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American Morning

A Discussion of the Enron Letter

Aired January 16, 2002 - 07:14   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JACK CAFFERTY, CNN CORRESPONDENT: Now, back to the Enron story, which is the other big story we're following.

Chris Huntington is with me. He's been looking into this letter that was written by a woman in Enron to Kenneth Lay in the upper management, saying you guys are flirting with disaster. And how prescient she was, because disaster followed on the heels of the letter within just a couple of weeks.

CHRIS HUNTINGTON, CNN CORRESPONDENT: Right. And she's described in reports as a bowl in a china shop, but somebody of unassailable high ethics, and also as a direct, directly reporting to the then chief financial officer. She was very, very familiar with the financial dealings of Enron.

Just a couple more quotes from her letter here. She goes on to say, "We are under too much scrutiny and there are probably one or two disgruntled, redeployed employees who know enough about the funny accounting to get us in trouble."

And finally, she says, "I realize that we have had a lot of smart people looking at this and a lot of accountants, including A.A. or Arthur Andersen & Company, have blessed the accounting treatment. None of this will protect Enron if these transactions are ever disclosed in the bright light of day."

CAFFERTY: You know, the interesting question is apparently they took this letter seriously enough that they referred it to a law firm that signed off on it, and if I'm correct in this, and help me out...

HUNTINGTON: Sure.

CAFFERTY: ... but they sort of said no problem here, don't worry about it. Is that a fact?

HUNTINGTON: And I've read their report. The firm is Vincent and Elkins, one of the top firms in the country, the top firm in Houston, Enron's outside law firm for more than a decade. And they, indeed, they interviewed extensively a number of the Enron executives. They also interviewed David Duncan, the top auditor from Arthur Andersen.

Basically what they did not do is go through any of Andersen's paperwork, any of Andersen's figuring. They took Andersen's accounting expertise at face value and basically said we have not found any reason to go any further. They did conclude, however, that on a cosmetic basis this doesn't look so good and maybe...

CAFFERTY: But they didn't know the details, if they didn't know what was going on in terms of the audit records, etc., then it would follow that they would, they might take a cursory look and say well, you know, based on what we know. But that doesn't necessarily get Andersen or Enron off the hook just because a group of lawyers signed off on this. Maybe they didn't have all the information.

HUNTINGTON: Sure. And I mean they essentially yielded to the expertise of the auditors. They're saying look, we're a law firm, we can't go back in and crunch the numbers.

CAFFERTY: Right.

HUNTINGTON: If Andersen says these add up, that's fine with us. We're going to see if there's anything else that needs to be looked into. And they said no, there really isn't.

CAFFERTY: Just one last thing, so far the Bush administration is coming up clean in this thing. Any change in that overnight?

HUNTINGTON: It doesn't appear that there's any intrigue trail in Washington beyond what we've already heard about, a few phone calls to some cabinet members, some -- an undersecretary of Treasury had several phone calls with the president of Enron. Those all appear to have been above board and made sense in the context of what was going on.

There appear to be no favors done for Enron from...

CAFFERTY: They were stopped at the gate, too.

HUNTINGTON: Basically stopped at the gate.

CAFFERTY: They weren't referred on to the president or anything.

HUNTINGTON: Right.

CAFFERTY: All right, Chris, good to see you, as always.

HUNTINGTON: Good to see you, yes.

CAFFERTY: All right, Chris Huntington, CNN Financial News.

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