A Law Firm's 2 Roles Risk Suit by Enron, Experts Say
By RIVA D. ATLAS
The New York Times
January 29, 2002
The dual role of the Houston law firm Vinson & Elkins in providing legal opinions for several Enron (news/quote) entities and later in reviewing the propriety of those transactions has tarnished the firm and may expose it to a malpractice suit, several law professors and lawyers say.
Vinson & Elkins's role gained attention in a letter in August by a former Enron employee, Sherron S. Watkins, who suggested that the company hire a lawyer to take a look at some of the company's off- balance-sheet financings. In the letter, addressed to Enron's chief executive then, Kenneth L. Lay, she said Vinson & Elkins should have no role in that inquiry.
Enron could not "use V.& E. due to conflict — they provided some true sale opinions on some of the deals," the letter said. Ms. Watkins's letter became public two weeks ago as part of a Congressional inquiry into the collapse of Enron.
Yet at Enron executives' request, Vinson & Elkins went ahead and conducted the review, which was completed in October.
True sale opinions are issued in letters routinely written by law firms in connection with various types of financings. The letters often accompany bond offerings by companies like automakers and credit card issuers, which bundle their customer payments in a form of financing known as securitization.
While lawyers interviewed in the last few days about the matter were wary of criticizing Vinson & Elkins until all the facts were known, they said that as law firms issued more true sale opinions, they will find themselves under increasing scrutiny.
"I think this will be a topic that warrants some discussion," said Bruce Markell, a professor at the William S. Boyd School of Law at the University of Nevada.
Indeed, with Enron's overall finances under investigation, Vinson & Elkins's ties to some Enron transactions may come under scrutiny.
Elizabeth Warren, a professor at Harvard Law School, said: "Whenever a dispute occurs after a transaction is completed, law firms are always nervous about opinion letters they issued because they themselves could be named in a lawsuit. The Sherron Watkins letter could indicate that Vinson & Elkins has a lot to be nervous about."
Asset securitization is now a $1.2 trillion market, according to recent figures from the Bond Market Association.
"Securitization is an efficient form of financing that helps fund lots of major industrial companies," said Jason H. P. Kravitt, a senior partner and head of the securitization practice at the law firm of Mayer, Brown & Platt. These opinion letters effectively state that, based on the information available to the law firm, the transaction in question appears legal and proper. "True sale letters are very carefully crafted to express what the law is," Mr. Kravitt said.
Others said the letters, often more than 10 pages long, are carefully phrased, their wording hedged.
"Usually, lawyers don't speak to the business prudence, just the legality of the transaction," said Todd Zywicki, a law professor specializing in bankruptcy at Boston College.
Two lawyers interviewed said that their firms shied away from writing such letters because of ethical concerns. Both declined to comment on Vinson & Elkins's dealings with Enron.
Vinson & Elkins provided true sale letters for at least some of Enron's financing vehicles, an executive close to Enron said, though other law firms may also have been involved.
Ms. Watkins's lawyer, Philip Hilder, said she had not seen the letters herself but that other executives had told her about them. Some lawyers say that, at the very least, the firm should have declined to conduct the review for Enron. "How can you ask someone who created a transaction to investigate its propriety?" a lawyer asked. "That would seem to defy common sense."
Joe Householder, a spokesman for Vinson & Elkins, said, "We are confident that the work we did for Enron was performed to the highest ethical and professional standards." He said yesterday that client confidentiality rules prevented him from commenting further. A spokesman for Enron declined to comment on the company's relationship with the law firm.
Some legal scholars say Vinson & Elkins's role in producing the true sale opinions could potentially expose it to a malpractice suit by Enron.
Now that Enron is in bankruptcy, one bankruptcy lawyer said: "Its obligations are to its creditors. The company must investigate whether there are any claims it might have against Vinson & Elkins."
Other lawyers said they doubted that the law firm could be held liable for an opinion, but could be under scrutiny, depending on what it knew about the financings over all.
"You can't qualify an opinion against fraud," said Jonathan Lipson, a law professor at the University of Baltimore, who previously worked at several large corporate law firms active in the securitization market. "If Vinson & Elkins did know there was something wrong at Enron, they have much larger problems than true sale opinions," he said.
Malpractice suits against law firms are becoming more common, law professors said. "Lawyers are certainly more conscious of the risk than they were 10 years ago," said Geoffrey Hazard, a specialist in legal ethics at the University of Pennsylvania's law school. |
