regulators and politicians are pounding the table for reform. But will anything really change?
By Allan Sloan and Michael Isikoff With Mark Hosenball and Rich Thomas in Washington

01/28/2002
Newsweek
34
Copyright (C) 2002 Newsweek Inc. All Rights Reserved.

It was like the surgeon general's accepting a public-health award named after Typhoid Mary. Here was Federal Reserve Board chairman Alan Greenspan, renowned for rectitude, accepting the Enron Award for Distinguished Public Service. This wasn't during Enron's glory days, when the company had a stock-market value in the tens of billions, but on Nov. 13. That was only a few days after Enron endured a public disgrace by admitting that it had filed five years' worth of misleading financial reports. And it was three weeks after Greenspan had gotten a call from Enron chairman Kenneth Lay, who desperately wanted Greenspan to intervene with credit-rating agencies to help the stricken company survive.
The ceremony had its awkward moments. Consider the answer Greenspan gave during a Q&A session to a student who asked how to succeed in this difficult job market. "The best chance you have of making a big success in this world," Greenspan said, "is to decide from square one that you're going to do it ethically." Greenspan, through his spokesman, told NEWSWEEK that he hadn't had Lay in mind when he gave that answer, a Freudian slip if there ever was one. What was Greenspan doing there in the first place? His press aide explained that he had committed a year earlier to former secretary of State Jim Baker to accept the honor. The James A. Baker Institute of Public Affairs awards the prize, which is funded by Enron. (Baker had once been a consultant to Enron, sponsoring its interests in Kuwait not long after the gulf war ended. But that's another story.) Greenspan turned down the $15,000 sculpture accompanying the prize--imagine that sitting in the Fed's lobby--and declined the $10,000 honorarium.
The Greenspan story may be the most startling example of how Enron managed to ensnare seemingly everybody and every company worth snaring. Now that we're in the all-Enron-all-the-time news cycle, we're getting answers to "Who knew what when?" Revelations from last week: people at Arthur Andersen, Enron's outside accountant, were worried about the Enron numbers they were certifying, but did nothing. Ken Lay got a prescient letter from a whistle-blower in August warning that "I am incredibly nervous that we will implode in a wave of accounting scandals," but in September he was still telling employees that the stock was "an incredible buy." (It's since fallen to almost nothing.)
The focus is now shifting to the next obvious questions: what's being done to prevent another Enron? And will anything really change once attention moves on, as it inevitably will, to the next scandal? Harvey Pitt, the head of the Securities and Exchange Commission, is proposing to set up a new oversight body to police the accounting profession. Business heavyweights want to beef up corporate-governance rules to force boards to pay more attention to what managers are doing. Politicians are calling for rules to limit the amount of company stock that people can hold in retirement accounts to protect workers from riches-to-rags stock plunges like the one that's turned some Enronites from paper millionaires into people having trouble paying food bills during their golden years.
But for all the table-pounding calls for change now, urgency has a tendency to dissipate. There have been plenty of accounting scandals before--Sunbeam, Cendant, Waste Management, to name some recent fiascoes--but nothing seems to have changed all that much in response to them. Corporate America and the accounting profession have a remarkable ability to frustrate fundamental reform. Shortly before he came to the SEC, chairman Pitt, representing Arthur Andersen as his client, fought fiercely against tougher regulation of accountants. His current proposal is far milder than the reforms he helped defeat not long ago. Those would have made accountants accountable to federal regulators, not to a self-policing body, as Pitt proposes. And Sen. Joseph Lieberman, who's holding hearings and demanding post-Enron reforms, led the assault on the Financial Accounting Standards Board when it tried to close the most glaring loophole in the accounting system: letting companies hand out millions or billions of dollars' worth of stock options to employees, but not counting that cost as a charge against profits.
While politicians and theoreticians struggle with the idea of reform, real and immediate solutions to particular problems tend to come from people like Enron whistle-blower Sherron Smith Watkins, who warned Lay about accounting problems. Watkins, 42, who recently became a mother for the first time, has a highly developed moral sense and was incredibly courageous. But even having the right person in the right place blowing the whistle about the right thing won't change a place like Enron that didn't want to change.
As we now know, thanks to subpoenaed documents that have become public, Watkins warned Ken Lay last August that the company had inflated its reported profits with suspect accounting. Watkins, besieged by interview requests, wouldn't talk to us. But we can reconstruct her story with now public documents and with information from her lawyer, Phillip Hilder of Houston. Like many of her fellow employees, Watkins, an Enron vice president, was worried on Aug. 14 when Enron's chief executive and resident numbers whiz, Jeffrey Skilling, abruptly resigned. Watkins, who has a master's degree in accounting and is a CPA, got a company-wide invitation Lay sent everyone to a meeting at the Houston Hyatt Regency on Aug. 16. The message also urged employees to send him letters, anonymously if necessary, if they thought there was something he should know. Watkins dropped off an anonymous one-page letter before the meeting. Lay's speech inspired her. So she wrote a detailed six-page letter and gave it to Lay after meeting with him on Aug. 22. It's not clear how much Lay knew about Enron's financial shenanigans at the time--although ignorance is no excuse for the chief executive officer.
"Ken Lay was professional and concerned, and he promised to investigate," lawyer Hilder said, adding that "the company has treated her in a professional manner, and she is still employed there."
But what effect did her note have? Not much. As we see from other internal documents that have become public, Watkins's letter was turned over to Enron's outside law firm, Vinson & Elkins, which investigated the charges. The firm dispatched a nine-page letter to Enron saying that Watkins's concerns did not, "in our judgment, warrant a further widespread investigation by independent counsel and auditors." The V&E letter hedged, though, by warning of public-relations and legal dangers if some of the deals Watkins warned about became public.
The V&E letter was dated Oct. 15. The very next day, Enron revealed that it had lost more than $600 million in the third quarter. That touched off the very meltdown that Watkins had feared.
Meanwhile, it turns out, Watkins had aired her concerns with a former Andersen colleague at the Houston office, and asked him for a financial-sanity check before delivering her letter to Lay. (We know this from an internal Andersen memo that's become public.) But no one seems to have done more than to create a paper trail that showed their concern. Meanwhile, yet another disclosed document shows that earlier last year, some Andersenians were considering having the firm drop Enron as a client because Enron's aggressive accounting was making them nervous. But Andersen kept the account, which brought in $52 million in 2000 and had the potential to rise much further, thanks to Enron's voracious appetite for consulting services.
Andersen is under intense pressure for having certified Enron's bogus numbers. It's also being investigated for shredding Enron documents. And it fired the head partner on the Enron account two days after he talked to federal investigators. It sure looks like Enron and Andersen--each of which claims to have fired the other--are trying to stick each other with the blame.
But even as one part of the federal government is investigating criminal charges against Andersen for document-shredding, among other things, the FBI is relying on Andersen's information-systems expertise. Last summer Andersen undertook the job of reforming the FBI's record-keeping. That was after the FBI admitted losing thousands of documents in the Timothy McVeigh case, which briefly delayed his execution. "This study, by a firm of Andersen's caliber, will provide valuable information to enhance the institutional integrity and performance of the FBI," Attorney General John Ashcroft said. Andersen's report is due soon.
The key to the Enron mess is that the company was allowed to give misleading financial information to the world for years. Those fictional figures, showing nicely rising profits, enabled Enron to become the nation's seventh largest company, with $100 billion of annual revenues. Once accurate numbers started coming out in October, thanks to pressure from stockholders, lenders and the previously quiescent SEC, Enron was bankrupt in six weeks. The bottom line: we have to change the rules to make companies deathly afraid of producing dishonest numbers, and we have to make accountants mortally afraid of certifying them. Anything else is window dressing.
With Mark Hosenball and Rich Thomas in Washington

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

Business
The Great Giveback; Enron's turned a capital pastime upside down: the Beltway's racing to give away, not pocket, the giant's cash
By Howard Fineman With Eleanor Clift in Washington

01/28/2002
Newsweek
37
Copyright (C) 2002 Newsweek Inc. All Rights Reserved.

The Jefferson is a tiny little hotel, with antiques in the lobby and pillowed nooks in the bar. It's a venue for one of Washington's favorite sports: giving and getting campaign contributions. But last Friday Sen. Joe Lieberman and his advisers met there for the opposite reason: to discuss whether he should donate to charity the $13,500 he'd received over the years from Enron and its estranged accounting firm, Arthur Andersen. A star Democrat with his eye on the White House, Lieberman this week launches hearings on the Enron collapse and on the Bush crowd's ties to the company. Now the senator is the target of the Republicans' one-word war cry: hypocrisy. "At one level, giving the money back would be a kind of showboating," he told NEWSWEEK. "On the other hand, it might be worth it to eliminate any question of a conflict of interest."
Suddenly, giving away is all the rage, and it's not a matter of charity but political survival. Post-Enron Washington is like post-Taliban Kabul: Everyone is shocked, shocked at what was going on in the capital until the tanks rolled in, and now everyone is frantically shaving his donor lists. Senators who are pledging to give away donations--usually to Enron employee victims' funds--include Kay Bailey Hutchison, Chuck Schumer, Hillary Rodham Clinton and John McCain. Their aim is to buy back the privilege of moral indignation. "No bones about it," McCain told NEWSWEEK. "I'm tainted by it, too."
There was no mea culpa or return-to-sender from President George W. Bush. His aides insisted that they had neither been tainted nor guided by Enron, and there was no evidence that they had done anything illegal or even unseemly. Still, White House insiders behaved like people with something to hide, and the story was less about the substance of the contacts than their belated, grudging disclosure to the press.
The list was a lengthening one. On Jan. 11, a top administration aide denied that Commerce Secretary Don Evans had told White House officials about Enron's shaky finances in October. In fact, Evans admitted Jan. 13, he had told chief of staff Andy Card. Last week it emerged that economic adviser Larry Lindsey, formerly a $50,000-a-year consultant to Enron, had conducted a study of the company's weak condition. Vice President Dick Cheney acknowledged that he'd touted the cause of an Enron power-plant project supported by Team Bush. Even so, the White House refused to release records of the Cheney Energy Task Force, while insisting it contained no favors for Enron.
The White House remained secure in the knowledge that Enron had tried to line all pockets, not just those in Bush's trousers. Indeed, new evidence emerged daily of the company's almost manic attempts at influence acquisition--from its support of the Houston Olympic Committee to a $50,000 payment to Paul Krugman, The New York Times's economic columnist, who disclosed that he'd been paid to serve on an Enron advisory board. Last summer, NEWSWEEK has learned, Enron paid one of Al Gore's closest allies, fund-raiser Johnny Hayes, to lobby Democratic National Committee Chair Terry McAuliffe. The aim: to indirectly pressure California Gov. Gray Davis into backing off his attacks on Enron and other out-of-state energy companies. McAuliffe told Hayes to get lost. Enron later forked over $100,000 anyway--an apparent attempt to show ties to both parties.
Democrats hoped to gain some traction for attacks on the GOP. "This will remind people of where the Republicans' loyalties lie," said poll taker Harrison Hickman. Still, not all Democrats seemed eager to lead the charge (the most active Hill investigator seemed to be GOP Rep. Billy Tauzin). The real beneficiaries--if any--may only be those who can claim the title of "outsider."
The first step toward that sainted status, McCain argues, is to accept the Enron mess as proof of the need for campaign-finance reform. His allies in the House are two votes short of the 218 they need to force a vote. McCain recorded phone-bank calls aimed at swing districts, and his aides recently asked Minnesota Gov. Jesse Ventura to call two "undecideds" in the state. "Failure to pass this now will further lower respect for the two-party system," said McCain, who flirts with running for president as an independent. "We're piano players in the House of ill repute." The music may have stopped for Enron, but the band is still playing in town.

Photo: SIFTING THROUGH THE ASHES: House investigators examine Enron records
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

The Last Word
'Events, Dear Boy, Events'; Enron is not--yet--much of a political scandal, but has many facets awkward for Republicans
By George F. Will

01/28/2002
Newsweek
64
Copyright (C) 2002 Newsweek Inc. All Rights Reserved.

When Harold Macmillan became Britain's prime minister, he was asked what would determine his government's course. He replied with Edwardian languor: "Events, dear boy, events." As he well knew. An event--the 1956 Suez debacle--had catapulted him into 10 Downing Street. An event--the sex-and-spies Profumo scandal--would grease the skids under him in 1963.
Pesky things, events. As usual, they are in the saddle, riding mankind. They will shape this election year. The first shaping event has happened, in Houston.
Enron's sudden collapse from overdoses of arrogance and villainy has become the second most significant event--second only to September 11--since George W. Bush became president. It is just the sort of event that Republicans do not want to raise the curtain on in an election year. It is not like the Credit Mobilier scandal (corrupt contracting in the construction of the Union Pacific Railroad, 1865-69) or the Teapot Dome scandal (fraudulent leasing of federal oil reserves), both of which involved malfeasance by people in Washington. Enron is, in a way, worse.
Enron is a systemic failure, implicating the range of institutions, from accounting firms to boards of directors, that are designed to justify broad public confidence in the functioning of what is supposed to be a mature capitalist system--confidence that is increasingly indispensable, given the rapidly broadening demographics of stock ownership. (For example, in 1980 less than 6 percent of Americans participated in mutual funds; today more than half do.) As an economic scandal--a scandal of behavior in the private sector--it may be the worst in American history. But even though the Enron story is--so far--not much of a scandal involving the political class, it is rich in elements potentially awkward for Republicans.
It involves Texas. (Anti-Texan stereotyping is a kind of "profiling" that many liberals approve.) It involves a (formerly) big corporation. It involves the fifth (Arthur Andersen) and 12th (Enron) largest givers to the Bush campaign. It suggests an insufficiency of government regulation relative to the quantity of private-sector vice.
Enron's prosperity was a bubble produced by trickery and pricked by reality. Bush's stratospheric approval ratings, being the result of solid performance, will not suddenly collapse, but cannot continue. And judging by the thumping Republican losses in the two important elections in 2001--they lost the New Jersey and Virginia governorships by 14 and 5 points, respectively--his popularity is not transferable. Granted, he did not campaign in either state. But the reason he did not--the war--may inhibit his political campaigning this year.
In 2000, for the first time since 1952, Democrats failed to win either the White House, the House or the Senate. They now control the Senate. Can they capture the House this November?
Democrats have gained seats in three consecutive elections. Their three-seat gain in 1996 was not surprising: there was bound to be a corrective rebound from the 1994 cymbal-crash elections in which Democrats lost 53 seats, ending 40 years of Democratic control of the House. Besides, it was a presidential election year in which the Democratic incumbent coasted to a comfortable victory. The continuing rebound from 1994 also helps explain why Democrats gained four seats in 1998--just the second time in 34 elections since the Civil War that the party holding the presidency gained House seats in midterm elections. In 2000, Democrats gained one seat.
If Democrats gain seats in a fourth consecutive election, it will be only the fourth time a party has done that in the 69 elections since the Civil War. (Not since the Depression. Democrats gained in 1906, 1908, 1910 and 1912. Republicans gained in 1914, 1916, 1918 and 1920. Democrats gained in 1930, 1932, 1934 and 1936.) How likely are they to gain the six seats needed to produce Speaker Dick Gephardt in 2003?
Charles Cook, one of the most acute political analysts, notes that Republicans cannot count on benefiting from an impulse to rally around the commander in chief's party during a midterm election. In the only such election during World War I (1918, six days before the armistice), President Wilson's Democratic Party lost six Senate seats and 19 House seats--and control of both houses. In the midterm election during World War II, in 1942, FDR's Democrats lost 45 seats. In the two midterm elections after the escalation in Vietnam and before the negotiated de-escalation, Johnson's Democrats lost 47 seats in 1966 and Nixon's Republicans lost 12 in 1970.
In 1992, the first election after the last redistricting, there was tremendous churning of the House membership: 65 representatives retired and 43 were defeated. But in 1992 the national mood regarding Congress was unusually dyspeptic--remember that year's scandal surrounding members' overdrafts from the House bank--and the term-limits movement was rapidly gaining strength. This year, only 24 House members (16 Republicans, eight Democrats) are retiring, some from politics, others to run for senator or governor.
This year, redistricting, by both parties in the states they control, has been, even more than usual, devoted to protecting incumbents. In most cases that has meant making safe seats even safer. As a result, says Cook, the number of even potentially competitive races in 2002 has shrunk "enormously," to perhaps 50, of which perhaps only 24--a dozen now held by each party--will be hotly contested. Perhaps none of California's 53 races will be really competitive. So for Democrats to gain the six seats necessary for control of the House, "they must win 18 of the 24 closest races, a 75 percent victory percentage." Cook notes that six is a small number out of 435, but 75 is a very high percentage.
Election Day is more than twice as distant from today as September 11 is. Which means there is ample time for the political climate to be conditioned by the unexpected. Remember the rule: There are knowns, unknowns and unknown unknowns. The last include events, dear reader, events.

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

Judicial nominee to face questions about Enron contributions

01/23/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

DALLAS (AP) - A federal judicial nominee who wrote a ruling favorable to Enron Corp. after taking campaign money from the now-bankrupt energy trader will get close scrutiny, Vermont Sen. Patrick Leahy said.
Texas Supreme Court Justice Priscilla Owen wrote a unanimous ruling that saved Enron $225,000 in taxes, two years after taking $8,600 in campaign contributions from the company, according to the watchdog group Texans for Public Justice.
President Bush has tapped Owen to become a member of the 5th U.S. Circuit Court of Appeals in New Orleans. She has been awaiting Senate confirmation.
"The Senate will look at Justice Owen's Enron rulings as part of her overall record," Leahy told The Dallas Morning News in Wednesday's editions.
"She has a right to take contributions, but any judge - liberal or conservative - faces the legitimate question about whether a contribution influenced their thinking," said Leahy, a Democrat.
Owen, a Republican, was the author of a unanimous Texas Supreme Court opinion in 1996 that settled a tax issue in Enron's favor. The opinion rejected the Spring Independent School District's argument that the Enron natural gas inventory should be assessed at a value $15 million higher than stated by the company.
That decision spared Enron $225,000 in taxes. It came two years after Owen accepted $8,600 in Enron contributions, according to Texans for Public Justice. The nonprofit group tracks campaign spending.
Owen has not fielded questions regarding the Enron contribution or her judicial decisions.

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

Congress's Enron Hearings May Open Way to New Laws
2002-01-23 16:53 (New York)

     Washington, Jan. 23 (Bloomberg) -- Two congressional committees open hearings tomorrow into the collapse of Enron Corp. that may pave the way for new rules affecting investors, accountants and energy traders.
     The House Energy and Commerce Committee and the Senate Government Affairs Committee are the first among at least 10 congressional panels to examine what led to the largest bankruptcy in U.S. history. The probes will include testimony on the destruction of documents at Enron and its auditor, Arthur Andersen LLP, and the role of executives, accountants, financial analysts and regulators in the company's demise.
     ``It will begin to lay the groundwork,'' said Robert Litan, director of economic studies at the Brookings Institution. ``In order for legislation to move forward, there has to be a case made that a fix is needed.''
     Houston-based Enron's bankruptcy on Dec. 2 wiped out $26 billion in market value and cost the jobs of thousands of Enron employees, who also lost about $850 million in their company- sponsored pension plans. The hearings are a response to demands by lawmakers and shareholders to find out how that happened.

Washington Sentiment

     President George W. Bush, who got financial backing for his political campaigns from Enron Chief Executive Kenneth Lay, expressed the mood preceding the hearings yesterday.
     ``What I'm outraged about is that shareholders and employees didn't know all the facts about Enron,'' Bush said in disclosing that his mother-in-law, Jenna Welch, lost about $8,100 on her purchase of Enron stock.
     There were similar comments from members of Congress.
     ``What is abundantly apparent is that Enron rather outrageously hid transactions of hundreds of millions of dollars,'' said Rep. James Greenwood, the Pennsylvania Republican who is chairman of the House subcommittee holding tomorrow's hearing. ``They did it to make their profits look rosier.''
     Among those the panel wants to hear from tomorrow are Andersen Chief Executive Joseph Berardino and former Andersen partner David Duncan, who was fired by the company over the destruction of documents relating to its audit of Enron.
     Berardino wants to send an Andersen auditing expert to testify in his place. Duncan's lawyer, Robert Giuffra Jr., said his client will invoke his Fifth Amendment right not to answer the committee's questions unless he's granted immunity from prosecution.

Potential Evidence

     Committee Chairman Billy Tauzin, a Republican from Louisiana, said the panel won't grant immunity without approval from the Justice Department, which is conducting a criminal investigation into the matter.
     Nancy Temple, an Andersen attorney whose memo on document destruction policies is at the center of one aspect of the investigation, and Mike Odom, the risk assessment officer for Andersen's Houston office, have agreed to testify.
     Greenwood said his investigation initially would focus on Andersen to find out how much potential evidence was destroyed by the auditor between September and November. Andersen admitted to purging the documents, mostly e-mails to and from Andersen executives.
     Duncan told investigators last week that when he destroyed the files he was following the direction of an Oct. 12 memo from Temple on Andersen's document policy. The memo, which the committee released, included a note from Temple to Odom, whom investigators interviewed on Friday. Andersen has relieved Odom and three other Houston-based partners of management responsibilities.

Enron's Documents

     The shredding wasn't confined to Andersen. A former Enron executive told ABC News on Monday that she witnessed documents being destroyed as recently as two weeks ago, in defiance of the company's order in October to preserve documents.
     ``The allegations of continued shredding of documents is a very serious matter and raises additional questions of obstruction of justice,'' said Rep. John Dingell, the senior Democrat on the commerce committee.
     Lawmakers have offered a few specific proposals and broad outlines of possible changes to laws and regulations. Senate Majority Leader Tom Daschle, a South Dakota Democrat, said one outcome of Enron hearings will be legislation to keep accounting firms from acting as consultants to the companies they audit.
     Andersen had such an arrangement with Enron. The firm has said it earned $52 million in fees from Enron last year, of which $27 million came from non-audit work.

Changing the Law

     ``My personal view is that we ought not to allow a combination of consulting and accounting,'' Daschle said.
     Democratic Senators Christopher Dodd of Connecticut and Jon Corzine of New Jersey say they will introduce a bill that would prohibit such relationships.
     The House commerce committee plans hearings next week on conflicts of interest between auditors and their clients, proposals to change accounting rules and the workings of the energy trading market. Shareholders have accused Enron, which at one point handled a quarter of the trading in natural gas and electricity, of hiding its liabilities in trades.
     Lawmakers also will question Wall Street analysts who kept ``strong buy'' ratings on Enron until the company publicly disclosed the extent of its troubles in November.
     Senator Joe Lieberman, a Connecticut Democrat who is chairman of the Senate Government Affairs panel, said he intends a months- long inquiry into Enron starting with a look at how accountants, financial analysts and regulators failed to issue warnings or prevent Enron's failure.

`Legislative Fix'

     Among those who'll be testifying are former Securities and Exchange Commission Chairman Arthur Levitt Jr. He has said he will tell the committee to support legislation to give the SEC more control over U.S. accounting standards.
     ``The power to change it could come from the Congress, it could come from the SEC with a rulemaking, but I think this one calls for a legislative fix,'' Levitt said last week.
     The committee also is examining the regulatory authority of the Federal Energy Regulatory Commission and the Commodities Futures Trading Commission that governed Enron's energy production and trading businesses.
     The Senate committee will examine whether tighter regulations for traditional pension plans should be applied to 401(K) retirement funds.

--Jeff Bliss and William Roberts in Washington (202) 624-1975 or
jbliss@bloomberg.net Editors: Sobczyk, *Winski, Sobczyk

State GOP sends $15,000 Enron contribution to employees' fund
By MARC HUMBERT
AP Political Writer

01/23/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

ALBANY, N.Y. (AP) - New York's Republican State Committee has donated a $15,000 contribution from the Enron Corp. to a Houston-based fund created to aid employees of the failed energy giant, a party official said Wednesday.
"We thought it was the right thing to do - to stand by the families," said Patrick McCarthy, the state party's executive director, of the Enron donation the state party had received on Oct. 12.
The state GOP's contribution last week to the Enron employees' fund was first reported Wednesday by the New York Post.
Also, an aide to Democratic candidate for governor Andrew Cuomo said Wednesday that the former federal housing secretary had donated a $1,000 Enron contribution to the employees' fund last week. He had received it on June 21.
Campaign financial filings with the state Board of Elections also show that state Senate Majority Leader Joseph Bruno, a Rensselaer County Republican, received $1,000 from Enron in 1999 and that state Sen. James Wright, a Watertown Republican, got a $1,000 donation from the company in March of last year. Aides to both senators said Wednesday that those contributions would be donated to the employees' fund.
The political action committee of the Independent Power Producers of New York received a $2,000 Enron donation in May of last year, the records show.
Gavin Donohue, the IPP's executive director, said he would recommend to the group's board of directors next week that the money be donated to the fund. He said he expected the board to agree.
"It is the right thing to do, and the right time to do it," Donohue said.
New York politicians have been joining others from across the country sending donations from Enron or its top executives and their relatives to the employees' fund in recent days. Thousands of Enron employees were laid off in the wake of the company's collapse last month.
Last week, Republican Gov. George Pataki donated to the fund an Aug. 1, $5,000 contribution from the wife of Enron chief Kenneth Lay. Pataki spokesman Michael McKeon said Wednesday that the governor had also sent a $1,000 contribution to the fund last week that his campaign committee had received from Enron in April of 2000.
Also last week, New York's two Democratic U.S. senators, Charles Schumer and Hillary Rodham Clinton, sent $68,857 and $7,950, respectively, to the fund stemming from Enron-connected donations they had received.
Cuomo's main rival for the Democratic nomination for governor, state Comptroller H. Carl McCall, has not received any recent Enron-related contributions. The state's more than $112 billion public pension fund, of which McCall is sole trustee, did lose about $58 million in the Enron collapse. That is much less than Enron losses suffered by some other major state public pension funds.

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

Business
LOU DOBBS MONEYLINE; CNNfn
Lou Dobbs, Ed Lavandera, Tim O`Brien, Chris Huntington, Kitty Pilgrim, Christine Romans, Greg Clarkin, Mike Hanna, David Grange, Peter Viles, Wolf Blitzer

01/22/2002
CNNfn: Moneyline News Hour
(c) Copyright Federal Document Clearing House. All Rights Reserved.
--- exceprts only --
ANNOUNCER: Tonight on LOU DOBBS MONEYLINE, we report on Enron`s collapse and the unfolding scandal from the epicenter, Houston, Texas.
Jeff Bezos` promise to profit and he delivered. The man who runs Amazon.com (URL: http://www.amazon.com/) tells us how his company discovered success the old-fashioned way.
Talk Magazine silenced after two and a half years. Editor Tina Brown tells us why what looked like success ended in failure.
And tensions in the Middle East rise. We report from Jerusalem. This is a special edition of Lou Dobbs MONEYLINE for Tuesday, January 22nd LIVE FROM HOUSTON TEXAS, Lou Dobbs.
LOU DOBBS, CNNfn ANCHOR, LOU DOBBS MONEYLINE: Good evening everyone.
I`m sitting in front of Enron`s headquarters in Houston, Texas. Tonight this company`s troubles are continuing to mount. The FBI today entered the Enron building, looking into charges that Enron employees have been shredding documents related to the phenomenal collapse of the company.
Tomorrow, a Federal judge will decide whether Enron has to turn over any and all documents that pertain to its collapse, this after an Enron employee said Enron workers were shredding papers as late as last week, despite orders not to do so. Ed Lavandera has the story. Ed.
ED LAVANDERA, CNN CORRESPONDENT: Well, Lou, it`s been a rather revealing 24 hours in Houston, as late yesterday details started to emerge as attorneys arrived here in Houston for a pre-trial hearing involving Enron, Andersen, and several high profile investors who have invested heavily into Enron.
And when those attorneys arrived into town, we started hearing the details that these attorneys were alleging that they have four or five witnesses inside Enron, who say that since Thanksgiving they have seen shredding of documents inside the finance and accounting departments inside of Enron on the 19th and 20th floors. They say that this has happened steadily and lasted up until last week.
Now those details emerged when the first witness came through to attorneys. They say that this woman, Marie Castanjera (ph) was working across the hallway from these departments and witnessed this. She went home, used the scraps of paper to pack up her boxes, and when she arrived at home, she noticed details on the scraps of paper, the names Raptor and Jedi on several of the scraps of paper, and of course, those are the names that have become infamous in this Enron collapse.
Those are the names of the partnerships that led to the company`s demise. Enron says that it is investigating this at the moment. They do acknowledge that since all of this came to light, that they have found one wastebasket inside the building that had shredded documents. Those papers have been turned over to Federal authorities.
Now it`s hard to put a lot of this into context because the only thing we`ve been able to see in the last 24 hours is one box of these little scraps of papers, and of course, with everything so shredded, it is hard to put into context as to what these documents were.
Attorneys for the Enron investors say they have no idea, quite frankly, what these papers are, but that it doesn`t matter. That indeed, they say these papers were shredded well after Federal investigators launched their investigation, and all of these documents should have been subpoenaed, and therefore should not have been touched.
So, Enron executives putting out another memo to employees worldwide saying that no documents should be shredded or touched in any way, as investigators across the country lead into this investigation. Lou.
DOBBS: Ed, the attorney for Enron, Robert Bennett, Bob Bennett today told me that in point of fact it was he who contacted authorities as soon as they learned of this allegation. Was there any reference today in the hearing as to why the plaintiff`s attorneys did not immediately contact authorities?
LAVANDERA: Well it`s kind of interesting, Lou, because these attorneys are the same people who turned over the Sharon Watkins letter.
DOBBS: Right.
LAVANDERA: One of the attorneys told me last night that they turned over the Sharon Watkins letters to investigators, and they were as a matter of fact that sometimes they wanted to use the publicity to their advantage, that their hope is that this will spur and convince other people, who still might be working inside of Enron, to come forward with more of these allegations, if in fact more people have witnessed this document tampering. Lou.
DOBBS: Even in collapse, this contest is still all about money. Ed Lavandera, thank you very much.
Well charges of shredding documents are incendiary whether it is on Capitol Hill or in the courts. It is not only the crime, the original crime that excites the interest of investigators, but shredding, the crime of covering it up. Tim O`Brien has the report from Washington.
(BEGIN VIDEOTAPE)
TIM O`BRIEN, CNN CORRESPONDENT (voice over): It wasn`t the Watergate break-in that drove President Richard Nixon from office, as it was his efforts to cover it up. A jury never convicted former White House aide, Oliver North, of the massive arms-for-hostage deal he orchestrated, but rather for shredding documents and obstructing Congress. It wasn`t Bill Clinton`s relationship with Monica Lewinsky that led to his impeachment, as much as it was his lying under oath about it. History shows that it is not the underlying offense that causes trouble, as often as it is efforts to cover it up.
David Duncan, the Arthur Andersen auditor who headed up the Enron audit, has not admitted ordering thousands of Enron-related documents destroyed on October 23rd, the day after the SEC launched an inquiry of Enron`s finances.
The company fired Duncan citing his bad judgment. Duncan says he followed the advice of in-house counsel, but that may not help.
PROFESSOR JOHN COFFEE, COLUMBIA LAW SCHOOL: If you either destroy yourself or persuade others to destroy, alter, mutilate any document with the intent of making that document unavailable for use in that official proceeding, it`s a Federal felony and there`s not much you can say by way of defense. It`s not easy to say, my lawyer told me to do this. That`s not a recognized defense.
O`BRIEN: Arthur Andersen did have a policy of routinely shredding documents. "Accountants are like packrats," said CEO Joseph Berardino. "We save lots of stuff that`s not relevant."
And company lawyer, Nancy Temple, did send a memo out in early October reminding Duncan and other employees of that policy concluding, "it would helpful to make sure that we have complied with the policy."
(END VIDEOTAPE)
O`BRIEN (on camera): House investigators have been questioning both Temple and Duncan, and Duncan is expected to be called as a witness before the House Energy and Commerce Committee this Thursday. His lawyers disclosed tonight he will invoke his Fifth Amendment right against self- incrimination. That is, he`ll speak but only if granted immunity, assurances that nothing he says will be used against him in court. Lou.
DOBBS: Tim, thank you very much. Tim O`Brien from Washington. Well, as a matter of fact President Bush has now been added to the list of people who are very angry at Enron. One of the President`s own family members, it turns out, lost money in the collapse of Enron stock.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: My own mother-in-law bought stock last summer and it`s not worth anything now. If she`d have known all the facts, I don`t know what her decision would have been, but she didn`t know all the facts, and a lot of shareholders didn`t know all the facts, and that`s wrong. So our government must do something about it, must make sure that the accounting practices that have been going on for quite a while are addressed.
(END VIDEO CLIP)
DOBBS: Well, Jenna Welch, the President`s mother-in law, paid almost $41 a share for 200 Enron shares. She sold that stock last month, two days after Enron declared bankruptcy, at 42 cents a share. She lost more than $8,000.
Well focusing on Enron`s off-balance-sheet partnerships that enabled Enron to hide massive amounts of debt. Chris Huntington now takes a look at those Enron deals and the executive who set them up.
(BEGIN VIDEOTAPE)
CHRIS HUNTINGTON, CNNfn CORRESPONDENT (voice over): At the center of Enron`s collapse is this man, Andrew Fastow, the company`s former chief financial officer. Until he was fired last October, Fastow designed and carried out a sophisticated strategy that expanded Enron`s business, while keeping losses and debt off its books. It was a strategy blessed by Enron`s top brass.
DAVID BOIES, BOIES, SHILLER & PLEXNER: Those transactions will be transactions that were reviewed by the Board of Directors of Enron, reviewed by the top management of Enron, and which I believe the record will show, the audit committee of the board and the outside auditors had reviewed it as well.
HUNTINGTON: In 1999, Fastow`s financial wizardry was applauded by analysts as groundbreaking and innovative. At the time, CFO Magazine called Enron a master of creative financing, and presented Fastow with its annual CFO Excellence award.
While Fastow and Enron`s CEO at the time, Jeff Skilling, boasted about Enron`s deals in general terms, they did not divulge all the details. Anyone looking for answers about Enron`s nearly 6,000 off-balance-sheet transactions in the quarterly or annual reports, found only obscure footnotes.
PROFESSION DOUG CARMICHAEL, ACCOUNTING, BARUCH COLLEGE: It`s really impenetrable detail in the footnotes. Someone with some understanding of business, should be able to pick up the financial statements, read the notes, and understand the full effects of those transactions on the financial statement. With Enron, they couldn`t.
HUNTINGTON: In August, 2001 Sharon Watkins, an Enron Vice President who reported to Fastow, wrote her now famous letter to Chairman Ken Lay, expressing her concerns about some of Fastow`s off-balance-sheet deals.
According to Enron documents and a letter from Enron`s lawyer, obtained by CNN, the transactions worked this way. Fastow set up limited partnerships called LJM. LJM then set up what are called Special Purpose Entities or S.P.E.s. One of them called Raptor was designed to invest in companies on behalf of Enron.
The structure of the deal required Raptor to pay Enron, even if the investments soured. But Raptor was essentially delivering an I.O.U. What we do know now is Raptor`s only significant source of capital was Enron Stock. Enron was using its own stock to pay itself.
LYNN TURNER, FORMER CHIEF ACCOUNTANT, SEC: It`s kind of like a money- laundering case. One of the things that is of interest on LJM, one is the fact that not only the was the debt and the losses kept off the balance sheet by putting these transactions in a separate corporation, but it was then used to make payments or provide compensation to the CFO.
HUNTINGTON: In an extraordinary move, Enron`s Board of Directors waived its conflict of interest rules, allowing Fastow an ownership stake in the partnerships, which earned him millions of dollars.
(END VIDEOTAPE)
Enron ultimately had to account for the LJM and Raptor transactions last November, when it restated earnings going back to 1997. All tolled, those restatements of off-balance-sheet transactions trimmed Enron`s profits by more than $600 million. Lou.
DOBBS: Chris, thank you very much. Chris Huntington. The Enron collapse has devastated for now at least the reputation of the nation`s accounting industry. There are five major accounting firms. James Copeland is the CEO of one of them, Deloitte & Touche. What can the industry do to restore investor confidence right now in the financial reporting of corporate America?
JAMES COPELAND, CEO, DELOITTE & TOUCHE: Lou, I think there are a number of things that the financial industry can do in concert with a number of other people. This is, you know, a real financial crisis for not just our industry but for the shareholders and employees of Enron who have lost, not only their jobs, but also have lost their life savings in many cases. There`s collateral damage with respect to the 335,000 auditors in the United States that go to work every day.
DOBBS: Right.
COPELAND: Try to do a good job, produce 15,000 audits a year where there are no restatements, where there are no challenges. These people are being tarred with the same brush and that`s a tragedy as well.
DOBBS: Tarred with the same brush and now a number of recommendations, almost instantaneously. Harvey Pitt at the SEC comes forward with his recommendations, which have created some controversy, both in terms of its timing and, if you will, the lack of commitment behind those proposals in they eyes of some.
Senator Barbara Boxer says "take accounting firms and eliminate the consulting fees from their business, divest it, go back to the business you`re best at and that`s auditing." What do you think?
COPELAND: Well, I think that Senator Boxer`s comments and the proposed bill is going to generate a debate that really needs to be held. There is a lot more heat around this issue than there is light right now, and we really do need to debate the issues.
Everyone is looking for an answer to a very complex problem, and unfortunately, you know, we all tend to want to move to simplistic answers. Sometimes a simplistic answer is the right one. Oftentimes, what you end up with are unintended consequences that are worse than the original problem.
So I think we need to be very careful, very prudent. We need to put everything on the table and talk about all of the potential problems and opportunities and then make some very good, very careful decisions.
DOBBS: I know that you probably won`t like this aphorism, but the essence of genius is simplicity itself. It is certainly something that can not be said of the accounting system, the financial system in any way.
But if you, James Copeland, were to look and perhaps you have at the annual report of Enron for the year 2000, do you think you, one of the best minds in accounting and audit, would know, have any suspicion of these secret partnerships, and I say secret advisedly, and the huge number of off-shore tax havens that Enron had in its structure?
COPELAND: I think some of my partners are probably laughing right now about my being one of the best accounting and auditing minds in our profession, but.
DOBBS: Just go with it, James.
COPELAND: I would say that to your point, I believe, the complexity of Enron and many other companies` financial statements, really is getting to a point where they`re very, very hard to understand for all of us, even for experts in the area. But at the same time, you know, making the complex simple is a real challenge.
DOBBS: A real challenge, and certainly no one would be more aware of that than you. The fact of the matter is that we have reached a stage where the essence of this country`s financial system, its transparency and its securities markets and its business dealings is, if not already jeopardized and already perhaps overtaken by complex tax and accounting laws, we are also at risk of losing faith in the system itself. We`re as appalled over these markets right now, cast in the instance for example of Kmart, in which credit standards are rising simply because of the Enron experience. This has to concern you.
COPELAND: It concerns me a lot. One of the things that concerns me most is that we come up with two or three simple answers that sound good. We all celebrate, go home, and 18 months later you have another body on the table, so to speak.
DOBBS: Right.
COPELAND: And you know, then what happens to the credibility of the system? We need to quit trying to polish the hood. We have a problem with the engine, you know, and we need to really get our dirt under our fingernails, work hard on the things that will really make a difference in the financial reporting system.
DOBBS: OK. James Copeland, we thank you for taking the time to be with us and we know you`ll be part of the solution.
COPELAND: I hope so.
DOBBS: James Copeland, Deloitte & Touche.
COPELAND: Thanks very much, Lou.
DOBBS: We hope you`ll join us tonight at 8:00 Eastern for a one-hour special on the rise and the fall of Enron. We`ll be live here in Houston. We`ll be taking a look at the forces that brought about Enron`s collapse, and the impact it`s had on that company`s employees, the retirement plans of the city of Houston, and indeed business in America. All of that coming up on CNN, 8:00 Eastern.
On Wall Street today, stocks weaker despite positive earnings news form Amazon.com and Lucent Technologies. The Dow Jones Industrials ended the day down 58 points, the Dow closing at 9713. The Dow has fallen nine out of the past eleven sessions.
And the Nasdaq tonight is at a two-month low, losing 47 points today, more than two and a half percent. The broader market, S & P 500, ended down eight points. We`ll have much more on today`s sell off later in the broadcast.
Still ahead, we`ll have more on the fallout from the collapse of Enron and the scandal now surrounding it. Then, Tyco International is splitting itself into four companies. We`ll have a report for you.
Kmart says its bankruptcy isn`t the end, but rather a chance for a new beginning. We`ll tell you how the company plans to pull itself back together.
And a dot.com survivor turns into a dot.com success story. Amazon.com promises that the best is yet to come. We`ll find out.
ANNOUNCER: Next, Lou speaks with Jeff Bezos, Chairman and CEO of Amazon.com.
(COMMERCIAL BREAK)
DOBBS: Kmart (URL: http://www.kmart.com/) in business for more than 100 years, today filed for bankruptcy. It is the biggest bankruptcy every in the retailing industry. One reason, suppliers were cutting off their products because Kmart couldn`t make its payments. And with the collapse of Enron, increasingly companies are demanding prompt payment for their goods and services. Kitty Pilgrim reports.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNNfn CORRESPONDENT (voice over): Kmart is keeping all 2,114 stores
(BEGIN VIDEO CLIP)
DOBBS: Just ahead here, Enron`s collapse has highlighted the vulnerability of many retirement plans unfortunately. When we come back, we`ll take a look at what you can do to protect your retirement savings.
The Enron debacle has led to the collapse of thousands of 401(k) accounts held by Enron employees. The collapse provoked a debate about investment regulations that could prove precedent setting. At the very core of the debate: Does the federal government have any business telling you how to invest your own retirement money?
Peter Viles reports.
(BEGIN VIDEOTAPE)
PETER VILES, CNNfn CORRESPONDENT (voice-over): You`ve heard about all the Enron employees who loaded up on the company stock in their retirement accounts and lost nearly everything.
UNIDENTIFIED MALE: You feel like you`ve almost been raped.
VILES: You`ve heard the Bush administration says it`s studying the 401(k) rules, with an eye toward protecting your retirement money.
ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: I think the public is very uneasy about their pensions. The public wants to know if what happened to Enron can happen to them. The president wants to make sure that any action is taken so that others can be protected so that it does not happen to them.
VILES: Considering it`s a creation of the IRS, the 401(k) is quite simple. First off, it is optional. Your employer is not required to offer a 401(k) plan and you`re not required to participate. The employer has the option of putting its money or stock into your account, but on the employer`s terms. And there are no government guarantees or insurance on the money itself. It is yours to invest.
DAVID RAY, 401(K) PROFIT SHARING ASSOCIATION OF AMERICA: It is not a defined benefit plan. There are not guarantees. It`s not a program where promises about future benefits are made. It`s about setting money aside, investing that money and then using those contributions and returns as your retirement income.
VILES: Lastly, the employer does have the right to lock up the plan temporarily to switch administrators. The 10-day lockup at Enron is not considered to be unusually long. So how might Washington protect your 401(k)?
Senator Jon Corzine wants mandatory diversity. The government would prevent you from putting more than 20 percent of your account into any one stock. But do you really want the government telling you how to invest your money?
MICHAEL HOLLAND, HOLLAND & CO.: When we start getting lawyers and politicians telling us where we can invest our 401(k)s, I think it should send shudders up the spines of individual investors.
VILES: Corzine`s argument is that the government sponsors 401(k)s by deferring taxes, so it has an obligation to regulate them.
SEN. JOHN CORZINE (D), NEW JERSEY: It is out of bounds for the federal government to be sponsoring a policy that doesn`t fit together with what any investment adviser, any reasonable investment strategy coming out of academia or simple commonsense principals that don`t put all your eggs in one basket.
(END VIDEOTAPE)
VILES (on camera): Well, wait, does that phrase resonate here in Houston, where a lot of people wish they had a lot fewer eggs in that one basket of Enron stock? Total losses by Enron employees in their 401(k)s alone on Enron stock, estimated at over $1 billion -- Lou.
DOBBS: Well, it`s a terrific point. The fact is these 401(k)s are not required by the companies. It`s become, if you will, fashionable and employees rely upon them. And it puts in stark contrast here, Enron so much it can be accused of, the fact is the 401(k), which it contributed, is probably a reason to cut them a little slack there.
VILES: Yes, a lot of the stock in those accounts was stock that Enron gave the employees. It was a gift that ultimately became worthless, but it was a gift in the first place.
DOBBS: OK. Thank you very much, Peter Viles.
Coming up next here, another victim of the slumping economy. Two-and-a-half years after Talk Magazine roared into existence, the glossy magazine has fallen silent. We`ll have the inside scoop with Talk`s editor-in-chief, Tina Brown.
ANNOUNCER: After the break, Lou talks with Tina Brown of Talk Magazine.
(COMMERCIAL BREAK)
Congress is back in session tomorrow after a lengthy break, and that means a lot of news ahead. So stay tuned. That`s MONEYLINE for this Tuesday evening. We thank you for being with us. Live from Enron headquarters in Houston, please join us tonight 8:00 p.m. Eastern, our one-hour special program -- an in depth look at the collapse and the scandal of Enron.
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Sarah Palmer
Internal Communications Manager
Enron Public Relations
(713) 853-9843