Enron Internal Probe Report May Be Released Next Week

Dow Jones News Wire
Kathy Chu

The results of an internal investigation into Enron Corp.'s (ENRNQ) collapse may be released early next week, a company lawyer said Wednesday.

The report will be posted online, at the Web site of the U.S. Bankruptcy Court of the Southern District of New York. The report is the culmination of Enron's three-month effort to account for off-balance sheet partnerships that the company used to keep debt off its books and to maintain a healthy credit rating.

The transactions led the company last November to write down $1.2 billion of shareholder equity and to restate four years worth of earnings.

Enron formed the special task force in October, hoping to restore investors' confidence in an energy-trading company that had begun to falter. The committee is made up of outside directors led by William Powers Jr., dean of the University of Texas law school. William McLucas - former head of the Securities and Exchange Commission's enforcement division and a partner at the Washington, D.C., law firm Wilmer Cutler Pickering - represents the task force.

McLucas didn't return phone calls seeking comment, and Powers couldn't immediately be reached for comment. The committee served as a liaison between Enron and the SEC, which launched its own investigation into the company's accounting practices last year.

Deloitte & Touche serves as the task force's independent accountant. The results of the investigation are expected to shed more light into the complex books of a company that had more than 3,500 units and numerous off-balance sheet partnerships.

Edward Ketz, an associate professor of accounting at Penn State's Smeal College of Business, said that it's unlikely that more significant surprises will come out of the report.

But, he said, "if there's any further bombshell, the real damage will be done with the accounting profession itself. It may give greater weight for Congress to do something (about accounting guidelines)."

News of the internal report's release came during a hearing before Judge Arthur J. Gonzalez of the U.S. Bankruptcy Court of the Southern District of New York. Wednesday, Gonzalez approved the retention of two law firms, Weil Gotshal & Manges and Togut Segal & Segal, as attorneys for the debtor.

In doing so, the judge overruled an objection by Enron creditor Wiser Oil Co. (WZR), which is owed about $7 million in trade debt, asking that a separate legal team be appointed for Enron's core unit, Enron North America.

This subsidiary includes the wholesale energy-trading operations, which generated 90% of the company's $101 billion in revenue last year. Gonzalez noted that the creditor's concerns - one being that funds from the Enron North America unit will be used to benefit other subsidiaries - are likely to be addressed in the next month, at court hearings to consider motions for a trustee, examiner and a new cash-management system.

The bankruptcy court, earlier this week, approved Milbank Tweed as the law firm for Enron's official creditors committee, after no objections were filed. Also Wednesday, Judge Gonzalez disclosed that his wife is part of a New York City pension fund involved in Houston litigation against Enron. But he said this doesn't disqualify him from presiding over the Enron case.

"The court has examined and does not believe that my partiality will be compromised," said Gonzalez.

When New York City pension matters are brought before the court, Gonzalez will "take steps" to ensure that no conflicts of interest exist, he said. The New York City pension funds along with the Florida State Board of Administration have asked the bankruptcy court to enter a detailed order requiring Enron to preserve its books and records. The hearing is set for Feb. 5.

The city and state pension funds are seeking the role of co-lead plaintiffs in class-action lawsuits filed against Enron in Texas, claiming securities violations and fraud by company executives.

In total, the New York City pension funds claim a loss of $109 million from
Enron-related investments, while the Florida State Board claims losses of $334 million.

The New York City pension funds made up about 20% of his wife's retirement fund, said Gonzalez.

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REPORTERS & EDITORS: For more information, please contact Wyatt DuBois in the Smeal College of Business Media Relations Office at 814-863-3798 or wed112@psu.edu .

Penn State's Smeal College of Business offers highly ranked undergraduate, MBA, executive MBA, Ph.D., and executive education opportunities to more than 5,500 students at all levels. Featuring academic departments of accounting, finance, marketing, insurance and real estate, management, and supply chain and information systems, the college is also home to major research centers such as the Center for Supply Chain Research, the Institute for the Study of Business Markets, the eBusiness Research Center, the Farrell Center for Corporate Innovation and Entrepreneurship, the Center for Global Business Studies, and the Center for the Management of Technological and Organizational Change.

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