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Enron Mail |
Publicized Letter to Lay Involved Struggle Over Enron's Direction The Wall Street Journal, 01/16/2002 Text of Letter to Enron's Chairman After Departure of Chief Executive The New York Times, 01/16/2002 THE NATION THE ENRON INQUIRY Memo Warned of Enron's Setup Being Seen as 'Ho= ax' Probe: Full text suggests that a senior executive was not telling Kenne= th Lay anything new. She ridicules accounting procedures and forecasts the = company's collapse. Los Angeles Times, 01/16/2002 ENRON'S COLLAPSE: THE EMPLOYEE Author of Letter To Enron Chief Is Called Tough The New York Times, 01/16/2002 THE NATION A Regular Life in Unusual Times Profile: Enron insider Sherron W= atkins led a quiet existence before becoming a key figure in the firm's sca= ndal. Los Angeles Times, 01/16/2002 Law Firm Releases Enron E-Mails Detailing Lockdown Dow Jones News Service, 01/16/2002 ENRON'S COLLAPSE: THE INVESTIGATION Justice Dept.'s Inquiry Into Enron Is Beginning to Take Shape, Without Big = Names The New York Times, 01/16/2002 Deals & Deal Makers: NYSE Halts Trading in Enron, Moves to Delist Energy Co= mpany The Wall Street Journal, 01/16/2002 NYSE Moves to Delist Enron Stock Los Angeles Times, 01/16/2002 Accord for Enron Trading Operations Leaves UBS Free Not to Inject Capital The Wall Street Journal, 01/16/2002 SWITZERLAND: UBS says has no acquisition plans for Enron Europe. Reuters English News Service, 01/16/2002 UBS CEO Rules Out Big Acqusitions Dow Jones International News, 01/16/2002 UBS Enron bid values affiliate at US$4M: Enron Canada Corp.: Unit of failed= parent holds cash of at least $220-million National Post, 01/16/2002 The Enron Effect: Government's Job Being Rethought The Wall Street Journal, 01/16/2002 Law Firm Reassured Enron on Accounting --- Vinson & Elkins Discounted Warni= ngs by Employee About Dubious Dealings The Wall Street Journal, 01/16/2002 ENRON'S COLLAPSE: THE LAW FIRM Legal Counsel In Many Ways Mirrors Client The New York Times, 01/16/2002 ENRON'S COLLAPSE: THE BANKS Lenders Differ in Disclosing Their Exposure to Troubles The New York Times, 01/16/2002 Citigroup's Enron Financing Stirs Controversy The Wall Street Journal, 01/16/2002 Enron, Argentina take down J.P. Morgan Chase earnings Associated Press Newswires, 01/16/2002 JP Morgan Chase's Shapiro says Enron exposure totalled 450 mln usd in Q4 AFX News, 01/16/2002 Citigroup's Enron Deal Stirs Creditor Outcry Dow Jones Business News, 01/16/2002 FOCUS Analysts, ratings agencies image hurt by Enron; legal impact unlikely AFX News, 01/16/2002 `Lockdowns' of 401(k) Plans Draw Scrutiny --- Enron Employees' Losses Sudde= nly Put Practice in Spotlight The Wall Street Journal, 01/16/2002 Computer sleuths searching for deleted Enron e-mails Associated Press Newswires, 01/16/200 Paper Trail: Andersen Fires Partner It Says Led Shredding Of Enron Document= s --- It Claims Disposal Effort Started After SEC Asked Energy Firm for Dat= a --- Was He Following Orders? The Wall Street Journal, 01/16/2002 ENRON'S COLLAPSE: NEWS ANALYSIS For Andersen and Enron, the Questions Just Keep Coming The New York Times, 01/16/2002 Andersen Dismisses Lead Enron Auditor; Partner Said to Lead Document Shredd= ing The Washington Post, 01/16/2002 Scandals Put Andersen's Future at Risk; Enron Case Is Just Latest to Put De= nt in Reputation of Big Five Accounting Firm The Washington Post, 01/16/2002 Arthur Andersen May Lack Insurance To Cover Judgments The Wall Street Journal, 01/16/2002 SEC, Accounting Firms Redrafting Audit Rules; Agency Chairman Draws Fire fo= r Role in Effort The Washington Post, 01/16/2002 O'Neill says US derivatives rules may need modernising in wake of Enron cas= e AFX News, 01/16/2002 ENRON'S COLLAPSE: THE DONATIONS Enron's Ties to a Leader of House Republicans Went Beyond Contributions to = His Campaign The New York Times, 01/16/2002 Hooley and Blumenauer return Enron cash Associated Press Newswires, 01/16/200 The Essentials Of a Washington Scandal; Enron Has Possibility. But Somethin= g's Still Missing. The Washington Post, 01/16/2002 Commentary No Special Counsel on Enron Los Angeles Times, 01/16/2002 . . . Especially From Republicans The Washington Post, 01/15/2002 Media Split on Import of Enron The Washington Post, 01/15/2002 THE IDEAS INDUSTRY Richard Morin and Claudia Deane Enron Pumped Cash Into Tanks Too The Washington Post, 01/15/2002 Enron highlights risks of employee stock plans National Post, 01/16/2002 DEALS Allan Sloan The Worst Thing About Enron: Checks and Balances Failed The Washington Post, 01/15/2002 A Comedy of Assets The Washington Post, 01/16/2002 Watchdogs and Lapdogs The Wall Street Journal, 01/16/2002 'Genius of Capitalism' Let Out of the Bottle Los Angeles Times, 01/16/200 Letters to the Editor The Real Lessons of Enron's Fall The New York Times, 01/16/200 POINT OF VIEW: Beyond Enron, A Wider Crisis Of Confidence Dow Jones News Service, 01/16/2002 THE WORLD World Press Tries to Unknot Tale of Bush and the Pretzel Reaction= : Some papers are skeptical or sarcastic. Others delve into the history of = the salty snack. Los Angeles Times, 01/16/2002 BRAZIL PRESS: Elektro Cancels BRR195M Bond Plan Dow Jones Capital Markets Report, 01/16/2002 Houston Non-Profit Organization Targets Former Enron Employees Business Wire, 01/16/2002 Former Enron Corp. employees hawking items from bankrupt company in Interne= t auction Associated Press Newswires, 01/16/2002 ___________________________________________________________________________= ____________ Publicized Letter to Lay Involved Struggle Over Enron's Direction By John R. Emshwiller and Kathryn Kranhold Staff Reporters of The Wall Street Journal 01/16/2002 The Wall Street Journal A4 (Copyright © 2002, Dow Jones & Company, Inc.) A now highly publicized August 2001 letter from an Enron Corp. executive ra= ising serious questions about the company's business and accounting practic= es was actually one of the later shots fired in an internal struggle that h= ad been going on inside the energy-trading company for a year or more.=20 The letter to Enron Chairman and Chief Executive Officer Kenneth Lay from S= herron Watkins, a company vice president, detailed what she saw as the huge= financial and public-relations risks facing the company. Extensive dealing= s with partnerships that had been set up and run by some of the company's o= wn executives could cause Enron to "implode," she wrote. Widespread disclos= ure of those partnerships in the media beginning in October played a key ro= le in a collapse in investor confidence that eventually forced Enron to see= k bankruptcy-law protection. Ms. Watkins's attorney, Philip Hilder, declined to discuss details of the l= etter. But he said his client likely would cooperate with some of the gover= nment investigations into the Enron collapse. "She has a compelling story a= nd I expect she'll have an opportunity to tell that story," Mr. Hilder said= .=20 But the story behind Ms. Watkins's letter is much more than that. It involv= es a power struggle over the direction of Enron as it committed itself to t= he extremely unusual and tangled partnership structures that eventually con= tributed to its undoing. People familiar with that struggle say the issues = ranged from the ethics of Enron's actions to a battle for the job of chief = financial officer at the Houston-based energy-trading company. The partners= hips -- called LJM Cayman LP and LJM2 Co-Investment LP -- were formed in 19= 99 by then Chief Financial Officer Andrew Fastow, who also ran the entities= and owned part of them. From the beginning, Mr. Fastow, Mr. Lay and other = top company officials said the LJM partnerships were designed to do busines= s deals with Enron and help the energy company manage its financial risk.= =20 However, other Enron officials were extremely skeptical about the partnersh= ips, say company insiders and others familiar with the matter. For one thin= g, they saw inherent conflicts of interest in having the company's chief fi= nancial officer standing to financially benefit from business deals done wi= th Enron by an outside partnership that he headed. Late last year, Enron es= timated that Mr. Fastow made more than $30 million from the LJM partnership= s.=20 One of the chief critics was Jeffrey McMahon, who in March 2000 took his co= ncerns about LJM to then Enron President Jeffrey Skilling. Mr. Skilling did= n't share those concerns and soon after the meeting Mr. McMahon left his jo= b as corporate treasurer for another executive post within Enron.=20 A spokeswoman for Mr. Skilling says Mr. McMahon merely voiced worry about w= hether his own compensation might be affected if he had to negotiate deals = on the opposite side of the table from LJM. Mr. McMahon "never raised any b= roader concerns," she said.=20 However, an Enron spokesman speaking on behalf of Mr. McMahon strongly chal= lenged that interpretation of events. "There was a very clear conversation = where Mr. McMahon expressed concerns about a range of conflicts" related to= the LJM entities, said the spokesman.=20 Mr. Fastow had been widely viewed within Enron as a close ally of Mr. Skill= ing, whose sudden resignation last August raised investor concerns and cont= ributed to the company crisis. For his part, Mr. Fastow believed that Mr. M= cMahon wanted his job as chief financial officer and that Ms. Watkins was a= n ally in that effort, said a person familiar with the matter. Mr. McMahon = was named chief financial officer last October when Enron replaced Mr. Fast= ow because of rising controversy surrounding the partnerships.=20 The Enron spokesman said Mr. McMahon denies that he was seeking the chief-f= inancial-officer job when he went to see Mr. Skilling. Mr. McMahon knew Ms.= Watkins, the spokesman said. Indeed, he added, she initially had written t= he letter anonymously and first revealed her identity as the author to Mr. = McMahon. He urged her to identify herself to Mr. Lay and personally express= her concerns to the CEO. She later had a meeting with Mr. Lay.=20 Ms. Watkins' attorney, Mr. Hilder, said "We categorically deny that Ms. Wat= kins was in cahoots with Mr. McMahon regarding trying to oust Mr. Fastow as= CFO." He declined to comment on any specific dealings she might have had w= ith Mr. McMahon.=20 Also expressing concerns about LJM was former Enron Vice Chairman Cliff Bax= ter, who left the company last May. In her letter, Ms. Watkins said Mr. Bax= ter "complained mightily . . . about the inappropriateness of our transacti= ons with LJM." Mr. Baxter couldn't be reached for comment yesterday.=20 ---=20 Journal Link: Read a copy of the letter from Sherron Watkins warning Kennet= h Lay about Enron's accounting practices at WSJ.com/JournalLinks. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C Text of Letter to Enron's Chairman After Departure of Chief Executive 01/16/2002 The New York Times Page 6, Column 1 c. 2002 New York Times Company Following is the text of an unsigned letter written in August to Kenneth L.= Lay, the chairman of the Enron Corporation, after Jeffrey K. Skilling resi= gned unexpectedly as chief executive on Aug. 14. Its author was later ident= ified as Sherron S. Watkins, a vice president for corporate development at = Enron. The House Energy and Commerce Committee released excerpts of the let= ter on Monday and the full letter yesterday:=20 Has Enron become a risky place to work? For those of us who didn't get rich= over the last few years, can we afford to stay? Skilling's abrupt departure will raise suspicions of accounting improprieti= es and valuation issues. Enron has been very aggressive in its accounting -= - most notably the Raptor transactions and the Condor vehicle. We do have v= aluation issues with our international assets and possibly some of our EES = MTM positions.=20 The spotlight will be on us, the market just can't accept that Skilling is = leaving his dream job. I think that the valuation issues can be fixed and r= eported with other good will write-downs to occur in 2002. How do we fix th= e Raptor and Condor deals? They unwind in 2002 and 2003, we will have to po= ny up Enron stock and that won't go unnoticed.=20 To the layman on the street, it will look like we recognized funds flow of = $800 million from merchant asset sales in 1999 by selling to a vehicle (Con= dor) that we capitalized with a promise of Enron stock in later years. Is t= hat really funds flow or is it cash from equity issuance?=20 We have recognized over $550 million of fair value gains on stocks via our = swaps with Raptor. Much of that stock has declined significantly -- Avici b= y 98 percent from $178 million, to $5 million; the New Power Company by 80 = percent from $40 a share, to $6 a share. The value in the swaps won't be th= ere for Raptor, so once again Enron will issue stock to offset these losses= . Raptor is an LJM entity. It sure looks to the layman on the street that w= e are hiding losses in a related company and will compensate that company w= ith Enron stock in the future.=20 I am incredibly nervous that we will implode in a wave of accounting scanda= ls. My eight years of Enron work history will be worth nothing on my resume= , the business world will consider the past successes as nothing but an ela= borate accounting hoax. Skilling is resigning now for ''personal reasons'' = but I would think he wasn't having fun, looked down the road and knew this = stuff was unfixable and would rather abandon ship now than resign in shame = in two years.=20 Is there a way our accounting guru's can unwind these deals now? I have tho= ught and thought about a way to do this, but I keep bumping into one big pr= oblem -- we booked the Condor and Raptor deals in 1999 and 2000, we enjoyed= wonderfully high stock price, many executives sold stock, we then try and = reverse or fix the deals in 2001, and it's a bit like robbing the bank in o= ne year and trying to pay it back two years later. Nice try, but investors = were hurt, they bought at $70 and $80 a share looking for $120 a share and = now they're at $38 or worse. We are under too much scrutiny and there are p= robably one or two disgruntled ''redeployed'' employees who know enough abo= ut the ''funny'' accounting to get us in trouble.=20 What do we do? I know this question cannot be addressed in the all-employee= meeting, but can you give some assurances that you and Causey will sit dow= n and take a good hard objective look at what is going to happen to Condor = and Raptor in 2002 and 2003?=20 Summary of Alleged Issues:=20 RAPTOR Entity was capitalized with LJM equity. That equity is at risk; howe= ver, the investment was completely offset by a cash fee paid to LJM. If the= Raptor entities go bankrupt LJM is not affected, there is no commitment to= contribute more equity.=20 The majority of the capitalization of the Raptor entities is some form of E= nron N/P, restricted stock and stock rights.=20 Enron entered into several equity derivative transactions with the Raptor e= ntities locking in our values for various equity investments we hold.=20 As disclosed in 2000, we recognized $500 million of revenue from the equity= derivatives offset by market value changes in the underlying securities.= =20 This year, with the value of our stock declining, the underlying capitaliza= tion of the Raptor entities is declining and credit is pushing for reserves= against our MTM positions.=20 To avoid such a write-down or reserve in quarter one 2001, we ''enhanced'' = the capital structure of the Raptor vehicles, committing more ENE shares.= =20 My understanding of the third-quarter problem is that we must ''enhance'' t= he vehicles by $250 million.=20 I realize that we have had a lot of smart people looking at this and a lot = of accountants including AA & Co. have blessed the accounting treatment. No= ne of that will protect Enron if these transactions are ever disclosed in t= he bright light of day. (Please review the late 90's problems of Waste Mana= gement -- where AA paid $130 million plus in litigation re questionable acc= ounting practices.)=20 The overriding basic principle of accounting is that if you explain the ''a= ccounting treatment'' to a man in the street, would you influence his inves= ting decisions? Would he sell or buy the stock based on a thorough understa= nding of the facts? If so, you best present it correctly and/or change the = accounting.=20 My concern is that the footnotes don't adequately explain the transactions.= If adequately explained, the investor would know that the ''entities'' des= cribed in our related party footnote are thinly capitalized, the equity hol= ders have no skin in the game, and all the value in the entities comes from= the underlying value of the derivatives (unfortunately in this case, a big= loss) AND Enron stock and N/P. Looking at the stock we swapped, I also don= 't believe any other company would have entered into the equity derivative = transactions with us at the same prices or without substantial premiums fro= m Enron. In other words, the $500 million in revenue in 2000 would have bee= n much lower. How much lower?=20 Raptor looks to be a big bet if the underlying stocks did well, then no one= would be the wiser. If Enron stock did well, the stock issuance to these e= ntities would decline and the transactions would be less noticeable. All ha= s gone against us. The stocks, most notably Hanover, the New Power Company = and Avici are underwater to great or lesser degrees.=20 I firmly believe that executive management of the company must have a clear= and precise knowledge of these transactions and they must have the transac= tions reviewed by objective experts in the fields of securities law and acc= ounting. I believe Ken Lay deserves the right to judge for himself what he = believes the probabilities of discovery to be and the estimated damages to = the company from those discoveries and decide one of two courses of action:= =20 1. The probability of discovery is low enough and the estimated damage too = great; therefore we find a way to quietly and quickly reverse, unwind, writ= e down these positions/transactions.=20 2. The probability of discovery is too great, the estimated damages to the = company too great; therefore, we must quantify, develop damage containment = plans and disclose.=20 I firmly believe that the probability of discovery significantly increased = with Skilling's shocking departure. Too many people are looking for a smoki= ng gun.=20 Summary of Raptor Oddities:=20 1. The accounting treatment looks questionable.=20 a. Enron booked a $500 million gain from equity derivatives from a related = party.=20 b. That related party is thinly capitalized with no party at risk except En= ron.=20 c. It appears Enron has supported an income statement gain by a contributio= n of its own shares.=20 One basic question: The related party entity has lost $500 million in its e= quity derivative transactions with Enron. Who bears that loss? I can't find= an equity or debt holder that bears that loss. Find out who will lose this= money. Who will pay for this loss at the related party entity?=20 If it's Enron, from our shares, then I think we do not have a fact pattern = that would look good to the S.E.C. or investors.=20 2. The equity derivative transactions do not appear to be at arms length.= =20 a. Enron hedged New Power, Hanover and Avici with the related party at what= now appears to be the peak of the market. New Power and Avici have fallen = away significantly since. The related party was unable to lay off this risk= . This fact pattern is once again very negative for Enron.=20 b. I don't think any other unrelated company would have entered into these = transactions at these prices. What else is going on here? What was the comp= ensation to the related party to induce it to enter into such transactions?= =20 3. There is a veil of secrecy around LJM and Raptor. Employees question our= accounting propriety consistently and constantly. This alone is cause for = concern.=20 a. Jeff McMahon was highly vexed over the inherent conflicts of LJM. He com= plained mightily to Jeff Skilling and laid out five steps he thought should= be taken if he was to remain as treasurer. Three days later, Skilling offe= red him the C.E.O. spot at Enron Industrial Markets and never addressed the= five steps with him.=20 b. Cliff Baxter complained mightily to Skilling and all who would listen ab= out the inappropriateness of our transactions with LJM.=20 c. I have heard one manager-level employee from the principal investments g= roup say, ''I know it would be devastating to all of us, but I wish we woul= d get caught. We're such a crooked company.'' The principal investments gro= up hedged a large number of their investments with Raptor. These people kno= w and see a lot. Many similar comments are made when you ask about these de= als. Employees quote our C.F.O. as saying that he has a handshake deal with= Skilling that LJM will never lose money.=20 4. Can the general counsel of Enron audit the deal trail and the money trai= l between Enron and LJM/Raptor and its principals? Can he look at LJM? At R= aptor? If the C.F.O. says no, isn't that a problem?=20 Condor and Raptor Work:=20 1. Postpone decision on filling office of the chair, if the current decisio= n includes C.F.O. and/or C.A.O.=20 2. Involve Jim Derrick and Rex Rogers to hire a law firm to investigate the= Condor and Raptor transactions to give Enron attorney-client privilege on = the work product. (Can't use V & E due to conflict -- they provided some tr= ue sale opinions on some of the deals).=20 3. Law firm to hire one of the big 6, but not Arthur Andersen or Pricewater= houseCoopers due to their conflicts of interest: AA & Co. (Enron); PWC (LJM= ).=20 4. Investigate the transactions, our accounting treatment and our future co= mmitments to these vehicles in the form of stock, NP, etc., For instance: I= n the third quarter we have a $250 million problem with Raptor 3 (NPW) if w= e don't ''enhance'' the capital structure of Raptor 3 to commit more ENE sh= ares. By the way: in Q. 1 we enhanced the Raptor 3 deal, committing more EN= E shares to avoid a write-down.=20 5. Develop cleanup plan:=20 a. Best case: Clean up quietly if possible.=20 b. Worst case: Quantify, develop P.R. and I.R. campaigns, customer assuranc= e plans (don't want to go the way of Salomon's trading shop), legal actions= , severance actions, disclosure.=20 6. Personnel to quiz confidentially to determine if I'm all wet:=20 a. Jeff McMahon=20 b. Mark Koenig=20 c. Rick Buy=20 d. Greg Walley=20 To put the accounting treatment in perspective I offer the following:=20 1. We've contributed contingent Enron equity to the Raptor entities. Since = it's contingent, we have the consideration given and received at zero. We d= o, as Causey points out, include the shares in our fully diluted computatio= ns of shares outstanding if the current economics of the deal imply that En= ron will have to issue the shares in the future. This impacts 2002-2004 ear= nings-per-share projections only.=20 2. We lost value in several equity investments in 2000, $500 million of los= t value. These were fair-value investments; we wrote them down. However, we= also booked gains from our price risk management transactions with Raptor,= recording a corresponding PRM account receivable from the Raptor entities.= That's a $500 million related party transaction -- it's 20 percent of 2000= IBIT, 51 percent of NI pretax, 33 percent of NI after tax.=20 3. Credit reviews the underlying capitalization of Raptor, reviews the cont= ingent shares and determines whether the Raptor entities will have enough c= apital to pay Enron its $500 million when the equity derivatives expire.=20 4. The Raptor entities are technically bankrupt; the value of the contingen= t Enron shares equals or is just below the PRM account payable that Raptor = owes Enron. Raptor's inception-to-date income statement is a $500 million l= oss.=20 5. Where are the equity and debt investors that lost out? LJM is whole on a= cash-on-cash basis. Where did the $500 million in value come from? It came= from Enron shares. Why haven't we booked the transaction as $500 million i= n a promise of shares to the Raptor entity and $500 million of value in our= ''economic interests'' in these entities? Then we would have a write-down = of our value in the Raptor entities. We have not booked the latter, because= we do not have to yet. Technically we can wait and face the music in 2002-= 2004.=20 6. The related party footnote tries to explain these transactions. Don't yo= u think that several interested companies, be they stock analysts, journali= sts, hedge fund managers, etc., are busy trying to discover the reason Skil= ling left? Don't you think their smartest people are poring over that footn= ote disclosure right now? I can just hear the discussions -- ''it looks lik= e they booked a $500 million gain from this related party company and I thi= nk, from all the undecipherable half-page on Enron's contingent contributio= ns to this related party entity, I think the related party entity is capita= lized with Enron stock.'' . . . . ''No, no, no, you must have it all wrong,= it can't be that, that's just too bad, too fraudulent, surely AA & Co. wou= ldn't let them get away with that?'' ''Go back to the drawing board, it's g= ot to be something else. But find it!'' . . . . ''Hey, just in case you mig= ht be right, try and find some insiders or 'redeployed' former employees to= validate your theory.'' Chart: ''Terms of the Business'' AA & CO. -- Arthur Andersen & Company, Enr= on's auditor. AVICI -- A maker of data networking systems. BAXTER, CLIFF --= Vice chairman of Enron before he resigned in May. BUY, RICK -- Enron's chi= ef risk officer. CAUSEY, RICHARD -- Enron's chief accounting officer. CONDO= R -- An off-balance-sheet partnership. DERRICK, JIM -- General counsel of E= nron. EES MTM -- Enron Energy Services, mark to market, a way of accounting= for the value of contracts. ENE -- Stock symbol of Enron. EPS -- Earnings = per share. HANOVER -- Hanover Compressor, a provider of natural gas compres= sion services. IBIT -- Income before interest and taxes. LJM -- Partnership= s with Enron that were controlled by Andrew S. Fastow, the company's chief = financial officer until he was ousted on Oct. 24. KOENIG, MARK -- Enron exe= cutive vice president for investor relations. McMAHON, JEFF -- Enron's chie= f financial officer. N/P -- Note payable. NI -- Net income NEW POWER -- An = energy company. RAPTOR -- An off-balance-sheet partnership. ROGERS, REX -- = Assistant secretary general counsel of Enron. SWAPS -- An exchange of one i= nvestment for another. V & E -- Vinson & Elkins, Enron's law firm. WHALLEY,= GREG -- Enron's president=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Desk THE NATION THE ENRON INQUIRY Memo Warned of Enron's Setup Being Seen as 'Ho= ax' Probe: Full text suggests that a senior executive was not telling Kenne= th Lay anything new. She ridicules accounting procedures and forecasts the = company's collapse. MICHAEL A. HILTZIK; DAVID STREITFELD TIMES STAFF WRITERS 01/16/2002 Los Angeles Times Home Edition A-1 Copyright 2002 / The Times Mirror Company HOUSTON -- A detailed road map of Enron Corp.'s aggressive accounting maneu= vers and an uncannily accurate prediction of the company's collapse were la= id before Enron Chairman Kenneth L. Lay in August in a lengthy memo that be= came public Tuesday.=20 Excerpts of the memo had been released by congressional investigators Monda= y, but the full extent of the warnings became known only Tuesday with the r= elease of the entire text. The author of the memo, Sherron Watkins, 42, expressed concern that the com= pany's vaunted business success would eventually become considered "nothing= but an elaborate accounting hoax." Watkins, a vice president of corporate = development at Enron, worked directly under the architect of Enron's comple= x and highly questionable financial dealings.=20 Watkins focused particularly on what were known as the "Raptor" transaction= s, in which Enron transferred several marginal investments to a putatively = independent partnership. The partnership had gone virtually bankrupt by las= t summer, but Enron still was not disclosing the loss to shareholders, Watk= ins said.=20 The full text suggests that Watkins did not believe she was telling Lay muc= h that he did not already know--and that many of the company's financial tr= ansactions were mere accounting shams.=20 She attempted to persuade Lay either to reverse the offending transactions = promptly or to disclose them fully to shareholders and "develop damage cont= ainment plans." Lay did neither.=20 "Her motivation is not vindication or being proven right or bringing down t= he company," her husband, Richard, said Tuesday from the family home in Hou= ston. "She's a team player."=20 Watkins went to work at Enron Tuesday morning as news of her memo was splas= hed across the front pages.=20 "It's a normal day," said her lawyer, Philip Hilder, although he acknowledg= ed that "it's very difficult for anybody to go to work under these circumst= ances."=20 Watkins has suffered no retaliation from anyone at the company, the lawyer = said, although a source close to her said Watkins has been made to feel "an= outcast."=20 Sherron Watkins, the daughter of two secondary school educators, grew up in= the distant Houston suburb of Tomball and graduated from the University of= Texas.=20 Tuesday morning, television news trucks jammed the street in front of the W= atkins home. Later that day, Richard Watkins praised his wife for doing "so= mething quite courageous. She has the strength of her convictions. But she'= s very vulnerable."=20 A neighbor said the hint of moral indignation in Watkins' memo to Lay was g= enuine.=20 "Clearly she thought it was her moral and professional duty to do what she = did," said Carrie Wood, who also was Watkins' sorority sister at UT. "Sherr= on was drawn to the dynamic intellectual challenge of being an Enron vice p= resident. I don't think she was drawn to the materialistic greed that spran= g out of it."=20 Word of Enron's accounting irregularities leaked out slowly during the fall= , depressing the company's already-dropping stock price. Its businesses des= troyed and its reputation in tatters, Enron finally filed for Chapter 11 ba= nkruptcy protection Dec. 2.=20 Watkins wrote her memo on the heels of the surprise resignation Aug. 14 of = Enron Chief Executive Jeffrey K. Skilling. The corporate announcement of Sk= illing's departure ascribed it to "personal reasons."=20 But to Watkins and others inside the company, the move hinted at his deep u= nease at the accounting irregularities and presaged a difficult period of p= ublic scrutiny.=20 "I think he . . . looked down the road and knew this stuff was unfixable, a= nd would rather abandon ship now than resign in shame in 2 years," she wrot= e to Lay. Moreover, she warned, "the probability of discovery significantly= increased with Skillings's shocking departure. Too many people are looking= for a smoking gun."=20 Many of Enron's financial maneuvers would not bear that scrutiny, she said,= even though they had been formally approved byEnron's outside auditor, And= ersen, formerly known as Arthur Andersen.=20 'We're Such a Crooked Company'=20 This particularly applied to deals Enron had made with LJM, a partnership t= hat had been set up to trade with Enron and was managed by Enron Chief Fina= ncial Officer Andrew S. Fastow. The goal was to move debt and other liabili= ties off Enron's books, where they would have a negative effect on the comp= any's financial picture, and park them with a putatively independent compan= y. As long as these liabilities remained secret, Enron's reputation, and it= s stock price, remained buoyant.=20 The LJM deals inspired deep unease within Enron, Watkins related, quoting o= ne colleague remarking: "I know it would be devastating to all of us but I = wish we would get caught. We're such a crooked company."=20 Lay responded to Watkins' letter by meeting with her personally and persuad= ing the Enron board to commission an internal review by Vinson & Elkins, on= e of Enron's Houston law firms.=20 Robert S. Bennett, Enron's Washington attorney, defended the company's resp= onse. The nine-page review of Watkins' concerns by Vinson & Elkins issued O= ct. 15 shows "the good faith of Ken Lay and the company. . . . It shows tha= t they meaningfully looked into this."=20 Bennett said the law firm interviewed Watkins but that it put "a lot of fai= th in Arthur Andersen."=20 Watkins, however, had specifically warned Lay against allowing Vinson & Elk= ins to conduct the investigation.=20 "Can't use V&E due to conflict," she wrote in her memo. "They provided some= true sale opinions on some of the deals."=20 In other words, she argued that the firm would be ruling on the propriety o= f legal opinions it had itself issued.=20 Moreover, the law firm said in its report, written by Vinson partner Max He= ndrick III and addressed to Enron General Counsel James V. Derrick Jr., tha= t it was specifically instructed by Enron not to "second guess . . . the ac= counting advice and treatment" provided by Andersen. The report stated that= Enron and Andersen representatives acknowledged that the accounting treatm= ent of the suspect transactions "is creative and aggressive," but it did no= t conclude that it was "inappropriate from a technical standpoint."=20 Vinson & Elkins spokesman Joe Householder declined to discuss whether it wa= s a conflict of interest for the firm to investigate Watkins' allegations.= =20 "We are not in a position to talk about our engagements with Enron or any o= ther client," he said.=20 As it happens, the firm overruled almost all of Watkins' substantive object= ions to the LJM transactions, although it did acknowledge some "awkwardness= " arising from LJM's executives serving as Enron officers.=20 "Transactions were negotiated between Enron employees acting [for] Enron an= d other Enron employees acting for LJM," the law firm's report stated.=20 It also noted that within Enron there was widespread suspicion that the Enr= on employees representing LJM were enjoying special perquisites, including = higher compensation. But it said the awkwardness would be eliminated in the= future because LJM executives were leaving the Enron payroll and relocatin= g their offices from its headquarters building.=20 Focus on the 'Raptor' Deals=20 The report did, however, provide indirect evidence of Enron's custom of min= imizing the public disclosure of the nature of its financial maneuvers. Amo= ng other things, the company gave its outside lawyers little opportunity to= examine closely the financial reports and other documents it was releasing= for public consumption.=20 "Enron's practice is to provide its financial statements and disclosure mat= erials to V&E with a relatively short time frame within which to respond wi= th comments," the report stated.=20 In her memo, Watkins focused most heavily on several transactions between E= nron and LJM known as the Raptor deals. The term referred to a special busi= ness entity that Enron had established to hold several investments that wer= e expensive and of possibly marginal value, including ownership in a broadb= and communications company called Rhythms NetConnections and other technolo= gy and energy companies.=20 To cover the LJM-Raptor acquisition of the investments, Enron pledged share= s of its own stock and that of some of its subsidiaries. But it also engage= d in a series of complicated derivatives deals aimed at hedging the possibi= lity that the value of Rhythms and the other assets would fall.=20 In 2000, Watkins noted, Enron went as far as to record more than $500 milli= on in revenue from those derivatives deals. That, she said, presented numer= ous problems.=20 For one thing, Enron had not received the $500 million from LJM. Rather, th= e payment was conditioned on the value of the underlying investments remain= ing high; if the investments deteriorated, there was an increasing chance t= hat Enron would never receive the money.=20 Further, it was likely that a truly independent company would not have paid= anywhere near $500 million for the investments at issue--meaning that the = deal was not legitimately an arm's-length sale.=20 Vinson & Elkins acknowledged this, noting in its report that LJM "permitted= Enron to close transactions that otherwise could not have been accomplishe= d."=20 In fact, as the value of the investments dropped, Enron was obligated to ma= ke up the difference by paying LJM more of its own stock.=20 Throughout 2001 the underlying investments did fall in value--and so did th= e value of Enron stock. That meant the company had to contribute vastly mor= e shares to LJM than it ever anticipated. That was a contingency that was n= ever fully disclosed to the public or Enron's shareholders, who stood to lo= se value in their own shares as more were pledged to LJM.=20 "It sure looks to the layman on the street that we are hiding losses in a r= elated company and will compensate that company with Enron stock in the fut= ure," Watkins wrote.=20 Not until Nov. 8 did Enron fully disclose the nature of the Raptor deals--a= s part of its public announcement that the improper accounting of those tra= nsactions and others resulted in its overstating its earnings by $586 milli= on over a nearly five-year period.=20 The announcement all but destroyed any chance that the company would be abl= e to survive in its existing form.=20 Addiction to Accounting Tricks=20 Enron critic Mark Roberts, president of Off Wall Street Consulting Group, a= Cambridge, Mass.-based stock research firm, said the Watkins memo adds to = the evidence of Enron's addiction to illegitimate accounting tricks.=20 The Raptor deals were derivative transactions "with recourse," meaning deal= s in which the counter-party would be compensated for any losses, he noted = in an interview.=20 "If the buyer doesn't have risk, the risk stays with Enron and has to be re= flected on their balance sheet," said Roberts, whose firm sold Enron shares= "short," a bet that they would fall, as early as last May.=20 *=20 Hiltzik reported from Los Angeles, Streitfeld from Houston. Times staff wri= ters Richard Simon in Washington, Nancy Rivera Brooks in Los Angeles and Th= omas S. Mulligan in New York contributed to this report. PHOTO: Enron Chairman Kenneth L. Lay received a warning memo from a company= vice president.; ; PHOTOGRAPHER: Agence France-Presse; PHOTO: (lead photo)= House Energy and Commerce Committee investigators examine Enron documents.= Investigators plan to meet today with the Andersen executive who oversaw t= he audit. He was fired Tuesday.; ; PHOTOGRAPHER: ALEX WONG / Getty Images; = PHOTO: Senate staffers review Enron documents; Watkins memo care to light a= fter bankruptcy filing.; ; PHOTOGRAPHER: Reuters=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 National Desk; Section A ENRON'S COLLAPSE: THE EMPLOYEE Author of Letter To Enron Chief Is Called Tough By JIM YARDLEY 01/16/2002 The New York Times Page 1, Column 5 c. 2002 New York Times Company HOUSTON, Jan. 15 -- In the cutthroat business culture of the Enron Corporat= ion, where toughness and a sharp tongue were often prerequisites for succes= s, Sherron S. Watkins could be noticeably tough and sharp.=20 One former colleague described her as ''a bull in the china shop'' at times= . Others mistook the Texan Ms. Watkins for a brusque New Yorker. But severa= l former colleagues agreed that her toughness was rooted in a strong sense = of business ethics and that she was unafraid to deliver difficult news, eve= n to her superiors. ''In my experience, she was not afraid to speak the truth, even when it was= uncomfortable,'' said Stephen Schwarz, a former Enron employee who worked = with Ms. Watkins and described her as ''the consummate professional.''=20 Ms. Watkins, a vice president for corporate development at Enron, has emerg= ed as a central figure in the federal investigations into the company, afte= r a Congressional subcommittee released a letter she sent in August to Kenn= eth L. Lay, Enron's chairman. [Text, Page C6.]=20 Written months before the company laid off more than 4,000 workers and file= d for Chapter 11 bankruptcy protection in December, the letter warned that = improper accounting practices threatened to destroy the company even as Mr.= Lay was reassuring investors and employees.=20 That Ms. Watkins, who came to Enron eight years ago after working at the Ar= thur Andersen accounting firm, would confront her bosses with such a pointe= d message did not startle those who knew her.=20 ''Now that I've read what she wrote, I'm not in the least bit surprised tha= t it was her,'' one former Enron colleague said.=20 Another Enron employee said word that Ms. Watkins had confronted Mr. Lay be= gan to circulate through the company at some point after she had sent the l= etter and had a subsequent audience with the chairman.=20 ''Rumors were floating that she knew some things that were going on and tha= t she had apparently voiced some concerns,'' said a former employee of Enro= n Broadband Services, a division where Ms. Watkins once worked.=20 Ms. Watkins, who is 42 and still works at Enron, declined to comment today,= but her lawyer, Philip H. Hilder, said his client had written the letter a= s an act of conscience.=20 ''She thought it was the right thing to do, to ask some questions,'' Mr. Hi= lder said. ''I think that was her only motivation. She saw that there were = some problems, and she was concerned.''=20 The investigations into Enron are focused at least in part on a series of o= ff-the-books partnerships that were reportedly used to inflate the company'= s profits by hiding its losses, including those involving the company's for= mer chief financial officer, Andrew S. Fastow. The partnerships involving M= r. Fastow, who was fired in October amid growing investor concern, are cent= ral to the Securities and Exchange Commission's investigation of Enron's ac= counting.=20 Ms. Watkins's lawyer said his client reported directly to Mr. Fastow last s= ummer after being reassigned to his office from the broadband unit.=20 In her letter to Mr. Lay, Ms. Watkins did not mince words in discussing fou= r of those partnerships.=20 ''Has Enron become a risky place to work?'' she asked. ''For those of us wh= o didn't get rich over the last few years, can we afford to stay?''=20 Like many other Enron employees, Ms. Watkins first worked at Arthur Anderse= n, the Big Five accounting firm that has also come under federal scrutiny a= fter it was disclosed that Andersen employees had destroyed thousands of pa= ges of Enron documents in recent months. One former Enron colleague, whose = career also began at Andersen, said Ms. Watkins, then Sherron Smith, starte= d around 1982 as an auditor in Andersen's Houston office.=20 Another employee in the same Andersen office was Jeffrey McMahon, who would= later become Enron's treasurer.=20 ''She was very good friends with Jeff McMahon,'' a former Enron colleague s= aid, noting that each had married later in life and started a family.=20 It was Mr. McMahon who in 2000 complained to Jeffrey Skilling, then Enron's= president, about the partnerships connected to Mr. Fastow, people close to= Enron say. Mr. McMahon was later reassigned to another position. Mr. Skill= ing ascended to chief executive, only to leave abruptly last August after s= ix months in the post.=20 Ms. Watkins's career at Andersen took her to New York until she left to joi= n Enron, where she steadily rose to the position of corporate vice presiden= t. Colleagues say she first worked on international projects.=20 ''She could swear up a blue streak,'' said a former colleague who worked wi= th Ms. Watkins on international deals. ''She came down with a tough New Yor= ker confidence that could carry her in a predominantly men's world.''=20 While Ms. Watkins could be abrasive, that colleague added, her ethics were = unassailable.=20 Eventually, she was assigned to the broadband unit, where colleagues say he= r responsibilities included reining in costs. She earned a reputation as be= ing outspoken at meetings. One former Enron executive said Ms. Watkins alie= nated some employees, who pointedly sought not to work for her. But, the ex= ecutive added, ''I have never heard anyone question her judgment, her integ= rity and her veracity. I never heard anybody say she cut corners.''=20 Mr. Schwarz, the former broadband colleague who regarded her highly, descri= bed her as ''a New Yorker amidst Texans.''=20 In fact, Ms. Watkins grew up in a small town north of Houston and later att= ended the University of Texas. Her husband, Richard, declined to comment to= day at their home in the city's affluent Southampton neighborhood.=20 A neighbor, Carrie Wood, said she and Ms. Watkins were sorority sisters in = college and painted a softer picture of her friend. She described Ms. Watki= ns as a doting mother who dedicated all her time away from Enron to her you= ng daughter.=20 ''She's bright and she's humble and she's thoughtful and deliberate and she= 's morally sound,'' said Ms. Wood, who described Ms. Watkins as an active C= hristian who participated in Bible study. ''She's a bright, confident busin= esswoman, too.''=20 Another neighbor, Chris Cagley, an independent accountant who did business = with Enron, said he had on occasion bumped into Ms. Watkins on their street= and in the Enron lobby.=20 ''Now that I know that she wrote this mystery memo, I would say I have a ne= wfound respect for this person,'' Mr. Cagley. ''Because it's not easy to st= and up and point out things that are wrong in corporate America. It's much = easier to let it go.'' Photo: Sherron S. Watkins wrote to the chairman of Enron last August.=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Desk THE NATION A Regular Life in Unusual Times Profile: Enron insider Sherron W= atkins led a quiet existence before becoming a key figure in the firm's sca= ndal. DAVID STREITFELD TIMES STAFF WRITER 01/16/2002 Los Angeles Times Home Edition A-17 Copyright 2002 / The Times Mirror Company HOUSTON -- She goes to Bible study class and buys cookies from every Girl S= cout who comes to the door. She gave $40 to the neighborhood association fo= r tree planting, which earned her the rank of "regular," not quite "patron"= or "sustaining."=20 Sherron Watkins, 42, became a national figure in the Enron Corp. affair thi= s week after the disclosure of her August letter warning fellow company exe= cutives of questionable accounting measures. But friends say Watkins, an En= ron vice president, has tried not to let the growing scandal at her company= overwhelm her life. The last time Carrie Wood, Watkins' neighbor and former sorority sister, sa= w her friend was Sunday. Wood asked how she was.=20 "I've gotten an SEC [Securities and Exchange Commission] subpoena," Watkins= said.=20 "For documents? Or for you?" Wood asked.=20 "Both," Watkins said.=20 But she appeared normal, Wood said, noting that "she was going off to buy h= er daughter some shoes."=20 Watkins lives in Southampton, a pleasant, tree-lined Houston neighborhood w= ith big but not extravagant houses nestled close together. A few blocks awa= y is Rice University, where she runs up the stadium steps to keep fit.=20 Watkins and her husband, Richard, who works in oil and gas financing for a = Canadian company, and their 2-year-old daughter live in a gray saltbox-styl= e home with a large American flag out front. On Tuesday morning, television= news trucks filled the street, but by afternoon they had given up their qu= est for an interview and left.=20 Like the street, the inside of the Watkins house was quiet, domestic--golf = clubs on the study floor, family photos on the walls and tables, an empty b= eer bottle near the door. Richard Watkins had a clipboard on which he was n= oting who called and what they wanted. It was a long list.=20 The husband didn't want to talk much, but neighbors were glad to offer test= imonials.=20 "She's very professional--we keep it just neighbors," said Chris Cagley, wh= o lives across the street.=20 Cagley worked for Enron too, as a contract employee, but he said he never d= iscussed office matters with Watkins. Her role in calling attention to the = questionable practices came as a surprise to him when he picked up the Tues= day paper. He was filled with admiration.=20 "You know how corporations are," he said. "No one wants to stand out, to sa= y anything bad. But Sherron wanted to inform people, to let them know what = was going on."=20 Meanwhile, Watkins' attorney, Philip Hilder, was being besieged by the news= media in his new downtown offices, which are still under construction. He = did simultaneous TV interviews, perfecting the art of saying nothing.=20 "We fully anticipate we will be subpoenaed to appear" before Congress and o= ther regulatory hearings, he said repeatedly.=20 Hilder, a former federal prosecutor who specializes in white-collar crimina= l defense, responded to one interviewer who asked if he had handled a case = like this before:=20 "Has anybody handled anything like this before?" Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Law Firm Releases Enron E-Mails Detailing Lockdown 01/16/2002 Dow Jones News Service (Copyright © 2002, Dow Jones & Company, Inc.) (This story was first published Tuesday)=20 WASHINGTON -(Dow Jones)- One of the law firms representing Enron Corp.'s (E= NE) employees in their 401(k) lawsuit against the company released two inte= rnal e-mails showing conflicting dates regarding the start of the lockdown = period for the company's 401(k) plan. The press release, issued by Gottesdiener Law Firm, is a possible indicatio= n of the tactics the plaintiffs will use in pursuing their claims against E= nron. In the release, Gottesdiener also claims the lockdown wasn't administ= ratively necessary at all.=20 As reported, some employees of the bankrupt energy concern are suing, claim= ing a lockdown of the Enron plan to make administrative changes prevented a= ll employees from selling Enron shares during that time. During the lockdow= n, the company's stock price collapsed.=20 An Enron spokesman couldn't immediately be reached for comment on the lates= t press release. Enron has previously said the lockdown was for 10 days, fr= om Oct. 29 to Nov. 12, and has defended the move as being essential to allo= w employee account information to be accurately and completely transferred = to a new administrator.=20 In the Tuesday press release, Gottesdiener said an e-mail sent on Sept. 27 = was the company's initial announcement to employees about the lockdown. The= e-mail, available for viewing at www.enronsuit.com, told employees that th= e lockdown would begin on Oct. 19 and last one month.=20 "To ensure that records and individual accounts are converted accurately," = the e-mail said, "a transition period of approximately one-month will begin= Oct. 19."=20 "During the transition period," the e-mail continued, "participants are not= able to transfer funds among investment options or request a withdrawal."= =20 However, a second e-mail, sent on Oct. 25 and also available on the Web sit= e, appears to provide contradictory information, stating the lockdown would= begin Oct. 26.=20 Gottesdiener said the e-mails show that the company issued false informatio= n, leading many workers to believe that the lockdown began a week earlier t= han it actually did and causing them to miss the opportunity to sell their = stock when it was still trading for around $30 a share.=20 Attorney Eli Gottesdiener said Enron issued another e-mail on Nov. 14 at ni= ght informing employees the lockdown had been lifted Nov. 13.=20 On Dec. 14, Enron had defended criticism of the 401(k) lockdown in a statem= ent, saying a temporary shutdown is required when companies change 401(k) a= dministrators in order to allow employee account information to be accurate= ly and completely transferred to the new administrator.=20 Enron said then that it mailed a notice to the homes of all affected employ= ees Oct. 4, to announce a transition to the new 401(k) administrator would = begin Oct. 29. The company said it also sent several internal e-mail remind= ers between the two dates.=20 Enron said the transition period during which employees couldn't change inv= estments lasted "just 10 total trading days," from Monday, Oct. 29 to Monda= y, Nov. 12, and applied to all plan participants, including senior executiv= es. The company said that from the first day of the temporary plan shutdown= to Tuesday, Nov. 13, the first day participants could transfer funds, its = closing share price fell from $13.81 to $9.98, a drop of $3.83, or 28%.=20 On five days during the lockdown, Enron said, its stock closed below $9.98.= On Friday, Oct. 26, the last day before the lockdown began, Enron's stock = closed at $15.41. - By Stephen Lee, Dow Jones Newswires; 201.938.5400 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE INVESTIGATION Justice Dept.'s Inquiry Into Enron Is Beginning to Take Shape, Without Big = Names By DAVID JOHNSTON 01/16/2002 The New York Times Page 7, Column 1 c. 2002 New York Times Company WASHINGTON, Jan. 15 -- With Attorney General John Ashcroft and virtually th= e entire legal staff of the United States attorney's office in Houston disq= ualified from the Enron criminal investigation, the Justice Department has = been forced to rapidly assemble a pickup team of prosecutors and investigat= ors to unravel Enron's collapse.=20 The mammoth white-collar fraud inquiry, which focuses on an energy trading = company that has been a big Republican donor and supporter of both Presiden= t Bush and Mr. Ashcroft, is emerging as the most politically sensitive case= yet confronted by the Bush administration. Overall, the investigation will= be under the direction of Larry D. Thompson, the deputy attorney general, = and his subordinates in the department's criminal division. Mr. Thompson is proving to be a reliable second-in-command for Mr. Ashcroft= and the White House. A top federal prosecutor in Atlanta during the presid= ency of Mr. Bush's father, Mr. Thompson won his credentials with the Bush c= amp in 1991 when he helped guide Clarence Thomas through a tumultuous confi= rmation as a Supreme Court justice.=20 On Jan. 10, Mr. Ashcroft, along with David Ayres, his chief of staff, recus= ed himself from the criminal investigation of the company's collapse. The c= ase was then referred to a Washington-led task force. Mr. Ashcroft's associ= ates have said he took the step to avoid any criticism of conflict of inter= est because he had accepted campaign donations from Enron. Mr. Ashcroft rec= eived more than $50,000 from the company and its chairman, Kenneth L. Lay, = for his 2000 Senate campaign.=20 Some Democratic groups argue that Mr. Thompson, too, has ties to Enron. In = Atlanta he was a lawyer at the firm King & Spalding, which represented Enro= n, but he himself did no work for Enron, a Justice Department official said= today.=20 So far the department has avoided the appointment of a special counsel, a s= tep that would force it to relinquish control to an outside prosecutor and = deepen the impression that the case represents a serious conflict for the B= ush administration.=20 The criminal investigation itself will be centered in Houston, where Enron = is based. But the Justice Department is being forced to recruit a fresh tea= m of prosecutors because Michael T. Shelby, the United States attorney in H= ouston, and virtually the entire legal staff of Mr. Shelby's office were di= squalified on grounds that they were acquainted with Enron employees.=20 Mr. Shelby's brother-in-law is a lawyer for Enron North America and was amo= ng those Enron stockholders who lost substantial sums when the company's st= ock plummeted. Mr. Shelby said that several of his employees had ties to fo= rmer and current Enron workers, some of whom could be witnesses in the case= .=20 Justice Department officials have declined to specify how many lawyers disq= ualified themselves and said they did not yet know how many will be reassig= ned to Houston. F.B.I. officials said that a large number of agents trained= in forensic accounting would be temporarily moved to Houston for the case.= =20 The Federal Bureau of Investigation's own task force on the Enron case will= be headed by Joseph L. Ford, an F.B.I. agent for 20 years who has led seve= ral of the bureau's complex health care fraud investigations and helped org= anize the investigation of the financial transactions behind the Sept. 11 t= error attacks, government officials said.=20 Law enforcement officials said that the initial focus of the criminal inqui= ry is on whether the company defrauded investors or federal regulators as i= t set up risky outside partnership deals that contributed to the company's = bankruptcy. But privately, some officials said that investigators were at t= he fledgling stage of the inquiry and had no idea what they would find.=20 For that reason, they said it was far too early to discuss what violations = they might find as they scour the company looking for documents and coopera= tive witnesses. Among the areas of scrutiny will be the destruction of Enro= n-related documents by Arthur Andersen, the company's auditing firm.=20 Justice Department officials said that Joshua Hochberg, head of the departm= ent's fraud section, would supervise the inquiry with the rank of a United = States attorney -- making him an equal to other United States attorneys inv= olved in the case in New York, San Francisco and the District of Columbia. = Mr. Hochberg will report to Michael Chertoff, head of the criminal division= .=20 On a day-to-day basis the case will be managed by Leslie R. Caldwell, who w= as chief of the securities fraud section of the United States attorney's of= fice in San Francisco. Ms. Caldwell had been a senior trial lawyer in Brook= lyn until 1999, when Robert S. Mueller III, now the F.B.I. director, recrui= ted her for the Northern California job while he was United States attorney= in San Francisco.=20 The Justice Department criminal inquiry, while potentially the most serious= and far-reaching of the investigations, is only one of a number under way = among executive branch agencies. The Labor Department has been examining ho= w the company dealt with employee retirement plans in the weeks before Enro= n's bankruptcy filing on Dec. 2. The Securities and Exchange Commission has= been investigating transactions between Enron and outside partnership deal= s and the company's relationship with Arthur Andersen.=20 Today, Senator Paul S. Sarbanes, a Maryland Democrat and head of the Senate= Banking Committee, said he had asked the Congressional investigative arm, = the General Accounting Office, to examine laws regulating employee stock ow= nership in retirement plans and whether failures in accounting practices in= creased the risks of the company's failure.=20 Two other Senate inquiries are being conducted by Democrats on the Governme= ntal Affairs Committee. The investigations are emerging as the Democrats' m= ost significant investigative effort since they took control of the Senate = in June.=20 Many Democrats were highly critical of Republican-led investigations into a= ccusations of improprieties by the Clinton administration. Now the Democrat= s, who have benefited to a lesser extent from Enron contributions, risk bei= ng accused of staging politically motivated inquiries aimed at a company wi= th well-known Republican connections.=20 ''I am very concerned that this is going to become highly politicized,'' sa= id Robert S. Bennett, an Enron lawyer and a veteran of Washington scandals = as a onetime lawyer for former President Bill Clinton.=20 Mr. Bennett added: ''If it does become highly politicized, a lot of people = are going to get hurt. A lot of reforms which might come about will not be = enacted, and this will be just a typical major league Washington mess with = blood all over the place and little accomplished.''=20 But Mr. Bennett's first problem is elsewhere on Capitol Hill. Mr. Lay is sc= heduled to testify early next month. His appearance could be a turning poin= t in public perceptions about the company. He must give accurate testimony = but avoid providing further ammunition for criminal investigators.=20 Mr. Lay will testify before the Senate Commerce Committee, which is investi= gating how Enron employees who held company stock in retirement plans were = barred from selling their stock as it plummeted -- leaving many retirees in= serious financial straits.=20 On the same day, Mr. Lay will testify before the House Financial Services C= ommittee. It has focused its inquiry on the impact of Enron's collapse on i= nvestors and markets.=20 The Senate Governmental Affairs Committee, headed by Joseph I. Lieberman, D= emocrat of Connecticut, is conducting an inquiry centered on whether regula= tors like the Commodity Futures Trading Commission and the Securities and E= xchange Commission should have uncovered problems sooner. Mr. Lieberman's p= anel is scheduled to hold a hearing on Jan. 24.=20 One of the Governmental Affairs subcommittees, an investigations panel whos= e chairman is Senator Carl Levin, Democrat of Michigan, is conducting its o= wn inquiry. Mr. Levin's subcommittee has prepared 51 subpoenas for document= s related to the operations of the company, its executives and its outside = auditor.=20 Two other House committees are also investigating the company. The House En= ergy and Commerce Committee has been investigating Enron's accounting pract= ices. The House Education and Workforce Committee has been looking into emp= loyees' retirement plans. Photo: Deputy Attorney General Larry D. Thompson, who will be directing an = Enron investigation. (Susana Raab for The New York Times)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Deals & Deal Makers: NYSE Halts Trading in Enron, Moves to Delist Energy Co= mpany By Gaston F. Ceron and Christina Cheddar Dow Jones Newswires 01/16/2002 The Wall Street Journal C12 (Copyright © 2002, Dow Jones & Company, Inc.) NEW YORK -- The New York Stock Exchange said it is suspending trading in En= ron Corp. and moved to delist the energy company's shares from the Big Boar= d.=20 The NYSE said that it "has determined that the company's securities are no = longer suitable for trading on the NYSE." The exchange's action affects not= only Enron stock, but also other Enron securities, such as preferred conve= rtible stock. Enron spokeswoman Karen Denne said the NYSE's decision wasn't a surprise to= the company. "This will have no effect on our business," Ms. Denne said.= =20 In a separate statement late yesterday afternoon, Enron said its common sto= ck will be now traded as an over-the-counter security under the symbol ENRN= Q. Quotation services will be provided by Pink Sheets LLC. Formerly known a= s the National Quotation Bureau, the New York company provides pricing and = financial information for over-the-counter securities. "Investors should ca= ll their brokers for daily pricing and volume information," the statement s= aid.=20 Enron's collapse last year triggered a huge drop in the company's stock -- = sending it down to mere pennies a share -- and massive layoffs at the Houst= on-based company. Enron filed for Chapter 11 bankruptcy-court protection on= Dec. 2.=20 The NYSE moved to delist Enron after the company's stock traded below the c= riti
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