- The Washington Times - Sunday, July 7, 2002

Enron's board closed its eyes to evidence the company was heading for financial disaster, and claims by former directors that they were kept in the dark are untrue, a Senate report said today.
"Much that was wrong with Enron was known to the board," the Senate Permanent Subcommittee on Investigations said in a scathing 60-page critique.
Directors of the Houston-based energy-trading company failed to heed "more than a dozen red flags that should have caused the Enron board to ask hard questions, examine Enron policies and consider changing course," the report says.
Lawyers for the company and the former directors disputed the findings.
Senate investigators said the board failed to protect company shareholders and contributed to the collapse of Enron, which in December became the biggest company bankruptcy in U.S. history.
The report being made public today estimated that at its peak, the company "apparently had between $15 billion and $20 billion involved in hundreds" of complex transactions that entailed "convoluted financing and accounting structures."
The subcommittee chairman, Sen. Carl Levin, Michigan Democrat, said the report shows how important it is for swift Senate passage of legislation to strengthen accounting oversight and toughen laws that punish corporate misconduct.
But Washington attorney Robert Bennett, who is representing Enron, said the report is setting the responsibility of boards of directors far beyond what is commonly understood to be the case.
"I only wish the Congress would apply the same standards to their own conduct," Mr. Bennett said. He said the report was "grossly unfair" and that it "leaps to unfounded conclusions."
"We would expect nothing less in this frenzy that is taking place on Capitol Hill," he said.
W. Neil Eggleston, a Washington attorney representing Enron's former directors, says the board was "misled by Enron management and outside auditors about now-suspect transactions."
The Senate report focused on a three-year period leading up to the bankruptcy, an event that marked the first in a wave of huge corporate scandals rocking the U.S. economy. The latest is WorldCom, which inflated its financial results by improperly accounting for nearly $4 billion in expenses.
Enron directors were aware of high-risk accounting practices, inappropriate conflict-of-interest transactions and extensive undisclosed off-the-books activity, the report says.
The report also says Enron's executives compromised the independence of some board members with consulting payments.
Enron paid board member John Urquhart $493,914 for consulting in 2000. Starting in 1996, John Wakeham got a monthly retainer of $6,000 for consulting. The money was in addition to the regular compensation for board members at Enron, which amounted to $350,000 per year, much of it in the form of stock options, said the report.
The $350,000 figure is more than twice the national average for board compensation at the top 200 U.S. publicly traded corporations.
The report said former Enron auditor David Duncan of Arthur Andersen warned directors on the audit committee that the company engaged in high-risk accounting practices. Mr. Duncan told the directors that some of what was being done was "pushing the limits" and was "at the edge" of acceptable practice.
Mr. Duncan's notes of the discussion were backed up by other documents and by the testimony of a second Andersen accountant who was present. But the Enron audit committee chairman, Robert Jaedicke, said he did not recall being told that the company's accounting practices pushed the limits.
The Senate report said that the board:
Cleared the way for Enron executives to improve the appearance of the company's financial statements by waiving conflict-of-interest rules for Chief Financial Officer Andrew Fastow.
Did not raise any questions when told that in six short months, one of Mr. Fastow's outside partnerships had produced a phenomenal $2 billion in funds flow for Enron.
cDid not bother until late last year to press for information about the outside compensation of Mr. Fastow, who took tens of millions of dollars from Enron in exchange for keeping hundreds of millions of dollars in Enron debt off the company's books.

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