Fund Run by Lay's Son Worried Its Investors
By ALEXEI BARRIONUEVO
Staff Reporter of THE WALL STREET JOURNAL
Investors in an Enron Corp.-backed community-development fund run by Mark Lay, the son of former Enron Chairman Kenneth Lay, raised concerns over potential fund mismanagement last year, and asked that their money be returned.
In a letter dated Aug. 10, several months after Mark Lay quit the fund, four banks that invested in the Houston Economic Opportunity Fund II LP outlined several concerns about the partnership.
See full coverage of the Enron saga.
Enron's board created the Houston Economic Opportunity Fund in 1999 and committed $20 million to be aimed at inner-city start-up businesses. The second fund, which assumed ownership of most of the first fund, was created in May 2000. Both operated under Enron Investment Partners, an Enron unit led by Mark Lay. The funds invested in technology companies, a car service, a telemarketing call center, an online jeweler and some restaurants.
In their letter, units of Bank of America Corp., Washington Mutual Inc., Wells Fargo & Co. and Bank One Corp., which had invested a total of $18.25 million, wrote that they were concerned the fund's investments weren't made in accordance with "Enron's risk assessment and control procedures." They also questioned whether the transfer of certain investments from HEOF to HEOF II was fair to HEOF II and its partners.
The four banks said in their August letter that "Enron should return the capital contributed by [the banks] immediately." The banks also said they wouldn't make any additional contributions.
Mark Lay left the fund in March 2001, months before the banks wrote the letter to the partnership and Enron Investment Partners.
In the letter spelling out their concerns, the banks said the fund didn't immediately replace him or another fund official, Gene Humphrey, former vice chairman of Enron Capital and Trade Resources. Mr. Humphrey said Tuesday that sometime before the banks' letter was sent, Enron had recommended replacing him with Enron Vice President Barbara Paige. But the banks, which would have had a voice in selecting a successor, "never acted on the request." A spokeswoman for Bank of America, Julie Davis, insisted that when the letter was sent "there was no active executive officer" in charge of the partnership.
The banks also said in the letter they were concerned that Enron and the partnership had a potential conflict of interest on "at least one investment," that involving Visual Bridge, a company that provided streaming video on the Internet targeting Hispanics. The letter doesn't specify the nature of the potential conflict. The Bank of America spokeswoman couldn't clarify the potential conflict of interest. A spokesman for Wells Fargo declined to discuss the matter, citing a customer-client relationship.
In an interview, Mark Lay said he had "never been told there were issues with the banks" and was unaware of any concerns when he resigned. Mr. Lay, who is currently enrolled at the Southwestern Baptist Theological Seminary in Houston, said risk-assessment procedures were followed but declined to comment on Visual Bridge.
Mr. Humphrey said he had resigned from the partnership for health reasons shortly after Mr. Lay stepped down but stayed on in a transitional role for several months. He said he tried to address all the banks' issues last year but the banks "were upset" because the partnership, which still hasn't turned a profit, had lost money on some of its investments, and "were looking for a way to get it back."
Mr. Humphrey, who is no longer with Enron , said he didn't know what exactly was the conflict with Visual Bridge but said he believes it has to do with the steep fall in the company's stock price. The company filed for Chapter 11 bankruptcy protection some seven months ago.
The banks' investments weren't returned and the partnership still exists.
Write to Alexei Barrionuevo at alexei.barrionuevo@wsj.com
Updated February 27, 2002 |
