FW: Enron under fire from analysts over SEC probe

-----Original Message-----
From: Kendall, Heath
Sent: Tuesday, October 23, 2001 2:09 PM
To: Sharfman, Guy; Padron, Juan; Moore, Castlen; Santucci, Anna; Misra, Narsimha; Wagner, Joseph; Ochsner, Preston; Raque, Michele; Sudduth, Julia; Dickerson, Lloyd; Hemani, Sanjay; Gerry, Robert
Subject: FW: Enron under fire from analysts over SEC probe

-----Original Message-----
From: Willis, Erin
Sent: 23 October 2001 13:35
To: Litton, Todd; Hickerson, Gary; Dallmann, Shane; Durst, Philip; Kendall, Heather; Romain, Danielle
Subject: Enron under fire from analysts over SEC probe

Enron under fire from analysts over SEC probe
By Sheila McNulty in Houston, John Labate in New York and Julie Earle in New York
Published: October 22 2001 12:33 | Last Updated: October 23 2001 17:35

Enron, the US energy giant, on Tuesday attempted to console angry analysts who were questioning the company over its investments and financial disclosures.

Analysts on a conference call questioned Ken Lay, chief executive, and the company's chief financial officer, Andrew Fastow over assets, repayment of debt and discipline in relation to investment decisions.

Mr Lay refused to answer some questions related to the sale of the company's failed water investments, and told an analyst his question time was up. "I know you want to drag the stock price down and you've done a good job of that. Let's move on. Next question."

Mr Lay told the conference call that Enron, which has been asked to provide information to the Securities and Exchange Commission over transactions, would not be downgraded to below investment grade.

"We don't think there is any chance of that. I re-emphasise we are committed to maintaining our ratings," he said.

Mr Lay also said he was very concerned that Mr Fastow's character and the company's integrity had been "loosely thrown about" in recent days.

Enron held the conference call to address "investor concerns" after it announced the SEC had requested it voluntarily provide information "regarding certain related party transactions". It is understood that there were only 300 lines into the conferenc call and these were tied up early making it difficult to access.

The call followed a rapid sell-down in the stock, in reaction to Enron's surprise revelation last week of a $1.2bn charge to equity to eliminate the dilutive effects of closing one of its controversial financing vehicles.

In releasing the SEC call for more detailed information, Enron hopes to counter growing criticism that it should be more transparent. "We welcome this request," said Mr Lay. "We will cooperate fully with the SEC and look forward to the opportunity to put any concern about these transactions to rest."

The SEC probe into Enron's financial dealings is an informal one at this stage, according to the company, and the request for documents is voluntary. However, SEC probes often begin lightly as investigators gather information on an issue.

Such probes, including the one the currently involves Enron, could turn into a formal investigation at any time. Should that happen, regulators would be armed with subpoena power and could demand certain documents be handed over. The SEC would not confirm or deny the existence of the Enron probe.

Mr Lay did not detail which transactions the SEC was reviewing, though analysts believe they relate to Andrew Fastow, Enron's chief financial officer, who has been reported to have, until recently, run a limited partnership that bought assets valued at hundreds of millions of dollars from Enron.

Analysts say the transactions themselves, while controversial because of Mr Fastow's links to the company, have been disclosed repeatedly. What they wonder is how Enron valued the assets involved.

Some analysts said Mr Lay personally had called on Monday to assure them the SEC request was nothing to worry about and "a matter of procedure."

The news comes at an awkward time for Mr Lay, who had pledged more disclosure just two months ago, when he resumed the duties of chief executive officer, following the departure of Jeffrey Skilling after just six months on the job.

Enron's third-quarter results, which were released last week, included details of the company's sprawling businesses that analysts had sought for some time. Mr Lay said then that analysts "are encouraged by what we we're doing." But he did not think that would end criticisms of Enron, adding, "Probably, they'll never get everything they want."

Erin Willis
Financial Trading
Ph: (713) 853-9677
Fx: (713) 646-4810