The July 31 article in "The Fall of Enron" series reported that former in-house Enron attorney Kristina Mordaunt invested $5,800 in a partnership called Southampton Place that bought an interest in Andrew S. Fastow's first LJM partnership, and that she earned $1 million on her investment. Mordaunt says she performed legal work for Enron on the first LJM deal, but did not participate in the negotiations between Enron and LJM. She also says she was not involved with LJM transactions at the time she invested in Southampton and was not aware of what LJM was doing then. Enron terminated Mordaunt when it learned of her investment in Southampton.
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Losses, Conflicts Threaten Survival
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Andersen was deeply concerned about a Raptors accounting decision in the first quarter. With the four Raptors deals headed toward insolvency then, Enron had revived them by combining their debts and assets. Andersen's Enron audit team had approved the fix even though its own experts said it was improper.
Now, as internal scrutiny grew, Andersen partners felt they had to reverse that earlier decision.
Correcting this problem could require Enron to revise its first-quarter financial results. That news was sure to trigger a Securities and Exchange Commission inquiry into Enron's books -- with potentially grave consequences for the 88-year-old accounting firm.
Andersen's Enron files contained some big problems for the accounting firm and its client.
The firm's accountants had sparred among themselves for two years over high-risk methods that their Enron audit team had let the company use. The audit team had ignored the advice of Andersen's in-house experts more than once to please its demanding client. In that way, Andersen allowed Enron to exaggerate its earnings by hundreds of millions of dollars in recent years, investigators for Enron's board would later determine.
The accounting firm had good reason to fear the SEC. Less than four months earlier, the regulators had fined Andersen $7 million for allowing another large company, Waste Management Inc., to issue deceptive financial statements. In that case, Andersen had also rejected the advice of its own in-house accounting experts. Andersen was now operating under a "cease and desist" order, enjoining the firm from further accounting abuses.
Fear of violating the cease-and-desist order if they ignored their experts once again was evident from Temple's notes. "Restatement and probability charge of violating C + D in WM," she wrote.
In the Waste Management case, the SEC documented the violations by using records retrieved from Andersen's own files.
The worried Andersen partners now turned their attention to their Enron files.
'Irretrievable'
On Oct. 10, Michael C. Odom in Andersen's Houston office stood in a crowded conference room and reminded colleagues to destroy any unneeded records. If documents are destroyed and litigation is filed the next day, "that's great," Odom said in his video presentation. " Whatever there was that might have been of interest to somebody is gone and irretrievable."
Some employees in Andersen's Houston office promptly deleted a large number of e-mails.
Temple had come to Andersen from a high-powered litigation firm, seeking a change of pace. She was new to the Enron case.
