MAIN PAGE
WORLD
U.S.
WEATHER
BUSINESS
SPORTS
POLITICS
LAW
SCI-TECH
SPACE
HEALTH
ENTERTAINMENT
TRAVEL
EDUCATION
IN-DEPTH
QUICK NEWS
LOCAL
COMMUNITY
MULTIMEDIA
E-MAIL SERVICES
CNNtoGO
ABOUT US
CNN TV
what's on
show transcripts
CNN Headline News
CNN International
askCNN
EDITIONS
CNN.com Asia
CNN.com Europe
CNNenEspanol.com
CNNArabic.com
set your edition
Languages --------- Spanish Portuguese German Italian Danish Korean Arabic
Time, Inc. --------- Time.com People Fortune EW
dictionary
Report: Enron execs hid losses, made millions
February 2, 2002 Posted: 11:01 PM EST (0401 GMT)
Enron's bankruptcy filing was the largest in U.S. history.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NEW YORK (CNN) -- Enron executives reaped millions of dollars from off-the-books partnerships while the energy giant violated basic rules of accounting and ethics, according to a report commissioned by Enron's board of directors.
The report, released Saturday and conducted by outside investigators, said former Enron CEO Kenneth Lay personally approved some of the partnerships, criticizing him for functioning more as a director in the company than a real member of management.
When it was revealed last fall the partnerships had inflated Enron's earnings, it marked the beginning of Enron's financial collapse, leading to the Houston,Texas-based energy trader's eventual decision to file for bankruptcy in December.
After the partnerships were disclosed, Enron's board ousted Chief Financial Officer Andrew S. Fastow, who set them up.
"Enron employees involved in the partnerships were enriched, in the aggregate, by tens of millions of dollars they should never have received," said the so-called Powers Report, named for William Powers Jr., head of the special investigation committee that wrote it.
Powers is a member of Enron's board of directors and the dean of the University of Texas Law School. He was assisted in the investigation by former SEC investigators.
RESOURCES
Document: Powers Report
9.5MB (PDF)
VIDEO
CNN's Kelly Wallace reports on the Enron collapse and the widening investigation in Washington (February 2)
Play video
(QuickTime, Real or Windows Media)
MORE STORIES
Commerce, Treasury told to keep Enron papers
VIDEO/AUDIO
• Congress grills Enron auditors
• Enron's chief resigns
MORE STORIES
• CNN/Money: Enron Contra
• Justice asks White House to keep Enron records
EXTRA INFORMATION
• CNN/Money Special Report: Your 401(k)
• Shredding through history
RESOURCES
• In-Depth: The end of Enron?
• TIME.com: Inside the scandal
LEGAL RESOURCES
Latest Legal News
Law Library
FindLaw Consumer CenterSelect a topicBankruptcyDiscriminationDivorceEstate PlanningLandlord-TenantPersonal InjuryTaxes
The report's authors said they have "no evidence that any of these employees, except [CFO] Fastow, obtained the permission required by Enron's Code of Conduct of Business Affairs to own interest in the partnerships."
It said Fastow garnered $30 million in profits from the arrangements.
None of the individual Enron executives named in the report returned CNN calls for comment.
"The report has made the board aware of numerous past events for the first time. These events are deeply regretted by the board," a statement from Enron said late Saturday.
The report, the result of a three-month long investigation, was filed with the federal bankruptcy court in New York, which is handling all the many claims to Enron's remaining assets. It was published Saturday afternoon on the court's Web site.
Management, the report said, "spent considerable time and effort working to say as little as possible" about one of the partnerships.
"These partnerships ... were used by Enron management to enter into transactions that it could not, or would not, do with unrelated commercial entities," according to the report.
"Many of the most significant transactions apparently were designed to accomplish favorable financial statement results, not to achieve bona fide economic objectives or transfer risk," the report said.
That effort, combined with how critical the partnerships were to Enron's finances, "should have raised red flags for senior management, as well as for Enron's outside auditors and lawyers."
Enron set up hundreds of partnerships to move debt and losses of its balance sheet. Such partnerships are legal if structured according to present accounting rules.
The report said the partnerships did not follow what it called "applicable accounting rules."
The Justice Department is conducting its own investigation of Enron's collapse. Congressional hearings into the matter began in January. Lay is scheduled to testify before a Senate committee Monday.
The report also leveled criticism at Enron's outside auditors, Arthur Andersen LLP, saying it made simple and not so simple accounting mistakes. It said the accounting firm was seemingly complicit in the maneuverings.
"In virtually all the transactions, Enron's accounting treatment was determined with extensive participation and structuring advice from Andersen, which management reported to the Board," report said.
Andersen appeared to profit from the partnership accounting, as well.
"Enron's records show that Andersen billed Enron $5.7 million for advice in connection with the LJM and Chewco transactions alone, above and beyond its regular audit fees," the report said.
Vinson & Elkins, Enron's main law firm, also came under fire. The report said it "should have brought a stronger, more objective and more critical voice to the disclosure process."
The Enron statement said the company's board was forming a restructuring committee, one of whose members will be Raymond Troubh, one of the independent directors who served on the investigation committee.
-- CNN Senior Correspondent Brooks Jackson contributed to this report.
5-day Forecasts
Who's On Larry King?
Rams vs Patriots
Watch Real One Video
RELATED STORIES:
• Justice asks White House to keep Enron records
February 1, 2002
• Senator says Enron not cooperating with Congress
January 31, 2002
• Enron questions in Britain
January 29, 2002
• Enron crisis looms over White House
January 27, 2002
• White House to GAO: 'See you in court'
January 27, 2002
• White House orders Enron, Andersen contracts reviewed
January 25, 2002
• Enron posts guards to stop shredding
January 23, 2002
• Lay resigns as Enron chief
January 23, 2002
RELATED SITES:
• Enron Corp
• U.S. Congress
• U.S. Department of Justice
• Securities and Exchange Commission
• Rep. Henry Waxman, D-California
• The White House
Note: Pages will open in a new browser window
External sites are not endorsed by CNN Interactive.
LAW TOP STORIES:
• Report: Enron execs hid losses, made millions
• Oklahoma governor favors profiling
• U.S. to announce affidavit to aid identity-theft victims
• Virginia doctor charged with contributing to deaths
• FindLaw's Anthony Sebok on a Supreme Court review of laws governing health treatment
(More)
Search CNN.com CNNSI.com CNNmoney.com The Web
Back to the top © 2002 Cable News Network LP, LLLP.
An AOL Time Warner Company. All Rights Reserved.
Terms under which this service is provided to you.
Read our privacy guidelines. Contact us.