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.

Gold/Mining/Energy : Enron - Natural Gas Industry -- Ignore unavailable to you. Want to Upgrade?

To: Gary E who wrote (1262)	1/11/2002 12:56:11 AM
From: stockman_scott	Read Replies (1) \| Respond to of 1433

Lies and more lies! Arthur Andersen CEO May Have Given Inaccurate Information During Testimony By JOHN EMSHWILLER Staff Reporter of THE WALL STREET JOURNAL Arthur Andersen LLP Chief Executive Officer Joseph Berardino gave what now appears to be inaccurate information in testimony to Congress last month regarding a controversial Enron Corp.-related partnership, raising further questions about Andersen's role in auditing Enron's relations with the partnership. The partnership in question is known as Chewco Investments LP. In Dec. 12 testimony before the House committee on financial services, Mr. Berardino said his accounting firm had recently discovered "possible illegal acts within" Enron in connection with Chewco. He added that Andersen had been kept in the dark about a crucial part of the Chewco arrangement that allowed Enron to improperly inflate its earnings by nearly $400 million between 1997 and 2000. Disclosure of Chewco's existence by The Wall Street Journal in late October helped precipitate the loss of investor confidence that led to Enron's Dec. 2 bankruptcy-court filing seeking protection from its creditors. A person familiar with the matter said that in his testimony Mr. Berardino may have mischaracterized part of the Chewco arrangement and may have understated Andersen's level of knowledge about it. Thursday, a spokesman for Andersen, David Tabolt, said that Mr. Berardino's testimony was truthful but based on incomplete information. "Given what we know now," the testimony would have been somewhat different, the spokesman said. But he added that the firm believed the testimony was accurate in its major points. Mr. Berardino told the congressional committee that Andersen, based in Chicago, was committed to learning from any mistakes it made in regard to Enron and to making any necessary changes. Chewco was created in 1997 to help deal with a pressing problem confronting the fast-growing Houston energy concern. Chewco purchased from Enron a half interest in a limited partnership known as JEDI (for Joint Energy Development Investments), which the company had helped create several years earlier to invest in energy-related ventures. This deal helped Enron avoid having to book several hundred million dollars of JEDI-related debt to its own balance sheet. Enron routinely tried to keep debt off its balance sheet in order to protect the company's credit rating. But Enron could avoid booking the debt only if Chewco was deemed an independent third party. Enron determined -- and its auditor Andersen concurred -- that it was. But a number of things about Chewco weren't routine. For one thing, Chewco was being run by an Enron executive named Michael Kopper. Mr. Kopper, who has since left Enron, has consistently declined to be interviewed and couldn't be reached for comment Thursday. In his December testimony, Andersen's Mr. Berardino said that in 1997 his firm had agreed that Enron could treat Chewco as independent because there was a sufficiently large equity investment from an outside party. Mr. Berardino identified the outside party as a "large international financial institution," but didn't name the institution. In his testimony, Mr. Berardino said Andersen hadn't been told about a crucial feature of the Chewco deal. Enron had agreed with the financial institution to effectively guarantee half of the equity investment by putting up cash collateral of about $6 million, Mr. Berardino said. That separate guarantee agreement meant that Chewco didn't have enough outside equity to be considered independent of Enron, he added. Andersen says it didn't discover this side deal until November of last year, when Enron was in a full-blown crisis that had been sparked in large part by disclosures concerning Chewco and other partnerships run by Enron executives. The discovery forced Enron to retroactively fold Chewco and JEDI into its own financial statements going back to 1997. This, in turn, added hundreds of millions of dollars to Enron's reported debt and reduced previously reported earnings by nearly $400 million, or more than 10%, for that period. The side guarantee on the Chewco equity investment and the apparent hiding of its existence was what prompted Andersen to report possible illegal acts to Enron's board last November, Mr. Berardino said in his testimony. The international financial institution in question is Barclays PLC, the large British banking group, according to the person familiar with the matter. A Barclays spokesman declined to comment. It turns out Mr. Berardino was incorrect in saying that a large financial institution was the equity investor in Chewco. Barclays, which in 1997 had existing banking ties with Enron, according to the person familiar with the matter lent about $11.4 million to two limited-liability companies called Big River and Little River. Those two entities made the crucial equity investment. A check of public records didn't come up with any information that appeared to be related to Big River or Little River. Additionally, the person familiar with the matter said, Barclays had in 1997 been told by Enron officials that Arthur Andersen had reviewed the Chewco financing structure, including the cash collateral aspect, and approved it. Thursday, Mr. Tabolt, the Andersen spokesman, reiterated the firm's position that it didn't know about the collateral agreement until November. However, he did acknowledge that Mr. Berardino had incorrectly identified the Chewco equity holder in his congressional testimony. Now, the firm believes Big River and Little River were the equity holders, though Mr. Berardino wasn't aware of that fact at the time he testified, Mr. Tabolt said. Andersen's professed misunderstanding of the ownership issue itself raises questions about how Andersen could have given its blessing to the Chewco arrangement in 1997 without knowing the identity of all the parties. The Andersen spokesman said the audit firm is "still looking into" questions surrounding the ownership issue.