News > Companies
Enron scathed in report
graphic February 2, 2002: 11:15 p.m. ET

Outside directors say management oversight failed, some profited from deals.
graphic graphic
graphic       graphic
  • CNN/Money Special Report: Enron's collapse
    NEW YORK (CNN/Money) - The management of bankrupt energy trader Enron Corp. "spent considerable time and effort working to say" as little as possible about the company's controversial partnerships to its shareholders, according to a report issued Saturday by independent directors of Enron's board.

    "The tragic consequences of the related-party transactions and accounting errors were the result of failures at many levels by many people," said the report, which was commissioned by the company last fall after word of the partnership problems resulted in a restatement of Enron's results. "Our review indicates that many of these consequences should and could have been avoided."

    The report of the three-member panel headed by University of Texas Law School professor William Powers Jr. precedes his scheduled testimony Monday before a Congressional committee examining the collapse of Enron, which filed for Chapter 11 protection Dec. 2 in the nation's largest-ever bankruptcy.

    Among the findings were that several Enron employees were enriched by tens of millions of dollars by the partnerships. Among them was Andrew Fastow, the company's former chief financial officer, who the report says made $30 million from the deals.

    The report says, "Many of the most significant transactions apparently were designed to achieve favorable financial statement results, not to achieve bona fide economic objectives or to transfer risk." Other transactions were "implemented to offset losses" resulting from Enron merchant investments.

    Click here to see the full Powers report

    The report is extremely critical of Enron management. "Individually, and collectively, Enron's management failed to carry out its substantive responsibility for ensuring that the transactions were fair to Enron, which in many cases they were not."

    Among those criticized is former Enron CEO Kenneth L. Lay -- the "captain of the ship," as he's called in the report. "He does not appear to have directed their (the directors') attention or his own" to the oversight of the partnerships.

    Lay was scheduled to make his first public appearance since Enron's bankruptcy filing before a Senate subcommittee Monday. However, a member of the Senate panel told CNN Sunday that Lay wouldn't testify as scheduled. A lawyer for Lay sent a letter to Sen. Ernest Hollings, D-S.C., saying that "inflammatory statements" by several leading congressmen suggested the hearings would have a "prosecutorial tone."

    The company's accounting firm, Arthur Andersen, was cited for its failure to perform its oversight duties appropriately and, in some instances, providing advice in the accounting treatment of the partnerships that resulted in $5.7 million worth of fees.

    "The evidence available to us suggests that Andersen did not fulfill its professional responsibilities in connection with its audits of Enron's financial statements, or its obligation to bring to the attention of Enron's board...concerns about Enron's internal controls over the related-party transactions," the report says.

    Andersen global managing partner C.E. Andrews blasted the report, calling it "troubling on many levels."

    "Nothing more than a self-review, it does not reflect an independently credible assessment of the situation, but instead represents an attempt to insulate the company's leadership and the Board of Directors from criticism by shifting blame to others," Andrews said in a statement issued late Saturday.

    The Powers report also criticized Enron outside counsel Vinson & Elkins for failing in its oversight responsibilities, with the report saying it "should have brought a stronger, more objective and more critical voice to the disclosure process."

    In a statement released late Saturday, Enron said the report has made its board "aware of numerous past events for the first time. These events are deeply regretted by the board."

    The report was filed in the U.S. Bankruptcy Court for the Southern District of New York, where Enron filed for protection. graphic


    CNN/Money Special Report: Enron's collapse