Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : Auric Goldfinger's Short List -- Ignore unavailable to you. Want to Upgrade?

To: RockyBalboa who wrote (8713)	12/12/2001 1:59:59 PM
From: Sir Auric Goldfinger	Read Replies (2) \| Respond to of 19428

Cypress!? AREM! Andersen CEO Says Possible Illegality Found at Enron (Update3) 2001-12-12 13:53 (New York) (Adds Enron audit committee in 16th and 17th paragraphs.) Washington, Dec. 12 (Bloomberg) -- Arthur Andersen LLP Chief Executive Officer Joseph Berardino said his firm told Enron Corp.'s audit committee last month ``of possible illegal acts within the company'' after discovering the energy trader didn't provide critical information about one of its units. Andersen is trying to learn why it didn't get some material needed to determine the proper accounting treatment for Chewco Investments LP, which contributed to a decision to cut $586 million from Enron's income since 1997, Berardino said. Andersen told Enron on Nov. 2 that withholding of that information may have involved illegality, he said. The restatement sent Enron shares into a 99 percent nosedive preceding the Houston company's filing for the biggest U.S. bankruptcy. Enron's collapse has raised public and regulatory concern about the quality of company financial statements, leading to investigations by the Securities and Exchange Commission and a hearing today by subcommittees of the House Financial Services Committee. ``Important information was not revealed to our team'' about Chewco, said Berardino, whose firm handled Enron's accounting. An ``error in judgment'' by Andersen caused incorrect accounting for another unit, LJM Cayman LP, known as LJM1, the CEO said in testimony prepared for today's House hearing. Subpoenas Possible Enron officials didn't return three calls seeking comment. Enron Chairman Ken Lay refused an invitation to testify at today's hearing, citing a scheduling conflict with a bankruptcy hearing. ``I certainly wish to cooperate with the committee and its subcommittees,'' Lay said in a letter to the committee. Given the Enron-connected investigations and lawsuits, Lay said he is about to hire a lawyer to represent himself. The U.S. Department of Justice has launched a criminal probe of Enron, the New York Times and the Wall Street Journal have reported. Representative Richard Baker, a Louisiana Republican, said Lay and Enron officials would be given future opportunities to testify before the committee. ``Should social obligations preclude'' Lay or other Enron executives from appearing ``the committee has the right to subpoena'' them, said Baker. Enron's shares fell 4 cents to 69 cents in mid-afternoon trading. `Error in Judgment' In Chewco's case, Berardino said auditors weren't given information about cash collateral that would have made a difference in determining the right accounting treatment for Chewco. Adding Chewco to Enron's books was responsible for 80 percent of the company's restatement, the Andersen CEO said. Berardino accepted responsibility for errors involving LJM1. ``We now believe, based on a second look, that our team made an error in judgment,'' he said. ``An honest error, but an error nonetheless.'' Regarding other complaints that Enron didn't make adequate disclosures to investors about related entities, Berardino said Enron wasn't required to reveal that information. ``It's true that Enron did not disclose every transaction or contingency,'' he testified. ``It was not required to.'' Berardino said he felt his appearance was important to help restore public confidence in the integrity of the capital markets. ``I am here today because faith in our firm and in the integrity of the capital market system has been shaken,'' Berardino told the panel. Audit Committee Members of Enron's audit committee, which Berardino said received notice of possible illegality, include: Robert Jaedicke, a former accounting professor and retired Stanford University Business School dean; Ronnie Chan, chairman of Hong Kong-based Hang Lung Group; and John Mendelsohn, president of the University of Texas M.D. Anderson Cancer Center, according to the company's latest proxy filing. Other audit committee members listed in the filing are: Paulo Ferraz Pereira, executive vice president of the Brazilian-owned investment bank Group Bozano; John Wakeham, a former leader of the British House of Commons; and Wendy Gramm, former chairman of the U.S. Commodity Futures Trading Commission, who is married to Senator Phil Gramm, a Texas Republican. Berardino said ``investors would be better served if our accounting rules were changed to reflect the risks and reward of transactions such as'' special-purpose entities, the likes of Chewco and LJM1. Accounting for Units The SEC has been urging a professional accountants' group to develop guidance for companies on how to account for such units, said Robert K. Herdman, SEC chief accountant. These entities were created by Enron to get access to capital and increase leverage without adding debt to its balance sheet. Enron, in restating five years of earnings, disclosed that three of these entities should have been included in the company's consolidated financial statements. Herdman said the Financial Accounting Standards Board, a professional rule-writing group, intends to develop guidance for treatment of these units and ``increase financial statement transparency.'' Richard Trumka, secretary-treasurer of the AFL-CIO, said the umbrella labor group will petition the SEC to require companies to disclose all ties between their board members and officers. Trumka said Enron went bankrupt because of conflicts of interest involving company executives and accountants. `Rampant' Conflicts ``The most important lesson to be learned from the collapse of Enron is how hard it is to repair the damage done by rampant conflicts of interest aided by regulatory loopholes,'' an advance text of Trumka's testimony said. Berardino said, ``I do not believe the fees we received compromised our independence.'' The Andersen CEO said only $13 million of the $47.5 million in fees that Andersen received from Enron last year were for consulting, with about $34 million for audit and tax work. --Vicky Stamas and Neil Roland in Washington (202) 624-1958, or vstamas@bloomberg.net with reporting from William Roberts in Washington /rp/bd