Enron Mentions (major papers only) -- 02/05/02

The message

Enron Accountants May Be Placed On Leave by Board
The Wall Street Journal, 02/05/2002

Former Enron Chairman Lay's Whereabouts Unknown
Bloomberg, 02/05/2002

Lawmakers Will Subpoena Kenneth Lay --- Ex-Chief of Enron Resigns From Comp=
any's Board, Citing Various Inquiries
The Wall Street Journal, 02/05/2002

Lay stands down from Enron board after scathing report.
Financial Times, 02/05/2002

SENATE PANEL SAYS IT WILL SUBPOENA EX-CHIEF OF ENRON
The New York Times, 02/05/2002

Lay Leaves Enron Board; Founder Severs Last Ties to Firm
The Washington Post, 02/05/2002

Lay steps down from Enron's board of directors=20
Irate lawmakers working on subpoenas=20
Houston Chronicle, 02/05/2002
Deal at Enron Gave Insiders Fast Fortunes
The New York Times, 02/05/2002

Legal Liability for Enron Debacle May Be Determined by 1997 Memo
The Wall Street Journal, 02/05/2002

Enron Report Could Bolster Criminal Case Probe: Panel's allegations of fina=
ncial subterfuge increase likelihood of indictment, legal experts say.
Los Angeles Times, 02/05/2002

Varied Roles Cause Some Conflicts, Brokers Say
The New York Times, 02/05/2002

Lawsuits may widen to hit partnerships SPECIAL-PURPOSE VEHICLES.
Financial Times, 02/05/2002

Enron workers' benefits reportedly raided=20
$15 million allegedly spent elsewhere=20
Houston Chronicle, 02/05/2002

Enron Witness Points to Lay; Lawmakers Told of 'Fundamental Default of Lead=
ership'
The Washington Post, 02/05/2002

Little-Known Academic Pushed Onto Enron Stage
The Washington Post, 02/05/2002

Bidders Emerge for Enron's British Water Utility --- Sale of Wessex Water C=
ould Bring $1.4 Billion To Failed Energy Firm
The Wall Street Journal, 02/05/2002

Enron Direct pay-outs decided.
Financial Times, 02/05/2002

Ernst & Young Latest Auditor Moving to Alter Some Practices
The New York Times, 02/05/2002

Dynegy charges Enron has only itself to blame=20
Houston Chronicle, 02/05/2002

'He should have been here'=20
Ex-staffers irked after trip to D.C.=20
Houston Chronicle, 02/05/2002
Saving Your Career After Earning a Name As a Whistle-Blower
The Wall Street Journal, 02/05/2002

Sex and The Scandal
The Washington Post, 02/05/2002

The Blue Bayou City; Two Months After 'Black Monday,' Houston Still Is Pick=
ing Up The Enron Pieces
The Washington Post, 02/05/2002

A Debacle Chronicled in Kitsch
The New York Times, 02/05/2002

Decoding Enron
The New York Times, 02/05/2002

Enron's Culture of Corruption
The Washington Post, 02/05/2002

QUOTATION OF THE DAY
The New York Times, 02/05/2002

_____________________________________________________________________

Enron Accountants May Be Placed On Leave by Board
By Rebecca Smith
Staff Reporter of The Wall Street Journal

02/05/2002
The Wall Street Journal
A6
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Enron Corp.'s board is expected to put the company's two top accounting off=
icers on administrative leave this week in reaction to an internal report t=
hat says neither did his job adequately, sources close to the matter say.=
=20
The men, Chief Accounting Officer Richard A. Causey and Chief Risk Officer =
Richard B. Buy, reviewed Enron's creation of several outside partnerships r=
un by Enron officers and, records indicate, judged them beneficial to Enron=
. They also reviewed subsequent transactions with those entities. Recent di=
sclosures that these partnerships greatly enriched a handful of Enron emplo=
yees at Enron's expense contributed to the Houston energy concern's collaps=
e into bankruptcy proceedings in December.
Neither man nor an attorney representing them responded to requests to comm=
ent yesterday.=20
To date, there is no evidence that Messrs. Causey or Buy invested in any of=
the Enron-related partnerships or personally reaped any financial windfall=
from them. The men were scheduled to testify Thursday before one of severa=
l congressional committees investigating Enron's downfall.=20
Before joining Enron in early 1991, Mr. Causey was an accountant for Arthur=
Andersen in Houston and had "primary responsibility for the Enron engageme=
nt," according to his company biography. Mr. Buy, before joining Enron in 1=
994, was a vice president at Bankers Trust, assigned to energy lending and =
trading in Houston and New York.=20
In his current role at Enron, Mr. Causey was supposed to make sure that Enr=
on's accounting practices adhered to industry standards and that its Securi=
ties and Exchange Commission disclosures were full and complete. Mr. Buy, a=
s chief risk officer, has had primary responsibility for "quantifying and c=
ontrolling risks in both Enron's trading activities and investment opportun=
ities," according to his company biography.=20
Instead, Mr. Causey has "presided over" accounting decisions that go "well =
beyond aggressive," according to the Enron internal report prepared by a sp=
ecial, three-person committee of the board. Mr. Buy, according to that same=
report, "saw his role more narrowly" than appropriate and "did not affirma=
tively carry out . . . a careful review of the economic terms" of transacti=
ons between Enron and the related-party entities.=20
Board minutes reviewed by The Wall Street Journal show that Messrs. Causey =
and Buy frequently told the board that there were adequate controls in plac=
e to protect the company's interests as it transacted business with the off=
icer-controlled partnerships, including ones run by Enron's former chief fi=
nancial officer, Andrew Fastow.=20
For example, in a meeting of the board's finance committee on Oct. 6, 2000,=
Mr. Causey joined then-chief executive Jeffrey Skilling in discussing the =
"benefits to the company" of being able to transact business with the LJM p=
artnerships set up by Mr. Fastow, according to minutes of that meeting. Pre=
viously, Mr. Fastow had told the board that all transactions with the vehic=
les he ran would be reviewed by Messrs. Causey, Buy and Skilling in order "=
to mitigate any potential conflicts."=20
J.C. Nickens, an attorney representing both men, couldn't be reached to com=
ment yesterday. But in an interview last week, he said his clients are blam=
eless. Referring to Mr. Causey, Mr. Nickens said that "my client would say =
the accounting for these partnerships was appropriate . . . that the deals =
were structured and accounted for with professional advice of people on his=
staff and Arthur Andersen," which was Enron's auditing firm.=20
All told, the Fastow-related partnerships engaged in more than two dozen tr=
ansactions with Enron that left the company, in many cases, holding the bag=
. The Enron special committee, in its report, which was released during the=
weekend, said that in some cases Enron settled some of its partnership ven=
tures for far less money than what the committee felt was fair value. This =
suggests that the interests of the officer-controlled partnerships may have=
been put ahead of those of Enron.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Former Enron Chairman Lay's Whereabouts Unknown
2002-02-05 08:32 (New York)

Washington, Feb. 5 (Bloomberg) -- Kenneth Lay, former chairman of Enro=
n Corp., won't appear at a House hearing this morning after his attorney re=
fused to accept a subpoena compelling him to appear, CNN said.
Lay's attorney, Earl Silbert, said there wasn't enough time because La=
y had returned to Houston and Silbert didn't know where to find him, CNN sa=
id.
This morning the Senate Commerce Committee plans to vote to issue a su=
bpoena for Lay to testify on Feb. 12. House and Senate committee members ha=
ve said they hope Lay won't take the Fifth Amendment and refuse to testify =
on the grounds it may incriminate him.
Lay backed out of appearances yesterday and today before the Senate Co=
mmerce Committee and a House Financial Services subcommittee. Silbert infor=
med both panels that Lay wouldn't appear because of "inflammatory'' comment=
s made by members of the committee that he said were prejudicial to his cli=
ent.
Yesterday the House panel voted to subpoena Lay to appear at 10 a.m. t=
his morning.
A board-sponsored investigation released this weekend said Enron execu=
tives enriched themselves while hiding at least $1 billion in losses in 3,0=
00 partnerships. Those transactions caused Houston energy dealer to file th=
e largest bankruptcy reorganization on Dec. 2.
The company's failure led to at least 4,500 job losses in Houston and =
1,100 in the U.K. and wiped out millions of dollars of retirement savings f=
or Enron employees, whose investments were tied up in the company's stock.

Powers Testimony

Yesterday Lay resigned from the board of the company he founded in 198=
5, saying it was in the "best interests'' of former and current Enron emplo=
yees and "other stakeholders,'' according to a statement distributed by PR =
Newswire.
In testimony yesterday before the House panel, William Powers Jr., the=
head of the Enron's special investigation Committee, said Lay and the rest=
of the board failed to halt ``a systematic and pervasive attempt'' by mana=
gement to deceive investors about the energy dealer's finances.
"What we found was absolutely appalling,'' Powers said.
Powers' 203-page investigative report found Enron executives enriched =
themselves while hiding at least $1 billion in losses in 3,000 partnerships=
. Enron had said it overstated earnings by $586 million since 1997 by faili=
ng to disclose partnerships used to hide loans and losing ventures.
Powers also said today that Enron's auditor, Arthur Andersen LLP, coul=
dn't have performed an independent audit of Enron because it was paid $5.7 =
million by the company to help set up the partnerships.
"If they helped structure the transactions, they already are going to =
hold views of the transactions,'' he told the House Financial Services subc=
ommittee on capital markets.
Andersen was paid $25 million in audit fees by Enron and $27 million f=
or non-audit services in 2000. Senate and House Democrats are introducing b=
ills that would prohibit auditors from also providing some consulting servi=
ces to the same client.

-- William Selway in the San Francisco newsroom at (415) 743-3511, or wselw=
ay@bloomberg.net=20

Lawmakers Will Subpoena Kenneth Lay --- Ex-Chief of Enron Resigns From Comp=
any's Board, Citing Various Inquiries
By Michael Schroeder
Staff Reporter of The Wall Street Journal

02/05/2002
The Wall Street Journal
A3
(Copyright (c) 2002, Dow Jones & Company, Inc.)

WASHINGTON -- Lawmakers say they will issue a subpoena to compel Kenneth La=
y, former chairman of Enron Corp., to appear before committees investigatin=
g the collapse of the Houston energy trading giant.=20
Enron director William Powers told a House Financial Services subcommittee =
that a recently completed review by the board concluded that Enron's top ma=
nagers, including Mr. Lay, outside auditors and directors, all contributed =
to the company's downfall. Mr. Lay had canceled his much-anticipated appear=
ance before a Senate panel, saying that the hearings would be prosecutorial=
. Separately yesterday, Mr. Lay announced his resignation from the Enron boar=
d, saying that because of the many investigations being conducted that invo=
lve him, his continued role on the board has "become a distraction" as the =
company works to emerge from bankruptcy-court proceedings.=20
Meanwhile, Senate Commerce Committee Chairman Ernest Hollings (D., S.C.) ca=
lled for a special prosecutor to replace the Justice Department in its crim=
inal investigation of Enron. And Harvey Pitt, chairman of the Securities an=
d Exchange Commission, pointed a finger at the Financial Accounting Standar=
ds Board, the independent rule-setting body, for long delays in updating ru=
les, including a request by the SEC more than a decade ago to reconsider ne=
w accounting rules for off-balance-sheet special-purpose entities. Enron us=
ed these partnerships extensively, which contributed to the company's downf=
all.=20
Mr. Powers's testimony was seized on by committee members to press their pr=
oposals for additional oversight of auditors, stock analysts and rating age=
ncies. Lawmakers are debating whether severe shortcomings in financial repo=
rting can be addressed by new SEC rules or legislation.=20
Mr. Hollings's comments are a signal that the high level of partisanship on=
the Enron debacle among congressional Democrats is likely to intensify as =
more hearings are held in the coming weeks. The Bush administration's exten=
sive ties to Enron made it a "cash-and-carry government," he said at a news=
conference.=20
Mr. Hollings also said that the Justice Department couldn't be relied on to=
conduct an objective investigation, given the Enron connections of several=
department officials, including Attorney General John Ashcroft. Mr. Ashcro=
ft recused himself from the probe, citing the large campaign contributions =
he had gotten from Enron in his 2000 Senate campaign.=20
Justice Department officials responded that appointing a special prosecutor=
is unnecessary. "No conflict of interest exists. No person involved in pur=
suing this investigation has any conflict, or any ties that would require a=
recusal," the department said in a statement.=20
Mr. Hollings also said he had doubts about the objectivity of the Enron int=
ernal review, conducted by a special committee of the company's board led b=
y Mr. Powers. Mr. Powers "is a very fine gentleman, but he's a member of th=
e board," he said.=20
The senator, who canceled his panel's hearing yesterday after Mr. Lay decli=
ned to testify, said members would vote today to issue a subpoena.=20
Mr. Lay also said he wouldn't appear at a scheduled House subcommittee hear=
ing today. In response, the Financial Services Committee chairman, Rep. Mic=
hael Oxley (R., Ohio) attempted yesterday afternoon to serve Mr. Lay a subp=
oena through his attorney Earl Silbert. Peggy Peterson, Mr. Oxley's spokesw=
oman, said that Mr. Silbert said he "didn't know the whereabouts of his cli=
ent."=20
Mr. Silbert didn't return a phone call or answer an e-mail seeking comment.=
=20
The subpoenas can't compel Mr. Lay to testify, however. Sen. Byron Dorgan (=
D., N.D.) acknowledged that Mr. Lay could use his Fifth Amendment right to =
refuse to answer questions when he does appear under subpoena. Two other En=
ron executives who lawmakers want to talk with about the company's collapse=
have already told lawmakers they plan to do this.=20
In testimony before Rep. Richard Baker's subcommittee, Mr. Powers said that=
he found "appalling" problems at Enron. The University of Texas Law School=
dean outlined the main findings of his report, focusing on the firm's use =
of complex off-the-books partnerships that enriched key employees, includin=
g Chief Financial Officer Andrew Fastow. "Virtually everyone, from the boar=
d of directors on down," understood the company was using partnerships to o=
ffset investment losses with its own stock.=20
Mr. Powers, whose objectivity has been questioned because of Enron contribu=
tions to his university's law school, faulted the board of directors, sayin=
g it "failed in its duty to provide leadership and oversight." During the h=
earing, numerous lawmakers said they were incredulous that the board never =
raised any red flags.=20
"Whether the Powers report is appropriately balanced or not, given the limi=
ted information on which the report is based, it does establish a basis on =
which to conclude . . . that the rules aimed at requiring disclosure were s=
o misused that they were warped into a black bag from which no information =
was able to escape," Mr. Baker said.=20
Several lawmakers, including Rep. John LaFalce (D., N.Y.), called for legis=
lation or new regulations to address accounting and disclosure weaknesses t=
hat the Enron scandal has uncovered.=20
Mr. LaFalce also complained that the Bush administration authorized only a =
4% SEC budget increase to $480 million for the next fiscal year. He said he=
favors tripling the SEC's budget.=20
---=20
Journal Link: Listen in as a House panel examines the findings of Enron's s=
pecial investigative committee. Also, Andersen CEO Joseph Berardino testifi=
es on the accounting firm's relationship with Enron, in the Online Journal =
at WSJ.com/JournalLinks, by arrangement with Hearings.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

FRONT PAGE - FIRST SECTION - Lay stands down from Enron board after scathin=
g report.
By ANDREW HILL, SHEILA MCNULTY and PETER SPIEGEL.

02/05/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

Kenneth Lay, Enron's former chairman and chief executive, yesterday resigne=
d from the company's board, two days after publication of a damning interna=
l report on the energy trader's ill-fated deals with partnerships.=20
The report, which criticised officers, directors and advisers of the compan=
y, has raised the legal stakes in the race to apportion blame for Enron's c=
ollapse.
In a statement announcing his resignation, Mr Lay said his involvement had =
"become a distraction" from achieving the goal of a successful reorganisati=
on of the bankrupt company.=20
Two congressional committees moved yesterday to subpoena Mr Lay, compelling=
him to appear as early as next week. He unexpectedly withdrew from hearing=
s this week after congressmen said the report suggested Enron executives ha=
d broken the law.=20
The report analyses in detail some of the deals Enron conducted with off-ba=
lance-sheet partnerships. It concludes that many were carried out simply to=
flatter Enron's accounts and that Mr Lay, and other senior officers, bore =
ultimate responsibility for the failure of oversight.=20
Dynegy, facing a $10bn suit from Enron after pulling out of its abortive re=
scue bid last year, said yesterday the report showed Enron's demise was "se=
lf-inflicted" and justified its decision to withdraw from the takeover.=20
Shareholders and employees seeking compensation from Enron directors and of=
ficials said the report also could provide ammunition for lawsuits against =
investors who financed Enron's off-balance-sheet partnerships.=20
Limited partners in the special-purpose vehicles took on little risk and re=
ceived disproportionately large returns, according to the report.=20
Investors in one of the partnerships, LJM2 Co-Investment, included funds or=
units run by Merrill Lynch (which also led the placement of stakes in LJM2=
), JP Morgan Chase, Citigroup, and other blue-chip companies.=20
Eli Gottesdiener, head of a Washington law firm involved in one suit agains=
t Enron and Andersen, its former auditor, declined to say whether limited p=
artners would now be sued. But he said lawyers for employees and shareholde=
rs would probably "use the report to assist them in casting the net as wide=
ly as possible".=20
(c) Copyright Financial Times Ltd. All rights reserved.=20
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

National Desk; Section A
ENRON'S MANY STRANDS: THE OVERVIEW
SENATE PANEL SAYS IT WILL SUBPOENA EX-CHIEF OF ENRON
By STEPHEN LABATON and RICHARD A. OPPEL Jr.

02/05/2002
The New York Times
Page 1, Column 6
c. 2002 New York Times Company

WASHINGTON, Feb. 4 -- After Kenneth L. Lay, the former chairman and chief e=
xecutive of Enron, refused to testify before the Senate Commerce Committee =
this morning, Republicans and Democrats on the panel said they would vote T=
uesday to issue a subpoena to compel his appearance.=20
Mr. Lay, who severed his final tie to Enron this evening by resigning from =
its board, had infuriated lawmakers by canceling his appearance at the last=
minute, saying through his lawyer that Congressional hearings planned for =
this week had taken on a prosecutorial tone.
''We decided that we really had no choice but to issue a subpoena,'' Senato=
r Byron L. Dorgan, a North Dakota Democrat, said at a news conference this =
afternoon. Mr. Lay, he said, ''should not have expected it would ever be a =
walk in the park'' to testify at a Congressional hearing.=20
Lawmakers in the House said this evening that they had notified Mr. Lay's l=
awyer, Earl J. Silbert, that they intended to issue a subpoena, and were to=
ld that he did not know where his client could be found. Mr. Lay had been s=
cheduled to testify in the House on Tuesday, but he also backed out of that=
date.=20
Mr. Silbert did not respond to requests for comment tonight, but Congressio=
nal aides and other lawyers involved in the case said they expected that Mr=
. Lay, if subpoenaed, would again refuse to testify, and invoke his Fifth A=
mendment right against self-incrimination.=20
Tonight, Mr. Lay issued a brief explanation of why he had decided to remove=
himself from the company he founded 16 years ago, expanded into one of the=
nation's largest energy concerns and watched helplessly as it spiraled out=
of control.=20
''I want to see Enron survive and successfully emerge from reorganization,'=
' he said. ''Due to the multiple inquiries and investigations, some of whic=
h have focused on me personally, I believe my involvement has become a dist=
raction to achieving this goal.''=20
Mr. Lay's silence before Congress is a remarkable turnabout for a corporate=
executive who not long ago was a highly courted figure in Washington, a fi=
nancial patron of many public officials, a guest of both Democratic and Rep=
ublican presidents and a top contender for a cabinet position in the admini=
stration of the first President Bush.=20
Now he is facing a multitude of investigations by Congress, the Justice Dep=
artment and the Securities and Exchange Commission. A report issued on Satu=
rday night by three outside directors of Enron, which has filed for bankrup=
tcy protection, concluded that he bore overall responsibility as its leader=
, but that he appeared to be largely oblivious to the details of questionab=
le transactions. The report was based in part on interviews with Mr. Lay an=
d foreshadows his defense to the inquiries.=20
The day witnessed the first extensive testimony by a member of Enron's boar=
d about the company's demise. William C. Powers, the chairman of the specia=
l committee on Enron's board that issued the report, told a Congressional p=
anel that his inquiry had uncovered ''a systematic and pervasive attempt by=
Enron's management to misrepresent the company's financial condition.''=20
''The tragic consequences of the related-party transactions and accounting =
errors were the result of failures at many levels and by many people,'' sai=
d Mr. Powers, the dean of the University of Texas School of Law. ''A flawed=
idea, self-enrichment by employees, inadequately designed controls, poor i=
mplementation, inattentive oversight, simple and not-so-simple accounting m=
istakes, and overreaching in a culture that appears to have encouraged push=
ing the limits.''=20
Mr. Powers termed his findings ''absolutely appalling.'' He added, ''There'=
s no question that virtually everyone, from the board of directors on down,=
everyone understood that the company was seeking to offset its investment =
losses with its own stock.''=20
Fresh signs of the political implications of Enron's demise were evident in=
a capital that has quickly become captivated by the matter. At a news conf=
erence this afternoon, Senator Ernest F. Hollings, the South Carolina Democ=
rat who heads the Commerce Committee, sharply criticized the Bush administr=
ation for its ties to Enron and its top executives.=20
''I've never seen a better example of cash-and-carry government than this B=
ush administration and Enron,'' he said. ''Specifically, everyone knows how=
the Bushes got the cash, whether while he was governor using the planes of=
the largest contributor; as president in his campaign the largest contribu=
tor; to the Republican committee running the convention and the inaugural c=
ommittee and everything else like that.''=20
Mr. Hollings, following some House Democrats, called on the administration =
to appoint a special counsel to lead the criminal investigation into Enron'=
s collapse. He cited the company's ties to nearly a dozen top officials in =
the administration and Attorney General John Ashcroft's excusing himself fr=
om the case because he had received campaign donations from Enron.=20
The Justice Department said it saw no reason for such a counsel. ''No confl=
ict of interest exists,'' its statement said. ''No person involved in pursu=
ing this investigation has any conflict or any ties that would require a re=
cusal.''=20
Mr. Hollings gamely deflected a question about his own campaign contributio=
ns from the company. Asked whether he had received donations from Enron, he=
replied: ''I sure did, but I got 3,500 over 10 years, but our friend Kay B=
ailey Hutchison, she got 99,000. Heck, I'm the chairman of the committee. T=
hat wasn't a contribution. That was an insult.''=20
Republicans, meanwhile, continued to denounce what they called corruption a=
t Enron while noting that the company had ties to Democrats.=20
''Clearly Enron was a very politically active corporation, and I think that=
makes this a more interesting story,'' said Senator Peter G. Fitzgerald, t=
he Illinois Republican who is the ranking minority member on one of the sub=
committees examining the affair. ''But the fact of the matter is that at ro=
ot I think this is a corporate scandal. I don't believe that anyone in the =
Bush administration was aware that there was what appears to me to have bee=
n a pyramid scheme going on in Enron.''=20
After noting that the administration of President Bill Clinton also promote=
d some of Enron's business interests, he added, ''There's a very famous pic=
ture of Ken Lay with the previous president as well as the current presiden=
t.''=20
At a House financial services subcommittee hearing today, Harvey L. Pitt, t=
he chairman of the Securities and Exchange Commission, said that if facts d=
escribed in the Enron report as characterized by one lawmaker proved correc=
t, ''that would be fraud.''=20
He said his agency was re-examining a broad range of regulations as a resul=
t of Enron's problems. ''I am committed and the commission is committed to =
re-examining every assumption, every rule, and regulation, in light of Enro=
n,'' he said.=20
Specifically, he said, the agency was reviewing disclosure and financial re=
porting requirements, the role of audit committees and the oversight of acc=
ounting firms. He said that the agency was closely examining other companie=
s that have shifted their liabilities off their books and that he believed =
that corporate executives ought to face ''personal exposure'' for violating=
disclosure rules.

Photos: Representative Richard H. Baker of Louisiana, center, the chairman =
of a subcommittee of the House Financial Services Committee, consulted with=
colleagues and aides yesterday at a hearing on the collapse of Enron. (Ass=
ociated Press); The S.E.C. chairman Harvey Pitt before Congress yesterday. =
(Associated Press)(pg. C4)=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

A Section
Lay Leaves Enron Board; Founder Severs Last Ties to Firm
Peter Behr
Washington Post Staff Writer

02/05/2002
The Washington Post
FINAL
A04
Copyright 2002, The Washington Post Co. All Rights Reserved

Enron Corp. founder Kenneth L. Lay resigned from the company's board of dir=
ectors yesterday, two days after an investigative report found him signific=
antly responsible for the company's demise.=20
In a letter of resignation cutting his last ties to the company, Lay said: =
"I want to see Enron survive and successfully emerge from [bankruptcy] reor=
ganization. Due to the multiple inquiries and investigations, some of which=
are focused on me personally, I believe that my involvement has become a d=
istraction to achieving this goal."
Lay was supposed to testify voluntarily yesterday before a Senate committee=
, but he canceled the appearance Sunday. His attorney said members of Congr=
ess had prejudged Lay before hearing his testimony.=20
Lay and other directors were pointedly criticized in a report released Satu=
rday by a special committee appointed by Enron's board and headed by Willia=
m Powers Jr., dean of the University of Texas Law School.=20
Powers told members of the House Financial Services Committee yesterday tha=
t the failure of Lay and other directors to police accounting and ethics vi=
olations at Enron was "appalling." Disclosures of executives' self-dealing =
and false financial statements by Enron shattered its credibility with inve=
stors and customers, forcing it into bankruptcy.=20
For Lay, the departure ends a tumultuous year at the company he founded 16 =
years ago. He stepped down as chief executive a year ago, turning the post =
over to his prote{acute}ge{acute} Jeffrey Skilling. While Lay kept the chai=
rman's position, he was planning to expand his activities outside the count=
ry. Then Skilling's unexpected resignation in August, as Enron's financial =
problems were growing, forced Lay to take up the chief executive's duties o=
nce again.=20
His assurances last summer that Enron was in good shape has been condemned =
by former Enron workers and attacked by lawyers suing Enron and its top exe=
cutives on behalf of shareholders and employees. Lay and top Enron executiv=
es also face ongoing federal securities and criminal investigations.=20
Lay resigned as chairman and chief executive Jan. 23 under pressure from cr=
editors in the Enron bankruptcy reorganization case. Enron is trying to sel=
l enough assets to meet creditors' demands while eventually putting survivi=
ng units of the company back on their feet.=20
Thomas Roberts, Enron's outside lawyer in the bankruptcy case, received Lay=
's resignation.=20
"This was Ken Lay's decision," Roberts said. While it is difficult for a co=
rporate board to remove an individual director, Lay could have been forced =
to resign.=20
Roberts said Enron was sorry Lay did not feel comfortable testifying yester=
day. "The company would have liked him to tell the company's story and his =
story, and the company is sorry that circumstances have led to his leaving =
the board."=20
Lay has been working at an office at Enron's Houston headquarters but is cu=
t off from former executives and employees he once led. His wife, Linda Lay=
, said last week that except for their home, "everything is for sale."=20
The financial implications of Lay's resignation as chairman and chief execu=
tive are not yet clear.=20
"His severance package is being discussed now," Roberts said. "With the com=
pany in bankruptcy, the board does not have much latitude, if any, in agree=
ing to a severance package. It's all subject to the bankruptcy court."

http://www.washingtonpost.com=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Lay steps down from Enron's board of directors=20
Irate lawmakers working on subpoenas=20
By JULIE MASON=20
Copyright 2002 Houston Chronicle Washington Bureau=20
Feb. 5, 2002, 12:43AM
WASHINGTON -- Former Enron Corp. Chairman Ken Lay resigned from the company=
's board of directors Monday, as irate lawmakers prepared subpoenas that wo=
uld force him to appear on Capitol Hill.=20
Lay, who resigned as chairman last month, severed final corporate ties with=
Enron, saying his problems had become a distraction to the company's effor=
ts to emerge from bankruptcy.=20
"Due to the multiple inquiries and investigations, some of which are focuse=
d on me personally, I believe that my involvement has become a distraction =
to achieving this goal," Lay said in a statement.=20
The move came during a chaotic day in Washington as lawmakers, stung by Lay=
's abrupt cancellation of highly anticipated testimony on Capitol Hill, too=
k steps to compel the embattled former executive to appear.=20
"I understand it would be difficult to come and testify, but he should not =
have expected it would ever be a walk in the park," said Sen. Byron Dorgan,=
D-N.D.=20
Lay withdrew less than 24 hours before he was to appear Monday at the Senat=
e Commerce Committee. He also pulled out of a hearing set for today before =
the House Financial Services Committee.=20
In response, the House committee voted unanimously to authorize its chairma=
n to subpoena Lay, and the Senate panel is poised to do the same today.=20
The Senate panel tentatively set Feb. 12 as the new day to hear from Lay, w=
hile the House committee's new date was undecided.=20
Earl Silbert, Lay's attorney in Washington, D.C., said Monday night he is a=
ware that Lay may be subpoenaed by the House Financial Services Committee a=
nd suggested to the committee that Lay could testify on Feb. 12 or 13.=20
According to news reports Silbert said he did not know where Lay was when h=
e was contacted by the committee about him, but he meant that he did not kn=
ow where Lay was when the committee staff was speaking to him.=20
"I knew he had left D.C.," Silbert said.=20
Kelly Kimberly, Lay's newly hired spokeswoman, said Lay returned to Houston=
from Washington, D.C., Monday morning.=20
Lawmakers said they are not inclined to barter immunity for Lay's testimony=
, and it was unclear whether Lay would invoke his Fifth Amendment right aga=
inst self-incrimination and refuse to answer questions.=20
Far from backing down from the heated rhetoric that Lay's attorneys blamed =
for his withdrawal, angered lawmakers, again lashed out at Enron and its fo=
rmer chairman for failing to appear as promised.=20
"We have not arrived at any preconceived notions here, but I will tell you =
it sure appears to me that this company was on the financial equivalent of =
steroids," said Sen. Ron Wyden, D-Ore. "They inflated those short-term prof=
its and pumped themselves up to the detriment of the long-term health of th=
ousands of families in my home state."=20
Sen. Ernest Hollings, D-S.C., chairman of the Senate committee, criticized =
the Bush administration for its ties to Enron and called for a special pros=
ecutor to oversee the criminal investigation.=20
"I've never seen a better example of cash-and-carry government as this Bush=
administration and Enron," Hollings said.=20
Attorney General John Ashcroft recused himself from prosecuting the case, d=
isclosing that he took campaign contributions from Enron for a failed 2000 =
Senate bid.=20
Hollings criticized the subsequent choice of Deputy Attorney General Larry =
Thompson to head up the investigation, noting that Thompson once worked in =
a law firm that represented Enron.=20
"In other words, it should be independent," Hollings said.=20
"Of course, finding someone in this town independent of Enron is easier tha=
n finding bin Laden, I can tell you that," he said ironically.=20
The Justice Department rejected the call to replace Thompson with a special=
prosecutor.=20
"No person involved in pursuing this investigation has any conflict, or any=
ties that would require a recusal," Justice Department officials said.=20
Lay, who it was hoped would finally break months of silence on the collapse=
of his one-time empire, was to be the star attraction in a week of intense=
hearings in both the House and Senate.=20
Instead, his lawyers cited "prosecutorial" tones in the public remarks of l=
awmakers preparing to question Lay, in explaining his withdrawal.=20
Committee members generally scoffed at Lay's response, noting that their ad=
versarial tone has remained largely consistent since he agreed in December =
to testify.=20
"The problem for Mr. Lay is that some of the autopsies have already been do=
ne on Enron," said Sen. Peter Fitzgerald, R-Ill. "If Mr. Lay wants to corre=
ct some of the damning impressions that are coming out of these documents, =
he ought to come before the American people."=20
Lay's decision not to appear came the day after a special committee of Enro=
n's board released a 218-page report criticizing company executives, audito=
rs, lawyers and board members for allowing improperly created partnerships =
to inflate Enron's earnings, hide its debt and wrongfully enrich a handful =
of insiders.=20
The report also cited Lay for bearing significant responsibility in the com=
pany's collapse.=20
Lay resigned as chairman and CEO of Enron Jan. 23, saying he could not run =
the company effectively while facing investigations and lawsuits into Enron=
's collapse.=20
His resignation from the board closes 16 years of service at Enron, leaving=
his diminished stock ownership the only remaining link to the company.=20
He retired as chief executive in February 2001, but resumed the position wh=
en his successor, Jeff Skilling, quit in August.=20
Lawmakers said Monday that Skilling is still expected to cooperate. Former =
Chief Financial Officer Andrew Fastow, also scheduled to testify, has notif=
ied lawmakers he will not answer questions.=20
In a brief statement on Lay's resignation from the board, Enron said, "We r=
egret that circumstances have led to this. We wish Ken the best."=20
Chronicle reporters Laura Goldberg in Houston and Patty Reinert in Washingt=
on contributed to this story.=20
=20
Business/Financial Desk; Section A
ENRON'S MANY STRANDS: THE PARTNERSHIPS
Deal at Enron Gave Insiders Fast Fortunes
By KURT EICHENWALD

02/05/2002
The New York Times
Page 1, Column 5
c. 2002 New York Times Company

They called it Southampton Place. To most people in Houston, it was the nam=
e of a neighborhood known for expensive homes and influential residents.=20
But to a small group of executives at the Enron Corporation, it meant somet=
hing far different: the opportunity to obtain millions of dollars of cash, =
fast, with the money coming from the company's own coffers.
Details of the lucrative investments in Southampton, a limited partnership =
involved in dealings with Enron partnerships, were disclosed Saturday in a =
report released by a special committee of the Enron board. For directors an=
d former employees, the details have proved to be some of the most emotiona=
lly charged disclosures in the lengthy report: a small group of insiders ma=
de millions in profits in secret deals with some of the partnerships that u=
ltimately brought the company to its knees.=20
Two of the investors were able to transform $5,800, the price of a used car=
, into more than a million dollars each in just two months, according to th=
e report. Andrew S. Fastow, the former chief financial officer of Enron and=
engineer of many of the partnership transactions, transformed a $25,000 co=
ntribution from a family foundation into $4.5 million in the same matter of=
weeks.=20
The deals in early 2000, which involved at least half a dozen Enron employe=
es, violated the company's conflict of interest requirements. Last fall, wh=
en the first inklings of Southampton emerged, every senior executive invest=
ing in the deal who had not already been fired for a role in the partnershi=
p problems was terminated. Until then, the report says, no top officials of=
the company knew anything about -- let alone approved of -- the insider de=
al that had come from Mr. Fastow's finance division.=20
The investment was arranged by Mr. Fastow and another Enron employee, Micha=
el Kopper, who both live in Southampton Place in Houston. Investigators wor=
king for the board committee worked to figure out why the two executives of=
fered the lucrative opportunity to other corporate insiders, but were unabl=
e to find an answer.=20
Now, legal experts say, that same question is certain to be examined by Fed=
eral prosecutors investigating the Enron debacle.=20
Investigators will look for a quid pro quo arrangement in which something o=
f value was expected from the investors in return for the lucrative opportu=
nity to participate in such a profitable deal, said Stephen Meagher, a form=
er federal prosecutor in San Francisco who handled white-collar cases.=20
A spokesman for Mr. Fastow declined to comment. Mr. Kopper did not return a=
telephone message left at his home.=20
The small group of other investors included only people who were involved i=
n partnership transactions with Mr. Fastow. Mr. Kopper, like Mr. Fastow, al=
so invested $25,000, through a partnership he called Big Doe -- apparently =
a nod to the potential profits from the investment.=20
The other investors included Ben F. Glisan Jr., the former Enron treasurer =
who helped set up some Enron partnership deals with Mr. Fastow, and Kristin=
a Mordaunt, a lawyer who worked for Mr. Fastow before becoming general coun=
sel of the company's broadband division. Mr. Glisan and Ms. Mordaunt were t=
he executives who each put up $5,800 for a return of $1 million.=20
Two other employees put up smaller amounts, and received thousands in retur=
n.=20
Henry F. Schuelke, a lawyer for Mr. Glisan, did not return a phone message.=
Ms. Mordaunt's phone number could not be found in a computer search. Howev=
er, according to the report, she informed the committee that she never aske=
d for and never provided anything in return for the Southampton investment.=
Mr. Glisan also told the committee that Mr. Fastow never asked him for any=
favors or other consideration in return for the Southampton investment.=20
For some legal experts, the Southampton transaction sounds eerily similar t=
o a central part of the investment scandal at the investment house Drexel B=
urnham Lambert Inc. more than a decade ago. There, the man in charge of Dre=
xel's junk bond operation, Michael R. Milken, offered lucrative interests i=
n a partnership called MacPherson Investment Partners L.P. to a group of mu=
tual fund managers. Some of those managers, who invested their mutual funds=
in other Drexel deals, were subsequently convicted on charges that they ha=
d accepted bribes in exchange for decisions they made for their funds.=20
With the Enron executives having fiduciary obligations to the company's sha=
reholders, legal experts said, investigators will try to determine whether =
anyone appeared to modify their actions because of the investment opportuni=
ty.=20
The MacPherson case clearly has a role as precedent in this instance, said =
Mr. Meagher, the former prosecutor.=20
Kenneth J. Vianale, the main prosecutor in the MacPherson cases, declined t=
o comment, citing a conflict; his firm has already brought class actions ag=
ainst Enron on behalf of shareholders.=20
According to the report, both Mr. Glisan and Ms. Mordaunt played roles in n=
egotiating with Mr. Fastow's partnerships on behalf of Enron after they rec=
eived their returns on the Southampton investment. That month, Mr. Glisan b=
ecame treasurer of Enron, and was intimately involved that year in a series=
of partnership deals that played a major role in bringing down the company=
. Ms. Mordaunt was involved in at least one transaction with a Fastow partn=
ership on behalf of Enron after her investment.=20
The Southampton Place partnership traces back to a $10 million investment b=
y Enron in March 1998 in Rhythms Netconnections Inc., a privately held Inte=
rnet service provider. Enron's stake, 5.4 million shares originally priced =
at $1.85 each, proved to be enormously profitable, at least for a while.=20
A little more than a year after Enron purchased its stake, Rhythms went pub=
lic at $21 a share and closed on the first day of trading at $69. Soon Enro=
n's stake was worth some $300 million, according to the committee's report.=
=20
But the company could not cash in its stake because the terms of its invest=
ment prohibited selling the stock until the end of 1999. The prices of Inte=
rnet stocks were extremely volatile, and the changes in value of Rhythms sh=
ares showed up on the company's income statement, because of how Enron was =
accounting for the shares.=20
Senior executives wanted to limit those swings in value.=20
That is where the partnerships came in. Mr. Fastow and Mr. Glisan, who woul=
d later be appointed Enron's treasurer, arranged a series of transactions s=
upposedly to hedge the risk in the Rhythms investment.=20
The complex transactions involved a number of related partnerships. But ult=
imately the deals required Enron to contribute both stock in Rhythms and it=
s own stock to the partnerships. The report said Mr. Fastow indicated to ot=
her Enron executives that he had no financial interest in the transactions.=
=20
In 2000, when Enron decided to sell its Rhythms stake, the complex series o=
f transactions had to be undone, a process known as unwinding.=20
During the negotiations on the unwinding, Mr. Fastow proposed that Enron pa=
y $30 million to one partnership involved He did not reveal at that time th=
at the partnership was secretly owned by Southampton, which had just been e=
stablished.=20
The fact that Enron executives were profiting off this deal at the expense =
of their employer raised serious concerns for the committee.=20
''We have not seen any evidence that any of the employees, including Fastow=
, obtained approval from the chairman and C.E.O. under the code of conduct =
to participate financially in the profits of an entity doing business with =
Enron,'' the report says. ''While every code violation is a matter to be ta=
ken seriously, these violations are particularly troubling.''

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Legal Liability for Enron Debacle May Be Determined by 1997 Memo
By John R. Emshwiller
Staff Reporter of The Wall Street Journal

02/05/2002
The Wall Street Journal
A6
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Legal liability in the Enron Corp. debacle could depend, in part, on who kn=
ew about an innocuous-looking, two-page memorandum dated Dec. 30, 1997, inv=
olving one of the now-controversial outside partnerships run by company exe=
cutives.=20
Enron's collapse into bankruptcy proceedings late last year, caused in larg=
e part by the existence of those partnerships, is now the focus of congress=
ional hearings and criminal and civil investigations. The company's downfal=
l also has subjected the nation's corporate-accounting practices to unprece=
dented scrutiny.
The memo was signed by two Enron executives at the time, Jeremy Blachman an=
d Michael Kopper. It included plans for how to distribute about $6.6 millio=
n from one limited partnership, known as JEDI, to another limited partnersh=
ip, known as Chewco Investments. Chewco has received widespread attention r=
ecently as one of the partnerships whose questionable accounting treatment =
helped bring Enron down. Chewco was run and partly owned by Mr. Kopper, who=
resigned last year as a managing director of the Houston energy-trading gi=
ant.=20
The memo shows Mr. Blachman was signing on behalf of an Enron unit that was=
serving as general partner of JEDI, and Mr. Kopper was signing on behalf o=
f Chewco. The memo was on JEDI letterhead and addressed to Chewco Investmen=
ts.=20
The final destination and purpose of these funds has become the center of a=
controversy between Enron and its longtime auditor Arthur Andersen LLP, as=
well as a focus of inquiries by federal investigators probing the Enron co=
llapse. Late last year, Enron and Andersen officials said their discovery o=
f the use of that money in relation to Chewco had required Enron to retroac=
tively reduce reported earnings back to 1997 by nearly $400 million, or mor=
e than 10%. This reduction produced the lion's share of a broader financial=
restatement that helped force Enron to seek bankruptcy-court protection on=
Dec. 2.=20
In Dec. 12 congressional testimony, Andersen's chief executive, Joseph Bera=
rdino, said the 1997 handling of the Chewco/JEDI financial arrangements inv=
olved "possible illegal acts." He said that in 1997, crucial information ab=
out the financial arrangements had been withheld from Andersen by Enron off=
icials.=20
Yesterday, an attorney for Mr. Kopper declined to comment. Mr. Blachman, wh=
o is currently a managing director at an Enron unit, didn't return phone ca=
lls seeking comment. It isn't clear whether Mr. Blachman played anything mo=
re than just a minor role in the Chewco matter. A report issued over the we=
ekend by Enron's board of directors investigating Enron's executive-run par=
tnerships indicates that Mr. Blachman, when interviewed recently, couldn't =
recall details of the Dec. 30 document.=20
Mr. Berardino's testimony added to questions of who knew what and when in r=
egard to Chewco. The partnership was created in 1997 to purchase from Enron=
for $383 million an interest in JEDI, which is an acronym for Joint Energy=
Development Investments. Enron had helped form JEDI in 1993 and operated i=
t as a separate entity to invest in energy projects. By selling Chewco an i=
nterest, Enron was able to keep treating JEDI as independent, which meant k=
eeping more than $700 million in JEDI-related debt off Enron's balance shee=
t.=20
Enron was only able to do this transaction because Chewco was considered an=
independent entity under accounting rules, which required that the entity =
have outside equity equal to at least $11.5 million, or 3%, of its $383 mil=
lion in assets. Andersen has acknowledged that it reviewed Chewco in 1997 a=
nd found that two small limited liability companies, known as Big River Fun=
ding and Little River Funding, had put in enough outside equity to meet tha=
t requirement. Mr. Kopper, besides his connection to Chewco, also shows up =
as signatory for Big River and Little River on its bank-loan documents.=20
As it turned out, however, more than half the outside equity investment was=
in effect guaranteed by the $6.6 million due from JEDI to Chewco being dep=
osited in accounts as collateral against bank loans, which Big River and Li=
ttle River had taken out to invest in Chewco. This collateral deposit meant=
Chewco never had enough true outside equity to be treated as independent. =
Thus it should have been folded into Enron, along with JEDI, in 1997. Ander=
sen has said it wasn't told in 1997 about the collateral arrangement.=20
The 1997 memo talks of sending the $6.6 million to reserve accounts on beha=
lf of Little River and Big River. Yesterday, an Andersen spokesman said "th=
is is more confirmation of the fact that Enron didn't provide critical info=
rmation regarding Chewco to Andersen." An Enron spokesman declined to comme=
nt. One person familiar with the matter said that in 1997 Enron officials w=
ere telling bankers involved in the Chewco-related loans that Andersen had =
reviewed and approved of the now-suspect collateral transaction. The board =
report released over the weekend said that Andersen work papers indicated t=
hat the accounting firm had access to cash-flow records from JEDI including=
the now-suspect $6.6 million distribution. However, the report added, it d=
idn't know if Andersen had done anything to trace the disbursements from JE=
DI.=20
And it still isn't known who at Enron or Andersen saw or had access to this=
1997 memo over the past four years. If individuals knew about the arrangem=
ent and its potential financial impact on Enron, they could be guilty of vi=
olations of the law, says one federal investigator looking into the matter.=
=20
A Nov. 2, 2001, memorandum prepared by an Andersen official said that the a=
ccounting firm was called on Oct. 26 by an Enron official named Rodney Fald=
yn who "advised that he had learned that Chewco may not have the requisite =
equity" and asked about the possible accounting impact of that situation. T=
hat was the same day that The Wall Street Journal disclosed the existence o=
f Chewco and its connection to Mr. Kopper. Mr. Faldyn declined to comment y=
esterday.=20
Over the next several days, Enron and Andersen began reviewing Chewco, acco=
rding to the Andersen memo. On Nov. 2, Andersen received a set of Chewco-re=
lated documents from the law firm of Wilmer, Cutler & Pickering, which had =
just been hired to help Enron's board of directors do its investigation of =
the partnership arrangements. That investigative report, released over the =
weekend, was extremely critical of Chewco and similar partnerships as well =
as of top Enron officials.=20
The Dec. 30, 1997, memo was part of the Wilmer Cutler packet of documents, =
said the Andersen memo. It isn't clear where the law firm obtained the Chew=
co-related documents. William McLucas, the firm's lead attorney on the Enro=
n investigation, couldn't be reached for comment yesterday.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Business; Business Desk
Enron Report Could Bolster Criminal Case Probe: Panel's allegations of fina=
ncial subterfuge increase likelihood of indictment, legal experts say.
WALTER HAMILTON
TIMES STAFF WRITER

02/05/2002
Los Angeles Times
Home Edition
C-1
Copyright 2002 / The Times Mirror Company

A report claiming that Enron Corp. executives used partnerships to enrich t=
hemselves and mask the company's troubled finances makes it increasingly li=
kely that prosecutors will bring criminal fraud charges, legal experts said=
Monday.=20
The report, released late Saturday by a special committee of Enron board me=
mbers, said the partnerships appeared in some cases to be used for financia=
l subterfuge rather than for legitimate business purposes.
If investigators can show that Enron officials intentionally deceived inves=
tors, it would mark a significant new development in the case, according to=
attorneys experienced in corporate fraud.=20
Enron executives would have a stronger defense had the report found that th=
ey simply made bad business decisions, attorneys said. Instead, the report =
charged that the now-infamous partnerships at the heart of Enron's collapse=
often served no "bona fide economic" purpose.=20
"This report makes it more likely that there will be a criminal indictment,=
" said Christopher Bebel, a partner at Shepherd Smith & Bebel in Houston.=
=20
"It looks like the government's going to have an easier time establishing i=
ntent, because now we've learned additional details about the efforts at co=
ncealment of the truth as the scheme was unfolding," Bebel said. "And we're=
learning about the extent to which members of top management profited."=20
The report detailed a culture of corporate mismanagement and inside dealing=
. It pointed the strongest criticism at Andrew S. Fastow, Enron's former ch=
ief financial officer, saying that he and several subordinates reaped tens =
of millions of dollars in profit at the expense of the company and its shar=
eholders.=20
Fastow could not be reached for comment.=20
Some legal authorities cautioned that it was not certain criminal charges w=
ould be brought.=20
Though the report contains strident allegations, the three-member panel ack=
nowledged that it did not have the full picture. Some key people refused to=
cooperate, and the panel lacked access to important documents.=20
Though the report appears to strengthen the government's hand in bringing p=
otential fraud charges, Enron executives still have a variety of defenses a=
vailable, some authorities said.=20
Enron executives could argue that the partnerships were created and run wit=
h the full backing of lawyers and others upon whom they relied for expert a=
dvice, said Ira Lee Sorkin, a New York defense attorney who previously was =
at both the U.S. attorney's office in New York and the Securities and Excha=
nge Commission.=20
Sorkin noted that as a defense, Enron executives could claim that lawyers, =
accountants and others signed off on the deals.=20
Still, many experts said the report contains clearly damaging information t=
hat lowers the hurdle to bringing a criminal case.=20
Simply put, the difference between a civil case and a criminal one is inten=
t, attorneys said. Prosecutors would have to prove that a defendant purpose=
ly broke the law as opposed to simply having acted "recklessly."=20
With Enron, prosecutors could argue that Fastow and others were making mill=
ions while manipulating the company's books, experts said.=20
"If the evidence is as strong as this report seems to make it, then I'd thi=
nk it's a pretty strong case," said Paul Fishman, a New York lawyer who han=
dles white-collar crime cases.=20
The report also hands the Justice Department extra ammunition with which to=
pursue its case, Fishman and others said. One major strategy in the invest=
igation is to coax insiders to cooperate with information about the wrongdo=
ing of others.=20
The report may convince some people that it's better to cooperate before ot=
hers do and they lose offers of leniency.=20
"There may be enough in [the report] that it may scare the pants off someon=
e," Fishman said.=20
If the allegations in the report bear out, the government could charge frau=
d on several levels, said Brian O'Neill, a partner at O'Neill, Lysaght & Su=
n in Santa Monica.=20
If the company was shuffling its finances while borrowing money from financ=
ial institutions, that could be bank fraud, he said. If it used the mail or=
electronic means to deceive investors, that could be mail or wire fraud.=
=20
The headline-garnering nature of the Enron debacle could itself increase th=
e likelihood of criminal charges being brought, said Henry Hu, a securities=
-law professor at the University of Texas at Austin.=20
"This case has so gripped the attention of the general public that the fail=
ure to bring a criminal prosecution, if the facts warrant it, could undermi=
ne confidence in the financial markets," Hu said. "The message it would sen=
d is that [criminal wrongdoing] doesn't matter: 'Even in an egregious situa=
tion, we won't prosecute criminally.'"

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Business/Financial Desk; Section C
ENRON'S MANY STRANDS: WALL STREET
Varied Roles Cause Some Conflicts, Brokers Say
By PATRICK McGEEHAN

02/05/2002
The New York Times
Page 6, Column 1
c. 2002 New York Times Company

Investors may have been astonished to learn that the Enron Corporation allo=
wed its former chief financial officer, Andrew S. Fastow, to wear two hats.=
But Wall Street insiders could have shrugged and said, ''Is that all?''=20
On Wall Street, the biggest and most successful firms routinely play a vari=
ety of roles and simultaneously serve several, and often conflicting, inter=
ests. In some cases, the same firms that privately sold shares in the compl=
ex partnerships that Enron kept off its balance sheet also lent Enron money=
and recommended Enron's stock and bonds to the public.
A report by a special committee of Enron's board found that the accounting =
for those partnerships -- some of which were run by Mr. Fastow while he was=
chief financial officer -- was one cause of the company's collapse. Congre=
ssional investigators are asking whether the company's auditor, Arthur Ande=
rsen, was blinded to that conflict by the consulting fees Enron was paying =
it.=20
While the large accounting firms rush to eliminate their apparent conflicts=
, executives on Wall Street are standing behind the securities laws that ha=
ve perpetuated theirs. Unless Congress or securities regulators tell them o=
therwise, the big securities firms intend to continue raising money for cor=
porations by selling stocks, bonds and shares in partnerships to the full s=
pectrum of investors, from the most sophisticated millionaires to the novic=
es.=20
''There are inherent conflicts of interest in this business,'' said James W=
iggins, a spokesman for Merrill Lynch & Company, the nation's biggest broke=
rage firm. ''It's a question of how you manage them.''=20
Like many major firms on Wall Street, Merrill helped to finance Enron's rap=
id rise. The firm managed sales of the company's bonds, lined up buyers for=
one big partnership run by Mr. Fastow and even collected a fee for advisin=
g another company on its purchase of a utility that Enron sold.=20
At times, including last fall, Merrill's stock research department advised =
brokerage customers to buy Enron's stock. Donato J. Eassey, an analyst who =
followed Enron for Merrill until December, was recommending the stock after=
Merrill successfully sold $349 million of shares in LJM2, a partnership cr=
eated by Enron executives, through a private offering. Several Merrill inve=
stment bankers, including Thomas Davis, now a vice chairman of the firm, bo=
ught shares of that partnership for themselves, though their interest was n=
ot disclosed to Merrill's customers. So far, they have recovered slightly m=
ore than 90 percent of the money they invested, according to a person close=
to the partnership.=20
There is no evidence that Merrill's investment bankers or executives ever c=
onsidered these various roles an unacceptable conflict of interest. To the =
contrary, Merrill's two top executives reassured the firm's employees last =
week about the firm's role in selling LJM2.=20
In an internal memorandum on Jan. 30, Merrill's chief executive, David H. K=
omansky, and its president, E. Stanley O'Neal, said: ''We placed it private=
ly with a limited number of qualified institutional and individual investor=
s who received full disclosure about its structure. Co-investment by Merril=
l Lynch and some of our qualified employees is common in these kinds of pla=
cements and does not represent a conflict of interest. Indeed, it directly =
aligns our interests with the sophisticated investors who join us in puttin=
g their capital at risk.''=20
If Merrill's bankers, as agents of Enron, gathered any information about En=
ron that was not available to the company's shareholders or bondholders, th=
ey would have been barred from sharing it, experts in securities law said. =
That information belongs to the client and is available to the investment b=
ankers under strict terms of confidentiality.=20
''Investment bankers are not going to blow the whistle on transactions bles=
sed by the company's lawyers and accountants,'' said Joseph McLaughlin, a p=
artner with the law firm of Sidley Austin Brown & Wood. ''You can't release=
the information without the company's permission.''=20
If bankers learned something negative in preparing to manage a private plac=
ement for a public company, he said, ''what that calls for is a frank discu=
ssion with the company'' to encourage its executive to disclose the informa=
tion publicly.=20
But if the company chooses not to tell investors everything -- as Enron cle=
arly did not -- that arrangement can leave the securities firm in an awkwar=
d position. Its analysts and brokers may be promoting stocks that they woul=
d not like so much if they knew what some of their co-workers in the invest=
ment-banking department knew.=20
Securities firms long ago became comfortable with the potential for such co=
nflicts. They have been playing the dual roles of corporate underwriter and=
financial adviser for decades.=20
''Conflicts of interest in the financial industry are as inevitable as deat=
h and taxes,'' said John Coffee, a professor of law at Columbia University.=
''You can't wholly purge them.''=20
The most likely moves to deal with those conflicts, Mr. Coffee and other ex=
perts said, will be to insulate analysts even more from their investment-ba=
nking counterparts. Rather than allowing the two sides to share more inform=
ation, regulators will probably try to limit the bankers' ability to influe=
nce the analysts' ratings and views on securities that their firms underwri=
te.=20
Beyond that, Wall Street executives are likely to resist calls for change. =
It is an industry with codes of conduct that do not prevent an investment b=
ank from representing both the buyer and the seller in a merger. ''It's tak=
en an incredible perfect storm to force the auditing industry to change,'' =
Mr. Coffee said. ''I don't think we're going to see Wall Street fundamental=
ly change how it behaves.''

Photo: David H. Komansky, chief executive of Merrill Lynch, wrote a memoran=
dum that explained the firm's role in LJM2, created by Enron. (Carol Halebi=
an)=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

COMPANIES & FINANCE THE ENRON COLLAPSE - Lawsuits may widen to hit partners=
hips SPECIAL-PURPOSE VEHICLES.
By JOSHUA CHAFFIN, STEPHEN FIDLER and ANDREW HILL.

02/05/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

Plaintiffs in suits against Enron directors and advisers are examining whet=
her to widen their case for compensation to include investors who backed th=
e energy trader's off-balance-sheet partnerships.=20
People involved in some of the class-action suits on behalf of employees an=
d investors in Enron say a damning special report to the Enron board may pr=
ovide ammunition for a wider case against the banks, funds and individuals =
that funded the special-purpose vehicles.
The report, published at the weekend, analyses in detail many of the deals =
Enron conducted with the partnerships. It concludes that many "had little e=
conomic substance" and were carried out simply to flatter the Enron account=
s.=20
Limited partners in the special-purpose vehicles took on little risk and re=
ceived disproportionately large returns, according to the report.=20
The investigation by three Enron directors does not go into detail about ho=
w the partnerships were pitched to investors by Andrew Fastow, Enron's form=
er chief financial officer, and Michael Kopper, another Enron employee. But=
other documents obtained by the Financial Times make clear that potential =
partners were aware of the inherent conflicts of interest.=20
Those documents - relating to LJM2 Co-Investment, one of the main partnersh=
ips - show the rapid deal making, high rates of return and the promise of a=
n inside track on Enron's strategy were all touted as attractions.=20
The internal report points out that in 20 transactions with Enron, "the LJM=
partnerships rarely lost money ... even when they purchased assets that ap=
parently declined in value after the sale" and in spite of the fact that "e=
ach transaction theoretically involved a transfer of risk".=20
Among investors in LJM2, according to partnership documents, were funds or =
units run by Merrill Lynch (which also led the placement of stakes in LJM2)=
, JP Morgan Chase, Citigroup, Dresdner Bank, Lehman Brothers, Credit Suisse=
First Boston, Wachovia and CIBC. GE Capital had a small stake, as did insu=
rers and individual investors.=20
"We invested $10m," Lehman said. "We did it not simply for the relationship=
, but because we thought it would be a good investment."=20
Lehman declined to comment on the possibility of a suit against partners in=
LJM2, but one institution involved said it was more likely that partners w=
ould now sue Enron.=20
The special report details for the first time the involvement of CSFB and N=
ational Westminster Bank, now part of Royal Bank of Scotland, in LJM Cayman=
(LJM1). Mr Fastow raised $7.5m from each of two limited partners ERNB and =
Campsie which, the report says, were associated with CSFB and NatWest respe=
ctively.=20
Some of those approached by Mr Fastow were intrigued by the high returns pr=
omised, but eventually deterred by the fact that the chief financial office=
r and other Enron employees were running the vehicles. Calpers, the Califor=
nian pension fund that invested in other Enron-backed entities, turned down=
LJM2 for those reasons, according to a Los Angeles Times report.=20
One private equity investor said he knew Mr Fastow's presence guaranteed "a=
n edge". But this was also disconcerting because of the apparent conflict o=
f interest.=20
"If these are legitimate deals, then why does Enron need Andy? Why not a th=
ird party?" he had wondered.=20
When the investor raised these concerns with Mr Fastow, the Enron executive=
replied that the board had approved, and so there was no problem. The inve=
stor declined to join the partnership. "The whole team were Enron guys. The=
re was not one of them who was a member of the partnership. There was somet=
hing unusual about that," he said.=20
Eli Gottesdiener, head of a Washington law firm involved in one suit agains=
t Enron and Andersen, its former auditor, declined to say whether limited p=
artners would now be sued. But he said employees' and shareholders' lawyers=
would probably "use the report to assist them in casting the net as widely=
as possible".=20
Among the most egregious transactions involving partnerships was one relate=
d to an entity called Jedi.=20
The internal report confirmed that for much of the 1990s, Enron was reporti=
ng as income gains appreciation in its own shares. From 1993 to the first q=
uarter of 2000, Enron reported as income gains the appreciation of 12m Enro=
n shares contained in Jedi, which it controlled jointly with Chewco, an ent=
ity formed by Mr Kopper.=20
Workpapers from Andersen indicated that Enron recorded $126m in Enron stock=
appreciation in the first quarter of 2000, but in the third quarter of tha=
t year this practice ended.=20
In the first quarter of 2001, Enron did not record its share of the loss in=
value of Enron shares held by Jedi - amounting to some $90m.=20
Enron accountants said they were told by Andersen that since gains were not=
being recorded as income, losses should not be either. "We do not understa=
nd the basis on which Enron recorded increases in value of Enron stock held=
by Jedi in 2000 and prior years, and are unable to reconcile that with adv=
ice apparently provided by Andersen in 2001 concerning not recording decrea=
ses," the report said.=20
(c) Copyright Financial Times Ltd. All rights reserved.=20
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Enron workers' benefits reportedly raided=20
$15 million allegedly spent elsewhere=20
By KRISTEN MACK=20
Copyright 2002 Houston Chronicle=20
Feb. 5, 2002, 12:43AM
A former senior accountant at Enron told CBS News that the company took at =
least $15 million from legally protected worker-benefits accounts and spent=
it elsewhere.=20
During an interview aired on CBS-TV's Evening News Monday, Robin Hosea said=
that immediately after joining Enron as a benefits specialist in 2000 she =
noticed the money was being spent in other departments.=20
"The money that comes out of benefits accounts that is not directly to pay =
for employee benefits is illegal," Hosea said. "It was a large amount of mo=
ney and also a large number of items."=20
The Chronicle was unable to reach Hosea Monday night.=20
She said her records showed unexplained payments totaling almost $15 millio=
n by the end of 2000, part of which went to monthly payments to outside con=
sultants.=20
Last May, Hosea said she questioned her superiors about the payments and wa=
s told "that it was a payment to friends of executives and to leave it," sh=
e told CBS.=20
That summer, Hosea took disability for knee surgery.=20
Days before Enron declared bankruptcy, Hosea told CBS that she contacted fe=
deral officials at the Department of Labor about her concerns.=20
Since then, Hosea said, an Enron supervisor has told her to keep quiet. She=
also said she gets regular phone threats.=20
Hosea was laid off from Enron in December.=20
"Those sound like serious allegations," said Enron spokesman Mark Palmer.=
=20
Monday night, Palmer said there was no way of checking the truth of her cla=
ims.=20
"If the Department of Labor is looking into this, we should wait until thei=
r investigation is complete to find out what the facts are," Palmer said.=
=20

A Section
Enron Witness Points to Lay; Lawmakers Told of 'Fundamental Default of Lead=
ership'
Robert O'Harrow Jr. and Jackie Spinner
Washington Post Staff Writers

02/05/2002
The Washington Post
FINAL
A01
Copyright 2002, The Washington Post Co. All Rights Reserved

Enron Corp.'s collapse was the result of a "a systemic and pervasive attemp=
t" to inflate profits and hide losses, not of a few rogue employees breakin=
g company rules, a member of Enron's board of directors told a House panel =
yesterday.=20
The testimony from William C. Powers Jr., dean of the University of Texas L=
aw School and an author of a scathing report about the energy trading compa=
ny released over the weekend, will make it even more difficult for Enron's =
former leaders to deflect blame for the company's stunning collapse to lowe=
r-level employees or its auditor, Arthur Andersen.
"What we found was appalling," said Powers, chairman of the Enron board's s=
pecial investigative committee. "And there was a fundamental default of lea=
dership and management. Leadership and management begin at the top, with th=
e CEO, Ken Lay."=20
Powers testified before a House Financial Services subcommittee after Lay b=
acked out of a pledge to appear before a Senate panel yesterday. Lay then r=
esigned from Enron's board, closing out his involvement in a company he hel=
ped to form in 1986.=20
Lay changed his mind because of "inflammatory language" surrounding the cas=
e and his perception "the hearing will be prosecutorial," his attorney said=
. Lay resigned as chief executive late last month under pressure from the c=
ompany's creditors.=20
The Powers report concluded that Lay and former chief executive Jeffrey K. =
Skilling were largely responsible for a "fundamentally flawed" decision to =
let Andrew S. Fastow, the company's chief financial officer at the time, se=
t up and run Enron-funded partnerships that made him tens of millions of do=
llars and allowed Enron to hide huge losses and debts. Enron finally was fo=
rced to disclose those losses in mid-October, sparking a crisis of confiden=
ce among investors, lenders and customers that sent what was the nation's s=
eventh-largest corporation spiraling into bankruptcy court within seven wee=
ks.=20
Fastow received at least $30 million from running partnerships -- a fact th=
at was never reported to shareholders. One of his colleagues, Michael J. Ko=
pper, got at least $10 million from an initial investment of $125,000. Othe=
rs received up to $1 million or more for doing virtually nothing, Powers sa=
id.=20
In other testimony, Harvey L. Pitt, chairman of the Securities and Exchange=
Commission, told the House panel he cannot guarantee that other "Enrons" -=
- companies with massive accounting irregularities -- won't emerge. "It is =
my hope there are not other "Enrons out there," Pitt told lawmakers. "But I=
'm not willing to rely on hope."=20
Within hours after Lay's testimony was to have begun, leaders of the Senate=
Commerce Committee and its subcommittee on consumer affairs said they inte=
nd to subpoena Lay to testify next Tuesday. Committee Chairman Ernest F. Ho=
llings (D-S.C.) said the full committee would meet today to vote on authori=
zing the subpoena.=20
Hollings also said the Justice Department should appoint an outside special=
prosecutor to handle the case because Enron was a major contributor to Pre=
sident Bush's campaign and had ties to an array of administration officials=
. He cited, among other things, Attorney General John D. Ashcroft's decisio=
n to recuse himself because of Enron campaign contributions.=20
The Justice Department released a statement saying it "sees no reason to ap=
point a special counsel to investigate the Enron matter" because "no confli=
ct of interest exists."=20
In the House, Rep. Richard H. Baker (R-La.), chairman of the subcommittee t=
hat heard testimony yesterday, said the panel also would seek authority to =
subpoena Lay. "Those who chose to ignore their responsibilities and enrich =
themselves while bringing harm to others shall have no safe harbor," he sai=
d in a statement that opened a hearing about Enron yesterday afternoon.=20
Baker later said Lay's attorney, Earl Silbert, told him Lay would invoke th=
e Fifth Amendment and refuse to testify if subpoenaed. But Baker said he ex=
pected to submit written questions to Lay, through his attorneys.=20
"Mr. Lay firmly rejects any allegations that he engaged in wrongful or crim=
inal conduct," Silbert told the panel.=20
Powers declined to answer some of the House subcommittee's questions, inclu=
ding those asking him to speculate about criminal wrongdoing or the need fo=
r a special prosecutor. He used his appearance to underscore the damning fi=
ndings of the Enron board's three-month investigation of the company's use =
of partnerships.=20
He described incorrect accounting in deals from the third quarter of 2000 t=
o the third quarter of last year that were hidden from the public.=20
"As a result of these transactions, Enron improperly inflated its reported =
earnings for a 15-month period . . . by more than $1 billion," he said. "Th=
is means that more than 70 percent of Enron's reported earnings for this pe=
riod were not real."=20
The company misused its stock to "hedge" losses from investments, he said. =
Normally, hedging involves getting an outsider to take on the risk of a dea=
l, for a fee. If an investment loses value, that outsider loses.=20
But Powers said Enron "was essentially hedging with itself" by promising in=
vestors in the Raptor partnerships that they would receive Enron stock if t=
he assets in the partnerships fell in value. That depended on Enron's stock=
continuing to climb in value. When the asset values and Enron's stock both=
fell, the Raptor partnerships could not meet their obligations. "This is p=
recisely what happened in late 2000 and early 2001," Powers said, but Enron=
hid the problem and "gave the false impression that Raptors had enough mon=
ey to pay Enron what they owed," he said.=20
"Let me say that while there are questions about who understood what, conce=
rning many of these very complex transactions, there's no question that vir=
tually everyone, from the board of directors on down, understood the compan=
y was seeking to offset its investment losses with its own stock," he said.=
"This is not the way it is supposed to work."=20
He told the lawmakers, "Whenever this many things go wrong it is not just t=
he act of one or two people."=20
Pitt, in his testimony, repeated his call for a new regulatory body to gove=
rn the accounting profession and stressed the need to modernize financial d=
isclosure rules and corporate accounting systems. And he lamented the impac=
t of Enron's fall on regular people who trusted the company, such as employ=
ees who lost most or all of their 401(k) retirement savings because they we=
re heavily invested in Enron stock.=20
"It is these Americans whose faith fuels our markets, who have no lobby and=
no trade associations, whose interests are, and must be, paramount," he sa=
id. "I am appalled at what happened to them as a result of Enron's collapse=
."=20
Pitt said the SEC would work with Congress to determine which areas of refo=
rm could be addressed by rules and which would require legislative action. =
He did not outright reject several suggestions, including a mandated term l=
imit for audit firms, that the accounting profession vehemently opposed whi=
le he represented it as a lawyer in private practice.=20
He also pledged to review how audit firms are paid and said the SEC was wor=
king with lawmakers to address concerns related to conflicts of interest am=
ong securities analysts, many of whom were urging investors to buy or hold =
Enron stock until just before it sought bankruptcy protection.=20
Key figures in the creation of the partnerships have been invited before Co=
ngress on Thursday, but not all of them will actually testify.=20
Fastow's attorney has said he will appear before the House Energy and Comme=
rce Committee, but aides there said he is expected to exercise his Fifth Am=
endment right against self-incrimination. Kopper has been subpoenaed but ha=
s informed the committee he will refuse on Fifth Amendment grounds.=20
But an attorney for Skilling reiterated yesterday that Skilling will testif=
y as scheduled. Skilling also was criticized in the Powers report, which de=
scribed him as a man who prided himself on total involvement in management =
oversight but who appeared to have little or no oversight of the partnershi=
ps.=20
Former Enron treasurer Jeffrey McMahon, now the company's president, is exp=
ected to testify. He complained about the partnership structure to Skilling=
, warning of serious conflicts of interest, according to the report. An Enr=
on lawyer who raised questions about the partnerships, Jordan Mintz, is als=
o planning to testify, according to his attorneys.=20
Arthur Andersen chief executive Joseph F. Berardino previously testified th=
at Enron officials committed "possible illegal acts" by not disclosing that=
a partnership that caused huge losses lacked enough non-Enron investment t=
o be separated from Enron's financial statements.=20
Powers said Andersen initially cooperated in his investigation but pulled o=
ut after Enron fired it last month, citing Andersen's admission that employ=
ees in its Houston office had destroyed large numbers of documents related =
to the Enron audit.=20
Andersen announced over the weekend that it had hired former Federal Reserv=
e chairman Paul A. Volcker to lead a sweeping review of its business practi=
ces. Dean McMann, who heads a Houston-based accounting consulting firm, sai=
d that suggested to him that the firm's problems may be greater than previo=
usly realized.=20
"They had to hire a watchdog to watch over a watchdog," he said.=20
In federal bankruptcy court, meanwhile, a number of creditors filed objecti=
ons to a motion submitted in by Enron last month that would authorize certa=
in Enron insurance carriers to make payments to lawyers representing curren=
t and former Enron officials in lawsuits and government investigations.=20
The officials include Skilling. An attorney for Skilling submitted a statem=
ent supporting the Enron request.=20
The objecting creditors included the Florida State Board of Administration,=
which in its filing called Enron's request for an initial $30 million to p=
ay advance expenses and legal fees "another effort on Enron's part to prote=
ct the wrongdoers who caused billions of dollars of losses . . . and to pro=
vide them with further financial benefits."=20
Staff writers Helen Dewar, Susan Schmidt, Kirstin Downey Grimsley and Ben W=
hite contributed to this report.

http://www.washingtonpost.com=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Financial
Little-Known Academic Pushed Onto Enron Stage
Carrie Johnson
Washington Post Staff Writer

02/05/2002
The Washington Post
FINAL
E01
Copyright 2002, The Washington Post Co. All Rights Reserved

Last Halloween, amid revelations of accounting misdeeds at Enron Corp., Wil=
liam C. Powers Jr. called a friend with some unexpected news.=20
Powers, dean of the University of Texas Law School, had agreed to join the =
troubled energy company's board of directors -- and to lead a probe into it=
s byzantine financial dealings.
"I asked him, 'Why would you want to jump on a sinking ship?' " recalled Ri=
chard Hogan, a Houston lawyer.=20
Indeed, many wondered. Texas newspapers questioned his ties to Enron -- the=
law school had raised $250,000 from Enron and Enron's general counsel was =
on the board of the law school.=20
Yet in just three months the relatively unknown academic, with little backg=
round in securities law, oversaw the production of a withering report on th=
e management practices at Enron and the actions of its auditor, Arthur Ande=
rsen.=20
The extraordinary 218-page report detailed questionable financial partnersh=
ips and activities that are providing a blueprint for more than a dozen con=
gressional and executive branch investigations.=20
Powers testified at a hearing yesterday before a subcommittee of the House =
Financial Services Committee. In the wake of former Enron chief executive K=
enneth L. Lay's refusal to testify, Powers became an unlikely star witness,=
sitting solemnly in a rumpled dark-blue suit, with sandy hair brushed acro=
ss his forehead.=20
His testimony was as blunt as the report. "What we found was absolutely app=
alling," Powers said.=20
And he spared no one, not even the board that had asked him to make the stu=
dy, presumably in the hopes of salvaging the company's reputation. "Within =
Enron, the checks and balances simply broke down. The oversight broke down =
at the board level, at the senior management level and in the finance depar=
tment," he told lawmakers.=20
Powers, 55, declined comment through a spokeswoman. But interviews with fri=
ends and colleagues say his handling of the investigation reflected his ble=
nd of low-key intelligence and earthy pragmatism.=20
"He's an extraordinarily quick study," said Steven Goode, an associate dean=
at the Texas law school and a friend of Powers's since they joined the fac=
ulty in 1977. "He grasps things more quickly and more deeply than anyone I =
know."=20
Goode, who shares a motorboat with Powers and Powers's wife, Kim Heilbrun, =
a real estate lawyer, said Powers has a razor-sharp and curious mind. Books=
helves in the modern Austin home where Powers lives with his wife and three=
of his five children are filled with audiotapes from the Learning Co. on s=
ubjects including American literature, the New Testament and physics.=20
Despite 23 years of teaching at the law school in Austin and two as its dea=
n and chief fundraiser, Powers has not developed a national reputation outs=
ide of the law school community and the relatively small group of lawyers w=
ho focus on reforming product-liability laws. Powers has written dozens of =
articles and several textbooks on the subject.=20
"He's not a pretentious person," said Houston lawyer and multimillionaire J=
oe Jamail, a member of the Texas law school's board of trustees and a lawye=
r representing Enron's law firm, Vinson & Elkins. "He just does not get out=
and beat his own chest."=20
Friends say Powers has been working 100-hour weeks to balance the duties of=
the Enron probe with that of running a law school. Raymond Troubh, a New Y=
ork financial consultant who serves on the three-member Enron investigating=
committee, said the group worked long hours, with conference calls stretch=
ing until midnight and beyond.=20
Staffers from the Washington law firm Wilmer, Cutler & Pickering and the ac=
counting giant Deloitte & Touche did much of the hands-on work. But the thr=
ee-member committee, which also includes Herbert Winokur, head of a private=
investment firm, played a large part in guiding, rewriting and revising th=
e Enron report, Troubh said.=20
Although Powers has been teaching full time for two decades -- earning a di=
stinguished-teaching award from the university -- he has maintained an acti=
ve legal practice, arguing before the Texas Supreme Court and the 5th U.S. =
Circuit Court of Appeals.=20
Powers colleagues say that although he lacks a background in derivatives, h=
e does have a reputation for being able to sort through confusing corporate=
dealings. For instance, he was hired by workers to cut through the complex=
structure of an oil company after an explosion at a refinery in Corpus Chr=
isti, Tex., left some severely burned.=20
The firm, Coastal Corp., maintains that the factory is owned by a subsidiar=
y, Coastal Refining & Marketing Inc., and that Coastal Corp. has no legal r=
esponsibility to pay the $120 million awarded by a court. The case is on ap=
peal.=20
"Bill was able to help us pierce through the corporate structure to get to =
the real guts of what's going on," said Hogan, the Houston lawyer whose fir=
m employs Powers as a consultant. "He's very good at taking a snapshot of t=
hings from 30,000 feet up and seeing things clearly."=20
Powers earned a degree in chemistry from the University of California at Be=
rkeley in 1967, then joined the Navy and served for three years in the Pers=
ian Gulf. He then attended Harvard University's law school, where he edited=
the law review.=20
By one account, Powers came to the attention of Enron through Harry Reasone=
r, the managing partner of Vinson & Elkins and a trustee on the University =
of Texas Law School Foundation.=20
Enron general counsel James Derrick served on the law school foundation's b=
oard of directors and on the alumni association board. Derrick resigned fro=
m the two boards after Powers joined Enron's board. Because the law school =
received contributions from Enron and Vinson & Elkins, Powers has been crit=
icized in recent weeks for agreeing to head the probe.=20
The jabs, including an editorial in the Austin American-Statesman that reco=
mmended Powers step down in favor of a more independent evaluator, have tak=
en their toll.=20
"All of the innuendos are quite embarrassing to him," said Troubh. "I didn'=
t see one iota of partiality in one direction or another. He was a determin=
ed, impartial chairman."=20
Longtime friend Goode said Powers was most upset that the "unfair personal =
attacks" came in the days before Powers released his report, which conclude=
d that Enron executives failed to oversee key partnerships and covered up $=
1 billion in losses in 12 months.=20
The Feb. 2 report also had harsh words for Vinson & Elkins, the auditing fi=
rm Arthur Andersen and Enron's board of directors, saying they failed to mo=
nitor self-dealing among company executives.=20
"The tragic consequences of the related-party transactions and accounting e=
rrors were the result of failures at many levels and by many people," the r=
eport said. "Our review indicates that many of those consequences could and=
should have been avoided."=20
Researchers Richard Drezen and Kim Klein contributed to this report.

http://www.washingtonpost.com=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

International
Bidders Emerge for Enron's British Water Utility --- Sale of Wessex Water C=
ould Bring $1.4 Billion To Failed Energy Firm
By Erik Portanger and James R. Hagerty
Staff Reporters of The Wall Street Journal

02/05/2002
The Wall Street Journal
A12
(Copyright (c) 2002, Dow Jones & Company, Inc.)

LONDON -- Efforts to salvage value from the wreckage of Enron Corp.'s overs=
eas interests are showing signs of progress.=20
A shortlist of bidders has been drawn up for Wessex Water, a utility in sou=
thwest England that is one of the largest international assets of the faile=
d energy-trading company. People familiar with the situation say the list i=
ncludes Italian energy company Enel SpA; Cheung Kong Infrastructure Holding=
s Ltd. of Hong Kong; and a consortium composed of General Electric Co.'s GE=
Capital arm, Royal Bank of Scotland and Abbey National PLC.
The sale is expected to take another six to eight weeks to complete. A pers=
on familiar with the bidding said Wessex is likely to fetch more than GBP 1=
billion ($1.4 billion).=20
Spokesmen for GE Capital, Royal Bank of Scotland, Abbey National and Enel d=
eclined to comment. A spokesman for Cheung Kong wasn't immediately availabl=
e for comment.=20
Separately, PricewaterhouseCoopers, the accounting firm appointed last year=
as administrator of Enron's European arm, expects to raise $500 million to=
$750 million through other transactions, including asset sales and complet=
ion of futures trades. That money would go toward the claims of thousands o=
f creditors and trading partners of Enron Europe and its units, said Tony L=
omas, a partner at PricewaterhouseCoopers in London. Enron Europe owes abou=
t $1 billion to its parent, Enron Corp., and Enron Europe's obligations to =
other parties are likely to total more than $1 billion, Mr. Lomas said.=20
Enron Corp. bought Wessex in 1998 to be the cornerstone of a new global wat=
er division, called Azurix. Enron's plan at the time was to transform the g=
lobal water industry in the same way it revolutionized natural-gas markets,=
by taking advantage of deregulation to squeeze inefficiencies out of utili=
ties formerly managed by governments. But the strategy didn't work out as p=
lanned, at least partly because of Enron's failure to create a successful o=
nline marketplace to trade water.=20
Even so, Wessex Water is considered one of the best-run utilities in Britai=
n and one of only a handful of sizable water assets up for grabs anywhere i=
n the world. "If you are looking to make an entry into the global water mar=
ket, then the U.K. is one of the few parts of the world where you can do th=
at on a meaningful scale," said Andrew Wright, an analyst at UBS Warburg in=
London. The sale has been complicated, however, by strict regulatory const=
raints that prevent companies from owning, or holding a stake in, more than=
one U.K. water company. While more than a dozen potential bidders expresse=
d interest in Wessex, many of these dropped out at an early stage.=20
Even if a sale is completed, it would require the approval of British regul=
ators.=20
At least one of the bidders on the shortlist, the GE Capital-led consortium=
, has made an offer that would involve refinancing the water company with d=
ebt, which would then be paid off by revenue, say people familiar with the =
situation. This so-called securitization technique has been used frequently=
in the past to acquire assets with stable cash flows.=20
Enel's interest in Wessex suggests an about-face for the Italian-government=
-controlled company, which last year pulled out of a race to acquire Britai=
n's Southern Water. Analysts believe Enel is pursuing Wessex as part of a b=
roader push to diversify out of its core electricity operations and into ot=
her utility sectors. Cheung Kong Infrastructure Holdings, an infrastructure=
company controlled by Hong Kong businessman Li Ka-shing, is believed to be=
seeking a foothold in the European market.=20
Separately, PricewaterhouseCoopers has scheduled a series of meetings in Lo=
ndon next week with creditors of Enron Europe and its subsidiaries.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

COMPANIES & FINANCE THE ENRON COLLAPSE - Enron Direct pay-outs decided.
By MATTHEW JONES.

02/05/2002
Financial Times
(c) 2002 Financial Times Limited . All Rights Reserved

Administrators for Enron Europe have determined approximate payment levels =
for creditors of Enron Direct, the first business to be sold after the US p=
arent group's collapse in December last year.=20
PwC, the administrators, said between 55p and 73p in the pound would be pai=
d back to creditors, depending on the tax liability of the company, a small=
energy retailer sold in December to Centrica of the UK.
Enron Direct's total debts are #132m ( $188m), of which #105m is owed to an=
other Enron subsidiary. The largest external creditors are listed as Univer=
sal Utilities, owed #2.5m, Western Power Distribution, owed #2m, and Scotti=
sh and Southern Energy, owed #1.3m.=20
Creditors of Enron Direct are likely to receive among the highest payments =
of Enron's creditors, because it was a relatively straight-forward business=
with some assets.=20
Other businesses, such as Enron Power Operations Limited, a company with 4,=
000 creditors that set up services contracts for other Enron units, are exp=
ected to recoup less of their losses.=20
PwC sent preliminary reports on five Enron subsidiaries to thousands of cre=
ditors over the weekend. The complexity of deals within the trading and ser=
vices businesses, which represent the bulk of Enron Europe's debts, mean it=
will be months before their creditors know the full extent of liabilities.=
=20
Tony Lomas of PwC said trading staff were still working through 250,000 ind=
ividual trades with about 1,000 counterparties. Those contracts "in the mon=
ey" would realise at least $150m, but losses were expected to be many times=
greater.=20
Overall, administrators estimate they will realise $500m to $750m of value,=
but this will be swamped by "many billions of dollars" of debts. Creditors=
include most of the financial institutions operating in the City of London=
, the worst exposed of which include JP Morgan Chase, Bank of Tokyo Mitsubi=
shi and Aegon, the Dutch insurer.=20
The first creditors' meetings for the European businesses will be held next=
week in London. Enron Direct creditors will meet administrators on Tuesday=
, while those of four other trading and services companies will meet on Fri=
day.=20
(c) Copyright Financial Times Ltd. All rights reserved.=20
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Business/Financial Desk; Section C
ENRON'S MANY STRANDS: ACCOUNTING
Ernst & Young Latest Auditor Moving to Alter Some Practices
By JONATHAN D. GLATER

02/05/2002
The New York Times
Page 1, Column 5
c. 2002 New York Times Company

The accounting firm Ernst & Young announced yesterday that it would stop se=
lling information technology services to companies it audits and that it wo=
uld no longer serve as internal accountant and external auditor at the same=
company.=20
The move by Ernst & Young comes as several competitors are announcing new l=
imits on the range of services they will provide to a client. On Sunday, Ar=
thur Andersen, the accounting firm that audited the Enron Corporation, anno=
unced that it was creating a special oversight board with broad powers to c=
hange how the firm does business. KPMG and PricewaterhouseCoopers both anno=
unced last week that they would support similar changes.
Ernst & Young's announcement leaves Deloitte & Touche as the only Big Five =
accounting firm standing by the practice of providing consulting services t=
o companies it audits.=20
In a statement last week, Deloitte acknowledged that its policy was perceiv=
ed as a problem by investors, but said, ''The public interest would be serv=
ed by lowering the level of hyperbole in the debate and carefully consideri=
ng potential unintended consequences of any proposed reforms.''=20
James S. Turley, Ernst & Young's chief executive, said in a conference call=
with reporters yesterday that it was important for the large accounting fi=
rms to adopt clear positions on the question of which services auditors can=
provide to clients. Investors, regulators and lawmakers have been calling =
for a review of the many services accounting firms provide since the collap=
se of Enron and its filing for bankruptcy protection. Enron's auditor, Arth=
ur Andersen, provided both consulting and audit services and also served at=
times as an internal and external auditor.=20
''It's obviously a challenging time for the profession,'' Mr. Turley said. =
''Over the last few weeks it became very clear to me that several of us nee=
ded to stake out positions and just get on with things, relative to the sco=
pe of services.''=20
Mr. Turley said he favored the creation of an independent disciplinary orga=
nization unrelated to the accounting industry's trade association, a propos=
al similar to one made last month by the chairman of the Securities and Exc=
hange Commission, Harvey L. Pitt. But he also suggested that regulators cre=
ate a crisis-response team that would react to situations like Enron's bank=
ruptcy filing by recommending rapid changes to accounting standards.=20
Mr. Turley said that providing consulting services to companies audited by =
Ernst & Young did not in fact create conflicts of interest and that a prohi=
bition against doing so would probably not prevent an Enron-style implosion=
.=20
Rather, he said the public perception of a conflict had to be addressed. In=
any event, he said, giving up technology consulting would not be a serious=
hardship because the firm sold its consulting business to Cap Gemini, a Eu=
ropean consulting firm, in 2000.=20
Ernst & Young will, however, feel the effects of no longer serving as both =
internal and external accountants for its clients, Mr. Turley said. From 20=
to 25 clients receive both services, and the internal audit work generates=
several hundred million dollars a year for the accounting firm.=20
Ernst & Young would not disclose exactly how much it earns from clients whe=
re it is both internal and external auditor. The firm could lose some clien=
ts when it changes its policies, but it could just as easily pick up client=
s from other accounting firms making similar changes. Not to take such step=
s might keep the accounting industry from recovering its credibility, Mr. T=
urley warned. That in turn could cause it to lose its best people.=20
''The profession could become one where existing professionals don't want t=
o stay in it,'' he said, and students would not want to work as accountants=
.=20
The same concerns are behind an e-mail message sent yesterday by James G. C=
astellano, chairman of the American Institute of Certified Public Accountan=
ts, to members of that organization.=20
Mr. Castellano wrote that ''Enron's collapse has eroded our most important =
asset: public confidence,'' and reported that the association's board had a=
pproved a resolution supporting measures similar to those adopted by Ernst =
& Young, Andersen and others.=20
Mr. Castellano also advised the group's members that in the next few weeks =
the association would take out advertisements in national publications to t=
ry to restore confidence in the accounting profession and attract recruits.=
=20
''The profession's heightened visibility,'' Mr. Castellano wrote, ''makes t=
his an opportune time to convey our messages regarding its viability, dynam=
ism and high standards.''

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Dynegy charges Enron has only itself to blame=20
By BILL MURPHY=20
Copyright 2002 Houston Chronicle=20
Feb. 4, 2002, 9:33PM
Enron has only itself to blame for going bankrupt after Dynegy called off a=
proposed merger in December, Dynegy's lawyer said Monday.=20
Enron is suing for $10 billion, saying Dynegy's failure to live up to the d=
eal, signed Nov. 9, caused it to go bankrupt.=20
"Enron planted the seeds of its death spiral years before it turned to Dyne=
gy seeking a bailout," said Dynegy's response, filed Monday in New York ban=
kruptcy court.=20
At a news conference in Houston, Daryl Bristow, Dynegy's lawyer, said the d=
eal specifically allowed Dynegy to back out if it learned that key informat=
ion on which it was based was incorrect.=20
After about 10 days of research, Bristow said, Dynegy learned Enron had bee=
n concealing debt in off-the-book accounts and had been grossly misleading =
about profits and liquidity. When it told Enron it would back out, he said =
Enron responded by cutting its asking price in half.=20
Dynegy called off the deal Nov. 28 after determining there was no way to sa=
ve Enron, Bristow said.=20
"Everyone knew there had been a major and a disastrous financial change," B=
ristow said. "Enron brought this on its own head. Dynegy only tried to salv=
age the situation."=20
Bristow repeatedly cited the report of an Enron internal investigation, rel=
eased Saturday, that assailed the company's executives, auditors, lawyers a=
nd board members for letting improperly created partnerships inflate compan=
y profits, conceal its debt and wrongfully enrich several insiders.=20
During negotiations, Enron informed Dynegy its core energy-trading business=
was sound, but Bristow said Enron had suffered a massive cash drain in the=
week after the merger was announced.=20
Enron paid more than $1 billion to cover margin calls -- a demand that it r=
epay money borrowed to buy stocks -- in its trading unit.=20
Bristow said Dynegy will argue that the Enron suit should be transferred fr=
om the New York City court to federal district court in Houston.=20
Dynegy alleges Enron engaged in fraud, but it did not file a countersuit be=
cause Enron has no assets, Bristow said.=20
Martin Bienenstock, Enron's lawyer, said, "If they are afraid to assert the=
fraud claim (in a countersuit), you have to wonder how good their defense =
is."=20
He said he has not read Dynegy's court filing and could not discuss it in d=
etail.=20
=20
'He should have been here'=20
Ex-staffers irked after trip to D.C.=20
By PATTY REINERT=20
Copyright 2002 Houston Chronicle Washington Bureau=20
Feb. 4, 2002, 11:37PM
WASHINGTON -- Laid-off Enron Corp. workers, who traveled to Washington in h=
opes of confronting Ken Lay, said they were angry Monday that their former =
chairman backed out of his promise to testify before Congress.=20
"He should have been here. He should have said something," said Gwen Gray, =
who worked in Enron's human resources department for three years before the=
company filed for bankruptcy last year. "He knows what's going on. He coul=
d explain a lot of things that we don't know the answers to now because he =
didn't show up."=20
Lay, who resigned as the Houston company's top executive last month and fro=
m the company's board Monday, had been scheduled to testify before the Sena=
te Commerce and House Financial Services committees, the first of several h=
earings on Capitol Hill this week looking into Enron's collapse.=20
On Sunday, Lay abruptly reversed course and said he would not testify.=20
The decision came one day after University of Texas Law School Dean William=
Powers released his report on the company's activities.=20
Powers, who testified before the House panel Monday, said his investigation=
found that Enron's management attempted to misrepresent the company's fina=
ncial condition.=20
In his written testimony, Powers said there was a default of leadership and=
management that began at the top and included Lay.=20
Enron, once the world's largest energy trader, filed the country's largest =
bankruptcy on Dec. 2 after admitting it overstated its profits by hundreds =
of millions of dollars since 1997. In addition to at least 10 congressional=
inquiries and investigations by the Securities and Exchange Commission, th=
e Labor Department and the Federal Energy Regulatory Commission, Enron and =
its executives face a federal criminal probe and several class-action lawsu=
its filed by employees and stockholders.=20
The company's former employees say they were misled about its finances and =
were briefly kept from selling Enron stock from their 401(k) retirement pla=
ns last fall as the price was falling. Now, they want their money back.=20
In letters to congressional committees, Lay's attorney, Earl Silbert, said =
his client rejects allegations that he did anything wrong as his company sp=
iraled toward bankruptcy. But Silbert said he advised his client against te=
stifying after coming to the conclusion that lawmakers had already made up =
their minds and would not give Lay a fair hearing.=20
The Senate committee plans to vote today on whether to subpoena Lay; the Ho=
use panel also is considering a subpoena.=20
The small group of former workers, accompanied by the Rev. Jesse Jackson an=
d members of his Rainbow/PUSH organization, met with lawmakers, urging them=
to pass legislation to help workers recover money lost from their retireme=
nt plans. Several laid-off workers sat in on the House panel's hearing.=20
Debbie Perrotta, a Kingwood resident who was a senior administrative assist=
ant at Enron for five years, said she was not surprised that Lay changed hi=
s mind about testifying.=20
Perrotta, scheduled to testify today before the Senate Governmental Affairs=
Committee, said she held out little hope of confronting Lay about Enron's =
collapse. If she ever gets the chance, she said she will ask:=20
"Why the deceit? Why the lies? And if you knew there was something going on=
, that we were losing money, why did you continue to take bonuses?"=20
Perrotta said she also lost her family's health insurance and about $40,000=
in Enron stock in her 401(k).=20
In her testimony today, she said, she'll try to explain to lawmakers why th=
e employees put trust in the company.=20
"We loved Enron," she said. "Enron was a great company."=20
The workers had hoped to sit behind Lay in the hearing rooms so that when T=
V cameras recorded his testimony, they also would show former employees.=20
"We need to see him face to face, and let him look at our faces," Perrotta =
said. "He needs to know how many lives they've destroyed."=20
=20
MANAGING YOUR CAREER
Saving Your Career After Earning a Name As a Whistle-Blower
By Joann S. Lublin

02/05/2002
The Wall Street Journal
B1
(Copyright (c) 2002, Dow Jones & Company, Inc.)

ENRON EXECUTIVE Sherron Watkins never intended to become a whistle-blower b=
y helping expose the practices that triggered her company's financial colla=
pse.=20
When Jeffrey Skilling, president of the Houston energy concern, abruptly qu=
it in August, Enron officials set up a special letter-collection box so emp=
loyees could anonymously vent their worries. Ms. Watkins, vice president fo=
r corporate development, wrote an unsigned, one-page note to then-Chairman =
Kenneth Lay. "Has Enron become a risky place to work?" her letter asked, af=
ter questioning its irregular accounting methods.
"I am incredibly nervous that we will implode in a wave of accounting scand=
als," she continued. "My eight years of Enron will be worth nothing on my r=
esume."=20
Nothing may be further from the truth. Ms. Watkins's subsequent experience =
suggests that whistle-blowing need not blow your career. Informers about wo=
rkplace misdeeds can minimize career damage if they enjoy a strong reputati=
on for honesty, management experts and former whistle-blowers say.=20
Ms. Watkins, 42 years old, has been lauded for her courage since a House co=
mmittee investigating Enron released an expanded version of her letter last=
month. Her reluctant internal disclosure "is going to be terrific for her =
career. It shows profound integrity and discretion," says Hal Reiter, CEO o=
f New York recruiters Herbert Mines Associates.=20

THOUGH MANY whistle-blowers get forced out after going public, Enron's mess=
offers Ms. Watkins some job security. Even so, blowing the whistle within =
Enron "wasn't an easy thing to do," says Philip Hilder, a Houston attorney =
representing Ms. Watkins and speaking on her behalf.=20
Shortly after writing the letter, Ms. Watkins accepted a colleague's sugges=
tion to divulge her identity and meet with Mr. Lay, where she detailed her =
concerns. That session prompted the company to invite a law firm's investig=
ation. Enron filed for bankruptcy Dec. 2.=20
Why didn't Ms. Watkins protect co-workers by alerting the SEC, asks Jeffrey=
Wigand. He is the research executive who blew the whistle on alleged wrong=
doing by his former employer, Brown & Williamson Tobacco. He became an educ=
ator at one-tenth his former $300,000 salary. Keeping complaints in-house "=
minimizes your career damage . . . as well as minimizes your integrity," he=
believes.=20
Ms. Watkins didn't contact securities regulators because she was challengin=
g accounting practices approved by Enron lawyers and accountants, Mr. Hilde=
r replies.=20
Jerry Giordano understands the dilemma. In 1981, the then 37-year-old marke=
ting director caused an internal ruckus but didn't inform authorities when =
he found what he says were unlawful pricing practices at a small West Coast=
industrial-products manufacturer. To make old products appear new, he says=
, the maker repackaged them, falsified engineering specifications and order=
ed him to pitch them before salespeople. An ex-Federal Trade Commission off=
icial advised him the small business wouldn't likely be prosecuted.=20
Mr. Giordano confided his dilemma to a friend he had worked for at a defens=
e contractor. The former boss had commended his integrity when he exposed h=
idden cost overruns at their former company. Both left for other jobs. "He =
created a job for me" at his new employer, he says.=20
Good thing. Before he could resign, he was fired for sending a memo to coll=
eagues about the company's packaging practices that concluded "being indict=
ed looks bad on your resume." Mr. Giordano, now the 58-year-old CEO of Crit=
erium-Mooney Engineers, civil-engineering consultants in Portland, Maine, w=
ould gladly hire Ms. Watkins. "She did the right thing by going to the top,=
" he says.=20
At the moment, Mr. Hilder says, Ms. Watkins isn't thinking about whether he=
r internal whistleblowing might harm her career. "If the time ever comes wh=
en she needs to seek employment, she will rest on her abilities," the attor=
ney insists.=20

BARBARA PROVUS, a principal of Chicago recruiters Shepherd Bueschel & Provu=
s, is skeptical. "Very few companies really want a corporate conscience," s=
he says.=20
Renwick T. Nelson learned that lesson after exposing allegedly deceptive li=
fe-insurance sales practices at Prudential Financial. He gave a sworn anony=
mous statement to Florida's attorney general in 1996 before he switched job=
s at Prudential, from top marketing-practices officer to a $300,000-a-year =
post as a compliance officer. But he was fired in March 1997, according to =
his Dec. 5 testimony in a Miami federal court case stemming from the allega=
tions.=20
Following his dismissal, Mr. Nelson sent out numerous resumes -- and never =
got any interviews. He has a hunch why. "Senior management in the corporate=
world seems to think they are owed complete loyalty and whistle-blowing in=
dicates that you may be loyal to something else," he says.=20
Since July 2000, the 57-year-old has been a U.S. Peace Corps volunteer in T=
onga, happily teaching business writing on the South Pacific island. What c=
areer guidance would he offer Ms. Watkins? "She will feel isolated and vili=
fied, but ultimately she will know that what she did was right. Nothing can=
diminish that knowledge."=20
---=20
E-mail comments to me at joann.lublin@wsj.com. To see other recent Managing=
Your Career columns, please go to CareerJournal.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Style
ART BUCHWALD edc
Sex and The Scandal
Art Buchwald

02/05/2002
The Washington Post
FINAL
C02
Copyright 2002, The Washington Post Co. All Rights Reserved

"The trouble with Enron," said Baldwin, an investigative reporter, "is that=
there is no sex. How can you have a scandal this size without sex?"=20
I said, "There must be a smoking gun somewhere."
Baldwin said, "They had 20,000 people in the home office, plus private acco=
untants and lawyers. Don't tell me someone wasn't fooling around."=20
I asked Baldwin, "By the way, what did Enron do?"=20
"It bought and sold oil and gas and took a commission from it. We're still =
trying to find out what they did at night down by the Enron wading pool."=
=20
"So what did they do wrong, besides the lying and cheating about their prof=
its and losses?"=20
"When you have your own private plane, your own golf course, a yacht and a =
home on the Rivie