Enron execs wanted lawyer fired for approach to partnership talks
Disclosure underlines conflict of interest in partnerships
By Tom Hamburger and John Emshwiller Wall Street Journal and MSNBC
WASHINGTON, Feb. 6 - Enron Corp. executives tried to get one of the company's in-house lawyers fired in 2000 after their boss expressed unhappiness with the way the lawyer was negotiating with a partnership in which the boss had an interest, congressional investigators said.
THE DISCLOSURE underlined the conflicts of interest that apparently existed with outside partnerships set up and run by some Enron executives. For Enron, which is now in bankruptcy proceedings, the partnerships allowed the Houston energy-trading company to enhance its profits and to move debt off its books. But the partnerships also were used by some senior Enron executives to enrich themselves, according to an internal company report released this weekend.
The investigators’ statements came as several congressional committees pushed forward with probes into Enron’s collapse. A House and Senate panel each voted to issue subpoenas to force appearances by Kenneth Lay, Enron’s former chairman and chief executive. Meanwhile, the head of Arthur Andersen, Enron’s former auditor, was aggressively questioned before a House panel and outlined additional steps the accounting firm is taking to restore its reputation.
At issue in the case involving the Enron lawyer was one of the outside partnerships known as LJM2. Enron attorney Joel Ephros was negotiating with attorneys for LJM2 from the law firm of Kirkland & Ellis in 2000, when he received an expletive-laced angry voice mail about his handling of the negotiation from Enron’s Chief Financial Officer, Andrew Fastow, according to an account given to congressional investigators. Fastow at the time ran and had an ownership interest in LJM2, which eventually earned him substantial profits.
Later, in the fall of 2000, two of Fastow’s subordinates, Ben Glisan Jr. and Michael Kopper, approached Ephros’s boss to accuse the lawyer of being unresponsive and incompetent and to urge his dismissal. The boss, Jordan Mintz, general counsel of Enron Global Finance, had just started his new job and said he wasn’t prepared to make any personnel moves, so he declined. Informed of the decision, Fastow didn’t object. Mintz later decided to keep Ephros on staff and praised his performance.
The attempt to fire Ephros will be aired at a hearing Thursday before the House Energy and Commerce Committee’s oversight panel, Billy Tauzin, chairman of the full committee, said in an interview. The Louisiana Republican offered the episode as an example of what he called a corrupt culture within Enron as it sought to inflate revenue and conceal losses using entities such as LJM2.
"They literally became sham operations," said Tauzin, who is leading the most aggressive probe of nearly a dozen now being conducted on Capitol Hill into Enron. "One purpose was to fool investors into believing that debt had moved, that risk had moved. And the other purpose was to create phony income. This is an old game. This is nothing new. This is insider theft."
Mintz will be a chief witness at Thursday's hearing and is expected to detail his recollections about the effort made to muzzle Ephros. A spokesman for Fastow declined to comment. A lawyer for Glisan didn't return a call for comment. Ephros and Kopper couldn't be reached. Tauzin said he expects Fastow and Kopper to invoke their Fifth Amendment rights against possible self-incrimination to avoid testifying at Thursday's hearing.
The Ephros episode is an example of a problem addressed cryptically in the internal report by a special committee of Enron's board that was released last weekend. Fastow "was in a position to exert great pressure and influence. . We have been told of instances in which he used that pressure to try to obtain better terms for LJM," the report said. "Simply put, there was little of the separation and independence required to enable Enron employees to negotiate effectively against LJM2."
Tauzin said that Thursday's hearing will also feature details of what he called "literally a sweetheart deal" involving another partnership. According to Tauzin and his investigators, one of the partnership deals was cut by two Enron employees who were engaged to be married, one representing Enron and one representing LJM2.
Congressional investigators said that the agreement netted huge profits for the couple, Trushar Patel, an Enron attorney, and his fianc‚e, Anne C. Yaeger, who worked with Fastow and later left Enron. Yaeger signed a $30 million agreement on behalf of LJM2, listing herself as an "authorized person," documents shows. Her husband signed representing Enron.
Committee spokesman Ken Johnson said investigators have learned Yaeger entered into the transaction by initially providing just $10 as a down payment, later kicking in an additional $2,913. "We believe she walked away from the deal with a profit of half a million dollars," Johnson said. "That's not a bad return for a $10 initial investment."
Messages left at the home of the couple weren't returned.
In other action, the Senate Commerce Committee and the House Financial Services Committee approved subpoenas for Lay to appear before their panels on Feb. 12 and 14, respectively. Lay had agreed to appear at hearings this week, but backed out in response to scathing criticism from Capitol Hill prompted by revelations in the Enron board's internal report. Though he will be forced to appear, he can refuse to testify by invoking the Fifth Amendment, and several senators and House members predicted he would do so. Kelly Kimberly, Lay's spokeswoman, said he and his lawyers haven't yet decided whether he will testify.
In his second appearance before the House Financial Services panel, Andersen CEO Joseph Berardino outlined new steps the accounting firm will take to restore confidence in its work, including creating offices for audit quality, ethics and compliance. Berardino came under heavy criticism from panel members for Andersen's role in the Enron affair, including a document-destruction effort undertaken by Houston-based employees, one of whom was subsequently fired. He said he was "embarrassed" by the shredding. On Andersen's role in reviewing questionable partnership transactions, which later led to Enron's collapse, he reiterated his assertion that "information was withheld" by Enron as Andersen was reviewing them.
The difficulty Berardino faces in restoring confidence in his company was made clear in Connecticut Tuesday as the state's Board of Accountancy escalated its investigation of the firm, issuing a subpoena for Enron-related documents. The state could revoke Andersen's license to practice in Connecticut and levy a fine. State Attorney General Richard Blumenthal says his staff is searching for common policies between Andersen's activities in Houston and Hartford. He added that other state attorneys general have been in contact with him and could pursue similar action.
Judith Miller and Russell Gold contributed to this article.
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