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

To: pilapir who wrote (9782)	5/3/2002 10:45:05 AM
From: StockDung	Respond to of 19428

Vital Living, Inc. (OTC BB: VTLV) Donner Corp. International Issues a Speculative Buy Recommendation On Vital Living, Inc. donnercorp.com ----------------------------------------------- Silk purse in penny stocks A tout makes money even as his clients’ shares collapse By Bruce Kelly Tech stocks have been decimated by the market downturn, but Jeff Baclet has kept the faith. After all, he’s paid by companies that have slipped so far in value that they’ve fallen into the netherworld of penny stocks. Selling for less than $5 a share, they dwell in the low-rent district of the Nasdaq’s Over-the-Counter Bulletin Board and the Pink Sheets — thinly traded, rarely followed by analysts, little known to investors and subject to wild bursts of volatility. That’s where Mr. Baclet, 31, comes in. Using a mix of Bible-thumping zeal and unrelenting optimism, he hypes a stable of companies for a fee through Donner Corp. International. He founded the Santa Ana, Calif., broker-dealer after a peripatetic career on the fringes of the financial services industry. “It’s like a public relations firm,” says David E. Rubbins, a New York securities lawyer. “The SEC would likely look hard at this kind of arrangement,” adds Barry Barbash, a partner in Washington with Shearman & Sterling who once ran the Securities and Exchange Commission’s division of investment management. FULL DISCLOSURE That arrangement is strictly cash, carry and buyer beware. Given the precipitous decline of the Nasdaq Composite Index since its peak last year, the OTC market has become the elephant’s graveyard of dozens of once-highflying tech companies. Many are willing to shell out big bucks to try to regain some of the glory of the tech boom. Donner is one of about 200 firms that bottom-feed on the hopes and dreams of wannabe moguls, according to Key Ramsey, chief executive of Knobias.com, a website he started after being victimized in a penny stock scam. He follows 6,300 micro-cap companies trading publicly on the Nasdaq Small-Cap market and the Pink Sheets. He says that Mr. Baclet and other brokers who tout penny stocks for a fee are taking advantage of a legal loophole to pump the price of a stock. “Regulators we’ve talked to wish this would go away,” says Mr. Ramsey. GOD AND MONEY Mr. Baclet, however, is unlikely to disappear anytime soon. He opened the doors of his broker-dealer in 1996, and he has never run afoul of Securities and Exchange Commission regulations, according to the federal agency. However, some of the seven securities firms, one insurance company and two realty firms he worked for between 1989 and 1996 have. Capital International Securities Group Inc. of Boca Raton, Fla., the last company he worked for before opening Donner, was hit with a class action in 1999 for allegedly defrauding investors in a pump-and-dump stock scheme that ran from August 1997 to August 1999. Another of Mr. Baclet’s former Florida employers, GKN Securities Corp., was ordered in 1997 to pay $2.1 million in fines and restitution, according to NASD Regulation Inc., the independent enforcement arm of the National Association of Securities Dealers. Between December 1993 and April 1996, the firm and 29 brokers and supervisors allegedly controlled the immediate after-market trading in eight stocks it underwrote, and excessively inflated those prices, according to the NASDR. Mr. Baclet worked for Capital International Securities from July 1995 to December 1996 and GKN Securities from August to November 1994. He was not named as a defendant in the class action against Capital International Securities, nor did the NASD name or fine him for a role in the GKN Securities case. As well as pumping the hopes and dreams of penny stock moguls, Mr. Baclet mixes Christian evangelism with his investment advice. His website, for example, provides a biblical justification to shun trading on margin and gives in-vestors an opportunity to donate to a fundamentalist Christian charity that rails against Hollywood, porn-ography and homosexuals. SLIDING SCALE For companies that pay a one-time fee, ranging between $3,000 and $7,000, Donner publishes press releases and “research reports” touting its penny stocks. The higher Mr. Baclet can drive the stock, the greater the reward, which can include stock options, monthly retainers and fees that typically rise on a sliding scale along with the stock price. Mr. Baclet is quick to point out that his fee arrangements are fully disclosed in accordance with SEC rules. “It’s clear it’s a fee-paid [service],” he says. However, the information has a habit of finding its way into investor chat rooms or onto computer bulletin boards, where the disclaimer is sometimes not mentioned or has been deleted. In the case of Tickets.com Inc. (TIXX), an online ticket service, Morgan Stanley Dean Witter analysts gushed about the Costa Mesa, Calif., company when it handled the initial public offering Nov. 4, 1999. The stock jumped to $32 a share, from an IPO price of $12.50, before closing that day at $19.25 a share. Thursday the stock closed at 39 cents a share, and the Nasdaq says the company is in line to be taken off the exchange for failing to meet minimum listing requirements. Tickets.com was caught in last year’s tech-stock riptide and has traded below $1 since November. Donner took the company on as a client in December after the NASD warned Tickets.com for the first time that it was in danger of being delisted. On Jan. 22, Donner issued a press release that glowingly described the company’s prospects. Donner’s research report on Tickets.com didn’t include a projection of the company’s future earnings on its cover or on any of its pages. Such projections are standard fare for analysts’ reports. The report does include, however, a quote from the Book of Jeremiah. “Before I formed you in the womb I knew you; before you were born I sanctified you,” reads the quote, which appears under a box listing Tickets.com’s revenue. The report gave the stock a “speculative buy” rating. According to ratings group First Call Corp., a “speculative buy” rating falls between a rating of “buy” and “hold” and means a stock has more risk. “We believe Tickets.com is highly undervalued considering it is moving forward with a business plan to revolutionize the online ticketing industry,” Donner wrote. But in its annual report this month, Tickets.com warned investors that it soon might cease to exist. “If we are unable to obtain additional funding on satisfactory terms in the near future, we’ll have to modify our business plan, reduce or discontinue some or all of our operations, seek a buyer for substantially all of our assets or seek bankruptcy protection,” the company cautioned. Even so, Donner’s January press release caused a stir among investors in chat rooms on Yahoo! Inc.’s financial website. A VOLATILE SWING The morning the press re-lease was published by an online news service, one stock jockey, Mtanda_ 2000, copied it in full, without the disclaimer, in a message with the subject as “good buy recommendation.” The identity of the writer could not be learned. Over three days, Jan. 19, 22 and 23, Tickets.com saw its volume surge, respectively, from 374,000 shares, to 829,000 shares, to 2.2 million shares. The price climbed to 84 cents over that time, from 50 cents. The next day, both the volume and price fell back — to 925,000 and 78 cents. “Like a lot of penny stocks, it fluctuates quite a lot,” says David Kathman, a stock analyst who has watched, but not formally covered, Tickets.com for Morningstar.com. Donner would have benefited greatly from any strong move in the stock price, according to the release. It said Tickets.com was to pay Donner 1,000 shares of stock for its work. If the stock had closed at $10, $15, $20 or $25, Donner stood to receive an additional 1,000 shares of stock for reaching each plateau. In another release, Donner disclosed that it would receive $7,000, plus a $2,500 monthly retainer. But in its research report, it says merely that it received a $5,250 due diligence fee and a $6,000 retainer. The report also made no mention of shares potentially owed to Donner. “They’re following the letter of the law, but not the spirit,” says Mr. Kathman. BULLISH Mr. Baclet says that in all but one of the sectors it covers, his team has no specialists. He says, “It’s a team effort when we go into a project.” He likens his practice of taking a fee to cover companies with market caps barely in the millions to Wall Street’s practice of refusing to write “sell” recommendations of companies worth billions. Indeed, once a business has signed up with Mr. Baclet, it is just about guaranteed to get a bullish rating. Donner has pulled at least one company from the list — Far East Adventures, a phone card company that Mr. Baclet says didn’t give his analysts correct financial information. Since March 6, 2000, Donner has produced at least 104 favorable press releases and not one “hold” or “sell” rating, according to a search of Dow Jones Interactive. In that time, the Nasdaq Composite Index has fallen more than 60%, and all 18 companies that Donner lists as clients on its website have seen their prices tank. Mr. Baclet says huge swings in stock price are part of investing in penny stocks, and he insists that he is not a stock touter. In fact, in the past, his clients have been winners, he says.

To: pilapir who wrote (9782)	5/3/2002 12:11:51 PM
From: StockDung	Respond to of 19428

Greenspan Says Options Should Be Charged to Earnings (Update1) By Michael McKee Sea Island, Georgia, May 3 (Bloomberg) -- Stock options that U.S. corporations grant employees as compensation should be counted as expenses in earnings statements and their value should be tied to the performance of the company relative to its competitors, Federal Reserve Board Chairman Alan Greenspan said. Stock options allow executives to buy shares of their companies, often at prices well below the market. Current U.S. accounting rules require only the disclosure of the options' value in footnotes to company financial statements, allowing companies to avoid reducing reported earnings. Legislation pending in Congress would force companies to treat employee stock options as an expense or lose hundreds of millions of dollars in tax breaks. While Greenspan suggested regulators, such as the Securities and Exchange Commission, were better equipped to deal with the issue than Congress, he said accounting changes are necessary. Failure to list options as an expense ``has introduced a significant distortion in reported earnings, and one that has grown with the increasing prevalence of this form of compensation,'' Greenspan told a Federal Reserve Bank of Atlanta conference on financial markets. ``Capital employed on the basis of misinformation is likely to be capital misused.'' ``To assume that option grants are not an expense is to assume that the real resources that contributed to the creation of the value of the output were free,'' Greenspan said. ``Surely the existing shareholders who granted options to employees do not consider the potential dilution of their share in the market capitalization of their corporation as having no cost to them.'' Affecting Stocks Listing options as expenses shouldn't affect stock prices, because ``nothing in the real world is altered,'' Greenspan said. ``Expensing is only a bookkeeping transaction,'' he said. ``Nothing real is changed in the actual operations or cash flow of the corporation.'' The Fed chairman's position puts him at odds with SEC Chairman Harvey Pitt and Treasury Secretary Paul O'Neill. O'Neill, the former chairman of Alcoa Inc. and a former board member of companies including Eastman Kodak Co., Lucent Technologies Inc., and General Motors Corp, said yesterday he opposes expensing because it distorts company financial reporting. ``Income statements and balance sheets up to now have largely meant something that's understandable. If we start confusing them by putting balance-sheet transactions into earnings statements, we're going to make things worse instead of better,'' he said. Still, O'Neill said there should be ``much fuller disclosure'' of options, including published estimates at the time options are granted of their future value. Senate Bill The Senate bill, sponsored by Michigan Democrat Carl Levin and Arizona Republican John McCain, would require the stock option tax deduction to mirror the stock option expense on the company's income statement. If a company doesn't report a stock option expense, then it couldn't take a tax deduction. Changing accounting rules to fix deficiencies in corporate governance is ``essential,'' Greenspan said. Still, he repeated his view that should be done by regulation, rather than legislation. ``Hard-wired legislation'' doesn't allow for necessary flexibility in rulemaking, he said. If lower reported earnings dissuade investors, ``it means only that they were less informed than they should have been about the true input cost of creating corporate revenues,'' Greenspan said. Executives Worry ``Most high-tech executives'' worry stock prices would be affected, he said. ``How else does one explain their vociferous negative reaction to expensing if its only effect were to change the book profit reported to shareholders?'' Groups such as the American Electronics Association, a trade group representing companies including Motorola Inc. and Intel Corp. have said that expensing options would make it harder for them to attract and retain workers. Options are useful, particularly in attracting capital and skilled management to high-technology companies, he said. Still, ``in recent years, substantial capital arguably was wasted on a number of enterprises whose prospects appeared more promising than they turned out to be,'' Greenspan said. ``Not all new ideas should be financed.'' Only two of the companies listed in the S&P 500 stock index reportedly chose to list options as expenses in 2000. ``If expensing does indeed matter, at least some of the unsustainable euphoria that surrounded dot-com investing at its peak may have been exacerbated by questionable reported earnings,'' he said. Tied to Performance To make options properly reward the success or failure of management decisions, options grants should be tied to some measure of a firm's performance relative to a carefully chosen benchmark, such as the performance of its competitors. ``There have been more than a few dismaying examples of CEOs who nearly drove their companies to the wall and presided over a significant fall in the price of the companies' stock relative to those of their competitors and the stock market overall,'' he said. ``They nonetheless, reaped large rewards because the strong performance of the stock market as a whole dragged the prices of the forlorn companies' stocks along with it.'' The SEC's Pitt said last month the SEC will look at ways to better tie options to a company's performance over longer time periods, with their value growing as the company's performance improves. The bankruptcy filing by Enron Corp., and the disclosure that Enron executives sold millions in stock before it collapsed, heightened concern that options obscure a transfer of shareholder wealth and motivate executives to inflate profit. Greenspan's concerns are not new. Three years ago he told a Fed conference in Jackson Hole, Wyoming, that the growing use of stock options, and the fact they weren't expensed, was distorting earnings. ``This distortion, all else equal, has overstated growth of reported profits according to Fed staff calculations by one to two percentage points annually during the past five years,'' Greenspan said in his 1999 speech.

To: pilapir who wrote (9782)	5/6/2002 11:36:21 AM
From: StockDung	Respond to of 19428

Wall Street Workers Face Worst Job Market in 25 Years (Update2) By Tom Cahill New York, May 6 (Bloomberg) -- Just a month ago, Sarah Gill barely had a moment to spare as an investment banker at SoundView Technology Group. Now she spends most mornings at Riverstone Farms in Garrison, New York, practicing jumps on her five-year-old dark bay Hanoverian horse, Blink of an Eye. The change in scenery couldn't be more dramatic for Gill, 29, who bought the horse in March 2001, flush with a bonus and upbeat about her future. That was a year before she lost her job. Now she's glad to have time to ride, though worried about her career prospects and the $600 per month her prized possession --nicknamed Joe -- costs to board and feed. ``I certainly wouldn't have bought something with four legs that eats if I knew what was going to happen,'' said Gill, who always dreamed of owning a horse. ``If I don't find work by the end of the summer, I'm going to have to sell him. I'm passionate about him, but I'm not going to bleed myself dry.'' Securities firms have cut 40,000 jobs in the past year, forcing many traders, bankers and analysts into unemployment in the worst Wall Street job market in 25 years. With few prospects, some are struggling to stir up fresh leads, while others, lucky to have severance pay or low living expenses, are pursuing long- ignored dreams and passions. ``The music has completely stopped in some parts of the industry,'' said Larry Post, founder and chief executive of Streetjobs.com, a Web site for trading, banking and other security firm positions. ``Wall Street over-hires and over-fires. Right now, we're in over-fire mode.'' Of the lost jobs -- the most since Richard Nixon was president, according to the U.S. Department of Labor -- 20,400 were in New York City. Across the nation, unemployment last month climbed to 6 percent, the highest since August 1994 and the labor force grew in the month to a record 142.6 million people working or seeking jobs. Time With Daughter Wall Street salaries range from $80,000 a year for junior level bankers to $8 million and beyond for managing directors, executive pay experts say. No matter what they make, many on Wall Street share one thing: They live in New York, where condominium prices average $973,438, according to appraiser Miller Samuel Inc. and residential broker Insignia Douglas Elliman. Nils Nilsen was co-head of a group that helped raise financing for private equity firms at Credit Suisse First Boston until he lost his job along with 300 other investment bankers last month. Unemployment means time with his 9-year-old daughter. ``I get to drive my kid to school, then pick her up in the afternoon and take her to ice skating,'' said Nilsen. ``It's a silly little thing, but I never had time to do that before.'' Nilsen said he is confident he will land another position -- just not too soon. He aims to start a new job in September. Meantime, he's planning a summer tour of Europe with his family. At 48, he figures he hasn't had a full summer off since he was 15. From Salomon to Comedy Sarah Barnes, 37, spent eight and a half years at Salomon Smith Barney Inc. before her mergers and acquisitions group was reorganized in November. Now she's hunting for a new job while trying stand-up comedy, furniture painting and training for the Chicago marathon. ``I don't see being unemployed as a `plight' -- it's an opportunity,'' said Barnes, who one Friday night in February took the microphone on the bare stage of Stand-Up NY, a comedy club on Manhattan's West 78th Street. ``I'm no Rosie O'Donnell, but I thought stand-up would be good for me to try.'' Not everyone in Wall Street's rank and file is as optimistic. Some have burned through job leads and severance packages that included several months of pay and career counseling. Bill Houwen never even sees some of his prospective employers because of a new development -- the group phone interview. The 54-year-old lost his job as an equity trader at Glenmede Trust Co. in October. He lives outside of Philadelphia, where the company was based, and has applied for jobs as far away as Florida. `It's Difficult' ``People keep asking if I'm watching a lot of TV, or playing a lot of golf,'' said Houwen. ``I'd love to, but I'm too busy looking for a job.'' Houwen, who has a 16-year-old daughter, said his severance ran out. He's concerned his age will be an impediment to finding a new job on Wall Street. ``One interviewer asked the age question and I said, `I think we're done,''' Houwen said. ``It's difficult. They can get young people with wonderful degrees from the MBA schools but it's not the real-time experience I have.'' Few firms are hiring. Consolidation gobbled up three of the biggest firms in 2000. U.S. mergers dropped 45 percent last year and stock sales slid 38 percent, the biggest slump in a decade. More cuts may be on the way. Even with the reductions so far, Wall Street's headcount is the same as in August 2000, when the Nasdaq Composite Index was 4206, about twice what it is today. Some 64 initial public offerings sold that August, three times the number last month. Deep Talent Pool In the first quarter, the industry generated revenue at the pace of 1999, when it employed some 20,000 fewer people than now, according to the Securities Industry Association. The few firms that are hiring, including UBS Warburg and Bank of America, can be selective. ``The talent pool is very big and very deep right now,'' said G. Moffett Cochran, who left Credit Suisse Asset Management last year and founded Silvercrest Asset Management Group, which now employs 30. ``There's intense interest in any place that's hiring.'' Keefe, Bruyette & Woods, Inc., a New York-based investment banking and brokerage firm specializing in the financial services industry, needed to replace 67 people killed in the Sept. 11 terrorist attack. After wading through boxes of thousands of resumes, the firm hired 75 new employees. No `Demands' ``Two years ago, people would've wanted three-year guarantees and boxcar-sized bonuses,'' said John Duffy, chief executive of Keefe Bruyette, who said resumes continue to pour in even though his search is done. ``Because the job market is so tough, we didn't have those kinds of demands -- and we were able to get some very talented people.'' Mike Mortell, 43, spent seven years at Prudential Securities and ran the private equity placement group before he was fired in November, in the firm's fourth round of cuts. Never having more than five days off in a row in his 17-year career, he saw his chance for a surf safari to Costa Rica, Thailand and Bali. After a month, he returned to New York and a warren of four- foot-wide cubicles in an outplacement office on Park Avenue. At a monthly ``networking meeting,'' two dozen veterans of firms such as Salomon Smith Barney Inc. and ABN Amro Holdings NV were asked by a career counselor for leads. Silence filled the room. With the summer slowdown looming and more cuts coming, Mortell feels lucky because his living expenses are low. He rents a small, rent-controlled one-bedroom apartment in Manhattan. He may return to the job hunt in the fall, when he hopes the market will revive. ``I think I'm going to head to South America for a month or so,'' said Mortell. ``I'm going to some place where I can surf and learn Spanish.''

To: pilapir who wrote (9782)	5/6/2002 7:42:05 PM
From: StockDung	Respond to of 19428

IVSO: DJN: DJ IN THE MONEY: Investco CEO's Link To 'Mob On Wall Street' (Dow Jones 05/06 13:55:47) By Carol S. Remond A Dow Jones Newswires ColumnNEW YORK (Dow Jones)- Joseph Lents has a problem. U.S. securities regulators have halted trading in the shares of the latest company he runs, a financial startup called Investco Inc. (INVSO). That trading halt follows a report by this newswire that a key acquisition the company says it made never happened. But it's not the first time a company headed by Lents has caught the attention of federal authorities. In the mid-1990s, Lents entered into a deal with a man who was later identified as a figure in the infamous "Mob on Wall Street" affair. The Lents involvement in that case began in the summer of 1994 after an aggressive short seller named Philip Gurian began putting pressure on the shares of the company Lents ran at that time called International Standards Group Inc. Gurian recalls having his first talk with Lents while Gurian was vacationing at the swanky Byblos Hotel in St. Tropez on the French Riviera. During that telephone conversation, according to Gurian, the two agreed that Gurian would stop short selling shares of International Standards Group. In exchange for that promise, Lents would issue shares of International Standards Group at a steep discount to firms in the Bahamas controlled by Gurian and his associates under a U.S. securities provision called Regulation S, which allows sales of unregistered stock to foreign investors.Gurian and four others were charged in 1999 in a 21-count federal indictment including charges of mail fraud, wire fraud, securities fraud, interference with commerce by extortion, conspiracy to commit money laundering and witness tampering. Lents has never been charged with wrongdoing although the stock transactions with firms controlled by Gurian and others were mentioned in the federal indictment. Lents has not been available to answer questions. A lawyer representing Lents has declined to comment on Lents' previous involvement with Gurian. Gurian pleaded guilty to one count of conspiracy to commit mail fraud, wire fraud and securities fraud and one count of mail fraud. He is awaiting sentencing. According to the indictment by the U.S. District Court for the Middle District of Florida, here's a typical way the scam worked: Several small U.S. companies issued deeply discounted stock under Regulation S to several mob-controlled firms in the Bahamas. These firms would turn around and, through two Florida companies secretly controlled by Gurian - Sovereign Equity Management Corp. and Falcon Trading Group Inc.- sell the shares back to the U.S. public at market value, reaping a huge profit. Published reports have indicated that Gurian controlled Sovereign Equity and Falcon Trading on behalf of Philip Abramo, a man who federal investigators identified as a captain in the DeCavalcante organized crime family from New Jersey. The 1999 indictment alleges that around November 1994, Lents filed false and fraudulent subscription agreements for a Regulation S distribution of stock to Caspian Consulting Ltd., one of the Bahamas corporations set up by Gurian and others. The indictment also states that between Jan. 1, 1995, and July 23, 1997, Lents filed false and fraudulent Regulation S registration statements with the Securities and Exchange Commission, selling International Standards Group stock for 50 cents a share to Caspian Consulting, Maraval & Associates Ltd. and Limelight Ltd., two other Bahamas corporations. The SEC declines to comment on International Standards Group and its issuance of Regulation S shares. Lents later told the government that Gurian threatened his life if he told the truth to federal agents, according to the indictment. Gurian told Dow Jones Newswires he never threatened Lents. SEC filings show that from September 1995 to December 1996, International Standards Group and its successor company, Total World Telecommunications Inc., sold $37.9 million worth of stock under Regulation S. So much stock that by September 1996, Caspian Consulting and another Bahamian firm called Reinerman Holdings Ltd., had become major shareholders of International Standards Group, seemingly controlling 3% and 6% of the company's stock, respectively. International Standards Group's transactions with mob-controlled offshore companies didn't stop at Regulation S stock issuance. A press release shows that Lents' company entered into a joint venture with Maraval in September 1995 to market real estate and financial services via the Internet through Florida Homes Info-Net, a wholly owned subsidiary of International Standards Group. The SEC amended Regulation S in early 1998, acknowledging in a release to the public that it's "been used as a means of perpetrating fraudulent and manipulative schemes, especially schemes involving the securities of thinly capitalized or 'microcap companies'." Specifically, the SEC lengthened the period during which offshore buyers of U.S. securities must hold shares bought under Regulation S to one year from 40 days, making it much more difficult to quickly profit by reselling those securities. The 1999 Federal indictment that detailed Lents' Regulation S activity named five defendants: Gurian, Abramo, Glen Vittor, Louis Consalvo and Barry Gesser. Abramo and his bother-in-law Consalvo were separately indicted in 2000 in New York on charges including securities fraud and murder. Abramo and Consalvo are trying to withdraw their Florida plea agreements. Now, Lents is chief executive of Investco. Trading in Investco's shares has been halted by the SEC until May 10. As reported by Dow Jones Newswires last month, the reported acquisition of a Costa Rican insurance company by Investco never took place, a fact the company failed to tell investors. The company had touted the purchase in press releases as the cornerstone to its plan to transform itself into a financial services provider. Dow Jones Newswires also raised a number of questions about the number of Investco shares outstanding and about Michael Zapetis, chairman of Investco's controlling shareholder, First International Finance Corp. Zapetis is a convicted drug smuggler who had a couple of run-ins with Florida state banking regulators, none of which was disclosed to Investco shareholders in any of the company's public SEC filings or press releases. Lents has not been available for comment about Investco's activities. And the SEC declined to comment further about the trading halt. On Monday, the SEC halt of trading in Investco stock appears to have cost the company its listing on the Over-The-Counter Bulletin Board. Nasdaq delisted the company because there was no active quote for Investco shares for four consecutive days. By Carol S. Remond; Dow Jones Newswires; 201 938 2074; carol.remond@dowjones.com.

To: pilapir who wrote (9782)	5/6/2002 9:05:12 PM
From: StockDung	Respond to of 19428

Memo Describes Enron Role in Calif. By MARK SHERMAN .c The Associated Press WASHINGTON (AP) - Federal energy regulators released on Monday a confidential Enron document, prepared as California's power crisis worsened, which describes how Enron traders drove up power prices. The memorandum, written by Enron lawyers in December 2000, outlined practices similar to those described by California officials who allege that the energy trading company created phantom congestion on electricity transmission lines and engaged in sham sales among its affiliates to increase electricity prices. Describing one such strategy used by Enron energy traders and called ``Death Star,'' the lawyers wrote: ``The net effect of these transactions is that Enron gets paid for moving energy to relieve congestion without actually moving any energy or relieving any congestion.'' Another practice, called ``ricochet,'' allowed Enron to send power out of California and then resell it back into the state to avoid price caps that applied to transactions solely within California. ``To us, this is really the smoking-gun memo,'' said Sean Gallagher, a staff attorney with the California Public Utilities Commission. ``It's Enron's own attorneys admitting that Enron is manipulating the California market.'' Steve Maviglio, a spokesman for California Gov. Gray Davis, said the memos are more evidence that federal energy regulators should order power companies to refund billions of dollars in exorbitant electricity sales. Sen. Dianne Feinstein, D-Calif., asked the Justice Department to open a criminal investigation into Enron's possible manipulation of the state's electricity market. ``My suspicions have been high for some time that Enron was fraudulently manipulating the California energy market for its own benefit,'' she said in a statement. ``In the wake of this new information ..., I am asking Attorney General John Ashcroft to pursue a criminal investigation to determine whether in fact federal fraud statutes or any other laws were violated by Enron.'' Justice Department officials could not be reached for comment immediately. The Federal Energy Regulatory Commission has been investigating whether Enron either took advantage of or helped spark the crisis in California's newly deregulated power markets, in which wholesale power rates jumped tenfold, three investor-owned utilities faced financial ruin and Californians experienced rolling power blackouts. Enron has denied any role in the crisis. The company provided the memo to the commission Monday along with a later, undated report from other Enron lawyers that took issue with the first memo. FERC posted the memos on its Web site, along with a letter to Enron seeking more information about the company's electricity and natural gas trades in California and other Western states. Robert Bennett, a Washington attorney who represents Enron, said the memos became known 10 days ago and could easily have been kept confidential. The reports were addressed to Richard Sanders, Enron's vice president and assistant general counsel, to prepare for investigations and lawsuits resulting from the California situation. ``Current management decided the responsible thing to do was to release the documents,'' Bennett said. Questionable accounting practices helped drive the company into bankruptcy last year and resulted in the sale of the energy trading unit at the center of the California allegations. ``It's virtually impossible for us to determine the accuracy or inaccuracy of these memoranda,'' Bennett said. On the Net: FERC: ferc.gov Enron: enron.com 05/06/02 20:35 EDT