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Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Karen Lawrence who wrote (1635)	2/14/2002 10:30:56 AM
From: stockman_scott	Respond to of 3602

Enron board aware of deals Records show directors knew about suspect partnerships By Robert Manor and Delroy Alexander Chicago Tribune staff reporters Published February 13, 2002 Enron Corp. executives repeatedly briefed the company's board of directors about the suspect partnerships and murky accounting that later brought down the energy giant, internal Enron documents show. Records obtained by the Tribune appear to contradict claims in a recent report commissioned by the board that the directors were passive participants in one of the biggest corporate debacles in history. Enron's board received detailed presentations from former chief financial officer Andrew Fastow and others about the partnerships that crippled the company, minutes of board meetings show. Moreover, the directors approved many of the practices Fastow used to shift debt off Enron's books, the documents reveal. At the same time other documents portray Andersen--which audited Enron and certified its financial statements as accurate--as bungling and deeply involved in Enron's questionable accounting. Together, the documents and the report by Enron's board give the clearest picture yet of the events underlying the company's stunning collapse. Enron and Andersen have been trading blame in recent weeks, each trying to shift responsibility to the other. Earlier this month the board's version of events--known as the Powers report after its author, Enron director William Powers Jr.--detailed how Andersen helped Enron organize a series of partnerships to inflate the company's earnings and shield it from losses. "Andersen did not fulfill its professional responsibilities in connection with its audits of Enron's financial statements," the report says. But Andersen says Enron's board knew what it was getting into when it approved formation of the partnerships in the late 1990s and is responsible for what happened later. "It is very clear that the Enron board had a full understanding of the risks related to its business decisions," said Patrick Dorton, a spokesman for Andersen. Minutes of Enron board meetings show Enron's directors were given detailed information about the partnerships. "It's no surprise that the report of the Enron board reaches self-serving conclusions that push blame and responsibility away from the board of directors," Dorton said. Enron declined to comment for this story. But Powers testified before Congress on Tuesday, and his remarks seemed to acknowledge that the board of directors is more responsible than some at first believed. "There was a fundamental default of leadership and management," Powers said. The failure began at the top, with former Enron Chairman Ken Lay, ex-Chief Executive Jeffrey Skilling, and "the board of directors," Powers said. Some observers say both Andersen and the board are responsible for Enron's failure. "There was a culture of impropriety at Enron," said Robert Mittelstaedt, a vice dean at the University of Pennsylvania's Wharton School. "Andersen bought into that culture." "Andersen was seriously complicit in this failure," Mittelstaedt said. "But you cannot blame this totally on Andersen. The board has responsibility too." The partnerships The roots of Enron's disintegration lie in a series of partnerships set up to hide debt and inflate income. When these practices came to light, Enron was driven into bankruptcy. Although the Powers report indicates the board was told little about the partnerships, minutes of the board meetings appear to show otherwise. For example, at the December 1997 meeting of the board, a top Andersen auditor explained that Enron was guaranteeing a $383 million loan to buy out one of its partners in Jedi, the earliest of the Enron partnerships. At the June 1999 meeting of the board, chief financial officer Fastow proposed that he head another partnership, LJM. Fastow was later to earn $30 million in questionable deals between LJM and Enron. Four top Enron executives at the meeting answered "questions from the directors regarding Mr. Fastow's involvement in the partnership and the economics of the transaction," the minutes say. While it appears that over the next two years no one told the board that Fastow had grown extremely wealthy from the partnerships, it also appears board members had ample opportunity to ask whether Enron was being cheated. At an Oct. 11, 1999, meeting of the board's finance committee, Fastow updated the directors about the progress of the partnerships. He asked the board to waive its conflict of interest prohibition so he could continue his financial interest in the partnerships. Top Enron executives "answered questions from the committee concerning the role of other partners, the review by Arthur Andersen LLP and the benefits to the company," the minutes say. After discussing the partnerships, the committee agreed to suggest to the full board of directors that it waive the conflict of interest rule. At a board of directors meeting held on Oct. 12, director Herbert Winokur Jr. made a motion to allow Fastow to take a management position with a partnership that would do business with Enron. Winokur, who helped author the Powers report and conduct its investigation of the suspect partnerships, recused himself during preparation of the report from any role looking into Fastow's conflict of interest, the report says. Winokur also had business with Enron on the side. In Enron's proxy statements filed with the Securities and Exchange Commission, Winokur disclosed that he has a financial interest in National Tank Co., a supplier of more than $2.5 million worth of oil field equipment, services and spare parts to Enron subsidiaries between 1997 and 2000. Attorney Neil Eggleston represents 12 of the board's members and strongly defended Winokur. He also played down the significance of the board discussions. "This is all not news," Eggleston said, adding, "Congress has those minutes." At the May 2000 meeting of the board's finance committee, Ben Glisan Jr., who was shortly to become Enron's treasurer, gave details about Project Raptor, a new series of partnerships. "Mr. Glisan stated that Project Raptor involved establishing a risk management program to enable the company to hedge the profit and loss volatility of the company's investments," the minutes say. "Mr. Glisan then discussed Project Raptor's risk." The committee discussed the issue and then voted to approve Raptor. Ultimately, that decision helped deliver Enron into bankruptcy. The Raptor hedge The Raptors were supposed to keep Enron from losing money. Instead they illustrated poor judgment by Andersen auditors, at least according to the version of events contained in the Powers report. Enron's investments in the stock of high-tech companies had big paper profits by the late 1990s. In 1999, Enron devised a mechanism it said would protect those profits, using a strategy known as a "hedge." To hedge its profits, Enron created several investment entities it called Raptors. Enron gave large blocks of stock, much of it Enron's, to the Raptors. In exchange, the Raptors agreed to indemnify Enron from any decline in the value of high-tech stocks Enron owned. "Accountants from Andersen were closely involved in structuring the Raptors," the Powers report says. "There is abundant evidence that Andersen in fact offered Enron advice at every step, from inception through restructuring and ultimately to terminating the Raptors." The Raptor strategy would work only if Enron's stock was stable or rose, the report says. If Enron's stock declined far enough, the Raptor would not be able to make good the losses and the hedge would fail. "The transactions may have looked superficially like economic hedges, but they actually functioned only as accounting hedges," the Powers report says. "Enron was hedging risk with itself," the report says, noting that is impossible to do. To create the Raptors, the report says, "accountants at Enron and Andersen--including the local engagement team and, apparently, Andersen's national office experts in Chicago--had to surmount numerous obstacles presented by pertinent accounting rules." Put another way, the Raptor hedges obscured Enron's losses, but offered no insurance to Enron because they were backed only by Enron stock. "Andersen participated in the structuring and accounting treatment of the Raptor transactions and charged over $1 million for its services, yet it apparently failed to provide the objective accounting judgment that should have prevented these transactions from going forward," the Powers report says. Then in September 2001, the report says, Enron and Andersen learned they had made a grotesque accounting error. The accounting treatment for the Raptor transactions had been recorded as an increase in shareholders' equity--the value of the company to people who own its stock--with Andersen's approval. Instead it should have been subtracted from shareholders equity. In layman's terms, it was like writing a check but recording it as a deposit. On Nov. 8, 2001, Enron announced a $1.2 billion reduction in the company's shareholder equity. Not the first accounting error Andersen defended itself Tuesday, saying that in some cases Enron executives had misled its auditors. In other instances, Andersen said, Enron was blaming auditors for errors made by its own executives. And in some instances, Andersen admitted, its auditors had made mistakes. In any case, Raptor was not the only accounting disaster at Enron. In 1997 Enron set up a partnership named Chewco to make investments. Under accounting rules, the partnership had to include at least a 3 percent equity investment by another party, meaning Enron could not put up more than 97 percent of Chewco's capital. If the 3 percent minimum were to be violated, the partnership's debts and assets would have to be consolidated into Enron's financial reports. So Enron invited outside investors to put money into Chewco to satisfy the 3 percent rule. Then Chewco borrowed $383 million from two banks to invest. Enron guaranteed repayment of the loans. With Chewco off its books, Enron did not need to report its debt in its financial statements. It was not until four years later that Enron's accountants finally learned there was not enough outside investment in Chewco--the 3 percent rule had been broken. That meant Enron had to include Chewco in its financial reports. Andersen had reviewed the formation of Chewco, earning an $80,000 fee. But Andersen somehow missed the problems with Chewco for four years. The report says Enron accountants, not Andersen auditors, discovered Chewco's flaw. The mistake was a massive blow to Enron. Last November Enron announced it had overstated its income by $405 million since Chewco was formed, and its debt was nearly $2.6 billion higher than previously reported. There were other problems with Andersen's work. Enron and Andersen developed a formula in 1996 by which Enron could report as income the increase in the value of its stock, which was held by partnerships set up by Enron. A fundamental accounting rule prohibits this tactic, the report says. Nor was Andersen's advice to Enron consistent, according to the report. When the Enron stock held by the partnerships declined in value, "Enron's internal accountants decided not to record this loss based on discussions with Andersen." The report accuses Andersen of making some truly elementary mistakes. At some point after 1999, for example, Andersen allegedly gave Enron an accounting analysis based on the wrong price of Enron's stock. Public corporations are required by law to disclose related-party transactions, like those involving Fastow's roles at Enron and at the partnerships, in proxies and reports filed with the SEC. Enron did disclose that it was involved in large transactions with Fastow, but not much else, the report said. For example, Enron never explained the purpose of the partnership transactions or that Fastow was making huge sums of money from the deals. While much of the responsibility for disclosure rests with management of Enron and its lawyers, Andersen was also involved and had a duty to insist on adequate disclosure, the Powers report notes. "The evidence we have seen suggests Andersen accountants did not function as an effective check on the disclosure approach taken by the company," the report says. Copyright © 2002, Chicago Tribune chicagotribune.com

To: Karen Lawrence who wrote (1635)	2/14/2002 10:33:46 AM
From: stockman_scott	Respond to of 3602

Enron Official Expected to Say Many Knew of Irregularities By RICHARD A. OPPEL Jr. The New York Times February 14, 2002 WASHINGTON — Sherron S. Watkins, the Enron executive who warned six months ago that the company's accounting practices could bring it down, plans to tell Congress on Thursday that Enron's questionable handling of partnership deals was widely known within the company, according to Congressional investigators who have interviewed her. Ms. Watkins, who in August warned Kenneth L. Lay, Enron's chairman at the time, that the company would be found out to be an "elaborate accounting hoax," told Mr. Lay in a follow-up meeting in October that he needed to "come clean" and disclose the hidden losses from the partnerships. The company restated its earnings on Nov. 8, when it announced that it had overstated income by nearly $600 million during the prior five years, beginning a rapid series of events that led to Enron's declaration of bankruptcy a month later. Ms. Watkins is scheduled to be the only witness Thursday before the House Energy and Commerce Committee, which is investigating Enron's collapse. Ms. Watkins spent more than three hours today telling her story to investigators on the committee and is expected to testify that during an Oct. 30 meeting, Mr. Lay promised her that he would fire Enron's accounting firm, Arthur Andersen, and one of its primary law firms, Vinson & Elkins. But the next day, Ms. Watkins has told investigators, Mr. Lay backed off that promise and said that he would establish a special committee of directors to investigate the company's problems. In a memorandum Ms. Watkins turned over to Mr. Lay on Oct. 30, in which she makes recommendations about handling Enron's public relations crisis, Ms. Watkins suggested that Mr. Lay was "duped" by other senior executives, including the former chief executive, Jeffrey K. Skilling, and the former chief financial officer, Andrew S. Fastow. In the memo, she called both men "culprits" and warned that Mr. Lay "will be more implicated in this than is deserved" if the company did not restate its earnings and fire its accountants immediately. She also said that Mr. Lay relied on those and other executives to "manage the details" of the company's finances. In a separate e-mail released by the House committee today, Ms. Watkins states that after their Oct. 30 meeting, Mr. Lay directed her to help the company's public relations efforts and manage "our current crisis." As she suggested in her memo, Mr. Lay has largely sought to give the impression that he knew little about the specific partnership deals that helped lead to Enron's downfall. Last week, Mr. Skilling told the House committee that he was not aware that the company's partnership deals were used to conceal debts and inflate profits. Some on the committee believe that Mr. Skilling may have given false testimony, which Mr. Skilling's lawyer has denied. Mr. Fastow declined to testify before the same committee, exercising his Fifth Amendment right against self- incrimination, while Mr. Lay invoked the Fifth Amendment on Tuesday before the Senate Commerce Committee. Mr. Lay was scheduled to appear Thursday before the House Financial Services Committee, but that hearing was canceled today. Ms. Watkins, 42, is a vice president in corporate development. Before she came to Enron eight years ago, she worked for Andersen, Enron's longtime accountant, which has come under harsh scrutiny for its role in approving Enron's troubled finances as well as for its admission that auditors shredded Enron-related documents after learning of government investigations into Enron. By last summer, Ms. Watkins had been assigned to work under Mr. Fastow, the chief financial officer at the time, who headed many of the hidden partnerships that made him more than $30 million but also played a major role in Enron's collapse. After Mr. Skilling resigned as chief executive in August, after just six months in the post, Ms. Watkins sent an anonymous letter to Mr. Lay warning him of looming problems. A few days later, she met with Mr. Lay and provided him an expanded seven-page memo that laid out dire problems with the company's accounting — much of which had to do with Mr. Fastow's partnership deals — which later proved to be crucial ingredients in the company's demise. Enron filed for Chapter 11 bankruptcy protection on Dec. 2 after investors, lenders and energy-trading partners pulled back from the company after a series of negative disclosures about hidden debts, overstated earnings and self-dealing. The two-page memo Ms. Watkins presented to Mr. Lay on Oct. 30, titled "Disclosure steps to rebuild investor confidence," outlines her suggestions for how to weather the quickly growing crisis that Enron was facing at the time by candidly disclosing what she believed to be the core problems at the company. In the document, she told Mr. Lay "to admit that he trusted the wrong people," and she assigned blame for Enron's problems to other senior executives and outside professionals who she said failed to do their jobs. "Ken Lay and his board were duped by a C.O.O.," a reference to Mr. Skilling, who had been Enron's longtime chief operating officer, "who wanted the targets met no matter what the consequences, a C.F.O. motivated by personal greed, and two of the most respected firms," Andersen and Vinson & Elkins, she said in the memo. The two firms, she continued, "had both grown too wealthy off Enron's yearly business and no longer performed their roles as Ken Lay, the board and just about anybody on the street would expect as a minimum standard for C.P.A.'s and attorneys." Representative James C. Greenwood, a Pennsylvania Republican and chairman of the House Energy and Commerce subcommittee, said the latest Watkins memo was revealing and important. "Sherron Watkins gives us a very clear window into Enron's hierarchy just a couple of months prior to its collapse," Mr. Greenwood said. In interviews with investigators today, Mr. Greenwood said, Ms. Watkins described how many executives at the company were well aware of the problems Enron faced but did not do anything about them. "Part of the corporate culture at Enron seemed to be a subculture of individuals quietly passing documents around and whispering, `Have you seen this, have you seen that?' " Mr. Greenwood said. "Nobody was willing to blow the lid off of it, despite this creeping sense of corruption." (Page 2 of 2) Ken Johnson, a spokesman for the chairman of the full committee, Billy Tauzin, Republican of Louisiana, said Ms. Watkins was briefed by lawyers with Vinson & Elkins on Oct. 16 and assured that "everything was hunky-dory, that the firm had checked with Andersen, and Andersen said there was no problem." "That's when she began to pull her hair out, because she believed Andersen was part of the problem," he said. In Ms. Watkins's letter to Mr. Lay in August, she had warned against using Vinson & Elkins to review the company's problems because she feared the firm was too close to Enron to be objective. Nonetheless, Mr. Lay instructed the firm to review the concerns she had raised, and in mid-October the firm reported to Enron that while there was a "serious risk of adverse publicity and litigation" from the company's finances, no further investigation was warranted. "She's an accountant by training and she understands numbers," Mr. Johnson said. "She quickly picked up on problems with the transactions, but what was shocking to her was that many people at Enron — not just a few — apparently knew of the pitfalls of these investments and did nothing." At her October meeting with Mr. Lay, according to Mr. Johnson, Ms. Watkins showed him a document detailing how one transaction, called Raptor, was structured so it "transferred risk in the form of stock dilution." In a handwritten note next to that statement, Ms. Watkins told Mr. Lay: "That's the smoking gun. You cannot do this." Regarding Ms. Watkins's Oct. 30 memo, a spokeswoman for Mr. Skilling said tonight: "This document — whatever it is — was apparently written more than two months after Mr. Skilling left the company. Mr. Skilling had no knowledge of, or involvement in, the creation of this document, and therefore, we cannot comment on it further." In the past, Mr. Skilling has said he had no knowledge of Enron's using partnerships for any illegitimate purposes. Andersen officials have conceded some errors in auditing Enron's books, but they have emphasized that Enron officials withheld crucial information about company finances that would have changed the firm's treatment of Enron's accounting. A spokesman for Mr. Fastow declined comment. A Vinson & Elkins spokesman said the firm had not seen the memo and could not comment. In the past, the firm has said that it lived up to all its professional obligations, and the report prepared by Vinson & Elkins notes that Enron limited the scope of the firm's review, instructing it not to second- guess the company's accounting. Ms. Watkins's lawyer, Philip Hilder, said her testimony Thursday would "articulate how emphatic she was" with Mr. Lay and others about the problems at Enron. Mr. Hilder also said Ms. Watkins told investigators that after she met with Mr. Lay, Mr. Fastow seized her computer and tried to have her fired. Instead, she was transferred to another department within the company. "Under the circumstances, she's doing remarkably well," Mr. Hilder said. "She has retained her sense of humor through this." ___________________________________

To: Karen Lawrence who wrote (1635)	2/15/2002 9:34:53 AM
From: stockman_scott	Respond to of 3602

The latest from Bill O'Reilly's 'No Spin Zone'... worldnetdaily.com regards, -Scott

To: Karen Lawrence who wrote (1635)	2/15/2002 10:01:22 AM
From: stockman_scott	Respond to of 3602

Not Quite a Whistle-Blower The New York Times Editorial February 15, 2002 Sherron Watkins took a bow in Washington yesterday. The Enron executive who famously warned Kenneth Lay last August that accounting misdeeds threatened to destroy the company was greeted as a hero by the same House members who excoriated Jeffrey Skilling and Andrew Fastow last week. Billy Tauzin, the chairman of the Energy and Commerce Committee, even wished her a happy Valentine's Day. The welcome was largely deserved, though Ms. Watkins's role was not quite as heroic as some have described. In clear, direct testimony that contrasted with last week's obfuscating account by Mr. Skilling, the former Enron C.E.O., Ms. Watkins helped fill in blanks about top management's awareness of the company's freewheeling ways. Asked to describe her reaction to Mr. Skilling's testimony, during which he professed no knowledge of accounting improprieties during his watch, Ms. Watkins aptly quoted advice Mr. Skilling had once shared with employees in a newsletter: "If it doesn't make any sense, don't believe it." As described by Ms. Watkins, Enron was an oppressive workplace populated with employees troubled by the company's unusual dealings with private partnerships controlled by Mr. Fastow, the chief financial officer, which were no secret. She said they were too intimidated by the duo of Mr. Skilling and Mr. Fastow to raise objections. Ms. Watkins herself feared that warning about the bogus transactions would be a "job-terminating move." She even feared for her personal safety. Only when Mr. Skilling abruptly left Enron last August did she approach Mr. Lay. Ms. Watkins's testimony, so damning to Mr. Skilling and Mr. Fastow, provided some solace to Mr. Lay, who two days earlier invoked his Fifth Amendment right to remain silent at a Senate hearing after a volley of critical statements by committee members comparing him to Charles Ponzi and a carnival barker. Ms. Watkins said she thought Mr. Lay had been duped and failed to comprehend the full implications of the deceptive accounting she outlined for him in their August meeting. Ms. Watkins depicted Mr. Lay as a well- intentioned figure, noting that he resisted Mr. Fastow's angry demands that she be dismissed for raising questions about the deals. Mr. Lay has not yet given his side of the story. Whenever he chooses to do so, there is much he will have to explain before we can buy Ms. Watkins's portrayal of him as an executive betrayed by clever underlings. The record belies that portrait, including Enron's sweetheart deals with Lay family members, Mr. Lay's misleading exhortations to employees to buy the company stock last August and September, and the meaningless review he conducted of Ms. Watkins's allegations. Ms. Watkins was least convincing when asked why she hadn't taken her concerns about the company's accounting gimmicks, and possible fraud, to the Securities and Exchange Commission, the media or at least to other Enron board members. All she could say was that she did not want to hasten the demise of the corporation. In truth, Enron's only hope for survival was for someone like Ms. Watkins or Jeffrey McMahon, the treasurer who also worried about the company's accounting, to go public with their concerns as early as possible. That would have given this sordid tale a true whistle-blower. _______________________ btw, I think Kenny Boy may be brighter than folks think he is...after all he has a PHD and was often referred to as 'a hands on manager.' The question is what did he know and when did he know it...=) *Here's an interesting bio on Ken Lay... crashingbull.com regards, -Scott

To: Karen Lawrence who wrote (1635)	2/16/2002 11:56:44 AM
From: stockman_scott	Read Replies (1) \| Respond to of 3602

Lay Sold Shares for $100 Million By FLOYD NORRIS and DAVID BARBOZA The New York Times February 16, 2002 Kenneth L. Lay sold $100 million in Enron (news/quote) stock last year, the company disclosed yesterday, with a large part of that coming from selling shares back to the company after he was warned by Sherron S. Watkins that the company might collapse "in a wave of accounting scandals." The sales, disclosed in a report filed by Mr. Lay with the Securities and Exchange Commission, included $20 million of shares sold in the three weeks after Ms. Watkins, an Enron official, sent her warning to Mr. Lay. It is not clear how much profit Mr. Lay made on his sales, many of which came while he was encouraging Enron employees to buy shares. In Texas, a federal judge in Houston appointed one of the most aggressive class-action law firms to lead the litigation of shareholder suits against Enron. And in Austin, a trove of correspondence released after an open-records request documented the extensive contacts between Mr. Lay and George W. Bush when the president was governor of Texas. [Page C1.] Despite the sales, family members said yesterday that Mr. Lay, who is 59, faced serious financial difficulties as he struggled to repay loans taken out to make investments, many of which have lost value. Mr. Lay, Enron's former chairman and chief executive, had previously disclosed selling $29.9 million in shares in public markets from January through the end of July. The new disclosures showed he took in $70.1 million from selling Enron stock back to the company from February through October. A spokeswoman for Mr. Lay, Kelly Kimberly, said that Mr. Lay had "remained confident in Enron's stock through late 2001" and said "the vast majority" of the money he got from Enron was used to pay loans that had been secured by his stake in Enron. She said the sales were unrelated to developments at Enron, including the Watkins letter. Ms. Kimberly added that Mr. Lay and his wife did not expect to have to file for bankruptcy. "While they are experiencing liquidity problems, they believe they will be able to work through them," she said of the Lays. The family members, who spoke on the condition of anonymity, said no money was being hidden offshore and that Mr. Lay's wife, Linda, was being honest when she said on the NBC "Today" show last month: "It's gone. There's nothing left. Everything we had mostly was in Enron stock." While corporate executives are required to disclose most stock sales by the 10th day of the month after the sale, shares sold back to the company are not required to be disclosed until the next year. Thus most of Mr. Lay's sales remained unknown as Enron was collapsing last year. Mr. Lay's sales after meeting with Ms. Watkins came during a period when he was trying to reassure investors and Enron employees that there were no problems at Enron despite a falling share price and the Aug. 14 resignation of Jeffrey K. Skilling, who had been Enron's chief executive for six months. On Aug. 21, the same day he sold $4 million of stock to the company, Mr. Lay told employees that one of his highest priorities was to restore investor confidence, adding that that "should result in a significantly higher stock price." On Sept. 26, in an online chat with Enron employees, Mr. Lay said the stock was a good buy and added that he had bought stock within the last two months. Based on publicly available reports, that appeared to be true, because he had exercised stock options without reporting stock sales. But it is now clear that he had sold many more shares than he had bought during the period. Ms. Kimberly said yesterday that Mr. Lay continued to hold some shares he had received from exercising options last summer. If so, that means he sold other shares he already owned. On Aug. 13, the day before Mr. Lay reassumed the title of chief executive, Enron granted 90,873 shares to him, according to the filing released yesterday. Mr. Lay's sales to the company temporarily halted after Sept. 4 but then resumed in late October after partial disclosures about partnerships run by Andrew S. Fastow, then Enron's chief financial officer, had damaged confidence in the company. On Oct. 23, the day after Enron disclosed that the S.E.C. had begun an informal inquiry into the company's accounting, Mr. Lay resumed his sales, selling $6 million in stock to Enron over four days. On Oct. 26, the day of his final sale, he called Alan Greenspan, the Federal Reserve chairman, regarding Enron's problems, and over the next several days he called several Bush administration officials. The Bush administration did not intervene, and on Dec. 2, after an attempted merger with Dynegy (news/quote) fell through, Enron filed for bankruptcy protection. Mr. Lay's sales to Enron in 2001 began early in the year, with a $4 million sale on Feb. 1, when the share price was $78.79. He sold another $4 million in shares on April 27 and then realized $8 million in May, $24 million in June and $4 million in July. During those months he was also selling stock in the open market. It is not clear how much money Mr. Lay made from the sales. His S.E.C. filings show that he and a Lay family partnership exercised options in 2001 for 635,334 shares, paying $12.2 million. That would reduce his net profits to $87.8 million on his sales last year, less whatever the other shares had cost him. From 1998 through 2000, according to previous Enron reports, Mr. Lay made annual profits from exercising options of $13.1 million in 1998, $43.8 million in 1999 and $123.3 million in 2000. His salary and bonus from 1998 to last year totaled $22.5 million. Enron has since disclosed that its profits were overstated in all of those years, in large part because it improperly concealed losses through the partnerships run by Mr. Fastow. All told last year, he and the family partnership sold 2,267,371 shares of Enron stock, realizing $100,027,544.87, according to his S.E.C. filings. Mr. Lay was still left with a large holding in Enron stock when the company collapsed. His filing with the S.E.C. yesterday stated that at the end of December he owned 1,012,223 shares of Enron stock in his own account; 100,000 shares in a family partnership; 20,337 shares in his 401(k) plan; and 121 shares in an employee stock ownership plan. Enron's stock closed yesterday at 26.5 cents. (Page 2 of 2) Ms. Kimberly said that Mr. Lay's sales of stock to Enron were made under a revolving credit arrangement with the company under which he was able to borrow $4 million. That appears to have been something of a formality, because he borrowed the $4 million and then repaid it with stock again and again. Nearly everything Mr. Lay and his wife own is now up for sale, the family members said, including residential properties in Texas and Colorado, worth about $30 million. The family plans to keep a home worth about $8 million in the River Oaks area of Houston. Under Texas law, a person who files for bankruptcy can keep a home, no matter how much it is worth and no matter how large are the losses suffered by that person's creditors. Last week, Mr. Lay sold his minority stake in the Houston Texans, an expansion National Football League team, for an undisclosed sum. He and his wife also sold one of their Aspen, Colo., properties for about $10 million, according to Joshua Saslove, Mr. Lay's real estate broker. They had bought the property in 1991 for about $1.9 million, but the property had undergone extensive renovations in 1993. Another plot of land in Colorado the family owns sold for about $2.15 million, Mr. Saslove said. There are two other Aspen properties for sale, worth $6 million apiece, he said. Family members said that as 2001 began, 80 percent of Mr. Lay's wealth was in Enron, including his stock, options, deferred compensation plan and his 401(k) savings plan. Ms. Kimberly said with Enron virtually worthless, his net worth is down by 80 percent, but she did not give an exact figure. A family member said yesterday that Mr. Lay was worth about $400 million a year ago. While some Enron executives were able to request and pull their deferred compensation out of Enron before it collapsed, Mr. Lay did not request or receive any of his deferred compensation, Ms. Kimberly said. Though most of Mr. Lay's money was in Enron stock, family members and associates say Mr. Lay did have some other holdings. Because he was a director at Compaq, Eli Lilly & Company (news/quote) and i2 Technologies (news/quote), he owned stock in those companies that is now valued at about $10 million. In the last few years, Mr. Lay and his son Mark, 33, invested about $1 million in two privately held technology companies, EterniTV, an Internet start-up that delivers video services over the Web, and EC Outlook, a company that develops supply chain management software. Both companies are struggling. Mr. Lay also invested nearly $20 million in Questia, a Houston company that sells access to online books. The company's work force has been cut drastically in the last year. Asked whether Mr. Lay had a financial adviser, one close friend said: "There were no advisers. He did it all himself." One reason, a person close to the family said, was an experience Mr. Lay had in the mid-1980's, after receiving a huge payout when he helped merge Houston Natural Gas and Internorth to create Enron. The windfall of more than $3 million was largely invested in California real estate by an adviser, he said, adding that much of that money was lost when the real estate market tumbled. ________________________________ btw, I still believe there is a good chance that Lay may be nailed for insider trading...stay tuned...things could get interesting...=)

To: Karen Lawrence who wrote (1635)	2/16/2002 12:43:06 PM
From: stockman_scott	Respond to of 3602

Companies now fear 'Enronitis' epidemic By Alan Clendenning The Associated Press Saturday, February 16, 2002 - 12:00 a.m. Pacific NEW YORK — The big Enron headlines this past week came from Washington, D.C., where former Chairman Kenneth Lay invoked his Fifth Amendment right against self-incrimination and company executive Sherron Watkins testified about telling Lay last summer that the energy-trading company was on the verge of collapsing. But across the country, publicly traded companies ranging from those that make doughnuts or electronic circuits to those that provide telephone service were struggling to counter perceptions that they have Enronlike problems. And experts think the stream of disclosures some are calling "Enronitis" will continue for some time, possibly reaching a peak next month, when companies start issuing their annual reports. In Winston-Salem, N.C., Krispy Kreme said it would change its method of financing construction for an Illinois dough-mixing plant, responding to a Forbes magazine article that described a synthetic lease for the plant as an "off-balance-sheet trick." In Denver, Qwest announced it would hold a weekly conference call for investors to rebut "rumors and innuendo" about the company after it acknowledged it had been shut out of the corporate bond market amid worries about its accounting practices. And in Exeter, N.H., Tyco executives — who first came up with the idea of the weekly conference-call update — gave investors an update about the conglomerate's plans to break itself apart. Making good on a promise to be candid about its accounting practices, the company also disclosed more details about $3 billion in acquisitions last year. The public-relations moves are having mixed results. While Krispy Kreme's stock recovered this past week, shares of Tyco and Qwest dropped. The problem, experts said, is likely to continue for companies that have balance sheets that are difficult for analysts and investors to understand. And it happened to IBM yesterday, after it said it used income from the sale of a business unit to lower its operating costs, giving its fourth-quarter 2001 earnings report a rosier glow than it might otherwise have warranted. It's stock fell $5 to $102.89. The accounting move boosted the company's operating income, which, IBM reported, narrowly beat Wall Street analysts' expectations. At other companies, such sales are often reported as a one-time gain that wouldn't be reflected in operating income. IBM defended its accounting of the $300 million sale, reported in yesterday's editions of The New York Times, saying the company buys and sells businesses as a normal practice. "These companies are being painted dramatically and perhaps some unfairly with the Enron brush," said Richard Cripps, chief market strategist for Legg Mason in Baltimore. "But that's the risk of business, and that's why you run a sound balance sheet with honest numbers." More disclosures that hurt company stock are likely in the weeks to come, but "if it were a ball game, I would say we're about in the seventh inning," said Richard Dickson, a technical analyst at Hilliard Lyons in Louisville, Ky. "With Enron, I think you had extreme examples of everything," Dickson said. "Do other companies do this kind of stuff? Yeah. Do they do it to the extent Enron did? No." Some companies can use annual reports, which many now are preparing for shareholders, to reveal how they do business. This year, the reports are expected to be much fatter and filled with dry footnotes about accounting practices. Chief executives "are going to their auditors and saying, 'I don't care what we were doing before, but we have to be fully disclosed,' " Cripps said. "If not, they'll get punished." One good way to measure the impact of Enron on corporate disclosure would be to do a study comparing the weight of this year's annual reports to the weight in years past, said Lawrence White, an economics professor at New York University's Stern School of Business. "The smart companies are disclosing because they know if there's some smelly stuff, it's better to get it out quickly and get it all out," he said. "Enronitis probably continues through another month or two, we need to get thorough annual report season." Wall Street ended the week mostly higher with only the Nasdaq finishing lower. For the week, the Dow rose 158.80, or 1.6 percent, to 9,903.04, despite losing 98.95 yesterday. Boeing, one of the 30 Dow stocks, advanced 13 cents to end the week at $44.90, up $3.20 or 7.7 percent, for the week. Microsoft, also a Dow stock, slid $1.45 to $60.23, giving up 42 cents for the week The Nasdaq registered a weekly loss of 13.68 after falling 38.17 to 1,805.20 yesterday. The S&P 500 advanced 7.96 for the week, closing at 1,104.18 despite a loss of 12.30 yesterday. Gold/oil In U.S. trading yesterday, gold fell $1.30 to $298.90 per ounce, down $5.50 for the week. Oil added 27 cents to $21.36 per barrel, up $1.24 for the week.