Mintz warned against criticizing Enron activity

Lawyer told not 'to stick neck out'

 

 

Mintz warned against criticizing Enron activity

mintz.jpg (7830 bytes)

Attorney Jordan Mintz

Lawyer told not 'to stick neck out'

Feb. 8, 2002, 12:00AM

By DAN FELDSTEIN
Copyright 2002 Houston Chronicle

When Enron attorney Jordan Mintz transferred into the company's Global Finance unit in October 2000, he was shocked at what he found.

Employees who should have been looking out for Enron's interests were routinely negotiating lucrative deals with private partnerships they had a stake in.

The practice was clearly "dysfunctional," Mintz told a congressional subcommittee Thursday. But when he considered taking up the issue with Enron President Jeffrey Skilling, one of his superiors warned him, "I would not stick my neck out."

Mintz did take several bold steps, sending memos to his supervisors about the practice and even hiring an outside law firm -- without permission -- to double-check his conclusions.

He raised his concerns months before the famous August 2001 memo by director of corporate development Sherron Watkins, who criticized similar problems.

Mintz was one of the few Enron employees to make a positive showing Thursday in a full day of testimony before a House Energy and Commerce subcommittee. Former Chief Financial Officer Andrew Fastow refused to testify and Skilling denied knowing about the company's problems.

"He feels it went well. It did," said longtime friend Steve Waldman, who spoke with Mintz by cell phone after his testimony.

A native of Long Island, Mintz, 45, worked for Exxon and the Bracewell & Patterson law firm before coming to Enron as a tax attorney. He and his wife live with their five children in Southside Place.

Waldman said Mintz devotes all his time to work or his children. Two weeks ago, he enjoyed his daughter's bat mitzvah and guests there said they would never have guessed the turmoil he had undergone in recent months.

Much of that was related to his concern over the joint ventures Enron set up to hedge some investments. The ventures that alarmed Mintz were those in which Fastow, Michael Kopper or other insiders were supposedly the outside investors.

He found the deals were not "arm's length" and not properly reported. Enron employees had a duty to make deals on behalf of Enron shareholders, but were often making them sweet for themselves.

Fastow received perhaps $30 million through the outside partnerships, and Kopper made more than $10 million on a $125,000 investment.

When Mintz walked into his new job, he found that one attorney was in danger of being fired for negotiating too hard on behalf of Enron, he said. He said Fastow had left an "expletive-laced" message on the attorney's voice mail.

In another incident, Kopper insisted that he was owed an extra $2.6 million on a deal. Mintz insisted that he wasn't and that the terms of the deal were clear. He was backed up by outside attorneys at Vinson & Elkins.

Then, he said, Fastow called.

"I said, `Andy, there's no problem. You know it reads correctly,' " Mintz testified Thursday.

Fastow said he'd check with Skilling, then called back a few days later, Mintz recalled. He said to give Kopper the money.

"I was very frustrated and disappointed," Mintz told the committee.

Waldman described Mintz as a "bright, principled" person who has "kept his focus" while working in difficult circumstances.

In his testimony, Mintz generally left it to members of Congress to decry the actions through long statements. He kept his answers brief.

Asked about a lunch with then-Enron vice chairman Clifford Baxter, he recalled that Baxter was also troubled by self-dealing within the financial group.

"He expressed just, you know, bewilderment about why -- why the board was allowing this to happen -- why they were allowing Andy (Fastow) to do it," Mintz said.

Baxter committed suicide after the company collapsed.

Though the board of directors knew Fastow was a partner in some of the deals, it apparently did not know about the involvement of lower-ranking Enron employees or the amount of their earnings.

"Did Mr. Fastow ever suggest a reason for wanting to keep the disclosure of his compensation, how much money he was making and interest, a secret, particularly from Mr. Skilling?" asked Rep. James Greenwood, R-Pa.

"He did," said Mintz.

"And what did he say to you?" asked Greenwood.

"He said that if Jeff (Skilling) ever knew how much he made from the ... transaction, he'd have no choice but to shut down the (joint venture)," Mintz said.

http://www.chron.com/cs/CDA/story.hts/topstory/1246302

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Thu, Feb 7, 2002
Attorney's memos detail Enron's deals
Company rejected red flags, attorney told investigators


THE WASHINGTON POST


WASHINGTON -- A senior Enron attorney raised red flags more than a year ago about the corporation's approval of supposedly arms-length deals with partnerships managed by Enron insiders, new documents show. He has told House investigators that he was rebuffed.

The attorney, Jordan Mintz, also tried unsuccessfully in May to get Jeffrey Skilling, then Enron's chief executive, to sign a series of approval sheets on investments that Enron made with the partnerships in 2000.

Skilling is the most senior Enron executive to be questioned about his role in the nation's biggest corporate bankruptcy, which cost share-holders and employees billions. Former Chairman Kenneth Lay refused at the last minute to testify before a Senate committee earlier this week.

The drama of Skilling's appearance is expected to be prefaced by a parade of current and former Enron executives, including Andrew Fastow, who was the chief financial officer, and Michael Kopper, invoking their Fifth Amendment protection against self-incrimination.

Fastow and Kopper, who collected more than $40 million from the off-the-books partnerships, were accused of enriching themselves at the company's expense in a report released Saturday by a special committee of the Enron board of directors. Enron's collapse was triggered by losses attributed to the partnerships that they ran.

Members of a House Energy and Commerce subcommittee are expected to question Mintz and Skilling about Mintz's memos, which were obtained by investigators for the panel.

Rep. James Greenwood, R-Pa., the chairman of the oversight and investigations subcommittee, said last night that the Mintz memos tell more about the thinking of senior Enron executives than the scathing internal report that a special committee of Enron's board of directors issued over the weekend. "I think this goes to state of mind," he said.

Richard Causey, Enron's chief accounting officer, and Richard Buy, its chief risk officer, are also expected to take the Fifth Amendment, Greenwood said. Mark Palmer, an Enron spokesman, said yesterday: "I know right now they are still employees of Enron. That doesn't sound real strong, but that's where we are."

When Enron's board approved waiving the company's ethics code to allow Fastow to run the partnerships, it set up an elaborate procedure of approvals to oversee his activities. But the special board report, led by a new outside director, William Powers Jr., said that the procedures weren't followed.

Mintz raised concerns about the partnerships that Fastow ran in December 2000 in a memo to Causey and Buy about a proposed new entity called LJM3, which was never formed.

In another memo to the same two officials last March, Mintz recommended changes in the approval process for deals between Enron and existing LJM partnerships.

In particular, Mintz said he was worried about whether the big financial transactions were fair to Enron, or instead, might be considered "sweetheart" deals favoring Fastow. Enron's official justification for the deals is "self-serving," he said in one memo.

After an internal investigation, Enron disclosed in November that Fastow had received at least $30 million from partnership fees and profits.

In May last year, Mintz reminded Skilling that his signature of approval was called for on the partnership deals. Skilling failed to sign all but one of the partnership agreements sent to him, the Powers report said.

"It appears that Skilling did not want his fingerprints on any of the partnerships," said Ken Johnson, a subcommittee spokesman.

http://www.chron.com/disp/story.mpl/topstory/1246302.html

 

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Enron execs wanted lawyer fired
for approach to partnership talks
Disclosure underlines conflict of interest in partnerships
By Tom Hamburger and John Emshwiller
THE WALL STREET JOURNAL

WASHINGTON, Feb. 6 — Enron Corp. executives tried to get one of the company’s in-house lawyers fired in 2000 after their boss expressed unhappiness with the way the lawyer was negotiating with a partnership in which the boss had an interest, congressional investigators said.

THE DISCLOSURE underlined the conflicts of interest that apparently existed with outside partnerships set up and run by some Enron executives. For Enron, which is now in bankruptcy proceedings, the partnerships allowed the Houston energy-trading company to enhance its profits and to move debt off its books. But the partnerships also were used by some senior Enron executives to enrich themselves, according to an internal company report released this weekend.
The investigators’ statements came as several congressional committees pushed forward with probes into Enron’s collapse. A House and Senate panel each voted to issue subpoenas to force appearances by Kenneth Lay, Enron’s former chairman and chief executive. Meanwhile, the head of Arthur Andersen, Enron’s former auditor, was aggressively questioned before a House panel and outlined additional steps the accounting firm is taking to restore its reputation.
At issue in the case involving the Enron lawyer was one of the outside partnerships known as LJM2. Enron attorney Joel Ephros was negotiating with attorneys for LJM2 from the law firm of Kirkland & Ellis in 2000, when he received an expletive-laced angry voice mail about his handling of the negotiation from Enron’s Chief Financial Officer, Andrew Fastow, according to an account given to congressional investigators. Fastow at the time ran and had an ownership interest in LJM2, which eventually earned him substantial profits.

Later, in the fall of 2000, two of Fastow’s subordinates, Ben Glisan Jr. and Michael Kopper, approached Ephros’s boss to accuse the lawyer of being unresponsive and incompetent and to urge his dismissal. The boss, Jordan Mintz, general counsel of Enron Global Finance, had just started his new job and said he wasn’t prepared to make any personnel moves, so he declined. Informed of the decision, Fastow didn’t object. Mintz later decided to keep Ephros on staff and praised his performance.
The attempt to fire Ephros will be aired at a hearing Thursday before the House Energy and Commerce Committee’s oversight panel, Billy Tauzin, chairman of the full committee, said in an interview. The Louisiana Republican offered the episode as an example of what he called a corrupt culture within Enron as it sought to inflate revenue and conceal losses using entities such as LJM2.

“They literally became sham operations,” said Tauzin, who is leading the most aggressive probe of nearly a dozen now being conducted on Capitol Hill into Enron. “One purpose was to fool investors into believing that debt had moved, that risk had moved. And the other purpose was to create phony income. This is an old game. This is nothing new. This is insider theft.”
Mintz will be a chief witness at Thursday’s hearing and is expected to detail his recollections about the effort made to muzzle Ephros. A spokesman for Fastow declined to comment. A lawyer for Glisan didn’t return a call for comment. Ephros and Kopper couldn’t be reached. Tauzin said he expects Fastow and Kopper to invoke their Fifth Amendment rights against possible self-incrimination to avoid testifying at Thursday’s hearing.

The Ephros episode is an example of a problem addressed cryptically in the internal report by a special committee of Enron’s board that was released last weekend. Fastow “was in a position to exert great pressure and influence. … We have been told of instances in which he used that pressure to try to obtain better terms for LJM,” the report said. “Simply put, there was little of the separation and independence required to enable Enron employees to negotiate effectively against LJM2.”
Tauzin said that Thursday’s hearing will also feature details of what he called “literally a sweetheart deal” involving another partnership. According to Tauzin and his investigators, one of the partnership deals was cut by two Enron employees who were engaged to be married, one representing Enron and one representing LJM2.
Congressional investigators said that the agreement netted huge profits for the couple, Trushar Patel, an Enron attorney, and his fiancée, Anne C. Yaeger, who worked with Fastow and later left Enron. Yaeger signed a $30 million agreement on behalf of LJM2, listing herself as an “authorized person,” documents shows. Her husband signed representing Enron.

Committee spokesman Ken Johnson said investigators have learned Yaeger entered into the transaction by initially providing just $10 as a down payment, later kicking in an additional $2,913. “We believe she walked away from the deal with a profit of half a million dollars,” Johnson said. “That’s not a bad return for a $10 initial investment.”
Messages left at the home of the couple weren’t returned.
In other action, the Senate Commerce Committee and the House Financial Services Committee approved subpoenas for Lay to appear before their panels on Feb. 12 and 14, respectively. Lay had agreed to appear at hearings this week, but backed out in response to scathing criticism from Capitol Hill prompted by revelations in the Enron board’s internal report. Though he will be forced to appear, he can refuse to testify by invoking the Fifth Amendment, and several senators and House members predicted he would do so. Kelly Kimberly, Lay’s spokeswoman, said he and his lawyers haven’t yet decided whether he will testify.

In his second appearance before the House Financial Services panel, Andersen CEO Joseph Berardino outlined new steps the accounting firm will take to restore confidence in its work, including creating offices for audit quality, ethics and compliance. Berardino came under heavy criticism from panel members for Andersen’s role in the Enron affair, including a document-destruction effort undertaken by Houston-based employees, one of whom was subsequently fired. He said he was “embarrassed” by the shredding. On Andersen’s role in reviewing questionable partnership transactions, which later led to Enron’s collapse, he reiterated his assertion that “information was withheld” by Enron as Andersen was reviewing them.

The difficulty Berardino faces in restoring confidence in his company was made clear in Connecticut Tuesday as the state’s Board of Accountancy escalated its investigation of the firm, issuing a subpoena for Enron-related documents. The state could revoke Andersen’s license to practice in Connecticut and levy a fine. State Attorney General Richard Blumenthal says his staff is searching for common policies between Andersen’s activities in Houston and Hartford. He added that other state attorneys general have been in contact with him and could pursue similar action.
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