THE FALL OF ENRON: Catastrophe

Hidden Debts, Deals Scuttle Last Chance

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By Peter Behr and April Witt
Washington Post Staff Writers
Thursday, August 1, 2002

Last of five articles

On Nov. 1, 2001, as the stock markets opened, Enron announced that help was on the way: Its two lead bankers, J.P. Morgan Chase and Citigroup , had agreed to provide $1 billion in additional loans, doubling the company's stockpile of cash.

Enron chairman and chief executive Kenneth L. Lay seized on the news as a rallying point. The cash "will further solidify Enron's standing as the leading market maker in wholesale energy," he declared.

But time and cash were running out on Enron Corp. As November began, investors were fleeing the Houston company and its stock was in a free fall because of damaging disclosures about its finances. Some energy companies were refusing to trade with it, and its funds were quickly being depleted.

The banks had long been Enron's indispensable partners, publicly and privately. They had raised billions of dollars for the company, promoted its stock and invested in the private LJM2 partnership that had become Enron's torment. Now they were trying to protect their investment.

The next evening, Nov. 2, the audit committee of Enron's board of directors assembled for a report on the company's cascading problems.

The mood quickly turned foul.

Lay took aim at his company's accountants, Arthur Andersen LLP, according to detailed notes taken by Andersen attorney Nancy Temple. Andersen auditors had recently reversed a decision they had made back in March involving complex investments called the Raptors. As a result, Enron had to report a half-billion-dollar loss in October. Enron executives resented what they called the "flip-flop."

In good times, Enron's executives, lawyers and accountants worked together to keep the company's deal factory humming.

Now they pointed fingers at each other, Temple's notes show.

"If we had done this right in the first quarter, we wouldn't be here today," Lay said, referring to the accountants' reversal.

Chief Accounting Officer Richard A. Causey -- on the hot seat as Enron's problems mounted -- tried to share blame with Andersen and the company's equally prestigious outside law firm, Vinson & Elkins LLP.


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© 2002 The Washington Post Company

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