| Page 2 of 5 < > |
Hidden Debts, Deals Scuttle Last Chance
|
TOOLBOX
   Resize
COMMENT
 Discussion Policy
 CLOSE
Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.
Who's Blogging  |
An Andersen partner shot back that the accountants would have done better if Enron hadn't concealed the role of an Enron executive, Michael J. Kopper, as an investor in an off-balance-sheet partnership.
This kind of hidden arrangement was an especially sore subject. Shocked board members had learned a week earlier that Andrew S. Fastow, Enron's ousted chief financial officer, had pocketed $45 million from the LJM partnerships. The board had granted him permission to run LJM despite the conflict of interest.
Now, board members learned that Kopper, Fastow's former right-hand man at Enron, had secretly made millions running an Enron-backed partnership called Chewco.
"Who withheld the facts? Did Fastow know?" one board member demanded. No one offered answers, Temple's notes show.
"We have to tell the SEC," said board member Wendy L. Gramm, the notes record.
Three days later, on Nov. 5, Fitch Ratings, one of the credit-rating agencies whose decisions would now determine whether Enron survived, downgraded the company's debt to the lowest investment grade. Another rating agency, Moody's Investors Service, was on the verge of doing the same.
Devastating Disclosures
On Nov. 8, the news that had demoralized the audit committee burst into public view.
In a report to shareholders and the Securities and Exchange Commission, the company admitted that it had broken accounting rules in a deal with Fastow's LJM1 partnership and Chewco. Correcting those errors would force Enron to restate its profit figures back to 1997. That would erase $586 million from its bottom line.
Enron was under scrutiny from the SEC and an investigative committee launched by its board.
Big secrets kept coming out.
For a company that depended on the confidence of its lenders for its trading, the disclosures were devastating. The credit-rating agencies and the banks wouldn't like the news.
That same day, Robert E. Rubin, the former Treasury secretary now with Citigroup Inc., called Peter R. Fisher, an undersecretary of the Treasury. Rubin asked what Fisher thought of the idea of calling the rating agencies to encourage them to work with Enron's bankers to see if there was an alternative to an immediate credit downgrade. Fisher responded, the Treasury said later, that he didn't think that was a good idea. He didn't make a call.
