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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On Friday, Oct. 12, she sent a blandly worded e-mail to Houston, reminding Andersen workers there to comply with the firm's "document-retention" policy of destroying extraneous memos and e-mails.
On Monday morning, Shannon Adlong arrived at the accounting firm's suite of offices on the 37th floor of Enron's Three Allen Center. She was the secretary to David B. Duncan, Andersen's lead partner on the Enron account.
Adlong went to the break room. It was a mess.
"I noticed a couple of bags of shredding," Adlong said. "There was food everywhere, like they had been there the whole weekend."
She said a manager passing by mentioned that Duncan had gotten an e-mail saying that "we needed to start getting in compliance" with the document-retention policy.
Adlong noticed they were running low on bags. She ordered more. "AARRGGH: send more shredding bags," she wrote in an e-mail. "Just kidding. We have ordered some."
'Non-Recurring' Losses
Enron executives were readying a news release to announce the quarterly financial results.
The Raptor accounting issue that had troubled Temple would not be mentioned. Enron and Andersen were still trying to make it go away. Enron would report only the losses the board and the credit agencies had heard about -- they now totaled $1 billion, more than half caused by the Raptors' continuing debt problems.
Chief Accounting Officer Richard A. Causey planned to characterize the losses as one-time, "non-recurring" problems that didn't signal trouble with the company's ongoing businesses.
Enron sent the draft news release to Andersen for review on Oct. 12, and partners there strongly objected to the "non-recurring" phrasing as misleading. In their view, some of the losses were just the opposite -- indications that core parts of Enron's businesses were not doing well. Shareholders had to be told, the auditors maintained. Duncan warned Causey that the SEC had taken action against companies for similarly misleading statements.
Duncan was troubled enough to write a memo to the file on Oct. 16 documenting his conversation with Causey and stating that he told him it was "misleading" to use the term "non-recurring."
Duncan sent Temple a copy to review.
