The Story of Enron
“The story of Enron is the story of
unmitigated pride and arrogance.”
– Jeffrey Pfeffer, Professor, Stanford Business School
Sightings from The Catbird Seat
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Originally posted December 6, 2001, in The Catbird Seat.
* * * * *
February, 2007
How to Save Your Business,
Your People & Yourself
Ross Murakami and KMH rise out
of the ashes of Arthur Andersen
David K. Choo, Hawaii Business Magazine
Ross Murakami first heard about the Arthur Andersen accounting scandal in November 2001 from an unexpected but reliable source: his mom. Mrs. Margie Kanemitsu called her accountant son from her home in Hilo, after watching a CNN broadcast.
“Ross, did you hear what happened to one of your clients, Enron?” she asked.
The younger Murakami was a partner at Arthur Andersen’s thriving 42-person Honolulu office. The large international accounting firm served as the financial auditor of Enron, a giant energy trading company based in Houston. That morning, Arthur Andersen had announced a restatement of an earlier audit of its client.
“Don’t worry, Mom. We’ll be fine,” he said.
Mothers can be like that. Worry, worry, worry. But, then again, you know what they say about a mother knowing best.
Within days, through a seemingly never-ending series of news reports, Murakami, his staff and the rest of the country watched Enron implode, sucking its staff, subsidiaries and investors down an irresistible vortex. Curiously, one of the first down the financial and political black hole was the auditor, 88-year-old Arthur Andersen, not only its Houston office, but nearly everyone else, including the people in far-off Honolulu....
“It was emotional. It was exhausting,” says Murakami of his office’s sudden fall and eventual rise. “It was also extremely rewarding.”...
THE YOUNG PARTNER
The year 2001 was promising to be a good one for Murakami. Hawaii’s economy was continuing its steady recovery from a decade-long slowdown, which meant a busy year for service businesses like accounting firms. In addition, in the fall, the then-37-year-old accountant made partner at Arthur Andersen. Having joined the company 14 years before, straight out of the University of Hawaii at Manoa, Murakami was the first partner in the Honolulu office to have begun his career at the Honolulu office.
Murakami started his new position at Arthur Andersen on Sept. 1st.
“Here I am a new partner, and, 10 days later, we are hit by one of the most tragic events in U.S. history, which, among other things, had a big impact on business in general,” says Murakami. “Then, two months after that, Enron. Kaboom!”...
Even though his once promising year was beginning to look nightmarish, when Murakami put down the phone after speaking with his mother on that November morning, he was confident that the scandal would pass. After all, every one of the big five accounting firms had had a questionable audit at one time or another in their histories. Some of them had even been sanctioned by the Securities and Exchange Commission for their indiscretions. But they all had weathered their respective storms. It seemed highly unlikely to Murakami that the actions of a few people in his company’s Houston office could reverberate all the way to Honolulu.
Around the office, he reassured his staff: This, too, shall pass. Corporate was tight-lipped about the growing scandal, preferring to wait for the legal and political dust to settle. Murakami and Honolulu office managing partner Randy Karns met with their local public relations consultant, who advised that they do the same. People wouldn’t appreciate public protests or protestations of innocence, they were told. Especially if they were protesting their own innocence. It would be bad form, especially in Hawaii.
Corporate sent representatives to reassure the Honolulu staff that the accounting irregularities were part of an isolated situation in Houston. They pointed to the firm’s vast capital base. Again, there was nothing to be alarmed about.
However, in the first quarter of 2002, as news reports announced one legal development (and lost client) after another, tensions were running high in the office. To relieve the anxiety, Murakami and his staff scheduled visits to members of Hawaii’s congressional delegation and met with Gov. Ben Cayetano. The sessions were gut-wrenching and emotional. “How could this be happening to us?” “Why was Arthur Andersen being made a scapegoat?” they asked. “We haven’t done anything wrong,” they insisted.
The leaders listened patiently and offered their sympathies and support.
“We knew they [Hawaii’s congressional delegation and the governor] wouldn’t be able to do much for us. How could they? It would be like stepping in front of a speeding truck,” says Murakami. “But we needed an outlet for all the anxiety, anger and emotion. We needed to vent.”
In Arthur Andersen’s 29th-floor office in the Pacific Guardian Life Center, the staff continued to vent with management’s full support and participation. Someone began writing encouraging messages with a Magic Marker on a Plexiglas wall off the reception area. People began writing words of support, inspirational quotes from leaders like Gandhi, or words of anger and defiance. They even had lighthearted activities in which they took out their frustrations on certain Department of Justice officials.
“You had this pride about working for Arthur Andersen and then there was this outrage that all this was going down and no one could do anything about it,” says Harvey Rackmil, chief financial officer for HONBLUE, who was the senior member of Arthur Andersen’s tax department from 1998 to 2002. “We were outraged at the government. We made ‘I am Arthur Andersen’ T-shirts for ourselves, and we went downstairs and took photos of each other. Arthur Andersen for the longest time didn’t fight back. They thought that we would get through it. Then the indictment was handed down and that was that.”
THE OLD PARTNER
In the fall of 2001, Randy Karns was quietly planning a second career away from public accounting. The 50-something Karns, who had opened Arthur Andersen’s Honolulu office nearly 20 years before, had been offered an early retirement package from the corporate office—mandatory retirement, actually. That was fine, because he had recently been offered his dream job. Today, Karns won’t disclose what the dream position was, or with whom. He does say that it was with an organization for which he had a passion, and that the position was both prestigious and lucrative.
Karns, who had conducted audits of Hawaii companies since the late ’60s, had spent his entire career with Arthur Andersen, starting out in the firm’s Los Angeles office. He was extremely proud of his company and the quality of work it had done, so 2002, had promised to be not only a sweet beginning to a new career, but a sweet ending, as well. However, as the feeding frenzy around the accounting scandal grew, the senior partner knew that his work at Arthur Andersen wasn’t done. He asked his potential new employers if he could have a little more time to decide about the position. They agreed....
On March 14, 2002, a federal grand jury in Houston indicted Arthur Andersen on one count of obstructing a Department of Justice investigation by destroying documents. After the announcement, Karns and his management team kicked things into high gear, calling an office-wide meeting in which Karns laid all the options on the table, including his recent job offer. No one was going to abandon ship, he assured his staff.
Subsequent informational meetings, held in a common area, spilled out into the halls. The meetings were held every two weeks, then weekly. Sometimes there was an agenda, like when Karns outlined what had happened with Enron. Sometimes it was just to talk story.
“We had meetings whether we had something to say or not. You would be surprised. You always have something to talk about,” says Karns. “Our staff wanted to know if Ross and I had heard anything, and if we hadn’t, did that change our thinking, if that makes sense. Even knowing that there is nothing new can be comforting.”
“Randy was a great leader,” says Rackmil. “He was the guy delivering the message, fireside-chat style. You knew he was going to do everything in his power to help. He had been here a long time and had a lot of loyalty in the community. As long as the clients stayed, we would be OK.”
All along Karns offered his options analysis and assessment without interjecting a prejudgment one way or another. This was a decision for the employees, not him. He was still considering his dream job.
Then, one day, he accidentally walked in on a small group of staff who were working on a gift of gratitude to the senior partner. Karns realized that he already had his dream job.
“I came home and told my wife that we were going forward. That [other] job would have been a lot of fun to do. But it [his decision] really wasn’t about money or prestige,” says Karns. “They felt so strongly about the firm, its mission, its clients and its people. They were doing all of this on top of dealing with all the stress of getting their jobs done. I felt privileged to be a part of them.”
THE NEW PLAN
Of course, Murakami’s mother wasn’t the only one outside the firm who called him about Enron and the future of Arthur Andersen. “I started fielding calls from clients, who would say: ‘Eh, Ross, how come you didn’t let me do all those things?’ I told them that I didn’t know why they did that,” says Murakami. “I told them we don’t do that. That’s not how business is done. We had a very solid client base. They knew us, and they knew we had always been very honest and open with them.”
Early in the crisis, Murakami and Karns hit Bishop Street hard, meeting with as many of their clients as they could. Sometimes, as at the gatherings with their staff, the two partners had little new information to impart to their anxious clients. There were a lot of uncomfortable discussions, some in front of boards of directors. But every client was contacted and spoken to face to face if possible. After Andersen’s indictment in March, the meetings got more urgent, going from heart-felt reassurances to the beginnings of a plan for a new firm.
“We kept them [our clients] informed and we told them that we were trying to pull something off that would be a stand-alone entity,” says Murakami. “We said we couldn’t tell them right now if it was going to be successful or not. We couldn’t wait till we were solid to let them know. It wasn’t about us. It was about them.”
At first glance, the partners’ plan, which they would appropriately name “Project Phoenix,” seemed simple. They, along with Peter Hanashiro, who was slated to be named partner at Arthur Andersen before the crisis, would buy the firm from corporate. They would continue to provide the same good service that they always had, except the new firm would no longer audit large publicly traded companies. But the new firm would be free from a rigid corporate fee structure and nimble enough to respond to changes in the local marketplace....
FLIGHT OF THE PHOENIX
Murakami made that August’s payroll, and has made every one since. But KMH has done more than just deliver paychecks on time. According to Murakami, the firm’s revenues have doubled since he switched off the lights on Arthur Andersen, with 20 percent growth for four years in a row. The staff has also doubled, growing from 42 to 85 in late 2006.
Throughout the ordeal, KMH lost only two or three tax clients and a handful of national and international clients, several of whom later rehired the firm in other capacities. KMH’s vision of a locally owned firm with a local focus along with national expertise has taken hold. Coincidently, it was also one that had been floating around in the heads of many experienced accountants in town.
“Even before Andersen imploded, we had discussed the possibility of creating a local firm with national ties. That is the way the market is moving,” says Wilcox Choy, partner at KMH and former partner at big four accounting firm, Grant Thornton. “But there just wasn’t enough critical mass to do that. Then Andersen went down and after talking with them, we realized we were on the same page.”
KMH started with three partners (Karns, Murakami and Hanashiro) and now has six. Alan Yee joined the firm from Grant Thornton’s Honolulu office in 2002 and Al Fernandez from Ernst and Young in 2003. Both run KMH’s tax practices. Alton Ohira, former head of KPMG Honolulu’s insurance and audit practice, came on board in 2003 and Wilcox Choy, once in charge of Thornton’s audit practice, also in 2003....
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Timeline: The Fall of Arthur Andersen
Aug. 15, 2001
Enron vice president for corporate development Sherron Watkins writes a
seven-page letter to her boss, CEO Kenneth Lay, warning of accounting
irregularities at the oil and natural gas trader. “The business world will consider
the past successes as nothing but an elaborate accounting hoax,” she writes.
Nov. 8, 2001
Enron revises its financial statements for the previous five years. Instead of
showing huge profits, the company now says that it actually lost $586 million.
Jan. 10, 2002
Arthur Andersen acknowledges that it destroyed Enron documents.
Jan. 15, 2002
Arthur Andersen fires chief Enron auditor David B. Duncan.
March 15, 2002
Arthur Andersen is indicted by a federal grand jury in Houston on one count of
obstruction of justice for shredding documents and deleting computer files
regarding Enron.
March 26, 2002
Arthur Andersen CEO Joseph F. Berardino steps down amid an exodus of
clients and overseas partners.
June 15, 2002
After a six-week trial, Arthur Andersen is convicted of obstruction of justice for
destroying documents while on notice of a federal investigation.
May 31, 2005
The U.S. Supreme Court overturns the Arthur Andersen conviction. The justices
unanimously agree that the Houston jury was given overly broad instructions by
the federal judge presiding over the case. At issue is a memo from an Arthur
Andersen in-house attorney detailing the company’s document retention policy.
Nov. 23, 2005
The Justice Department announces that it will not pursue the criminal case
against Arthur Andersen in wake of the Supreme Court decision handed down
earlier that year.
BALANCING THE BOOKS
On Monday, Oct. 16, 2006, the day after Hawaii’s statewide earthquake, accounting firm Accuity LLP opened for business. Just days before, the firm had served as the Honolulu office of accounting giant PricewaterhouseCoopers (PWC), which had decided earlier that year to pull out of the Hawaii market.
“I got a call from a friend that first day, who said: ‘PWC pulls out and the earth shakes,’” says Kent Tsukamoto, the former PWC managing partner and now Accuity’s managing partner. “You might say that we started off with a bang.”
While the circumstances surrounding Accuity’s transition from international juggernaut to locally owned big business weren’t as catastrophic as Arthur Andersen’s end and KMH’s beginning, Tsukamoto and his partners, Wendell Lee and Dennis Tsuhako, were essentially dealing with the same issue: How do you sustain a business while building another business?
However, a larger, more earth-shaking issue probably extends far beyond Accuity, KMH and the rest of the Islands’ accounting industry: How important is Hawaii to businesses with a global, or national reach? The answer is: maybe not much anymore.
According to Accuity’s tax partner, Wendell Lee, PWC’s decision to leave Hawaii and pursue larger markets on the Mainland was initially shocking, but not surprising in the end. “PWC has more than 15,000 clients in the U.S. Only about 200 of them account for 80 percent of the company’s revenue. On average, that’s about $54 million to $100 million per client, per year,” says Lee. “That leaves the Hawaii market off the scale, because, at the very bottom of the food chain, they were looking for at least $1.5 million in revenue per client. At PWC, our largest Hawaii client provided about $1 million.”
With PWC’s exit and Arthur Andersen’s demise in 2002, Hawaii is home to three of the big-four accounting firms. Tsukamoto believes that number may shrink over the next several years.
“The size of a public accounting firm is a function of the size of the services rendered. Accounting follows the organizations,” says Warren Wee, associate professor of accounting at Hawaii Pacific University. “Just look at the corporations that were based in Hawaii 10 or 20 years ago. It’s not rocket science to see what’s happening, really basic economics.”
“Ten or 15 years ago, you saw a lot of mergers of the large, national firms, going from the big eight to the big five. Now, of course, after Andersen’s implosion, it’s down to four,” adds Wilcox Choy, partner at KMH and former partner at big-four accounting firm Grant Thornton. “Everything’s bigger and bigger businesses need bigger profits.”
In other words, follow the money, and while the big money is on the Mainland, there is still more than enough business to be found in the Islands. Accuity has retained a vast majority of its staff and about 95 percent of its revenue since leaving PWC. Tsukamoto expects about 5 percent growth in 2007.
Local ownership has a plethora of benefits. Now, Accuity is no longer saddled with post-Enron, corporate office-imposed procedures, which had very little relevance to Hawaii’s small-scale businesses. (According to Tsukamoto, about 60 percent of Accuity’s clients are family-owned businesses.) Also gone is the constant pressure from the head office to increase fees by 20 percent to 30 percent, rates more in line with those charged in New York and Los Angeles. In addition, when Tsukamoto needs to make a decision, he just walks down the hall to talk with his partners.
Some of the advantages of local ownership can’t be accounted for on a balance sheet: “PWC offered us [the partners] positions on the Mainland, where we would have done well,” says Lee. “But that wouldn’t have been the right thing to do. We have 80 people who are our family, who in turn have families that they have to take care of. We couldn’t abandon them in the market like that. This is Hawaii. This is what you do. You take care.” — DKC
How to Save Your Business Your People & Yourself ...
Arthur Anderson and The Phoenix Project
~ ~ ~
June 1, 2006
The Vinson & Elkins-Enron Connection:
The Plot Thickens
Posted by Peter Lattman
Update: Enron announced that it reached an agreement with Vinson & Elkins to settle all claims in connection with the Enron Bankruptcy Estate.
Vinson & Elkins will pay Enron $30 million in cash, and waive its claims for prior services of approximately $3.9 million against the Estate. The settlement remains subject to the approval of the New York bankruptcy court. Here’s the background from our post earlier today:
Vinson & Elkins had doubts about Enron’s business practices before the company collapsed, reports BusinessWeek today. Here’s how Michael Orey sets up the story:
Amid all the carnage that has surrounded Enron’s collapse, one player in the drama has remained remarkably unscathed: Vinson & Elkins, the giant Houston law firm that played a central role advising the company throughout its spectacular rise and fall. Accounting firm Arthur Andersen is dead, JPMorgan Chase has spent $2.2 billion settling a shareholder fraud lawsuit filed in a Houston federal court, a handful of other banks and outside Enron directors have coughed up nearly $5 billion more, and yet V&E has not even had a slap on the wrist. Not a single lawyer at the firm has faced professional misconduct charges by the Texas bar, the firm has yet to pay a penny in damages, and Joseph Dilg, the partner who oversaw the Enron account, is now V&E’s managing partner. In 2005, it became the first Texas law firm in which average partner compensation broke $1 million.
But the firm isn’t completely out of the woods, says Business Week. Enron’s bankruptcy trustee is reportedly negotiating to settle claims with V&E for $30 million. The SEC continues to investigate the advice that V&E and other outside law firms gave the company. And in the Enron shareholder class action, plaintiffs’ lawyers are preparing to unleash a new volley of evidence on June 13 to support allegations that V&E should be liable for some of the $40 billion in investor losses resulting from the energy giant’s collapse.
The firm maintains it did nothing wrong and insists its attorneys played no role in Enron’s fraud. But documents and transcripts reviewed by BusinessWeek are damning. For instance, at the year-end 1997, Dilg sent an e-mail to buck up his beleaguered troops. It contained a poem, which read in part: “no sooner than you could say ‘mark to market’/Our client’s year end financials began to sparkle.” That passage referred to Enron’s use of aggressive mark-to-market accounting. In a 1999 voicemail, a V&E partner said of the infamous Fastow-controlled LJM partnerships, “Frankly, I don’t approve.”
Representing Vinson & Elkins is John Villa of Williams & Connally in Washington, D.C., who says that the Enron board was fully informed that Fastow was heading LJM and that Vinson & Elkins had no obligation to question the directors’ business judgment.
The article also questions V&E’s opinion letters on various financial transactions, which Villa says were kosher because Arthur Andersen approved of the transactions. Villa tells Business Week: “When an accountant tells you that’s what he wants, what’s a lawyer to do?”
For more, GO TO > > > Buzzards on the Bar
March 24, 2006
Enron Bankruptcy
Stipulated Agreement
U.S. Trustee Program Announces Stipulated Agreement Reducing Stephen Forbes Cooper LLC’s Success Fee Request in Enron Corp. Bankruptcy Case
WASHINGTON, D.C. – The United States Trustee Program announced today that it has reached an agreement with Stephen Forbes Cooper LLC (SFC) to reduce by $12.5 million the success fee SFC requested for its work in the Chapter 11 case of Enron Corp.
The stipulated agreement was filed March 24, 2006, in the U.S. Bankruptcy Court for the Southern District of New York.
According to the stipulated agreement, in reviewing SFC’s motion for a $25 million success fee, the U.S. Trustee undertook an investigation that uncovered billing practices and billing irregularities unacceptable to the U.S. Trustee, which the U.S. Trustee maintains were not disclosed to the bankruptcy court. The U.S. Trustee shared concerns about these findings with the bankruptcy court and with SFC.
In April 2002, the bankruptcy court authorized SFC and its principal, Stephen Forbes Cooper, to provide management services to Enron and its affiliated debtor entities on terms and conditions set forth in an employment agreement.
Several weeks after Enron’s reorganization plan was confirmed in July 2004, SFC filed a motion seeking payment of a $25 million success fee in accordance with the provisions of the employment agreement. The bankruptcy court held a hearing on SFC’s motion on November 15, 2005, but withheld its ruling on the motion, pending the filing of a response by the U.S. Trustee.
Cliff White, Acting Director of the Executive Office for U.S. Trustees, commended Washington, D.C.-based Assistant U.S. Trustee Richard Byrne and Newark-based Bankruptcy Analyst Linda Logan “for their superlative efforts in investigating this matter and reaching a settlement that should send a strong message that unacceptable billing practices and billing irregularities will not be tolerated in the bankruptcy system.”
The stipulated agreement entered on March 24, 2006, was approved by the bankruptcy court on that date, but the final decision on the amount of the success fee to be paid to SFC remains with the court.
The U.S. Trustee Program is the component of the Justice Department that protects the integrity of the bankruptcy system by overseeing case administration and litigating to enforce the bankruptcy laws.
For more, GO TO > > > The Buzzards in the Halls of Justice; Confessions of a Whistleblower; CV05-00030-David C. Farmer, Trustee, Office of the U.S. Trustee vs. Harmon; Tracking the Flock of Bankruptcy Buzzards
March 16, 2006
Enron's whistle blower
details sinking ship
Former VP Sherron Watkins testifies that the company was overrun by fraud -- and that Lay and Skilling knew all about it.
By Shaheen Pasha, CNNMoney.com
HOUSTON (CNNMoney.com) - Enron's most prominent whistle blower Sherron Watkins took the stand Wednesday and described a company that increasingly became mired in accounting fraud in 2001, prompting her to send an anonymous letter to Enron founder Kenneth Lay in August warning him that the company "had a hole in the ship and we're going to sink."
Watkins, a former vice president at Enron, testified that in mid-2001 she began investigating Enron's relationship with LJM (a special purpose entity designed to take high-risk poor-performing assets off Enron's balance sheet) and was increasingly alarmed as it became apparent that the relationship didn't stand up to accounting scrutiny.
She said she stepped up her own efforts to leave the company by August, on concerns about "working for a company that manipulates their financial statements" but was taken aback by the sudden departure of then-CEO Jeffrey Skilling.
"I thought he's a smart man," Watkins recalled. "He knows it's bad and he's getting out."
During cross-examination from Skilling attorney Ron Woods late afternoon, she admitted that she had never spoken to Skilling about his job and couldn't attest to why he left the company.
But she told jurors that Skilling's sudden resignation, while shocking, confirmed her fears that the accounting irregularities she had uncovered were "the tip of the iceberg."
Watkins said she sent Lay a detailed memo the day after Skilling's resignation was announced but kept it anonymous until after the company's all-employee meeting on Aug. 16.
According to the memo, shown by the government, Watkins outlined the "oddities" related to LJM's Raptors transactions -- a series of special financing vehicles used as a hedging tool -- in which LJM had profited from the investment but retained no risk.
She said the structuring of the deals didn't imply a true third-party sale and warned Lay that the aggressive accounting would come back and haunt the company.
'Implode'
She went on to predict that Enron "will implode in a wave of accounting scandals."
Known as a straight-talker with a feisty streak, Watkins and Lay's defense attorney Chip Lewis butted heads frequently throughout the afternoon cross-examination.
Lewis attempted to show that Lay had been responsive and taken action regarding all of the concerns Watkins had relayed during the meeting. Watkins testified in the morning that she met with Lay and provided him with a seven-page memo containing the documents she had collected from various business units that showed the company had been engaged in shady dealings.
"If Raptors goes bankrupt, LJM is not affected," Watkins, a certified public accountant, told Lay at the meeting. "They have no skin in the game," adding that Enron would be liable for millions of dollars in losses.
In the seven-page document provided to the jury, Watkins laid out her concerns and warned Lay that others within the company were also raising concerns about Enron's accounting. She said one manager told her, "I know it would be devastating but I wish we would get caught. We're such a crooked company."
Watkins testified that Lay winced at that statement during the meeting but seemed unperturbed by the other issues, even when she informed him that there was talk of special "handshake deals" between Skilling and former financial chief Andrew Fastow, who also ran LJM.
During cross-examination, Watkins said she believed at the time that Lay had taken her concerns seriously. She said that he promised to launch an internal investigation into the matter even though he was skeptical that there was anything improper with Enron's transactions because they had been signed off on by lawyers, accounting firm Arthur Andersen and the board of directors – a point defense attorney Lewis indicated as an example of Lay's receptiveness towards her concerns.
But Watkins countered that Lay continued to rely on the very law firm of Vinson & Elkins as well as the accountants at Arthur Andersen to revisit the questionable deals that they had originally approved, despite her objections to their presence in the investigation.
When Lewis suggested that Lay couldn't hire another accounting firm at the time without the approval of the board of director's audit committee, Watkins jumped forward in her seat and vehemently declared "that is totally untrue," adding that the restriction only implied to issues of auditing, not an investigation. She said that Enron executives had used PricewaterhouseCoopers on a number of occasions for other matters.
Lewis and Watkins also sparred on Enron's decision in the third quarter of 2001 to unwind its Raptors transactions and take a one-time write-off. Lewis pointed to a memo in which Watkins appeared to suggest unwinding the transaction and indicated that Lay had taken her suggestion to heart.
But Watkins became animated and insisted that further in the memo she had explained why Lay should restate Enron's prior earnings to reflect that Raptor's was an improper financial deal and come clean to investors before they started asking tough questions.
"I was trying to get Lay to restate," she said. "I thought it was our only chance of survival."
Under direct examination, Watkins told the jury that she found out months after her meeting with Lay, that he sent a memo to Vinson & Elkins to determine how he could fire her without risk to the company.
"I felt nauseous," she said, adding that she had gone to Lay with her concerns because she believed that he wouldn't "dump me on the street."
Employee under fire
Watkins testified that the atmosphere in Enron became increasingly tense towards her after she raised her concerns as she was bounced around from department to department and was told that Fastow wanted her fired and asked to seize her computer. She also raised concerns that Fastow was "vindictive" and she feared for her personal safety as well as her family.
But the defense tried to portray Watkins as a trouble-maker within Enron that received criticism on her employee evaluation for being overly aggressive and prone to miscommunication that resulted in problems. Lewis also attempted to discredit her desire to leave the company, providing the jury with e-mails in which she requested various positions at Enron, including one on its crisis management team in which she asked to be in charge of defending the corporate accounting against shareholder lawsuits.
Defense attorneys have maintained that there was no crime committed at Enron, other than the misdeeds of Fastow and a handful of cohorts.
Earlier Wednesday morning, defense attorneys cross-examined former Enron managing director Vince Kaminski, who raised objections in 1999 over the creation of the LJM partnerships, saying they presented too many concerns regarding conflict-of-interest and credit instability.
Lay's defense attorney Bruce Collins attempted to downplay Kaminski's objections to LJM, saying his accounting concerns were outside the scope of his expertise.
While Kaminski admitted that he wasn't an accounting expert, he said he had "a duty to act to the best of my abilities and address my concerns."
Presiding Judge Sim Lake held the jury late Wednesday in order to wrap up Watkins' testimony. There will be no session held on Thursday as the prosecution prepares its next line of witnesses.
The judge told the jury that he expects the Enron trial to be completed by the end of April.
Enron was once the seventh largest corporation in the U.S. It declared bankruptcy in December 2001, costing thousands of employees their jobs and resulting in millions of dollars in losses for investors.
http://money.cnn.com/2006/03/15/news/newsmakers/enron/index.htm
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For more, see...
Googling for the Ghost of Ken Lay
Citigroup: Vampires in the City
Confessions of a Whistleblower
Dirty Money, Dirty Politics & Bishop Estate
The Impeachment of George W. Bush
The Silence of the Whistleblowers
Vultures Up to their Necks in Tesoro Petroleum
January 7, 2005
Enron Directors Reach
$168M Settlement
By Michael Liedtke, Associated Press
SAN FRANCISCO (AP) - Eighteen former directors of scandalized Enron Corp. have reached a $168 million settlement, including a $13 million payout out of some of their own pockets, with shareholders burned by the financial shenanigans that culminated in the company’s stunning collapse.
The agreement announced late Friday requires 10 of the former Enron directors to contribute a combined $13 million from the profits that they reaped from selling company stock before Enron revealed it had been grossly exaggerating its sales and profits. The debacle foreshadowed a wave of accounting scandals that sparked an overhaul of the country’s corporate governance practices.
The directors paying an unspecified amount of money are: Robert Belfer, Norman Blake, Ronnie Chun, John Duncan, Joe Foy, Wendy Gramm, Robert Jaedicke, Charles LeMaistre, Rebecca Mark-Jubasche and Ken Harrison, according to attorneys involved in the case.
Other directors who aren’t personally paying money but are neverless covered by the settlement are: Paulo Forraz-Pererira, John Mendelsohn, Jerome Meyer, Frank Savage, John Urquhart, John Wakeham, Charles Walker and Herbert Winokur.
None of the directors are admitting any wrongdoing as part of the settlement, which still requires final court approval....
< < < FLASHBACKS < < <
ENRON and Shell Win Bid in Capitalization
of YPFB's Transportation Segment
LA PAZ, BOLIVIA – Enron Development Corp. and Shell International Gas Ltd. announced today that the government of Bolivia has named the companies the successful capitalizing company for the transportation segment of the state oil and gas company, Yacimientos Petroliferos...
Business Wire
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The following is an excerpt from a 10-K SEC Filing, filed by TESORO PETROLEUM CORP on 3/30/1998:
ACCESS TO NEW MARKETS
A lack of market access has constrained natural gas production in Bolivia. With little internal gas demand, all of the Company's Bolivian natural gas production is sold under contract to the Bolivian government for export to Argentina.
Major developments in South America indicate that new markets will open for the Company's production. Construction of a new 1,900-mile pipeline that will link Bolivia's extensive gas reserves with markets in Brazil commenced in 1997 and is expected to be operational in early 1999.
The owners of the new pipeline include Petrobras (the Brazilian state oil company), other Brazilian investors, Enron Corp., Shell International Gas Ltd., British Gas PLC, El Paso Energy Corp., BHP, and Bolivian pension funds.
When completed, the new pipeline will have a capacity of approximately 1 billion cubic feet ("Bcf") per day.
Enron makes Whitewater smell like roses
By Bill Press, Tribune Media Services
WASHINGTON -- Something smells rotten in Houston.
Energy giant Enron, which used to brag about becoming the world's biggest company, now holds the record for the country's biggest ever bankruptcy filing.
The human impact is staggering. Some 4500 employees are out of work. Tens of thousands of investors watched their Enron stock sink suddenly from $83 per share to 26 cents, wiping out $60 billion of stockholder value. And those 11,000 employees whose 401K funds were invested exclusively in Enron -- and who were forbidden by Enron's own rules from diversifying -- today have no retirement plan at all.
But Enron may be more than the world's biggest corporate disaster. It could also be the world's biggest case of corporate criminality.
Enron's demise wasn't due to business factors like strong competition, a shrinking market or a lagging economy. It was due to deceitful, and perhaps illegal, games played by corporate executives: diverting funds into secret partnerships, cooking the books to keep those deals secret, lying to investors and employees about the financial health of the company, while selling their own stock to make sure they wouldn't be hurt when the whole house of cards collapsed.
Unlike thousands of employees, for example, Enron Chairman Kenneth Lay isn't crying the blues. He cashed out on $123 million worth of stock options in 2000 alone, and this year pocketed another $25 million.
Even as the company started falling apart, other executives were rewarded. Just days before filing for bankruptcy, Enron handed $55 million out to some 500 senior officials: an average $110,000 bonus for screwing up.
Yes, something smells rotten in Houston. But something smells rotten in Washington, too -- because both the rise and fall of Enron are closely linked to the political fortunes of George W. Bush.
For years, Ken Lay and George Bush have been joined at the hip, two free-wheeling Texas buddies. One helped the other succeed in "bidness;" the other helped his pal make it big in politics.
Consider the Bush-Enron connections. Enron could never have happened anywhere but Texas. It was only able to grow so big, so fast, because of the deregulation of energy companies instituted by then-Gov. George W. Bush.
And Ken Lay rewarded his friend. He and Enron together were Bush's biggest contributor, giving $2 million to his campaigns for governor and president. Lay also loaned Bush his corporate jet. In 2000, Lay sent a memo to company employees, suggesting that they contribute personal funds to Bush through the company's political action committee: $500 for low-level managers; $5000 for senior executives.
Once in the White House, Bush responded generously.
Ken Lay was the only energy executive to meet privately with Vice President Dick Cheney to help shape the administration's new energy policy -- which included a recommendation to break up monopoly control of electricity transmission networks, a longtime Enron goal.
For a while, Bush even considered naming Lay his Commerce Secretary. Fortuitously, that appointment never happened. But he did surround himself with Enron partisans.
Lawrence B. Lindsey, Bush's top economic adviser, was an Enron consultant.
Robert Zoellick, U.S. Trade Representative, served on Enron's advisory council.
I. Lewis Libby, Cheney's Chief of Staff, was a major Enron stockholder.
Thomas White, Secretary of the Army, was an Enron executive for over 10 years and held millions of dollars in stocks and options when appointed.
Karl Rove, chief White House political adviser, owned between $100,000 and $250,000 worth of Enron stock when he met with Ken Lay in the White House to discuss Enron's problems with federal regulators.
And, until he was named Republican National Chairman last week, Marc Racicot was Enron's Washington lobbyist.
No wonder the Bush White House refused to help California solve its energy crisis last Spring. California's problems were caused by Enron's suddenly inflating the price of electricity, forcing blackouts throughout the state. But Bush refused to intervene to help consumers. He wouldn't do anything to hurt his pal's big business.
Indeed, the Bush-Enron connections are so close, it's hard to tell whether Enron is the house that Bush built or Bush is the house that Enron built. We know George Bush and friends were major players in Enron's corporate success. Were they also major facilitators of Enron's corporate wrongdoing?
Either way -- and war or no war -- the whole mess demands a congressional investigation.
If Congress and Ken Starr could spend two years investigating a 20-year old $100,000 real estate investment in Arkansas, they can and must examine a multi-billion dollar energy scam in Texas, where millions lost their shirts.
Enron makes Whitewater look like peanuts....
December 21, 2001 - From Public Citizen:
Electricity, Commodities Deregulation Allowed Enron to Loot Billions from Lenders, Shareholders, Employees and Consumsers