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Another act in Enron show
[June 13, 2006]

Another act in Enron show

(Houston Chronicle (KRT) Via Thomson Dialog NewsEdge) Jun. 13--Just in time for the intermission between last month's convictions and next September's sentencing in the main Enron criminal trial, plaintiffs' attorneys in a massive shareholder lawsuit are preparing a big show of their own.

The likely star? Vinson & Elkins, the Houston law firm that was Enron's main outside counsel in the company's final days.

A filing expected in federal court as early as today will contain numerous documents aimed at supporting claims that V&E knew much more about troubles at the company than it has let on and should be liable for some of the billions of dollars in shareholder losses.

The accusations and many of the anticipated documents are far from new -- a bankruptcy examiner spent several years and millions of dollars on behalf of Enron's estate digging into the issue, concluding V&E and other firms that supported the energy giant may have committed malpractice.

But the documents, some of which were provided to the Chronicle by sources close to the case, could help persuade U.S. District Court Judge Melinda Harmon to leave V&E in the lawsuit as it heads for an October trial date.

Among the papers are voice mail message transcripts showing that as early as 1999, V&E attorneys questioned the propriety of Enron's former chief financial officer doing business with the company through a side partnership. Also included are notes made by the current head of the firm expressing concerns that legal opinions the firm provided didn't really satisfy accounting rules for millions of dollars in deals.

Condensing information

John Villa, an attorney with Williams & Connolly who is representing V&E, said the plaintiffs' attorneys are trying to distort the record by taking information spread over many years and presenting it as if it was known by all the firm's attorneys at one time.

"They're looking backward into time, picking up isolated facts and lining them up without regard to who was aware of them and the significance they gave them," Villa said.

The lawsuit, brought on behalf of Enron shareholders, accuses dozens of individuals, banks, law firms and other businesses of helping the company hide its true financial health from investors.

The suit claims the law firms gave false legal opinions, helped structure transactions that appeared independent but were controlled by Enron, and helped prepare false filings with the Securities and Exchange Commission.

Attorneys have secured about $7.8 billion in settlements with defendants, including several major banks. The 30 or so remaining defendants include large financial institutions like Merrill Lynch, as well as deep-pocket law firms like Vinson & Elkins.

Although the trial date has been set, large class-action suits rarely go to a jury. More often, the parties reach settlements.

The filing this week, a response to V&E's claim that the plaintiffs have no case, is widely seen as a tactic to pressure the firm to put up a significant settlement offer.

The voice mail transcripts expected in the filing originate with V&E partner Boyd Carano. In a 1999 call to fellow attorney August Shouse about Enron's plans to sell its investment in Cuiaba, a Brazilian power pro- ject, Carano said he found out the buyer would be the LJM partnership run by then-Enron CFO Andrew Fastow.

"Basically, this is a fund that he set up in order to do these deals with Enron, where Enron pays him a 13 and then 25 percent return in order to get stuff off the balance sheet," Carano said in the phone message. "I'm sure that there is nothing wrong with this ... But, frankly, I don't approve. Not that anybody pays me to approve of things that are perfectly legal, but I don't."

Joe Dilg, V&E's current general partner who was then head of the firm's Enron work, was also copied on the voice mail. In a response to both Shouse and Carano, Dilg said he was aware Fastow was getting "a pretty high rate of return" but noted he believed the deals were disclosed to the Enron board of directors.

Quick noticed wanted

"If you have any sense that, if you ever see anything that indicates it's not all up and above board, please let me know very quickly," Dilg said, according to the voice mail transcript.

In another voice mail from Carano to V&E partner Mark Spradling, he asks if he needs assurances directly from Enron Chief Accounting Officer Richard Causey that Fastow's partnership was not guaranteed a profit on a deal, instead of relying on the word of a lower-level Enron employee.

Spradling said in his response to Carano that the problem was that anything the law firm could do would either call into question the truthfulness of the lower-level employee "or imbues this whole issue with our view that there may be fraud going on here and that's why we are doing it."

Another document expected in the filing is a set of notes that Dilg made for a meeting with Enron General Counsel Jim Derrick, revealing an internal debate over whether legal opinions the firm provided Enron really satisfied accounting rules.

'True sale' letters

V&E had trouble providing the so-called "true sale" letters for certain transactions where part of the structure let Enron maintain control of an asset while still getting it off its books. So instead of the broader "true sale" opinion, the firm offered "true issuance" opinions, which gave the thumbs-up to just a portion of the transaction.

"We are unsure of how opinion rendered satisfies requirement" of the key accounting standard, Dilg's notes said.

He indicated a lower-level Arthur Andersen partner said the true issuance opinions met all the requirements, but more senior officials at Andersen had not talked to V&E. He noted similar deals done in the past could draw more accounting scrutiny and lead some to ask V&E to offer the broader "true sale" opinion, which it could not.

"Don't want deal to blow up at last moment and cause earnings surprise," Dilg's notes said.

Villa said the true issuance letters V&E provided Enron were what Andersen officials asked for, even after V&E attorney's repeatedly sought confirmation.

"The notes prepared for the Dilg-Derrick meeting confirm that V&E even raised this issue up to the general counsel of Enron to make sure that V&E was providing the correct opinion," Villa said. "As it now turns out, there is doubt that the accountants were correct, but what more were the V&E lawyers to do? V&E conducted itself properly and ethically."

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