Some Merrill Executives Had Stakes in Enron Partnership --- Investments Raise Conflict-of-Interest Questions
The Wall Street Journal, 01/30/2002

How to be an Enron millionaire
Salon.com, 01/29/2002

Enron Directors Backed Moving Debt Off Books
The Washington Post, 01/31/2002

Concerned ex-worker was sent to human resources
House panel asks Lay to explain what happened to memo from former energy services manager
Houston Chronicle, 01/30/2002

2nd Enron warning disclosed ; Manager wrote to board about losses, practices
Chicago Tribune, 01/31/2002

Enron's Acting CEO Says Energy Trader Can Be Salvaged
The Wall Street Journal, 01/31/2002

Cooper hits ground running
Houston Chronicle, 01/31/2002

ENRON'S MANY STRANDS: THE CHIEF EXECUTIVE
A Strategy Of Returning To the Roots In Energy
The New York Times, 01/31/2002

Enron Interim CEO: More Value From Restructuring Assets
Dow Jones News Service, 01/31/2002

Enron's new turnaround specialist discusses strategy for bringing firm back from bankruptcy
Associated Press Newswires, 01/31/2002

City - Enron dogged by talk of price manipulation.
The Daily Telegraph, 01/31/2002

Andersen CEO: Significant Information Not Made Available
Dow Jones Energy Service, 01/31/2002

Evidence likely lingers amid high-tech shreds
Chicago Tribune, 01/31/2002

Enron's One Good Return: Political Investments
The Wall Street Journal, 01/31/2002

Firm Accused of Withholding Data Probe: Senate panel chairman says the company has not produced some requested documents.
Los Angeles Times, 01/31/2002

Ernst & Young Says It Played Dual PNC Role
The Wall Street Journal, 01/31/2002

Law firm cuts ties with Enron, citing potential conflict
Associated Press Newswires, 01/31/2002

Enron hopes to rehire Vinson & Elkins
The Daily Deal, 01/31/2002

UK press watchdog chief Lord Wakeham steps down amid Enron links
AFX News, 01/31/2002

Enron board member temporarily resigns press watchdog job
Associated Press Newswires, 01/31/2002

Questioning the Books: CPA Institute's President Opposes More Limits on Nonaudit Services
The Wall Street Journal, 01/31/2002

The Gottesdiener Law Firm Moves Against Enron in Bankruptcy Court
Business Wire, 01/31/2002

Law Firm Asks Court To Lift Enron 'Automatic Stay'
Dow Jones News Service, 01/31/2002

4 BofA execs quit in wake of Enron's fall
The San Francisco Chronicle, 01/31/2002

Former Texas governor: `stunned' by Enron collapse
Associated Press Newswires, 01/31/2002

Stock dumped on Enron jitters
South China Morning Post, 01/31/2002

ENRON'S MANY STRANDS: A CASE STUDY
A Video Study Of Enron Offers A Picture of Life Before the Fall
The New York Times, 01/31/2002

Learning From Enron
The Washington Post, 01/31/2002

_____________________________________________________________________________

Some Merrill Executives Had Stakes in Enron Partnership --- Investments Raise Conflict-of-Interest Questions
By Charles Gasparino and Randall Smith
Staff Reporters

01/30/2002
The Wall Street Journal
M1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Nearly 100 Merrill Lynch & Co. executives invested more than $16 million of their own money in a controversial partnership the securities firm was selling for Enron Corp., even as other senior Merrill officials decided to turn down the offer, people close to Merrill said.
Among the top Merrill officials who put their own money into the Enron partnership were current Vice Chairman Thomas Davis; Daniel Bayly, Merrill's investment-banking chief; and Schuyler Tilney, who heads Merrill's energy investment-banking department and directly oversees the firm's dealing with Enron on corporate-finance matters, the people said.
Though each executive invested less than $1 million, the people said, their involvement highlights the role played by senior Wall Street officials in helping to create some of the partnerships Enron used to pad its earnings and hide debt from investors -- and that eventually resulted in huge losses that led to the energy-trading company's downfall.
Mr. Davis, Mr. Tilney and Mr. Bayly didn't return calls for comment. Joseph Cohen, a Merrill spokesman, said the investments were entirely appropriate, and common on Wall Street.
The personal investments were part of a total of $22 million Merrill and its officials committed to invest in the partnership, known as LJM2 Co-Investment LP. This partnership was particularly controversial because it allowed some Enron officials to make far more money working part time on the partnerships than they did working full time for Enron. The energy company has estimated, for instance, that Andrew Fastow, whom Enron replaced as chief financial officer in October as pressures on the company mounted, made more than $30 million since 1999 running LJM2 and a smaller partnership, called LJM Cayman LP.
At issue for Merrill is the potential for conflicts of interest. Merrill, like other Wall Street firms, wore a number of hats with Enron: The securities firm acted at various times as securities underwriter and investor with the energy company. Since 1990, Merrill was among the top five underwriters of Enron's stock and bond deals, according to Thomson Financial, earning fees for helping to raise about $3.7 billion in securities issues for the company. Thus, some critics question whether Merrill officials would let their personal investments with Enron entities interfere with their business decisions in dealing with the energy company.
"Merrill's involvement as underwriter for Enron and its executives' investments raises serious conflict-of-interest questions," says Jacob Zamansky, a New York-based plaintiffs' lawyer. "It gives the appearance that Merrill did this to get Enron deals. Merrill had a vested interest in . . . the partnership and investing" in it.
There are other conflicts as well, securities lawyers say. Some top executives at Merrill declined to invest their money because they believed that the Enron partnership -- which kept assets off Enron's balance sheet -- wouldn't get the best investments, which would be kept by the corporate parent. Another concern: Enron's Mr. Fastow suggested the idea of investing in the partnership to Mr. Tilney, whose wife until last week was a managing director of Enron's energy-services unit. Mr. Fastow through a spokesman had no comment.
It is unclear if top Merrill executives, who also worked on Enron's financings, had more information about the nature of the LJM2 partnership than Merrill's individual customers who were offered opportunities to invest in the partnership. "I'm not saying that Merrill violated the law here," says John Coffee, a professor of securities law at Columbia University in New York. "But this is a big public-policy issue. Merrill has an obligation, because Enron is a client, not to reveal some confidential information, but it also has a fiduciary obligation to its investors to tell them if these securities aren't suitable for them."
Mr. Cohen, the Merrill spokesman, brushes aside such concerns. "The investment partnership was reviewed and deemed appropriate by parties on all sides of the transaction," Mr. Cohen said, reading from a prepared statement. "Consistent with common industry practice, it was offered to qualified external as well as internal investors, and this is not a conflict of interest."
Mr. Cohen added that Merrill high-net-worth clients "in the partnership offering were given the same information as all Merrill executives who wanted to invest."
Mr. Davis, who at the time of the investment headed the institutional-securities group, appears to be the only official on Merrill's executive committee to have invested in the partnership. Even though close to 100 Merrill executives invested in the partnership, neither Chief Executive Officer David Komansky nor his heir apparent, President E. Stanley O'Neal, were in the group, people close to the deal said. One person with knowledge of the matter said some top executives balked at investing their own money because they were uncomfortable with some LJM2 investments. Mr. Davis, however, headed the institutional group, which counted Enron as one of its big clients.
Merrill, which helped market LJM2 to more than three dozen institutional and individual investors, was only one of many Wall Street firms to invest in the $386.6 million partnership. Other corporate investors in the partnership included Lehman Brothers Holdings Inc., two units of Credit Suisse Group's Credit Suisse First Boston, Citigroup Inc., Deutsche Bank AG, J.P. Morgan Chase & Co., First Union Corp. and the CIBC World Markets unit of Canadian Imperial Bank of Commerce.
The funds for a $15 million investment from J.P. Morgan Chase came from the private-equity unit of J.P. Morgan, which invests the firm's own funds. While individual Morgan bankers may have stakes in those funds, they didn't have any direct, separate stakes in LJM2, a spokeswoman said.
At Citigroup and Lehman Brothers, which committed $10 million each, and CIBC World Markets, which committed $15 million, the funds came from the firms' own assets and not from outside clients or individual investment bankers, according to people familiar with the investments.
Officials declined to comment at CSFB, a unit of Credit Suisse Group, whose DLJ Fund Investment Partners III LP made a $5 million commitment, while a CSFB affiliate named Merchant Capital Inc. committed $10 million. Company representatives had no comment at Deutsche Bank, where an affiliate of its former Bankers Trust unit, BT Investment Partners, committed $10 million, and First Union, whose First Union Investors Inc. committed $25 million.
Officials at some of these Wall Street firms said their investment committees felt pressured to make the investments in order to stay in the running for investment-banking assignments. Some bankers were concerned about whether they were being asked to make uneconomical investments in corporate castoffs that wouldn't appreciate in value. Indeed, it is unclear what returns, if any, the LJM2 partnership investment has generated for limited partners and investors.
Wall Street securities firms have long made investments associated with their investment-banking business. Sometimes the investments are made to provide extra capital to help clients complete deals. Sometimes the investments are used to acquire an asset a client wants to sell. The funds may come from the securities firm itself, from investment clients, or individuals at the firm who may be offered the chance to make the investments as part of their compensation packages.
What was unusual about the Merrill investment in the Enron vehicle was that some senior bankers chose not to participate out of concern about what the partnership would invest in. In addition, some of Merrill's top executives, including Mr. Komansky, Merrill's chief executive, had been embarrassed in 1998 by disclosure that they had taken personal stakes in Long-Term Capital Management, the highflying hedge fund for which Merrill had raised funds and whose near collapse jeopardized the entire U.S. financial system.

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

Salon Exclusive
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How to be an Enron millionaire
According to former colleagues, two executives reaped million-dollar windfalls by investing $6,000 apiece in the company's partnership scam. A case study in corporate rot.
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By Jake Tapper
Jan. 29, 2002 | When she heard that Kristina Mordaunt had been mixed up in Enron's infamous LJM partnership, Julia Murray broke down in tears.
Murray, an Enron in-house counsel, wasn't known within the firm for such emotional displays. Enron was a hard-charging company that attracted tough-as-nails Type A executives and lawyers. But Kristina Mordaunt, a fellow Enron attorney who had worked in the counsel's office before joining the company's financial division, was Murray's close friend. And the news about her was rather shocking: On Nov. 7, 2001, Mordaunt was fired and escorted from the Enron building in downtown Houston by company security. According to four current or former Enron executives, Mordaunt was fired after the company found that she had made a windfall profit off LJM, one of the controversial -- and possibly illegal -- partnerships set up by Enron's former chief financial officer, Andrew Fastow.
According to these sources, there is a lesson in Kristina Mordaunt's downfall. The ignominious exit of employees like Mordaunt, who had enjoyed the trust and respect of fellow company attorneys and managers, shows how Enron's corporate culture rotted from within, under the twin pressures of financial ambition and personal greed.
A few weeks before Mordaunt was fired, Enron had announced that her former boss Fastow was on a "leave of absence." But few inside the company expected him back. On Oct. 31, Enron had reported that the Securities and Exchange Commission had upgraded its interest in the company's financial dealings from an inquiry to a formal investigation. Within Enron, the board of directors set up a special internal committee to investigate the company's convoluted finances as well. Soon, according to the four Enron sources, the committee stumbled upon stunning news: Working with Fastow, Mordaunt and Enron treasurer Ben Glisan had invested around $6,000 apiece in LJM, one of the limited partnerships Enron had established to hide its debt. Within a few weeks, they each made approximately $1 million from those investments. Enron later revealed that Fastow himself, the financial wizard behind the partnerships scheme, earned as much as $30 million from his role in managing the partnerships.
Due to Enron's complex -- some think purposely confusing -- financial arrangements, those numbers could not be confirmed with documentation, though they were reported to Salon by the four current or former Enron executives. A congressional investigator also informed Salon that his committee has been given the same information and is currently trying to verify the charge.
What is clear is that Mordaunt and Glisan were key members of the team Fastow worked with to set up these questionable partnerships, and they appear to have benefited dramatically. "Mordaunt, for all practical purposes, was Fastow's lawyer at Enron" since she was "the top lawyer in his division," at the time, said one former Enron executive. After working for Fastow, Mordaunt later became chief counsel for a separate Enron division called EBS -- which itself was involved in highly questionable accounting activities.
Mordaunt could not be reached for comment by Salon, but according to a former Enron employee, "She has told people that she doesn't think she did anything wrong."
Glisan declined to comment. "I've been advised not to talk to anybody," he told Salon. Glisan referred calls to his attorney, Hank Schuelke, with the Washington, D.C., law firm Janis Schuelke & Wechsler. Asked about the allegation against Glisan, Bill Shields, an attorney with the firm, said only, "We're not going to have any comment."
So far, according to the congressional investigator, the world knows "just the tip of the iceberg" about what drove Enron, once the nation's seventh-largest company, into the biggest U.S. bankruptcy of all time, depriving investors and employees of at least $1 billion. Up to this point, most of the public's attention has been focused on Enron's political connections and the failure of Wall Street's so-called gatekeepers -- the analysts, banks, credit agencies and analysts -- to sound a warning bell. But the inside story of Enron's corporate culture -- as the company transformed itself from an energy trader whose business was rooted in the physical delivery of gas and electricity into a high-finance wheeler-dealer whose business was primarily manipulating numbers -- is just coming to light. This part of the story is about greed, betrayal and deception -- and its human costs, in broken friendships, ruined careers and worse.
The apparent suicide of former Enron vice chairman J. Clifford Baxter on Friday might be the most dramatic example so far of this human cost. But Enron's corporate ranks have been suffering many shocks since last fall -- and the revelation about Mordaunt and Glisan was one of them. Many executives were stunned to learn that these two trusted co-workers and friends had been raking in such extraordinary amounts of cash. Though Julia Murray declined to comment to Salon, her tearful reaction to the news about her friend Mordaunt last November indicate the deep emotional wounds inflicted by some of Enron's suddenly rich managers as they grabbed their cash and ran for the door.
"Did I feel betrayed? Yeah, a lot," said an Enron executive and friend of both Mordaunt and Glisan who would speak with Salon only on the condition of anonymity. "I was extremely surprised."
After the news about Mordaunt and Glisan broke inside the company, colleagues rushed to see who else might have been involved in the scandal. After Mordaunt was escorted out of the Enron building, said one executive, "I called a number of people I know who work in the finance division and said, 'Please tell me that you didn't invest in LJM!"
LJM along with LJM2 and Chewco have become the most notorious of the shady accounting partnerships set up by Enron. Set up, it is now believed, specifically to hide Enron debt from public scrutiny, the partnerships proved to be the catalyst for Enron's fall.
On Nov. 8, 2001, the same day the company announced that its financial statements from 1997 through the first half of 2001 "should not be relied upon," Enron filed an "8-K" form -- an interim document required for certain types of financial events -- with the Securities and Exchange Commission. In that form, <http://www.enron.com/corp/sec/> Enron disclosed that some of the "limited partners" in the partnerships "were, at the time of the investment, non-executive officers or employees of Enron." Enron also announced that it was "terminating the employment" of Glisan and Mordaunt for participating in the LJM partnerships.
"At the time these individuals invested in the limited partnership, LJM1 had ceased entering into new transactions with Enron," Enron's 8-K stated. "However, some pre-existing investments involving LJM1 and Enron were still in effect, and Enron believes that these investments resulted in distributions or payments to LJM1 and to the limited partnership in which these individuals invested."
According to the congressional investigator, Mordaunt reaped her LJM windfall after she was approached by an Enron executive, who asked her if she wanted to make some money. Yes, she said. "Give me a check for $6,000," he told her, according to the congressional investigator. Later, the executive asked Mordaunt for her bank account number so he could deposit the proceeds from her investment. "How much is it?" she asked. He told her to check her bank account the next day. When she did, she discovered over $1 million had been deposited into her account. The congressional committee is currently investigating the matter.
The Nov. 8 SEC filing also clarified Fastow's role in the company. He was no longer officially on a leave of absence. He "is no longer working for Enron," the filing stated.
At a November news conference, then-CEO Kenneth Lay reported that he knew about the partnerships but not about Mordaunt's and Glisan's role in them.
Asked last week about the allegations against Mordaunt and Glisan, Enron spokesman Mark Palmer said, "I have no idea." Palmer noted that a special committee had been appointed "to look into" such matters. "I know they're looking into everything surrounding those transactions," he said, referring to the partnerships.
Said another former Enron executive after hearing about Mordaunt's and Glisan's lucrative deals: "Hillary Clinton should have gone to their school of futures trading."
To many of their former colleagues, Mordaunt's and Glisan's closeness to Fastow's suspicious transactions makes things look even worse. "To many of us, this looks and smells like a bribe," said one Enron former employee. "'I' -- Fastow -- 'will give you money, you shut up.' Or put another way, 'Here is the payoff for helping me set up the structures that helped me rake in more than $30 million.'" The two weren't merely "Enron executives," the former employee says, "they were the treasurer and one of the top lawyers in the company. And both of them worked on LJM-related deals. That is what makes it sickening."
The accusations highlight the personal betrayal many Enron executives feel. After Mordaunt and Glisan were fired last November, their former colleagues spent much time trying to figure out how it all could have happened.
Mordaunt, according to a current Enron executive, "was very tight with Andy [Fastow]. Andy was responsible for making her managing director, and she would have done anything for him." Nonetheless, as a lawyer, Mordaunt should have known better, the executive said. "Given his connection with LJM, which was dicey at best and at worst probably illegal, I personally would have stayed far away from it. But you never know how Andy spun it to her."
After working as Fastow's top lawyer, Mordaunt later served as chief counsel for EBS, an Enron subsidiary set up specifically to handle another complex partnership, code-named Braveheart. In Braveheart, Enron sold 10 years' worth of future revenue from a broadband interactive television deal it was setting up with Blockbuster. Although the deal itself never went past the testing stage, Enron booked $110 million worth of revenue for selling off those future, never-to-be-realized earnings.
Glisan also played a key role in Fastow's division, a former Enron executive noted: "All the deals we did had to go through Glisan and get his approval because of the impact on funds flow." The former executive, like others affiliated with the firm, said that he once had a positive impression of Glisan and was surprised to learn that he had been an LJM investor.
To some current and former Enron executives, the transformation of respected managers like Mordaunt and Glisan represented a major shift in the company ethos. "In my opinion this all goes back to when Jeff Skilling took over and Enron ceased being an energy company and we became an earnings company," said one former executive, referring to Enron's metamorphosis into a company that focused more on highly complex financial-derivatives trading than on actual commodities.
In 1997, Skilling became the company's president and chief operating officer. Press accounts of Enron's rise traditionally gave him credit for Enron's increasing focus on complex financing schemes and risky leaps into such areas as bandwidth trading, an enterprise that ended up costing the company hundreds of millions of dollars.
Skilling was "all hype," the one-time executive says. "Everything he did was to hype the stock. And they had this need to create complex financial dealings to hide all the things going wrong.
"Once we became an earnings-focused company, that was the beginning of the end." The former executive said he's still unsure whether recently resigned CEO Lay knew everything that was going on. "But that doesn't excuse him. Captain Joe Hazelwood didn't know that the guy was going to run the Valdez into the reef. But he was Captain Hazelwood. It was his ship."
The company's business practices changed under Skilling, this former executive said. And so did the attitudes of managers like Mordaunt and Glisan -- and Lay, for that matter. Keeping the stock price up, at all costs, became the order of the day, even if that meant telling employees all was fine, when in fact the company's situation was rapidly deteriorating.
"[Lay] lied to us starting in August," said the former executive. "He lied to us." In August, Lay went before the company and announced that Skilling was resigning for personal reasons. In an all-employees meeting, Lay told a touching tale about why Skilling felt the need to leave the company.
Skilling, Lay said, had recently visited the Teesside Power Station, Enron's gas-fired power plant in northeast England, where an Aug. 8 explosion and fire had killed three Enron employees. "It shook him up so much he realized how much he had sacrificed with his own family," one executive recalled Lay saying. "And he wanted to spend more time with his kids." Lay then told the company more lies, according to the executive: that Enron had just enjoyed the best quarter in its history; that it was going to be more friendly to Wall Street; it was going to simplify its accounting practices; there were no other people other than Fastow involved in the shady partnerships.
"About two weeks later, the news came out about Ben Glisan and Kristina Mordaunt," recalled the executive. Soon afterward, the company was told that "we would have to restate our earnings for the past five years."
Then came the news that executives like Lay had been dumping their stock for years while simultaneously telling stockholders and employees that all was fine and the stock would soon bounce back. In hindsight, few Enron executives believe that Skilling's departure had anything to do with the Teesside Power Station tragedy.
"Lay got in front of the entire company and just lied," said the executive, who has lost his life savings. "I feel like a schmuck."

salon.com
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A Section
Enron Directors Backed Moving Debt Off Books
Kathleen Day and Peter Behr
Washington Post Staff Writers

01/31/2002
The Washington Post
FINAL
A01
Copyright 2002, The Washington Post Co. All Rights Reserved

Members of Enron Corp.'s board of directors received detailed briefings as early as four years ago about the purpose and structure of controversial partnerships whose losses triggered the company's fall into bankruptcy, according to minutes of the meetings.
The minutes, which cover four board meetings in 1997 and 1999 and three meetings of the board's finance committee in 2000, suggest that board members approved aggressive accounting actions, including moving debt off the company books.
A dozen congressional committees as well as the Justice Department and the Securities and Exchange Commission are investigating Enron's collapse, which cost investors and employees billions of dollars. A focus of the inquiries is whether Enron hid debt and inflated its profits by using the private partnerships run by its chief financial officer.
In other Enron-related news yesterday, the General Accounting Office announced that it would sue the White House for access to records of Vice President Cheney's meetings with Enron and other industry interests that sought to influence the administration's energy policy last year. And Stephen Cooper, the interim head of Enron, said he was optimistic the company could survive, though in a much diminished form.
Individual Enron board members, who themselves are being sued and investigated, have said little publicly about their role in the transactions that toppled the company. The minutes, made available to The Washington Post by a source critical of the board, suggest that the partnerships were a key part of Enron's growth strategy and show they were regularly reviewed by the directors.
The copies of the minutes do not cover every board meeting and do not include documents that are referred to as being attached to the summaries of the board's actions.
When it was reported last fall that Andrew Fastow, the Enron CFO, made $30 million running partnerships with names such as LJM, Raptor and JEDI, then-chairman Kenneth L. Lay announced that the board was setting up a special committee to investigate. The minutes show that members of that special committee attended board meetings in which Fastow described the intricacy of the entities.
Sources said the committee's report, which is expected to be completed as early as tomorrow, will say that while the Enron board approved the partnerships, management and auditors withheld key information from them. That is expected to be the key element of the defense that will be offered by Lay and board member William C. Powers Jr. when they testify before Congress on Monday, sources said. Last night, Robert Bennett, a Washington lawyer representing Enron, gave every indication that would be the case.
"While the board of directors, including Mr. Lay, were aware that these special partnership entities were being set up, which were being run by Mr. Fastow, there is a great deal of information regarding their operation and execution that was unknown to the board of directors," Bennett said.
At an Oct. 11, 1999, board meeting, Fastow discussed the company's mix of "on-balance and off-balance sheet debt," according to the minutes. At another meeting on May 1, 2000, Fastow told board members about the risk of "accounting scrutiny" on the Raptor partnership.
A board resolution in October 1999 said one purpose of the LJM2 partnership was to create "a potential ready purchaser of the company's businesses and assets." A chart labeled "LJM2 Update," attached to the agenda for a May 2000 finance committee meeting, said the partnership had made seven investments, all purchased from Enron.
Enron has disclosed that the board waived the company's conflict-of-interest rules to let Fastow oversee the partnerships.
The board's special committee hired William R. McLucas, former head of enforcement at the SEC, to do the investigation and write a report for the committee. The report is expected to be released before Lay, who resigned last week, and board member Powers, who is also dean of the University of Texas law school, testify before Congress on Monday.
Until now, Congress has focused on the role Enron's outside auditor, Arthur Andersen, played in the company's collapse and the reported destruction by Andersen executives of Enron-related documents. Monday's hearings are expected to zero in on the behavior of Enron officials, including the board.
The outside directors are expected, as part of their defense, to push the focus back on Andersen, sources say. They will point, for example, to portions of board minutes that say Andersen "had spent considerable time analyzing . . . the governance structure" of one of the partnerships, LJM2, and "was comfortable with the proposed transaction."
Minutes from October 1999 and October 2000 say the board ordered several safeguards be implemented to maintain control of the partnerships. One was allowing Lay or the board to remove Fastow from one partnership, LJM, at any time. Another was directing then-Enron chief executive Jeffrey K. Skilling and others to review all transactions between Enron and LJM. And Skilling was to review Fastow's "economic interest" in the partnership.
Bennett said, "We have learned that many of the procedures that were put into place to ensure the appropriate operation of these entities were not complied with, without the knowledge of the board."
Patrick McGurn of Institutional Shareholder Services Inc. of Rockville, which advises large shareholders on corporate-governance issues, said last night that the minutes seem to provide more evidence that board members were fully informed of the company's aggressive financial strategies.
"If that's not the case, the directors better start talking and start talking now. Every step along the way it seems this board had the opportunity to say no to the partnerships, to the waiver of the ethics code, and each time they had an opportunity to take the right fork in the road, they took the wrong fork."
The Oct. 12, 1999, minutes show that outside director Herbert Winokur -- now a member of the board's special investigating committee -- recommended that the board approve Fastow's participation in the LJM2 partnership.
McGurn said, "The first principle of an investigation is that the people who presumably might be held responsible at the end of the day can't investigate themselves."
The other two members of the special committee -- Powers and Raymond S. Troubh, a New York consultant -- had no involvement with the company when the formation of the off-balance-sheet entities took place, sources close to the company said.
W. Neil Eggleston, an attorney for the outside directors of the board, said Winokur has no conflict of interest in serving on that special committee, despite his role in approving the partnership deals. "It was important for the special committee to render its report quickly and Mr. Winokur's participation provided continuity and speed to the special committee's efforts," Eggleston said.
The board minutes show that as early as Dec. 9, 1997, Enron's executive committee approved a buyout -- that included a corporate guarantee of $633 million -- of the interest of the California public employees pension fund in the JEDI partnership.
At an Aug. 7, 2000, meeting of the finance committee, chaired by Winokur, the off-balance-sheet partnerships are described as "the vehicles the company was utilizing to manage its balance sheet debt." Directors Wendy Gramm and Lay were among other board members that also attended the meeting.
At a special board meeting on June 28, 1999, Lay called on Skilling to discuss a proposed investment partnership. "Mr. Skilling noted that due to changes in the accounting treatment of off-balance-sheet transactions, the company had been analyzing new types of financing vehicles. He called on Mr. Fastow to discuss the proposal."
Skilling resigned suddenly in August. Fastow was ousted in October.
The LJM partnerships were specifically cited by the company last fall when it admitted violating some accounting standards, resulting in a $586 million overstatement of its profits between 1997 and 2001.
The excerpts that became available yesterday give no hint that board members had questions or qualms about the accounting maneuvers, with the exception of Fastow's dual role as Enron's chief financial officer and LJM's manager.
Staff writers David Hilzenrath, Albert B. Crenshaw and Carrie Johnson contributed to this report. Peter Behr reported from Houston.

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

Concerned ex-worker was sent to human resources
House panel asks Lay to explain what happened to memo from former energy services manager
By JULIE MASON
Copyright 2002 Houston Chronicle Washington Bureau
Jan. 30, 2002, 10:04PM
WASHINGTON -- A one-time Enron Corp. manager who warned Chairman Ken Lay in August about questionable accounting practices was sent to human resources for a talk about employee morale, her attorney said Wednesday.
House investigators demand Lay explain Enron's response to allegations raised in an Aug. 28 e-mail by Margaret Ceconi, who had lost her job with Enron Energy Services just over three weeks earlier.
"Ms. Ceconi included her home phone number in the e-mail and offered to speak to board members," lawmakers from the House Energy and Commerce Committee said in a letter to Lay. "We are very interested in learning what happened to Ms. Ceconi's e-mail after you received it, and how Enron responded to it."
An Enron spokesman did not return a call for comment.
A key issue for investigators probing the collapse of Enron is at what point executives at the company became aware of financial problems and how those problems were addressed.
Ceconi on Aug. 28 wrote a five-page memo to Lay, stating that losses in Enron Energy Services, or EES, were being moved to another sector of Enron to make EES appear profitable.
According to Ceconi, the losses were hidden in Enron Wholesale Services, the company's highly profitable and well-established trading arm.
"Some would say the house of cards are falling," Ceconi said in her memo to Lay.
Demetrios Anaipakos, Ceconi's Houston attorney, said Lay never met with Ceconi to discuss her concerns, and she was instead referred to human resources.
"During that meeting, the primary discussion was focused on concerns over employee morale at Enron," Anaipakos said.
Ceconi's memo, which was copied to a manager in human resources, detailed morale problems and related issues at EES.
Ceconi was told her accounting allegations would be taken seriously and investigated by Enron, but she never heard back, according to her lawyer.
"Ms. Ceconi firmly believes the allegations she raised in her memo merited response from the company, and she didn't get one," Anaipakos said.
The House Energy and Commerce Committee sent Lay 10 questions pertaining to Ceconi's memo and the company's response. Lay has until Feb. 12 to respond.
Questions posed to Lay in a letter signed by Rep. W.J. "Billy" Tauzin, R-La., committee chairman, and other members seek details on how the memo was distributed and whether Ceconi's allegations were investigated.
The Ceconi memo was dated two weeks after Sherron Watkins, also a former Enron executive, wrote to Lay her concerns about accounting problems and a possible "wave of accounting scandals" at Enron.
In response, Enron officials sought a limited outside review of Watkins' allegations by the law firm of Vinson & Elkins.
The lawyers' report concluded that Watkins' concerns did not warrant an in-depth investigation.
Ceconi's memo, also copied to the board, included a litany of personal criticisms of Enron management and even some jabs at Lay.
The somewhat disorganized memo is at times angry and confrontational.
In it, Ceconi complains that one supervisor "had the coffee machines taken off the floors because it was too expensive. Maybe if you got rid of the company jets you could afford coffee."
Ceconi also complained in it that she had been heavily recruited to move to Houston from Dallas and still hadn't been reimbursed for all her moving expenses.
When the memo surfaced last week, a spokesman for Enron characterized it as the work of a disgruntled employee.
Ceconi also expressed specific concerns about possible malfeasance in EES accounting.
EES was formed to help companies manage and reduce energy costs. By securing fixed prices through long-term contracts, EES helped customers maintain predictable supplies at stable costs. It also provided energy audits and helped companies improve energy efficiency.
The division didn't begin to report profits until late in 2000, but then revenues steadily improved.
In the first quarter of 2001, it reported profits of $40 million. In the second quarter, $60 million in profit was reported on more than $7 billion in contracts.
The division's Dec. 2 bankruptcy filing lists $2.5 billion in assets, mainly its contracts with companies and organizations, and $2.1 billion in debts.
Lay is expected to testify Monday before a Senate committee probing Enron, one of at least 10 congressional investigations under way into the collapse of Enron.
The Labor Department and Securities and Exchange Commission also are investigating Enron, and the Justice Department is conducting a criminal probe.
A central point of inquiry is how Enron was able to shield its debt and appear more profitable than it was.
The company, formerly the nation's seventh-largest, on Dec. 2 filed the largest corporate bankruptcy in history.

Business
2nd Enron warning disclosed ; Manager wrote to board about losses, practices
Stephen J Hedges and Melita Marie Garza, Tribune staff writers

01/31/2002
Chicago Tribune
North Final ; N
1
(Copyright 2002 by the Chicago Tribune)

An internal Enron Corp. e-mail sent from a midlevel manager to the company's board of directors warned last August of hidden losses totaling more than $500 million or more, false accounting practices and flagrant mismanagement within the doomed energy company's upper ranks.
The e-mail was sent to Enron's board of directors by Margaret Ceconi, a laid-off manager for Enron Energy Services. It is the second in-house correspondence in which an employee made specific allegations of possible illegal activity in the months leading up to Enron's failure.
The company, burdened by off-balance-sheet transactions that hid millions of dollars of debt, filed for bankruptcy Dec. 2, leaving thousands of employees and shareholders in the lurch. Top executives, though, cashed in hundreds of millions of dollars in stock they held in the months leading up to Enron's collapse.
In her Aug. 29 e-mail, Ceconi warned Enron's directors, "Some would say the house of cards are falling. You are potentially facing shareholder lawsuits, employee lawsuits, heat from analysts and newspapers. The market has lost all confidence, and it's obvious why."
The House Energy and Commerce Committee, which is investigating Enron's failure and the role of its accountant, Chicago-based Andersen, released Ceconi's letter Wednesday.
Peggy Mahoney, an Enron Energy Services spokeswoman, would say only that Ceconi's letter "is not based on the facts."
Enron Energy Services, a free-standing Enron unit, offered long- term energy contracts to more than 28,500 commercial and industrial customers.
The unit pioneered corporate energy outsourcing, a service that includes negotiating a company's electricity and gas contracts in regulated and deregulated markets, paying company energy bills, and installing energy-efficient ventilation, heating and cooling systems.
Enron Energy Services' clients included major grocery store chains and retailers such as J.C. Penney Co. and Saks Inc. Chicago customers included Quaker Oats Co. and the Archdiocese of Chicago.
Stephanie Brown, a J.C. Penney spokeswoman, said that the retail chain had saved money with its energy services contract in 2001 and had been prepared to keep it. But Enron Energy Services, one of Enron's many bankrupt units, moved to terminate the contract earlier this week.
In her e-mail, Ceconi said Enron Energy Services had lost $60 million on the J.C. Penney contract alone.
"From our perspective, the Enron Energy Services' deals seemed too good to be true," said Craig Sieben, chief executive of Sieben Energy Associates, a Chicago-based energy management consulting firm. "The professional salespeople presenting the deals seemed messianic in their beliefs, but could not explain how Enron was making money, except to say, `Trust us.'
"It was a deal-oriented culture, with the salespeople making big bonuses when they closed sales. Servicing the deals and executing the contract successfully got short shrift."
Many promises made
In fact, Ceconi's e-mail accused Enron Energy Services of promising more than it could deliver, a method of operating that angered clients such as Starwood Hotels & Resorts Worldwide Inc., which signed a 10-year energy management agreement with Enron Energy Services in September 2000.
Starwood had set aside $45 million to invest in energy-saving technology. But Enron did not deploy the capital, much to Starwood's chagrin, said Sieben, a consultant to Starwood on the deal.
"We always knew that the salespeople did not understand the energy business, and that scared us," Sieben said. "The focus was on get the business."
Ceconi said losses reached at least $500 million, and perhaps $1 billion, all of it hidden when the division's "risk group" merged with its "wholesale group."
"You should check on the Safeway contract, Albertson's, IBM and the California contracts that are being renegotiated," she wrote to the board. "It will add up to over $500MM that EES is losing and trying to hide in Wholesale. Rumor on the 7th floor is that it is closer to $1 Billion."
Ceconi noted that Enron Energy Services, to "everyone's amazement, reported earnings" for the second quarter. She then noted that the company "has knowingly mispresented EES' earnings," in violation of Financial Accounting Standards Rule 131.
"This is common knowledge among all the EES employees, and is actually joked about," her e-mail states. "But it should be taken seriously."
Market analysts, including Carol Coale of Prudential Securities Research, "are continuing to push this issue very hard," Ceconi warned.
Company would not talk
In an interview Wednesday, Coale said she had suspected that Enron was concealing losses. But the company would not confirm those suspicions, and its customers refused to discuss their contracts.
"Houston is a small big town," Coale said. "We had heard about that, that kind of information was being talked about in the marketplace. But Enron said, `No.'"
Coale said Ceconi later contacted her, and on Nov. 4 provided her with a copy of the e-mail.
By then, though, Enron was struggling to stay afloat.
Ceconi sent her warning to the board shortly after Jeffrey Skilling abruptly ended his brief stint as Enron's chief executive.
"One can only surmise that the removal of Jeff Skilling was an action taken by the board to correct the wrongdoings of the various management teams at Enron," Ceconi wrote. "However, based on my experience at this company, I'm sure that board has only scratched the surface of the impending problems that plague Enron at the moment (i.e. EES's management's incapability's of strategic planning, hiding losses/SEC violations, fraudulent recruiting practices, lack of product, etc)."

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

Enron's Acting CEO Says Energy Trader Can Be Salvaged
By Rebecca Smith
Staff Reporter of The Wall Street Journal

01/31/2002
The Wall Street Journal
A8
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Enron Corp.'s acting chief executive said he believes that the troubled energy company is salvageable, and he pledged to move "at light speed" to get it out of bankruptcy court.
Yet the surviving corporation that he described -- one "dedicated to movement of natural gas and generation of electricity" -- would be tiny, even when compared with the Enron of a decade ago. In fact, it would resemble the very thing that Enron has disparaged in recent years: a utility.
In a conference call with reporters yesterday, acting CEO Stephen Cooper said his primary motivation is to maximize value for creditors and "preserve as many jobs as possible. . . . There are a lot of people here that deserve our best shot at reorganizing this company."
Mr. Cooper, a restructuring expert whose 20-year-old firm, Zolfo Cooper, has presided over many of the nation's biggest bankruptcies, was named to the Enron job on Tuesday. He succeeds Kenneth Lay, who resigned last week. Houston-based Enron continues to search for a new chairman, a position also formerly held by Mr. Lay.
Asked about the questionable off-balance-sheet transactions and accounting practices that sank Enron, Mr. Cooper declined to comment. "Not only do I not know" what brought the company down, he said, "but it's literally of no interest to me."
Nor would Mr. Cooper speculate about the prospects for liquidation. When you "liquidate in a situation like this," he said, "you have the patina of distress" that pulls down the prices that assets might otherwise fetch.
Mr. Cooper did acknowledge that the company's creditors, in the end, are likely to be treated disparately because of the "extensive nature of the legal entities in the Enron universe." In other words, Enron pledged so many assets to so many different companies, especially as it created a web of off-balance-sheet partnerships, many creditors may find there isn't enough left to meet their claims.
If it does emerge from bankruptcy proceedings, Enron is likely to be a fraction of its former size. Mr. Cooper said he envisions a company "based on hard assets with predictable revenues and cash flow." That is precisely the business model that, until recently, Enron rejected as old-fashioned as it pushed into a world of "virtual assets," anchored by a massive energy-trading operation. Meanwhile, Enron this month lost its biggest and most profitable hard asset -- the Northern Natural Gas Pipeline -- as a condition of its failed merger agreement with rival Dynegy Inc.
Turning to another matter, Mr. Cooper said he expects the results of a special internal investigation, launched as the company slid toward bankruptcy late last year, to be released in coming days. He said senior executives would take "whatever actions are appropriate" in consultation with the creditors' committee to respond to the report's findings. The investigation has been conducted with assistance from William McLucas, former enforcement chief at the Securities and Exchange Commission, and accountants from Deloitte & Touche LLP. Mr. McLucas is now an attorney with the firm Wilmer Cutler Pickering in Washington.
Also yesterday, Enron President Jeff McMahon said the company is continuing to interview accounting firms, looking for a replacement for Arthur Andersen LLP.

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

Cooper hits ground running
By TOM FOWLER
Copyright 2002 Houston Chronicle
Jan. 31, 2002, 10:18AM
Enron's new chief executive officer said he has no interest in finding out who's to blame for what went wrong at the energy giant, but will instead focus on revitalizing the business and preserving jobs.
Stephen Cooper, who was named interim CEO and chief restructuring officer on Tuesday, told reporters in a conference call he plans to rebuild the company around a number of international and domestic power plants and natural gas facilities, operations that will have predictable revenues and cash flow.
Most of the company's trading operations are being sold to Swiss bank UBS Warburg, while other long-term service contracts the company has under divisions such as Enron Energy services will also be sold or unwound.
Cooper, a bankruptcy recovery specialist who has helped companies such as Federated Department Stores and Laidlaw, the owner of Greyhound Lines, dig themselves out of trouble, said his job will not to be to investigate the company's past.
"The good news is not only do I not know what went wrong, it is literally of no interest to me," Cooper said. "I'm not going to spend my time looking in the rearview mirror, because there are a lot of people here who deserve our best shot of preserving this company."
In addition to the 10 congressional investigations and other government agency probes into Enron, a special committee of Enron's board of directors is expected to issue the results of its own investigation within the next week. Appropriate disciplinary actions will be taken against employees if necessary, Cooper said, but he didn't know the full extent of those actions.
Cooper seemed to waste little time in getting to work at Enron. He had met with the Enron board of directors even before being named to the job this week and canceled a Wednesday morning conference call with reporters because of another internal meeting that was running long.
"He's jumped right into the reorganization," said Enron lawyer Brian S. Rosen in New York. "He's already working on a plan."
That quick start is what's needed if Enron is to meet an early April deadline to present federal bankruptcy Judge Arthur Gonzalez with a reorganization plan. Companies have 120 days from the date of a bankruptcy filing to submit a reorganization plan, leaving Enron with about 60 days.
Rosen said it's too early determine whether the company will seek an extension from Gonzalez, but they are commonly granted in complicated bankruptcy cases.
Cooper said the restructuring will move "at light speed," as he plans to spend the first month assessing the company's assets, debts and liabilities. He estimates that the company owes unsecured creditors about $30 billion and secured creditors around $10 billion.
The company will continue to sell off hard assets around the world and divest itself of all operations related to trading, Cooper said, leaving a business that is much smaller yet more stable.
"One of the beauties" of Chapter 11 bankruptcy "is at the end of the day we'll be able to compress our debt against the total economic value of the remaining company," Cooper said. "This will give us the opportunity to put the company back in equilibrium with its capital structure."
Enron is trying to protect some of the gains it may have made on trading contracts, but creditors would have to approve such a move, Cooper said.
Enron can expect some cash to pay off creditors from selling some of its $7.5 billion in international assets it reportedly had as of late last year, including power plants, pipelines and other operations in more than a dozen countries.
Enron has buyers lined up for many of those assets, most recently signing a deal Tuesday with Sempra Energy Trading to sell its London-based metal trading business, Enron Metals Group, for $145 million.
Other assets for sale include: Wessex Water, a U.K.-based water and wastewater utility, which could sell for as much as $1.5 billion, about $700 million shy of how much Enron paid for it in 1997; Enron's 43 percent ownership stake in the Teeside power plant in England, which could get between $200 million and $300 million; and its majority stake in the $2.9 billion, 2,184-megawatt Dabhol power plant project and Enron Oil & Gas India Ltd.
The company is also searching for an auditor to replace accounting firm Arthur Andersen, said Enron Chief Operating Officer Jeff McMahon. Andersen, the firm that has worked with Enron for more than a decade and has given the company the stamp of approval on dozens of questionable off-balance-sheet partnerships, stopped working with Enron last week.
"We're in the process of talking to other accounting firms to determine where there are conflicts of interest," McMahon said.
Chronicle reporter Eric Berger contributed to this story.

Business/Financial Desk; Section C
ENRON'S MANY STRANDS: THE CHIEF EXECUTIVE
A Strategy Of Returning To the Roots In Energy
By NEELA BANERJEE

01/31/2002
The New York Times
Page 6, Column 6
c. 2002 New York Times Company

HOUSTON, Jan. 30 -- To survive bankruptcy, the Enron Corporation plans to return to its roots, mainly by concentrating on a small collection of hard assets like natural gas pipelines and power plants, Stephen F. Cooper, the company's interim chief executive, said today.
Despite a widespread belief among industry analysts that Enron should be liquidated because so little of value remains, Mr. Cooper argued that creditors, employees and others would benefit more by slimming the company rather than shutting it down. He said the new senior management team at Enron would spend the next month sorting out which businesses might prove the most viable parts in a reorganized company.
But the group seems to have already decided that the core of a new Enron would be what the company had been before it developed its aggressive and varied trading operations: a transporter of natural gas.
''We will certainly be a smaller company,'' Mr. Cooper said during a conference call with reporters today. ''We will be a company based on hard assets and very predictable revenues.''
Enron's creditors have said they want to extract the maximum value from the company's assets through the bankruptcy process. Mr. Cooper appeared to be endorsing the view of company insiders that while some assets should be sold to pay debts, reorganizing Enron and giving creditors equity in the new company would be the best way to answer those demands.
''When you liquidate in a situation like this, you have the patina of distress,'' Mr. Cooper said. ''People try to put you over a barrel. They do put you over a barrel, and the size of that barrel runs from a normal wine cask up to the giant-sized cask that you have for brandy.''
Mr. Cooper, a managing partner at the New York firm of Zolfo Cooper, which specializes in salvaging bankrupt companies, was only appointed on Tuesday, endorsed by the main creditors committee and Enron's board. He said the company would conduct the reorganization at ''light speed,'' but he declined to provide a timetable and few specifics.
Despite the intense scrutiny and investigations that have buffeted Enron, he said, the company still had a solid customer base for its business of providing gas and electricity. That, in turn, gives Enron some crucial cash flow for the revamping process.
Mr. Cooper also said that a report of the results of the internal investigation into the past financial practices that led to Enron's collapse, led by the dean of the University of Texas School of Law, William Powers Jr., would be issued some time in the next three to six days.
The company had said previously that it would make its findings known by next Monday, when the former chairman and chief executive, Kenneth L. Lay, was scheduled to testify before Congress.
Mr. Cooper said that Enron officials would only decide upon disciplinary action once they had reviewed the investigation's findings.
''There will be no secrets here,'' he said.
The new vision Mr. Cooper offered for Enron is a tacit, and perhaps unintentional, rebuke of the strategy the company followed throughout much of the 1990's as it transformed itself into the leading energy trader around the world. Mr. Lay and his protege, Jeffrey K. Skilling, fashioned a company they trumpeted as light on assets like pipelines and power plants. This ''virtual'' company, they said, would make its money from being smarter and quicker off the mark than the competition. The company focused on the fast-moving world of trading the many things it approached as commodities, from traditional products like gas and power to the innovative arcana of water and weather derivatives.
But Mr. Cooper emphatically refused to speculate on what brought Enron down.
''It's literally of no interest to me,'' he said. ''I'm not going to spend time here looking in the rear-view mirror.''

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

Enron Interim CEO: More Value From Restructuring Assets
By Christina Cheddar

01/31/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Enron Corp.'s (ENRNQ) newly appointed interim chief executive, Stephen Cooper, said he believes Enron can be restructured as a natural gas pipeline and power distribution company.
"I don't see this as a liquidation," Cooper said, addressing the media in a conference call held late Wednesday.
Cooper, a restructuring expert who heads consulting firm Zolfo Cooper LLC in New York, replaced Kenneth Lay, who resigned last week under pressure from the bankrupt company's creditors committee.
Cooper is charged with restructuring a company that has already shed what was once its core business. Enron sold its energy trading and marketing business, which once accounted for 90% of its $100 billion in revenue in 2000, to Swiss bank UBS AG (UBS). The sale leaves behind a portfolio of gas pipelines and power plants.
"My view ... is in a successful restructuring you deliver more value to your economic stakeholders," Cooper said, "Regardless of how effectively you run a liquidation, that liquidation has ... a patina of distress."
The executive was joined on the call by other members from the newly created office of the chief executive, President and Chief Operating Officer Jeff McMahon and Chief Financial Officer Ray Bowen.
Since the start of Enron's financial crisis, both McMahon and Bowen have vaulted up the ranks at the Houston company. The two were promoted Tuesday to the positions they currently hold. McMahon previously was Enron's chief financial officer, while Bowen was treasurer.
Enron is still looking for a new chairman to replace the post left vacant by Lay's departure. Lay remains on Enron's board.
According to Cooper, Enron has $40 billion in total debt, but of the total $10 billion is nonrecourse, project debt. That leaves $30 billion in debt that is owed to unsecured creditors, according to the executive.
On the matter of Enron's past missteps, Enron's Cooper was very clear.
"It's literally not of interest to me. ... I will spend little to zero of my time worried about the past...I frankly don't care," he said.
In the 30-minute call, company officials declined to answer questions not related to restructuring.
Enron still employs some 19,000 people. Cooper said he hopes to be able to save as many jobs as possible.
Cooper will begin to assess which assets will become Enron's ongoing business, and since the company no longer has trading operations, that business will provide Enron with a new identity. Then, employees will be assigned to the ongoing operations.
Cooper also plans to consider assets for sale. This process had already begun under the company's previous management.
To date, Enron has agreed to sell a variety of assets, including $520 million in long-term contracts, and its London-based metals trading business to Sempra Energy Trading, a unit of San Diego-based Sempra Energy (SRE) for $145 million.
Prior to the bankruptcy filing, Enron was in the process of selling Oregon utility Portland General Electric to Northwest Natural Gas Co. (NWN) for about $3 billion.
Following the break-up of its merger with Dynegy Inc. (DYN), Enron had to cede control of its Northwest Natural Gas pipeline to Dynegy Inc. (DYN), but it does have an option to repurchase the asset.
With these divestitures, both completed and in progress, Cooper admitted Enron would be a "substantially smaller enterprise."
-By Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina.cheddar@dowjones.com

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

Enron's new turnaround specialist discusses strategy for bringing firm back from bankruptcy
By KRISTEN HAYS
Associated Press Writer

01/31/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

HOUSTON (AP) - The man tapped to lead Enron Corp. out of the biggest bankruptcy in history said he won't be distracted by the myriad of investigations into the company's collapse.
Stephen Cooper, Enron's new interim chief executive and chief restructuring officer, said Wednesday during his second day on the job that he was focused on Enron's future, not its past, and planned to move forward "at light speed" in reorganizing what's left of the company.
Cooper said in a conference call with reporters that he was certain Enron could be saved even as rival Dynegy Inc. prepares to acquire one of its most prized assets, the 16,500-mile (26,550-kilometer) Northern Natural Gas Pipeline, by Friday. Enron also is transferring its once-envied trading operation to Swiss investment bank UBS Warburg.
He said Enron will be left with all or part ownership of three smaller pipelines and officials are reviewing whether other businesses can be preserved or should be sold to help pay creditors.
Cooper said Enron's businesses and customer base remain adequate for the company to someday emerge from Chapter 11 bankruptcy, although smaller and without its once-flagship trading venture.
Chapter 11 bankruptcy frees a company from the threat of creditors' lawsuits while it reorganizes its finances. The debtor usually retains control of the business and its assets.
"We will be substantially smaller from a revenue perspective, but we will be a substantial entity in the context of the movement of natural gas and liquids to our pipelines," he said.
Enron filed for bankruptcy on Dec. 2. More than 5,000 employees were laid off, and most lost retirement nest eggs that were loaded with company stock.
Enron crashed amid revelations of questionable accounting practices. Earnings were restated, eliminating millions in profits since 1997. The value of shares plummeted to less than a dollar from roughly dlrs 80 a year ago.
Cooper, 55, is a managing principal of Zolfo Cooper, a New York-based reorganization adviser. The firm's past clients include Trans World Airlines, Polaroid Corp. and retailer Liberty House.
Cooper succeeds Kenneth Lay, former chairman and CEO, who resigned last week. Lay said the numerous investigations into Enron's swift collapse were preventing him from running the company efficiently.
Cooper refused to say how many additional job cuts were planned, saying the ultimate goal "is to preserve as many jobs as possible within the context of the reorganized entity. It is going to take some time to sort that out."
In the end, he said the new Enron will be much like the natural gas pipeline company formed in 1985 with the merger of Houston Natural Gas and Omaha, Neb.-based InterNorth.
After Enron was formed, the company increasingly took on new ventures. It started trading energy and created markets for other commodities, such as pulp, paper, bandwidth and weather futures.
Anthony Sabino, an associate professor of law who specializes in bankruptcy and oil, gas and energy issues at St. John's University, said those innovations could be Enron's undoing.
"They were playing with dynamite and it blew up in their faces," he said. "No doubt, if Enron is to survive it will be as a mere shadow of itself and staying away from things that got it into trouble in the first place."
---
On the Net:
http://www.enron.com

AP Photo NY120 of Jan. 29
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

City - Enron dogged by talk of price manipulation.
By Simon English.

01/31/2002
The Daily Telegraph
P30
(c) Telegraph Group Limited, London, 2002

in New York
ENRON is facing a fresh investigation into allegations it manipulated electricity prices in California at the height of America's power crisis last year.
The latest blow to the crippled energy trader sees watchdogs join politicians in demanding a full inquiry.
Nora Brownell of the Federal Energy Regulatory Commission said: "If there was market manipulation, we need to find it and we need to deal with it."
Enron denies suggestions it was profiteering by inflating the cost of supplying electricity to power companies last year. Data presented to senators shows that wholesale power prices fell by a third on December 3, the day after Enron filed for bankruptcy.
As embarrassment mounts daily for directors of Enron, it emerged that a member of staff asked the disgraced chairman Kenneth Lay, who quit last week, if he was smoking crack.
At a videoed staff meeting on October 23, the day after the company reported losses of more than $600m, one furious employee asked in a written question read out by Mr Lay: "I would like to know if you are on crack. If so that would explain a lot."
To laughter, Mr Lay said: "I think that's probably not a very happy employee" and went on to pledge that the company share price would bounce back.
"I ask you to recommit to the company and do the very best job you can. We will come through this stronger," he told thousands of staff.
The latest development on the allegations of document destruction that hound both Enron and auditors Andersen saw the company admit it was employing a commercial shredding firm until mid-January. It was destroying old payroll and medical records not connected to any congressional or criminal investigations, said Enron.
James Greenwood, the chairman of one of the congressional inquiries, was aghast. "It is stunning that this company would get anywhere near a shredder without at least seeking the permission of the Justice Department," he said.

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

Andersen CEO: Significant Information Not Made Available

01/31/2002
Dow Jones Energy Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

NEW YORK -(Dow Jones)- Arthur Andersen (X.AND) still doesn't have all the answers on what with wrong during the final days before energy giant Enron (ENRNQ) declared bankruptcy, Chief Executive Officer Joe Berardino said Thursday on Good Morning America.
"Very significant information was not made available to our people," he said.
When asked about its role in Enron's demise, Berardino said that Andersen was only the auditor for Enron, not running it. Andersen didn't make judgments on what investments to make and not to make; Andersen was there to help a company report its financial results, he said.
Berardino said that all during 2001, Enron's stock was going down even before the accounting issues became known.
Andersen is still investigating who did what, the CEO said on the television program. He said the only wrongdoing it knows of for certain was that by David Duncan, Andersen's lead auditor on the Enron account, who was fired by Andersen.
"When we get to the bottom of this. We will be forthcoming, as we have been from day one," Berardino said. The company will deal with any misbehavior or bad judgments that it comes across, such as shredding documents or misleading others and he said Andersen will report its findings.
"We will get through this," he said, referring to Arthur Andersen.
After the current Enron situation is over, "People will get to know the real Arthur Andersen," he said.

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

Business
Techlife
Evidence likely lingers amid high-tech shreds
Barbara Rose

01/31/2002
Chicago Tribune
North Final ; N
1
(Copyright 2002 by the Chicago Tribune)

It's been two weeks since the Andersen accounting firm fired David Duncan, the man being blamed for its Enron document-shredding orgy.
Duncan, who was Andersen's lead partner on the Enron account, is the guy Andersen says led a team in destroying "a very substantial volume of documents and e-mails" relating to Enron.
According to Andersen's testimony to a U.S. House committee, Duncan's team started destroying files on Oct. 23--six days after federal securities officials contacted Enron.
They kept at it until about Nov. 9, one day after the feds subpoenaed Enron's Chicago-based auditor.
Now a large part of the urgent quest to find out who at Enron and Andersen knew what, and when--and what they did about it--depends on the success of computer forensics experts who are poking into Andersen's electronic nooks and crannies.
The effort is the latest high-stakes drama in a computer forensics industry that got its start in 1986 during the Iran-Contra controversy, Tribune computer columnist James Coates reminds us. Then, FBI investigators used back-up tapes of e-mail to reconstruct about 5,000 messages shredded electronically by a computer-savvy Oliver North.
In Andersen's case, forensics experts not only will try to restore deleted files and e-mail--a relatively easy task unless Duncan's team used sophisticated shredder software to overwrite the files many times.
They're also looking to document any changes Andersen's audit team made to files that weren't destroyed.
To hear some computer experts tell it, the recovery task is a walk in a Windows park.
Corporate e-document trails are simply too rich, and the documents too broadly distributed, to completely escape recovery.
These experts say the chances that Duncan's team used shredding software are slim. "Probably 1 percent of companies use file- shredding programs" when disposing of documents, said Joan Feldman, founder and president of Seattle-based Computer Forensics Inc.
Even when hard drives are wiped clean, Feldman says, digital data is recorded in myriad places: on back-up tapes in data centers, on laptops and digital assistants, even fax machines and telephone systems.
Deleted e-mail is even easier to recover, these experts say. Even after being trashed from mailboxes, it lingers on file servers that are programmed to archive e-mail and keep it for weeks or months.
"Maybe the lead players go through their own hard drives hammer and tong," Feldman says. "But there might be a secretary who didn't get the word she was supposed to destroy things. A lot is left behind on file servers."
Still, the lawyers representing shareholders who lost billions in Enron's meltdown aren't nearly as optimistic.
They note that months went by between when the files were deleted and when Andersen started its recovery process.
Attorneys were allowed Wednesday to take a first-hand look at the initial stages of the data-recovery effort--a visit to a secure, 6- foot by 6-foot room in a downtown Chicago office building, stacked with computer gear collected from Andersen's local office. It's a room crammed with laptops, file servers, back-up tapes and more.
All the gear will be shipped to Houston, where Andersen has a much larger collection area. The equipment will be scoured by a forensics firm that Andersen hired, ASR Data Acquisition & Analysis of Cedar Park, Texas.
ASR's founder, Andrew Rosen, wouldn't comment Wednesday on his work for Andersen.
But, like Feldman, he extolled the capabilities of his firm's high- tech retrieval tools.
"It's like sending a man to the moon," Rosen said. "It's difficult, expensive and challenging, but it's still doable."
Time will tell.
One thing is certain: There's no high-tech magic that can restore the money lost by Enron's employees and its shareholders.
----------
Contact berose@tribune.com.

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

Politics & People
Enron's One Good Return: Political Investments
By Albert R. Hunt

01/31/2002
The Wall Street Journal
A19
(Copyright (c) 2002, Dow Jones & Company, Inc.)

By last summer Enron wanted out of its huge power plant in India. It was, as the World Bank predicted eight years earlier, a white elephant. Company chairman Kenneth Lay soon demanded more than $2 billion from the Indian government for the ill-fated project, warning the U.S. otherwise might impose sanctions.
Vice President Cheney, on June 27, lobbied Indian opposition leader, Sonia Gandhi, on behalf of Enron, shortly after the Cheney energy task force specifically recommended promoting energy production India. What was Enron's role? Mr. Cheney won't say.
There are numerous unanswered questions about the way this discredited company wielded its considerable political influence. Another is the circumstances surrounding the hiring four years ago of Christian-right activist Ralph Reed to lobby utility regulators in Pennsylvania. Was this at the behest of the Bush presidential campaign, and were there other such political favors?
There are some who, with a straight face, ask if Enron got anything for its political largesse -- $6 million in contributions, most of it in unregulated soft money. While we're at it, here are some other questions to puzzle over: Is Michael Jordan is good for the NBA? Is Helen Hunt a great actress? Is Madonna trashy?
Few special interests got more access or results than Enron: legislative favors, a lax oversight of its risky financial derivatives, tax breaks, unsurpassed input into the Cheney energy legislation drafting process and most of what it wanted, and reportedly even veto authority over regulatory appointees.
Enron's successes soured only when the company's fortunes turned south last October. It was, as Democrats James Carville and Paul Begala charge, "like the hooker who fell out of love with the sailor after he ran out of money."
The Enron/India episode undercuts the administration's contention that it only followed its free-market principles. Treasury Secretary O'Neill approvingly noted that, "The genius of capitalism is people make good or bad decisions and they get to pay the consequences or enjoy the fruits."
Enron failed in India and, under a controversial and contested contract, wanted to be bailed out. Irrespective of whether a failure to do so would have hurt foreign investment in India, was it the role of the American government to seek such a favor for a big campaign contributor? President Bush abandoned plans to bring up the issue on Nov. 9 with Prime Minister Vajpayee; by then Enron was collapsing. (Enron had spent $20 million "educating" the Indians on how capitalism works.)
In drafting the energy initiatives, thanks to Rep. Henry Waxman, we now know that, as of last March 30, the State Department's recommendations didn't mention energy and India. But, in the ensuing weeks, while meeting with Mr. Lay and other Enron executives, the Cheney task force inserted a section pushing oil and gas production in India.
A precondition, the Indians were told, was to take care of the Enron controversy first. Last July, this newspaper reported, Christina Rocca, assistant secretary of state, met with Indian officials on energy issues and told them "many of India's problems in this regard can be summed up in the five-letter word, `Enron'."
This went well beyond simply drumming up business for an American company abroad. It would mean Enron didn't "pay the consequences" for "bad decisions." This wasn't principles and philosophy; it was politics and money.
Also transparent is the vice president's contention that telling Congress who participated in drafting the energy measure would undermine the presidency. Congress's General Accounting Office, which yesterday announced it will sue the vice president, isn't seeking confidential internal correspondence or communications. All it wants are the names of the lobbyists and subjects they raised. If the White House would have sworn that this substantially impairs the operations of government it would have ended the matter. It didn't because this is about political embarrassment. (Yesterday the San Francisco Chronicle reported that last April Mr. Lay privately gave Mr. Cheney a memo enumerating eight positions favored by Enron, most of which made it into the administration's proposals.)
The Ralph Reed story broke when the New York Times reported that in the fall of 1997 Enron, at the behest of Bush political adviser Karl Rove, put Mr. Reed on its payroll. It was a way, sources said, to take care of the politically valuable Mr. Reed. Both Mr. Reed and Enron deny this assertion, though neither will provide specifics on how much Mr. Reed was paid -- it was in the "range" of $10,000 to $20,000 a month, Enron spokesman Mark Palmer says -- or how long.
Pennsylvania politicians find it curious that Mr. Reed would be enlisted in a state where he had little experience. On CNN Mr. Reed said he was lobbying for then-Gov. Tom Ridge's deregulation plan. But that passed in 1996, before he was hired, so he explained his role was to drum up support while the Public Utility Commission was "drawing up regulations that implemented the law."
Mr. Reed was on the payroll -- there were one-sentence references to his Enron connection then in The Wall Street Journal and the Associated Press -- but for such a lucrative compensation, he didn't cut much of figure in those regulatory proceedings. "I was totally unaware that Ralph Reed was involved in this issue," says John Hangar, a PUC member in 1997 and 1998. This all may have been partly legitimate, but it raises questions over Enron's coziness with the Bush crowd and whether there were other retainers.
What money bought Enron was unsurpassed access and, in the case of Congress, the benefit of the doubt on arcane but critical issues that most lawmakers knew or cared little about. Everyone knew Enron was a big money contributor.
Ultimately, this company played with funny money. But their political investment helped prolong the Ponzi scheme. In the last election cycle, Enron dished out $1.67 million in soft money to federal candidates; as the House GOP leadership desperately tries to halt the scandal-fueled momentum for a campaign finance reform that would ban soft money, it's offering an alternative. Under that proposal Enron could have given $1.28 million the last election. It only would have been 80% as corrupt.
The president, in a highly praised State of the Union address, hit almost all of the right political erogenous zones except for Enron and campaign finance reform. The two are inextricably linked. Mr. Bush's stratospheric popularity notwithstanding, they're not going away.

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

Financial Desk
THE NATION THE FALL OF ENRON Firm Accused of Withholding Data Probe: Senate panel chairman says the company has not produced some requested documents.
EDMUND SANDERS; RICHARD SIMON
TIMES STAFF WRITERS

01/31/2002
Los Angeles Times
Home Edition
A-16
Copyright 2002 / The Times Mirror Company

WASHINGTON -- Already under fire for shredding documents, Enron Corp. is now facing accusations that it failed to turn over records to congressional investigators looking into the company's collapse.
Sen. Byron L. Dorgan (D-N.D.), who chairs a subcommittee that will hear from former Enron Chairman Kenneth L. Lay next week, is not satisfied that Enron released all the records that investigators are seeking, a source close to the probe said Wednesday.
The records relate to the controversial off-the-books partnerships that masked the company's financial problems. Among other things, the Senate Commerce Committee's subcommittee on consumer affairs is seeking a list of investors in those partnerships.
The partnerships are a key focus of investigators piecing together the causes of Enron's Chapter 11 bankruptcy filing on Dec. 2, less than a month after it announced previously unreported losses of $586 million over nearly five years.
Dorgan was unavailable for comment Wednesday, and an Enron attorney did not return a call for comment.
Senate investigators are pushing Enron to turn over the partnership documents before Monday's hearing with Lay, who is appearing voluntarily and without a grant of immunity.
Lay is likely to be grilled about why Enron failed so abruptly, costing investors and employees billions of dollars in stock and retirement fund losses. He resigned as chairman and chief executive Jan. 23.
At least one congressional committee appears satisfied that Enron has provided all requested documents.
Rep. James C. Greenwood (R-Pa.), who chairs a House Energy and Commerce subcommittee, said his investigators have not been stymied by Enron's resistance to turning over documents.
But Greenwood lambasted Enron's continued shredding of internal documents until earlier this month, even after the company was aware of numerous government investigations.
"What they have shredded is their credibility," Greenwood said. "It's outrageous that while Enron was the subject of investigations by the Justice Department, the SEC and multiple committees of Congress, it would get anywhere near a shredder. They shouldn't shred so much as an old newspaper without carefully clearing it with investigators."
In Houston, an Enron spokeswoman declined to say whether the firm had ceased all document destruction.
"We have and will continue to comply with requests for information," said spokeswoman Karen Denne. "We asked the Department of Justice to come in and investigate, and the FBI is currently conducting an investigation."
Stephen Cooper, the bankruptcy consultant selected this week as Enron's interim chief executive, said a special committee of the energy giant's board should complete an internal investigation in less than a week.
Cooper participated in a conference call with reporters Wednesday along with former Chief Financial Officer Jeff McMahon, who was promoted this week to president. McMahon was one of several executives who complained about the firm's off-the-books partnerships, according to a memo written by Enron Vice President Sherron S. Watkins.
McMahon declined to answer questions about his complaints, and Cooper said he was not focused on the causes of Enron's fall.
"I'm not gonna spend my time here looking in the rearview mirror," he said. "The fact of the matter is, there are a lot of people here who deserve our best shot at reorganizing this company, and the only way that's going to happen is if we look forward," he said.
Some analysts say the remains of Enron are likely to be sold off in pieces in order to pay creditors. Cooper said that although Enron has sold its biggest revenue-generating divisions, the small pipelines and other remaining assets are "very manageable, very steady businesses" that may propel the firm enough so it can emerge from bankruptcy.
aid the firm had about $10 billion in secured debt (debt guaranteed by the pledge of assets) and $30 billion in unsecured debt.
Also Wednesday, congressional investigators indicated they would ask Enron officials for more information about a warning made in August to Lay and the company's board of directors about Enron's accounting irregularities.
Margaret Ceconi, a former sales director at Enron Energy Services, alleged in an Aug. 29 e-mail that her division had hidden losses of more than $500 million. House Energy and Commerce Committee leaders wrote to Lay, asking, "What happened to Ms. Ceconi's e-mail after you received it and how has Enron responded to it?"
*
Times staff writer Jeff Leeds, in Houston, contributed to this report.

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

Ernst & Young Says It Played Dual PNC Role
By Wall Street Journal staff reporters Susan Pulliam, Carrick Mollenkamp, Paul Beckett and Scot Paltrow

01/31/2002
The Wall Street Journal
C1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Yet another Big Five firm is getting caught up in post-Enron accounting questions.
Ernst & Young confirmed yesterday that it had played an unusual, dual role in the accounting problems that this week plagued PNC Financial Services Group, the Pittsburgh bank-holding company that on Tuesday said it would have to restate its financial results because of the way it accounted for three companies it set up with insurance company American International Group.
As PNC's auditor, Ernst & Young approved the transactions, which have since become the subject of a probe by the Federal Reserve and the Securities and Exchange Commission.
Separately, however, Ernst & Young also acted as an "accounting adviser" to AIG as it drew up the plan for the vehicles that would later be called into question. Ernst & Young issued a letter that helped AIG pitch its product to banks.
Ernst & Young spokesman Larry Parnell said the firm gave AIG a so-called SAS-50 letter, which is a formal statement attesting that such a transaction had been reviewed by senior Ernst & Young officials.
Ernst & Young's roles highlight one of the most pressing controversies stemming from the Enron Corp. meltdown -- that of accounting firms providing both auditing and advising services to clients. Critics say such arrangements pose potential conflicts, and congressional investigators currently are looking into potentially banning the practice.
Mr. Parnell says there wasn't any conflict of interest in the firm serving both as an adviser to AIG on the transactions, and then later approving them as PNC's outside auditor. "If we felt there was a conflict, we wouldn't have done it," he said.
Mr. Parnell said Ernst & Young signed off on the transactions because "at the time we felt it was an appropriate transaction." But he acknowledged that the federal inquiries "have changed that perception," and said Ernst & Young "concurred" with the Fed's call for the accounting treatment to be reversed.
Ernst & Young's role in the PNC accounting is likely to raise yet more questions about the way in which the nation's biggest accounting firms audit the books of public companies.
In this case, the roles are particularly tricky given the role of Robert Herdman, a former vice chairman of Ernst & Young who was at the firm during the SAS-50 review. Mr. Herdman is now the SEC's chief accountant, and the SEC is reviewing the PNC transactions.
Mr. Parnell said that although senior Ernst & Young officials participated in the review, Mr. Herdman wasn't among them. An SEC spokeswoman said Mr. Herdman, who became the SEC's chief accountant in October after leaving his position as vice chairman of Ernst & Young, "has had no involvement either at Ernst & Young or at the Securities and Exchange Commission with any of those matters."
The accounting problem, which has caused PNC's stock to fall 10% this week, is causing Wall Street to take a closer look at financial mechanisms that allow banks to reduce the amount of debt they carry on their books.
In addition, because of Arthur Andersen's dealings with Enron -- in which that firm acknowledged shredding documents relating to the energy firm -- investors are taking a "shoot first and aim later," approach to any stock associated with accounting irregularities, says Michael Frinquelli, a partner at Renaissance Fund Advisors, a New York investment firm that specializes in insurance stocks.
James Rohr, PNC chief executive, emphasized that the amount of loans put into the companies in question represented less than 1% of the bank's overall assets and was merely one way that the bank in recent years has been reducing its loan exposure. He said the three companies set up with AIG were the only time that the bank took that particular approach of disposing of loans.
So far, it appears that PNC's financial maneuver was unique. Still, investors -- along with experienced Wall Street pros -- are getting an unfortunate lesson in just how banks can adjust their loan exposure with a few accounting moves.
PNC said Tuesday that after a review of its numbers by the Federal Reserve, it was revising lower its net income for 2001 by $155 million. The news sent PNC's stock down 9.6%. Yesterday, PNC fell 37 cents to $55.71.
According to people familiar with PNC's accounting moves, Ernst & Young worked closely with AIG from the inception on the financial structure that PNC began using last year. Ernst & Young served as an adviser to AIG on a model for the PNC transactions, which was developed in early 2001.
Though PNC's transactions weren't completed until the fourth quarter of 2001, AIG had put together a blueprint for such a structure that it used as tool to shop the idea to other banks, the person said.
AIG requested a special opinions, or SAS-50, from Ernst & Young. Ernst & Young wrote three letters to AIG concerning the transaction, including the SAS-50. The letters were dated in April, May and November and gave Ernst & Young's opinion on various iterations of the structure with the final being used as a model to pitch other banks on the idea.
---
Christopher Oster contributed to this article.

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

Law firm cuts ties with Enron, citing potential conflict

01/31/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

HOUSTON (AP) - A large law firm has severed all ties with Enron Corp., citing potential conflict of interest with the financially troubled company, the Houston Chronicle reported in its Thursday editions.
The firm's politically connected lawyers - who include Republican National Committee Chairman Marc Racicot and Texas Republican attorney general candidate Greg Abbott - have faced criticism that their relationships with a law firm working for Enron could pose conflicts.
Patrick Oxford, managing partner of Bracewell & Patterson, said the firm made its decision when the energy trading company asked for protection under U.S. bankruptcy laws on Dec. 2.
"We do represent some of the larger creditors of Enron. So some potential for conflict was there," Oxford said Wednesday.
Oxford said Bracewell is among Enron's creditors, owed approximately $300,000.
For a short time after Enron went into bankruptcy proceedings, Oxford said, Bracewell represented a subsidiary company, Enron Wind. That tie also has been cut, he said.
Abbott has returned $12,600 he received from Enron in contributions to his campaigns for state Supreme Court. He resigned from the court last year to set the stage for his attorney general's race, and joined Bracewell & Patterson.
A leading consumer advocate, Public Citizen Texas director Tom "Smitty" Smith, criticized Abbott this week, saying that as attorney general Abbott might face a conflict because Bracewell and the state of Texas both are Enron creditors. The state lost an estimated $68.5 million from Enron's collapse, much of it in employee retirement funds that contained Enron stock.
Robert Black, a spokesman for Abbott's campaign, denied there was any conflict.
President Bush's selection of Racicot, former Montana governor, as the national Republican chairman, came under fire. Racicot dropped Enron as a lobby client, but declined to resign as a Bracewell lawyer.
Vinson & Elkins, Houston's largest law firm and Texas' most profitable, was earlier accused of violating ethical standards in its representation of Enron.

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

Bankruptcies
Enron hopes to rehire Vinson & Elkins
by Douglas McCollam

01/31/2002
The Daily Deal
Copyright (c) 2002 The Deal LLC

The Houston law firm is seeking court approval to advise Enron in six areas, including litigation begun before the bankruptcy filing and the sale of overseas assets.
Houston's Vinson & Elkins llp, the law firm under scrutiny for its work setting up Enron Corp.'s controversial partnerships and, later, investigating allegations of improper accounting, seeks court approval to remain one of the main law firms for the bankrupt energy company.
In a filing late last week, V&E applied to U.S. Bankruptcy Court for the Southern District of New York, to be designated special counsel to Enron. The firm would advise Enron in six areas, including litigation begun before the bankruptcy filing and the sale of overseas assets. V&E would charge up to $665 dollars an hour for its lawyers.
The firm is among Enron's biggest creditors, the application shows, with $8.6 million in fees outstanding from before the bankruptcy. The firm estimates it did $6.5 million of work connected to the bankruptcy before it was filed, though New York's Weil, Gotshal & Manges llp is Enron's bankruptcy counsel.
Under the bankruptcy code, a debtor can retain special counsel if it's "in the best interest of the estate," provided the firm is not found to "represent or hold any interest adverse to the debtor" in matters on which it would advise. Skadden, Arps, Slate, Meagher & Flom llp has also acted as special counsel since December, advising on asset sales and other corporate and finance issues.
Enron said in a court document that, to its knowledge, V&E has no interest adverse to the company or its creditors that would prevent it from being hired.
But an affidavit submitted by V&E's managing partner, Joseph C. Dilg, suggests some potential conflicts. For instance, V&E represents several Enron affiliates that have not filed bankruptcy, and some of those could bring claims against the company. Dilg's affidavit says V&E will not represent those affiliates in claims against Enron.
V&E has also represented at least 15 former and existing Enron officers and directors personally, including former chairman Kenneth L. Lay; former CEO Jeffrey K. Skilling; and current general counsel and former V&E partner James V. Derrick. Dilg's affidavit also states that, in addition to Derrick, four other former V&E lawyers are Enron officers. Neither the application nor Dilg's affidavit addresses potential conflicts between V&E, on the one hand, and Enron and its auditor, Andersen.
V&E gave advice on partnership transactions and later disclosures about them that Congress, the Securities and Exchange Commission and the Department of Justice are investigating. V&E has hired John Villa of Washington's Williams & Connolly, a leading malpractice defense lawyer, to advise it on these issues.
Harry Reasoner, former managing partner for V&E, said the firm applied to serve as special counsel at the urging of Enron and Weil, Gotshal.
"A lot of things were still very active when the petition was filed and we've continued to work on those," Reasoner said. He said the millions Enron owes the firm is not relevant to its serving as special counsel. "We'll just be like any other general creditor," he said.
Reasoner could not say what portion of the $8.6 million due to the firm is owed by Enron's non-debtor affiliates, nor which of those affiliates may bring claims against Enron.
Weil, Gotshal partner Martin J. Bienenstock, Enron's lead lawyer in the bankruptcy, said using V&E is simply a matter of efficiency. "They'll just work on matters they were previously involved with," Bienenstock said.
Bienenstock said that creditors were told Enron wants to keep using V&E but have not indicated how they would respond. The court should take up the application in the next week or so, Bienenstock said.
An attorney for one of Enron's principal creditors said his client probably would not object to the use of V&E.
"They have a lot of institutional knowledge. If it makes things go smoother to use them, that's better for us," he said. Potential problems between V&E and Enron would be put aside for the time being, he added. "It's still early. Everyone wants to get along for now."
Conor Reilly, a bankruptcy partner with Gibson, Dunn & Crutcher llp, says the spotlight puts V&E in an unusual position. "Obviously, it's normal for debtor's counsel to have worked for the debtor prior to filing bankruptcy, but this situation is very tricky," Reilly said. "I can't recall anything comparable."
-- Douglas McCollam is a reporter with The American Lawyer.
See related story: Vinson to Enron: No need to worry
www.TheDeal.com

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

UK press watchdog chief Lord Wakeham steps down amid Enron links

01/31/2002
AFX News
(c) 2002 by AFP-Extel News Ltd

LONDON (AFX) - The collapse of US energy giant Enron Corp has caused further ripples in the UK, with the head of the country's press watchdog stepping down "temporarily".
Lord Wakeham has departed pending a probe into his links with the failed company.
The chairman of the Press Complaints Commission - which keeps close tags on media standards and intrusion into privacy - said the publicity generated by an investigation into his ties with Enron could harm the watchdog.
"As chairman of the Press Complaints Commission for the past seven years, I am only too aware of the damage that can be done to individuals and institutions that are thrust into the public spotlight," he said in a statement.
Wakeham was previously energy secretary under former prime minister Margaret Thatcher and a non-executive director at Enron.
He now faces questioning from a US congressional inquiry.
"Since the collapse of Enron, I have been unable to make any statement or undertake any interviews on the subject for legal reasons," Wakeham said.
He added that he saw it as "a matter of honour to stand aside temporarily from the chairmanship of the commission" until the probe is completed.
mro/hd/ims/cw

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

Enron board member temporarily resigns press watchdog job

01/31/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

LONDON (AP) - John Wakeham, a prominent Conservative politician whose seat on the board of the disgraced Enron Corp. has made him the center of speculation about the corporate scandal's British links, temporarily stepped aside Thursday from his job as head of a press watchdog group.
Wakeham oversaw the privatization of Britain's electricity industry as energy minister in Margaret Thatcher's government and approved Enron's bid for permission to build one of the first gas-fired electric generating plants in Britain.
He later joined the company's board as a non-executive director and could be asked to testify at U.S. Congressional hearings about its collapse.
Wakeham said in a statement that he wanted to protect the Press Complaints Commission - an industry body that hears complaints about news coverage - from any hint of scandal.
"I am only too aware of the damage that can be done to individuals and institutions that are thrust into the public spotlight," he said. "I therefore see it as a matter of honor to stand aside temporarily from the chairmanship of the commission until the report of the Independent Investigating Committee of Enron is published and evaluated."
He said he had been unable to speak publicly about Enron for legal reasons, a position he said was incompatible with his chairmanship of the commission.
Wakeham, a widely respected senior figure chosen by Prime Minister Tony Blair to head a commission studying reform of the House of Lords, is the most prominent British politician to be significantly touched so far by the Enron mess.
A well-connected senior Conservative, he was regarded as one of the most adept ministers in Thatcher's government.
In his politically sensitive post at the Press Complaints Commission, he has dealt with complaints from people aggrieved by newspapers, including Blair and the royal family.
Enron's collapse also has put pressure on Blair's government to explain how the company won favorable government decisions after giving financial support to the Labor Party. Questions also are being raised about Labor's relationship with Arthur Andersen, Enron's auditors.
(bg-jl)

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

Questioning the Books: CPA Institute's President Opposes More Limits on Nonaudit Services
By Steve Liesman
Staff Reporter of The Wall Street Journal

01/31/2002
The Wall Street Journal
A8
(Copyright (c) 2002, Dow Jones & Company, Inc.)

As investigations continue into the collapse of Enron Corp., the head of the country's leading public accountants' group says he opposes additional limits on work that auditors can do for their clients.
"If we had outright prohibition on the scope of services [auditors could perform for clients] the likelihood of Enron occurring would be just the same," Barry Melancon, president of the American Institute for Certified Public Accountants, said in an interview. "It wouldn't prevent Enron."
Democratic Sens. Christopher J. Dodd of Connecticut and Jon Corzine of New Jersey have said they will propose legislation to sharply limit nonaudit services that auditors can perform.
The legislation to be introduced next week would prohibit an auditor from performing bookkeeping or other services related to a client's accounting records as well as appraisal or valuation services and fairness opinions. "Just as you wouldn't want the builder of your house to also be the building inspector, we need to build a better financial `firewall' to protect investors from conflicts of interest," Sen. Dodd said in a statement last week when announcing his proposed legislation.
At a press conference scheduled for today, New York State Comptroller H. Carl McCall is expected to call on the Securities and Exchange Commission to prohibit auditors from providing nonaudit services to clients.
Arthur Andersen LLP, Enron's auditors, booked $27 million in nonaudit services for the company in 2000, compared with $25 million in auditing fees.
Mr. Melancon said that limiting the scope of services actually could increase the chances of audit failure. He said consulting work gives auditors intimate knowledge of a company that can help in auditing and helps accounting firms attract better candidates with the promise of work that extends beyond auditing. Mr. Melancon also said an accounting firm that relies solely on the auditing fees might be less likely to raise questions about a company's finances than an accounting firm performing a variety of services. "It's not a question of independence. It's a question of dependence," he said. "If I have only an audit, am I more or less inclined to apply judgment?"
Mr. Melancon's views differ from those expressed by some lawmakers who believe a reason for Enron's failure was that client and the auditor became too close. Internal Enron documents have suggested Arthur Andersen knew about of the off-the-books partnerships that ultimately led to Enron's collapse, raising questions about why the accounting firm didn't put an end to the system that kept billions of dollars of debt off Enron's books. The SEC last year adopted tougher auditor-independence rules, which added a ban on appraisal or valuation services when accountants would be likely to audit the results of such work. Mr. Melancon said more time is needed to see if those rules are adequate. Critics complained that the rules adopted last year were too lax, allowing, for example, auditors to perform 40% of a corporate client's internal auditing work.
In a speech last week, SEC Chairman Harvey Pitt didn't mention the question of auditors' potential conflicts of interest as among the systemic problems exposed by Enron's collapse. Rather, Mr. Pitt has called for greater public participation in auditor oversight.
Mr. Pitt has proposed a new oversight board to be dominated by "public membership" that has the power to investigate and discipline the industry.
---
Mr. Melancon backed the chairman's proposal.

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

The Gottesdiener Law Firm Moves Against Enron in Bankruptcy Court

01/31/2002
Business Wire
(Copyright (c) 2002, Business Wire)

NEW YORK--(BUSINESS WIRE)--Jan. 31, 2002--

Firm Seeks to Establish Company's $1 Billion Liability to Workers and Block Enron's Efforts to Use Insurance Money Earmarked From Workers to Pay for Top Enron
Executives' Legal Defense

The Gottesdiener Law Firm announced today that it moved against Enron Corporation in the U.S. Bankruptcy Court for the Southern District of New York, asking the Court to lift the "automatic stay" that has protected the company from suit since it filed for bankruptcy on December 2, 2001.
The legal maneuver would allow workers to proceed in their efforts to establish that the company violated federal pension laws in its handling of its 401(k) Plan, and share in whatever proceeds may be available after secured creditors' claims are satisfied in the bankruptcy.
According to Eli Gottesdiener, the head of the Washington, D.C. 401(k) and pension class action law firm, which sued Enron, Arthur Andersen and others in November 2001, the Enron 401(k) Plan, including a $1 billion claim against the Company, "is perhaps Enron's largest single creditor, and its participants are the principal victims of the company's devastating collapse."
"No interest in the bankruptcy should be superior to that of Enron's workers, and giving them the ability to promptly litigate their claims against the company should be a top priority for our justice system - if not that of Enron itself," Gottesdiener said.
Gottesdiener called on the company to "let its employees and ex-employees have their day in court" and establish that, as his suit on behalf of workers alleges, the company breached its federal fiduciary duties in loading employees up with artificially inflated Enron stock. Gottesdiener said he had "every intention of making sure Enron workers sit at the head of the unsecured creditors' table in the bankruptcy."
Separately, the firm also moved today to block Enron from tapping into an $85 million fiduciary liability insurance policy earmarked to compensate workers. This move follows statements by the company suggesting an intent to use the policy proceeds to fund the legal defense of key company executives caught up in the various Congressional and Executive Branch probes of its actions.
Gottesdiener called the company's action "disappointing" and another example of "Enron overreaching."
The papers the firm filed with the bankruptcy court are available at on the Website dedicated to the 401(k) litigation, www.enronsuit.com.

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

Law Firm Asks Court To Lift Enron 'Automatic Stay'

01/31/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

NEW YORK -(Dow Jones)- A law firm has asked the court overseeing Enron Corp.'s (ENRNQ) bankruptcy to lift the "automatic stay" provision that protects the company from workers seeking $1 billion compensation for their pension plans.
The Gottesdiener law firm, based in Washington, filed suit against Enron in November, after company admissions of accounting irregularities and a precipitous drop in company stock.
The lawsuit alleged that Enron violated federal pension laws "by selling employees Enron stock knowing the price was artificially inflated, and by locking employees into Enron stock because of an administrative change to the company 401(k) plan." Gottesdiener later named accounting firm Arthur Andersen LLP as an additional defendant.
But when Enron filed for bankruptcy in December, the Chapter 11 code protected it from employee pension claims.
In a press release Thursday, Gottesdiener said having the automatic stay provision lifted would allow the workers' pension case to proceed.

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

BUSINESS
4 BofA execs quit in wake of Enron's fall
Christian Berthelsen
Chronicle Staff Writer

01/31/2002
The San Francisco Chronicle
FINAL
B.1
(Copyright 2002)

Three Bank of America executives who were managing the bank's business with Enron Corp. have resigned their jobs during the past week, and a fourth said yesterday he will resign and leave the bank soon.
The departures come in the wake of $231 million in losses Bank of America reported during the fourth quarter as a result of its exposure to Enron, the energy-trading giant that collapsed late last year amid a loss of investor confidence brought on by revelations of secret partnerships that hid debt.
Jo Tamalis and James Allred of Houston, along with Marcia Bateman of Dallas, left their jobs at the end of last week, a bank spokeswoman confirmed. The bank said Steve Bragg of New York, a fourth executive associated with the Enron account, will leave in the coming weeks to "pursue other opportunities."
About $210 million of BofA fourth-quarter losses came from loan charge-offs, and $21 million came from a write-down of what the bank called "securities related to a collateralized loan obligation."
Eloise Hale, another spokeswoman, said most of the losses were unsecured. She declined to specify the precise structure of BofA's lending relationship with Enron or to elaborate beyond statements the bank has already made about its losses.
BofA said it has $272 million in further exposure to Enron, including a $46 million untapped line of credit. Of the remaining exposure, $42 million is unsecured.
Tamalis was a client manager in Bank of America's natural resources group, which handles creditors in the energy and power sector. Bragg, the head of that group, is expected to leave the bank in the coming weeks.
Bateman and Allred were credit products officers, charged with managing risk exposure for the bank.
Bank of America confirmed that all four executives were connected to its Enron account, but declined to specify the terms of their departures or to say whether they were related to the Enron collapse.
Tamalis and Allred did not return calls to their homes in Houston. Bateman and Bragg could not be reached.

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

Former Texas governor: `stunned' by Enron collapse

01/31/2002
Associated Press Newswires
Copyright 2002. The Associated Press. All Rights Reserved.

DALLAS (AP) - Former Texas Gov. Ann Richards says the government should do all it can for the former Enron Corp. employees who lost their life savings with the company's collapse, but said recent revelations are so different from what she remembers of Enron and its ex-CEO, Ken Lay.
Richards, now a lobbyist in New York City, spoke about Enron and other topics during an hour-long appearance with CNN's Larry King on Wednesday night.
"I'm going to tell you, I was so shocked, so stunned. What we've been hearing does not describe the Ken Lay I knew. He was mister public spirited, mister community, mister what can I do to help the Boy Scouts, mister how can I help the arts center," Richards said.
She said Enron gave $12 million last year to charities and the art community.
"There was never a more public-spirited organization, and its leadership was always there to help you," she said. "... He was standup guy. He did everything he could for his community."
She gives high marks to President George W. Bush for his leadership since the terrorists' Sept. 11 attacks and praised speechwriters for the state of the nation speech on Tuesday. But she criticized what Bush has said about Enron and about Lay.
Bush has said that Lay supported Richards instead of him when he unseated her as Texas governor in 1994.
"Wasn't that silly of George Bush saying, `Oh, the only reason I kept him (Lay) was for continuity, because of Governor Richards.' Why didn't he just say, `Well, you know, these people are good friends of mine, they've given me a lot of money and I'm grateful to them, and I feel terrible about this. I feel terrible for them and I feel terrible for Houston.'
"Instead of saying it was because he supported Ann Richards. Here's exactly what happened. Ken called me and said, `Ann, I'm going to tell you, we are very, very close to the Bush family.' And he said, `My wife is going to be in this race for George W., money, marble and chalk.' He said, `I think you've done a good job, and I'm probably going to vote for you, and I'm going to give you a little bit of money.' "
Richards recalled published reports that she received about $12,000.
"And, of course, it turns out that he gave George W. a whole bunch more than that - three or four times that - but that is inconsequential," she said. "Even though we are heartsick and angry that this company has put all these people out of work, and some of us certainly lost money, but still, if someone did something good, you have to stand up and say that person at that time was my friend, and not pretend that he doesn't know them."
On the Enron financial meltdown, Richards said, "I don't have a clue what happened. But they were doing some incredibly energetic accounting, and they had Arthur Andersen standing there telling them they could do it and that they had attorneys that they were asking their opinion of, and the attorneys were telling them they could do it."
When the house of cards started to collapse, she said, "then you have a run, and everybody is going to sell their stock or try their best to get out of there. And I think that's exactly what brought that company down," Richards said.
"The sad part is what it's done for so many investors. And those poor people, 4,200 people are out of work in Houston," she said.
King asked her if the government owes the former Enron employees anything other than unemployment checks.
"I think the government certainly ought to examine if they can extend unemployment benefits, whether there are any extraordinary measures that they can help them for a period of times until they can get new jobs," she said.
"Because this isn't an easy time. This economy is tough. People all across the country are looking for jobs, and to have 4,200 people suddenly laid off at Enron in the middle of this recession makes it even tougher."

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

Stock dumped on Enron jitters
Jon Ogden

01/31/2002
South China Morning Post
1
(c) Copyright 2002 South China Morning Post Publishers. All Rights Reserved.

Asian investors dumped stocks yesterday as fallout from the Enron bankruptcy triggered a crisis of confidence in United States accounting standards.
Fresh instances of shady accounting practices coming to light could lead to a fundamental revaluation of overpriced US stocks and cast a shadow over financial markets for weeks or months, investment professionals warned.
Phillip Securities research director Louis Wong Wai-kit said: "It seems they have opened a can of worms after the Enron bankruptcy. It causes jitters . . . and there is a spillover to regional markets." The Hang Seng Index fell 257.28 points, or 2.33 per cent, to 10,756.96 points, South Korean stocks plunged 3.17 per cent while Japan's Nikkei 225 broke through 10,000 points, falling 1.06 per cent to 9,919.48.
Conglomerate Tyco International fell 19.88 per cent, losing US$16 billion in market capital, on rumours about its accounting of acquisitions and fears it was holding too much short-term debt.
"We are getting all sorts of skeletons coming out of the closet," JF Funds senior global funds manager David Atkinson said. "It is clear there is quite a lot of manipulation [of earnings] going on."
Rumours were rife on Wall Street that regulators were out examining corporate balance sheets which could lead to companies having to make confessions when they reported this quarter's earnings, Mr Atkinson said.
US energy firm Williams lost 22 per cent, to US$18.78, after saying it would delay an earnings report. Diversified Cendant, owner of Avis rental cars, lost 9.97 per cent with worries about its seven off-balance-sheet funding entities, which resemble Enron's.
BNP Paribas Peregrine Asia strategist Raymond Foo said: "Essentially, you have investors for the first time questioning the reliability of [US] earnings.
"A huge part of the premium in valuations in the US is premised on the fact that it is transparent and a very open system. The moment investors question that would lead to a downgrading of the valuations."
US corporate profits to the end of 2000 had fallen to the level of those booked in 1997. But the profits of companies in the S&P 500 benchmark at the end of 2000 were 35 per cent above their level in 1997. That gap looked suspicious, said Chris Carter, strategist for Investec Asset Management.
"I am sure we are going to be faced with more cases of outright fraud, though I doubt it will be on scale of Enron," Mr Carter said. "There is a good chance that a higher risk premium will be built into US assets."
That might have implications for a weaker dollar and the financing of the giant US current account deficit.
The S&P 500 index was trading on a lofty 23 times trailing operating earnings or 45 times if write-offs were included, Mr Carter said.
Yet ever-positive Wall Street analysts still have not woken up. Goldman Sachs strategist Abby Joseph Cohen last week dropped her earnings expectations for S&P 500 companies by 19.23 per cent, yet declined to reduce her target for the index, a decision Mr Carter described as "astonishing".
The Asian financial crisis had caused most corporate skeletons to come out of the closet in the region, Mr Foo said. While Asia might take a hit in line with the US on the accounting issue in the short term, in the longer term it should out-perform the US.
"At least you know where the minefields [in Asia] are," he said. "You know which countries and companies have good corporate governance and which do not."
However, Mr Carter thought it unlikely Asia could decouple from the US. "The stock market continues to be the driver of the US economy. If the stock market falls that will impact on consumer activity, which in turn will impact on Asia."
The General Accounting Office, the investigative arm of the US Congress, intends to take the White House to court to obtain details of how a task force headed by Vice-President Dick Cheney formulated its energy plan, congressional sources said yesterday. Among the details sought by the office are the task force's contacts with energy companies, including Enron.

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

Business/Financial Desk; Section C
ENRON'S MANY STRANDS: A CASE STUDY
A Video Study Of Enron Offers A Picture of Life Before the Fall
By SHAILA K. DEWAN

01/31/2002
The New York Times
Page 1, Column 2
c. 2002 New York Times Company

HOUSTON, Jan. 30 -- In April 2000, Enron was still flying high, at least publicly. Jeffrey K. Skilling, the president and chief operating officer at the time, faced a video camera and spoke enthusiastically about the corporate culture that would, he insisted, enable Enron to go from the world's largest energy-trading company to the world's leading company, period.
''People have an obligation to dissent in this company,'' Mr. Skilling said, detailing Enron's core values of respect, communication, excellence and integrity as company posters of a sunflower and a smiling baby girl flashed on the screen of what became a multimedia computer presentation. ''I mean, I sit up here on the 50th floor, in the library. I have no idea what's going on down there, so if you've got a problem with it, speak up. And if you don't speak up, that's not good.''
The video was part of what was supposed to be and, for a few months, was a case study of a phenomenal transformation, prepared by two University of Virginia business professors with exclusive access to Enron's top executives. But what was meant to inspire students has become a cautionary tale, a study in hubris all the more valuable for its intimate picture of life before the fall.
The professors, Robert F. Bruner and Samuel E. Bodily, who teach at the Darden Graduate School of Business Administration, first saw Mr. Skilling in November 1999, when he spoke at the school. What they saw then was someone, they said, who might be the next John F. Welch, leading a company whose story could be told alongside those of the other giants like Mr. Welch's General Electric, or Home Depot or Wal-Mart Stores.
What they see now is a business plan that reality refused to endorse. Even when they shot their first interviews -- the bulk of their 15 hours of film -- in May 2000 the company was already buying time, the professors say now.
''All of the partnerships are there to hide the debt and make it possible to keep going,'' Dr. Bodily said in a phone interview this week. ''The strategy seemed to be, 'I lost money in the poker game, so now I'll take the mortgage down to the casino and gamble even harder,' '' he said. '' 'By tomorrow, I won't have to tell them anything.' ''
But before the company began collapsing, Mr. Skilling came across as a bright, charismatic innovator who talked for three and a half hours, refusing to take a break. ''He would speak in sentences, the sentences would form paragraphs, the paragraphs were almost like chapters of a book,'' said Dr. Bruner, now very curious to see what the investigations of Enron will reveal about Mr. Skilling's behavior. ''Very smooth. Very, very smooth. I look back on some of that and say, 'You were not doing what you said you were doing.' ''
A second round of filming occurred in May 2001, when Mr. Skilling, who by that time had become chief executive, told them, ''I think we'll be around for a long time.''
Amid platitudes (''People don't come to work for a company. They come to work for a mission.'') and back-slapping (''Ken is one of the nicest, most thoughtful human beings in the world.''), the executives describe how, under the leadership of Kenneth L. Lay, the company began to sell not just a product, but productive capacity, and apply that model to new markets like broadband.
They also emphasized the importance of a progressive environment. ''We're going to do the right thing, and make money without having to do anything but the right thing,'' said Andrew S. Fastow, who has since been fired for his role in establishing partnerships that are now under investigation.
The new, deregulated market for energy gave Mr. Skilling license to introduce a new corporate culture, the professors say, with high rewards for creativity as well as more ruthless practices like ''rank and yank,'' in which the company fired the least productive employees.
In the case study, Mr. Skilling describes the company's search for a new rubric after it outgrew ''the world's leading energy company.'' He said, ''The voted favorite was 'world's coolest company.' ''
The CD-ROM was first distributed last May. One morning in November, Dr. Bodily turned on his computer to find that the company had shut down its online trading operation. ''The company was gone,'' he said.
So the partners added two sections to the case study; the original version, Dr. Bodily said, has already been auctioned on eBay for $197.50. One new section is called ''2001: The Fall of Enron.'' Its table of contents is essentially a chart of the stock's plunge marked with events like Mr. Skilling's abrupt resignation in August. The second sections is called ''Reflections.''
The study attracts keen interest in the classroom, but owning the rights to such a close look at the country's largest bankruptcy filing is not necessarily cause for glee. ''When you see a really successful company die so dramatically,'' Dr. Bruner said, ''you not only grieve for the loss of this exemplar, but also for the possible conclusions that students, current and former, might make.''
Yet neither professor is willing to dismiss the importance of the company's ideas, which ultimately made life easier and cheaper for its customers. ''That's part of the sadness that observers feel today,'' Dr. Bruner said. ''This company did get something right for a period of time there at least. It will be, I think, proved to be an innovation of significance to the American economy equal in significance to the PC.''
Luckily, failure can be as instructive as glory. Part of Dr. Bruner's Web site is devoted to his hobby, scripophily, the collecting of securities from companies, and even governments, of yore, many of which tell their own stories of financial folly.
It is not hard to guess the latest addition to the display of antique scrip on his office wall: a framed certificate of 10 shares of Enron stock. Yesterday it was worth $4.05.

Photos: Robert F. Bruner, left, and Samuel E. Bodily, business professors at the University of Virginia, made a study of Enron and its executives just before it collapsed. Above, a now nearly worthless Enron stock certificate. (John Mahoney for The New York Times)(pg. C1); A photo off a computer screen, part of a study by two professors at the University of Virginia's graduate school of business administration. (James Estrin/The New York Times)(pg. C7)
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Editorial
Learning From Enron

01/31/2002
The Washington Post
FINAL
A24
Copyright 2002, The Washington Post Co. All Rights Reserved

Has anyone had the courage to ask Enron employees why they dumped everything they had into company stock when there were other choices inside their 401(k) plan? I'm not defending Enron's bookkeeping, but some perspective is in order. Enron employees weren't the first investors to see their dreams go up in smoke when company books were being cooked. Employee shareholders of McKesson, Sunbeam and Cendant -- to name a few -- have all felt Wall Street's wrath when their companies' accounting methods came under fire.
Many Enron employee shareholders were just as greedy as their bosses. They made a fortune when Enron's stock price skyrocketed, and they lost it all when the company imploded. If they didn't have the common sense to diversify, I have difficulty feeling sorry for them.
Already members of Congress are hinting of legislation to limit how much money can be invested in company stock. Instead of being the poster child for more government meddling, perhaps the Enron episode can serve a better purpose. Maybe future investors will realize that having the bulk of their net worth tied to any single security -- stock or bond -- is dangerous.
SCOTT W. FISHER
Lower Burrell, Pa.
*
The most important issue stemming from the Enron mess shouldn't be one of confidentiality or possible wrongdoing on that corporation's behalf. It should be about how we are going to create public policy in this country.
Why does the vice president need confidentiality here? What are these energy executives saying in "private" that they are unwilling to say in public? A public policy proposal emerged from these discussions -- one that could dramatically affect the environment, national security, the economy, etc.
If the energy executives and experts are advising one thing in private and another in public, then the policy that emerged from the private discussions with the vice president and his commission is a policy based on a lie.
If the advice given is the same in private as in public, where is the need for "confidentiality"?
The public deserves to know how the vice president's commission reached its recommendations, especially when so many people -- environmentalists, alternative-energy advocates, those who could not make political contributions like Enron -- were left out of the equation.
This is not how you make good public policy. All it does is breed distrust of government. The vice president should turn over the documents and defend the policy based on its merit -- if it has any.
GRAYDON J. FORRER
Washington

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

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