02/02 18:50
Enron Problems, Self-Enrichment `Deeper,' Report Says (Update1)
By Jeff St.Onge and Susan Decker
Washington, Feb. 2 (Bloomberg) -- Enron Corp. executives who were involved in affiliated partnerships enriched themselves by ``tens of millions of dollars,'' said a report by a company-hired team of experts who described ``a deeper and more serious problem'' at the bankrupt energy trader.
The report, released today, was prepared by a three-member team, headed by William Powers, dean of the University of Texas law school. William McLucas, former enforcement chief with the U.S. Securities and Exchange Commission, now a Washington attorney, was an adviser.
The Powers report comes as executives from Enron and its accounting firm, Arthur Andersen LLP, prepare to appear before congressional committees investigating Enron's collapse last year, which led to the largest bankruptcy filing in U.S. history.
Enron employees involved with affiliated partnerships, known as special purpose entities, enriched themselves ``by tens of millions of dollars they should never have received,'' the report said. Former Chief Financial Officer Andrew Fastow made at least $30 million, former General Manager Michael Kopper got at least $10 million, and two other employees made at least $1 million each, the report said.
``This personal enrichment of Enron employees, however, was merely one aspect of a deeper and more serious problem. These partnerships -- Chewco, LJM1 and LJM2 -- were used by Enron management to enter into transactions that it could not, or would not, do with unrelated commercial entities,'' the report said.
``Many of the most significant transactions apparently were designed to accomplish favorable financial statement results, not to achieve bona fide economic objectives or to transfer risk,'' the report said. ``They allowed Enron to conceal from the market very large losses resulting from Enron's merchant investments by creating an appearance that these investments were hedged.''
The Powers inquiry concluded that the transactions resulted in Enron overstating earnings from the third quarter of 2000 through the third quarter of 2001 by almost $1 billion.
The accounting treatment ``was determined with extensive participation and structuring advice from Andersen, which management reported to the board. Enron's records show that Andersen billed Enron $5.7 million for advice in connection with the LJM and Chewco transactions alone, above and beyond its regular audit fees,'' the report said.
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