Congressional committees examining the collapse of Houston-based energy trader and marketer Enron Corp. expanded their investigation early last week, calling on the firm to release documents relating to off-balance sheet entities and risk-management policies.
There are several congressional committees currently investigating the collapse of Enron—once the world's largest gas and electricity trader—now on target to be the largest corporate bankruptcy in US history (OGJ, Dec. 10, 2001, p. 38).
House Energy and Commerce Committee Chairman Billy Tauzin (R-La.) and Oversight and Investigations Subcommittee Chairman James Greenwood (R-Pa.) also called on the Securities and Exchange Commission to turn over by Dec. 17 reviews and records of Enron's accounting practices and filings since 1997.
In a letter to SEC Chairman Harvey Pitt, Tauzin said the committee was "profoundly disturbed" by the events surrounding Enron's fall, particularly the loss of retirement savings by Enron employees. In addition, Tauzin said Enron's implosion illustrated the lack of transparency in Enron's derivatives position in the energy market.
While investigations unfold, lawsuits filed against the firm continue to accrue.
Inquiries made
Among the items being investigated are how Enron and other companies could include in current earnings unrealized gains on derivatives portfolios and what guidance accounting rules provide for the valuation of energy derivatives in a portfolio.
The committee also is looking into accounting guidelines that allow companies to avoid consolidating special purpose entities onto the sponsoring firm's balance sheet. Enron's stock began its freefall after the company disclosed it was reducing shareholder equity by $1.2 billion in the third quarter, resulting from losses at unconsolidated partnerships and other special- purpose entities.
In a letter to Enron Chairman Ken Lay, the committee asked for records relating to these special purpose entities, including LJM Cayman LP, LJM2 Co-Investment LP, Joint Energy Development Investments LP or JEDI, Chewco Investments LP, the Raptor entities, Osprey, and Big Doe.
In addition, committee members have asked Enron to supply all draft versions of Enron's third quarter earnings report given potential acquirer Dynegy Inc. during October and November, apparently in an effort to examine why the proposed takeover of Enron by Dynegy fell through.
The committee also asked to interview Lay, former chief financial officer Andrew Fastow, other current and former senior Enron employees, as well as members of Enron's audit and compliance committee, including Wendy Gramm, wife of US Sen. Phil Gramm (R-Tex.).
The committee asked the company to make its directors and senior management available by Dec. 21. Earlier this month, committee investigators were in Houston interviewing Enron's current CFO, Jeffrey McMahon.
Lawsuit filing
Enron creditor J.P. Morgan Chase & Co. on Dec. 11 sued the company in a New York bankruptcy court for a reported $2.1 billion, claiming rights to certain assets, which the New York bank said were not protected by Enron's Chapter 11 reorganization filing.
J.P. Morgan claimed the assets were sold before Enron filed for bankruptcy protection on Dec. 2, and the Houston company holds the assets in dispute as a servicer for the alleged owners. The legal maneuver further complicates what attorneys have already called one of the most complex bankruptcy filings ever.
The lawsuit was filed a day before Enron's largest unsecured creditors, including J.P. Morgan, were scheduled to meet to begin forming a committee to negotiate for a share of the company's assets.
J.P. Morgan and Citigroup Inc. each have hundreds of millions of dollars in exposure to Enron. J.P. Morgan also is a partner with Citibank in an effort to line up $1.5 billion in debtor-in-possession financing for Enron. The funding would allow Enron to operate while it reorganizes.
Enron said Dec. 3 it was to gain access to $250 million of the money immediately and will get an additional $250 million after furnishing lenders a "satisfactory" business plan. Another $1 billion will be made available to the company after certain conditions, including a successful syndication, are met, Enron said.
