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News > Companies
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Attorney: Enron execs cooked books
graphic January 14, 2002: 7:10 p.m. ET

Shareholders' lawyer blames highest ranks at Enron for millions in losses.
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  • Special Report: Enron's Collapse
  • Wall Street firms earned millions from Enron -- Jan. 14, 2002
  • Accounting fraud on the rise -- Jan. 11, 2002
  • Andersen admits destroying docs -- Jan. 10, 2002
  • Government opens probe of Enron -- Jan. 9, 2002
  • Report: Enron execs knew of problems -- Jan. 2, 2002
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  • Enron
  • TIME.com: Who's Accountable?
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    WASHINGTON (CNN) - Top Enron executives "cooked the books" as the energy corporation neared financial collapse, an attorney for shareholders charged Monday, as multiple probes into how the company went bankrupt -- and whether it misled its own employees and investors -- gathered steam.

    William Lerach, an attorney for shareholders who are suing Enron, said that 29 top executives and directors of the energy-trading company sold about $1.1 billion in stock during a time when "they have now admitted they were overstating the reported profits of Enron by $600 million and the stockholder equity of the company by $1.1 billion.

    "Now who do you think cooked these books? Some janitor or low-level employees?" Lerach asked during an interview with CNN. "Let's be direct here. These books were cooked by (Enron Chairman Kenneth) Lay and the other top executives who put hundreds of millions of dollars in their pockets, while the employees of Enron were victimized and hundreds of thousands of other investors lost billions of dollars."

    Congressional investigators also said an Enron employee warned Lay in August 2001 about potential problems with how it accounted for certain transactions.

    The unidentified employee wrote Lay raising several areas of concern, including ownership interests in certain partnerships, how accountant Andersen treated partnerships on Enron's books and the potential impact on Enron's financial statements, Reps. Billy Tauzin (R-La.) and James Greenwood (R-Pa.) said.

    The employee described a "veil of secrecy" around some of the partnerships in question, the lawmakers said in letters to Enron and its auditor Andersen seeking more information.

    Many Enron employees lost their life savings when the company filed for bankruptcy in December, and some charge they were defrauded because the company never revealed information about its deteriorating finances.

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    Enron's financial troubles have roiled the political waters in Washington because the Houston-based company has been a big supporter of President Bush's political career. The corporation and its executives have also given to Democratic candidates, but most of its campaign donations have gone to Republicans.

    Six Senate committees and two House committees are probing various angles of the Enron debacle and the Justice Department has launched its own criminal investigation. The Senate Banking Committee on Monday announced it had scheduled an Enron hearing for Feb. 12, according to a Reuters report.

    Attorney General John Ashcroft, a top aide and the U.S. attorney's office in Houston last week withdrew from any connection to that investigation, citing possible conflicts of interest. The Securities and Exchange Commission is also investigating Enron.

    Andersen also under microscope

    Andersen, Enron's auditing firm, is also under scrutiny following its revelations that some employees destroyed documents related to Enron's financial status.

    Time magazine first reported an Oct. 12 memo from an Andersen attorney allegedly directing employees of the firm to destroy all but the most basic "work papers" related to their auditing of Enron.

    Andersen said late Monday the Oct. 12 e-mail was referring to uncompleted work for Enron's third quarter and the author "never told the audit team they should destroy documents for past audit work that was already completed."

    The memo, written by in-house Andersen lawyer Nancy Temple and sent to Andersen partner Michael Odom read: "Mike - It might be useful to consider reminding the engagement team of our documentations and retention policy. IT will be helpful to make sure that we have complied with the policy. Let me know if you have any questions."

    Andersen said the e-mail included a link to the firm's policy on its internal Web site which prohibits document destruction under some circumstances and authorizes it under other circumstances.

    But the accounting firm also said the findings are "not a representation that there were no inappropriate actions" and that its review is ongoing.

    Bush administration defends contacts

    Two Bush Cabinet officials Sunday defended their contacts with Lay and Enron, as a leading Democrat in Congress, Connecticut Sen. Joseph Lieberman, vowed to conduct a "very aggressive, very comprehensive and very fair" investigation into the Enron affair.

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    Commerce Secretary Don Evans
    Both Commerce Secretary Don Evans and Treasury Secretary Paul O'Neill received calls from Lay last fall as the once high-flying company was heading toward collapse. Both said they took no action as a result of the calls.

    Evans said Lay told him in an Oct. 29 phone call that the company's credit rating was being reviewed by Moody's, a rating service.

    "[He] said to me he didn't know if there was any support that we could give them at Moody's, but, if there was, he would welcome that," Evans said on NBC's Meet The Press. "I listened to him and told him, 'Thank you very much.'"

    Evans said he did not offer any assistance to Lay or Enron, concluding that it would be "an egregious abuse for me to step in." He said he discussed the phone call with O'Neill, who concurred.

    How did Wall Street profit from Enron?

    But several weeks later, as bad news about Enron's finances began to mount, Evans said he informed White House Chief of Staff Andrew Card about the phone call.

    "With all the ongoing activity at Enron, I thought the White House ought to know," he said.

    In an interview on Fox News Sunday, O'Neill said he had two phone calls from Lay, one in late October and another in early November. In the first, Lay told him that he wanted technical people in the Treasury Department to talk to people at Enron about the company's complex derivative contracts "to assure ourselves that their problems were not going to get translated into larger problems for the U.S. and the world capital markets."

    In the second call, Lay told him that Enron was being "looked at" by rating agencies, O'Neill said.

    Enron, which markets electricity and natural gas, delivers energy and other physical commodities, and provides financial and risk management services to customers around the world, filed for bankruptcy protection Dec. 2 with $62.8 billion in assets. It was the largest bankruptcy case in U.S. history, dwarfing Texaco's filing in 1987 when it had $35.9 billion in assets. graphic


    -- from staff and wire reports

      RELATED STORIES

    Special Report: Enron's Collapse

    Wall Street firms earned millions from Enron -- Jan. 14, 2002

    Accounting fraud on the rise -- Jan. 11, 2002

    Andersen admits destroying docs -- Jan. 10, 2002

    Government opens probe of Enron -- Jan. 9, 2002

    Report: Enron execs knew of problems -- Jan. 2, 2002

    Ex-Enron CEO: Not me -- Dec. 22, 2001

    Enron files for protection -- Dec. 2, 2001

      RELATED LINKS

    Enron

    TIME.com: Who's Accountable?





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