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

To: Glenn Petersen who wrote (1772)	2/20/2002 12:51:33 PM
From: James Calladine	Read Replies (1) \| Respond to of 3602

HOW MUCH IS THE COMMON STOCK WORTH? As per Enron Board: Message 17087037 Namaste! Jim

To: Glenn Petersen who wrote (1772)	2/20/2002 7:36:55 PM
From: stockman_scott	Respond to of 3602

Ex-exec defends partnerships in law firm review Keener focus on Enron deals By Delroy Alexander, Chicago Tribune staff reporter. Published February 20, 2002 Former Enron Corp. executive Andrew Fastow, in remarks last August to a law firm reviewing the company's accounting practices, declared that complaints about the methods he was using to beef up Enron's profits were merely the "second-guessing" of something that was great for Enron. In the interview with representatives of Houston law firm Vinson & Elkins, Fastow steadfastly defended the partnerships he used to inflate Enron's profits. Those partnerships are now widely acknowledged as having destroyed Enron, crushing its stock price and forcing the company into bankruptcy. The law firm interviews with Fastow and other executives, which were among a new group of documents released Tuesday by a House committee investigating the matter, provide some of the first actual commentary from key players in the debacle. They include remarks to Vinson & Elkins from Enron's former chief accounting officer, Richard Causey; former chief risk officer Richard Buy; and David Duncan, the Andersen partner in charge of auditing Enron, who parted company with Andersen after apparently helping to orchestrate the shredding of documents related to the energy trader. Also included in the records released Tuesday by the House Energy and Commerce Committee was an interview with former Enron Chairman Kenneth Lay. This interview was conducted by the investigators who produced the so-called Powers report, the document that gives the Enron board's account of what happened. In the interview, Lay contends he had not been aware of problems with Fastow's partnerships until the company was near collapse. Lay said, for example, that he did not even know former Enron Global Finance executive Michael Kopper, who the Powers report says made at least $10 million through his involvement in the partnerships. Lay also said that as late as October he had never heard of Chewco, one of the partnerships that dated back to 1997. Lay also said he thought Enron's plunging stock price disturbed the sleep of former chief executive Jeffrey Skilling and was one reason Skilling quit as CEO last August. Skilling was taking Enron's stock decline personally and could not sleep at night, Lay said in comments summarized by the Enron inquiry panel in a memo. But it is the August interview with Fastow that sheds the greatest light on the thinking behind the creation of the special-purpose partnerships that were used to inflate profits by hundreds of millions of dollars. When attorneys heading the internal inquiry quizzed Fastow in August about the partnerships he ran and about suggestions of impropriety made to Lay in a letter by whistleblower and Enron executive Sherron Watkins, Fastow dismissed the claims, yet said he applauded Watkins for her fortitude to stand up and complain. However, in his Aug. 27 interview, Fastow apparently expressed some irritation with the implication of the letter, given that the board of directors, Chicago-based accountant Andersen and external Enron counsel Vinson & Elkins had reviewed the deals, according to Vinson & Elkins' summary of the meeting. Fastow had a simple answer as to why an Enron executive was chosen to own key partnerships--first himself and then others including Kopper--rather than an independent third party such as an investment bank. Complexity of the transactions, speed of closing deals and confidentiality were cited by the ex-finance chief, who argued that banks were too slow to execute deals. There were also two main benefits of using Enron employees to run the partnerships despite the obvious conflicts of interest that might arise, according to Fastow. "Enron employees could keep their benefits, such as stock options, insurance and alike," according to the memo and "dual employees would be knowledgeable about Enron and work with Enron easily." Fastow said he believed that there were adequate legal and accounting safeguards in place to oversee the deals, including the knowledge of Enron general counsel, Enron accounting officer Causey, the board audit committee and ultimately the full board. Fastow argued that several of the partnerships had been set up for two primary reasons: first to move assets and related debt off Enron's balance sheet, and second to increase Enron's cash flow by showing funds flowing through its books when assets were sold by the energy trader. According to the summarized comments of the discussion, Fastow said concerns about deals with the Raptor partnerships, now at the center of investigators' probes of wrongdoing at the firm, allowed Enron to avoid write-downs on its assets. When assets were sold by Enron to the supposedly arm's-length Raptor partnerships, Enron got the benefit of a "buffer" on its profit and loss statement, according to Fastow's summarized remarks. He estimated Enron ultimately booked $400 million from one Raptor deal after an initial investment of just $20 million. This was despite the fact that the actual market value of the investment slumped over time as its share price plummeted in Nasdaq trading. Fastow also reckoned Watkins was simply second-guessing the accountant when she questioned the deals and that she was factually wrong when it came to concerns she raised about whether the company had fully disclosed the fact that Enron stock would be issued to support the Raptor partnership transactions. Copyright © 2002, Chicago Tribune