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AMERICAN MORNING WITH PAULA ZAHN

Enron Behaving Badly: Document Shredding and Bully Tactics

Aired January 23, 2002 - 08:10   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.
PAULA ZAHN, CNN ANCHOR: And up front this morning, the Enron investigation. The FBI has moved into Enron's executive suite, following reports that document shredding continued, even after the government announced its investigation.

CNN's Ed Lavandera now with more on the Enron paper chase.

(BEGIN VIDEOTAPE)

ED LAVANDERA, CNN CORRESPONDENT (voice-over): The scene was made for TV. Drinks and mingling in a posh downtown hotel room. And at the center of attention, what attorneys representing Enron investors say are shredded documents taken from inside the company's headquarters.

UNIDENTIFIED MALE: It is an absolute smoking gun.

LAVANDERA: Enron is investigating the charges of shredding, say it's found one wastebasket full, but no more. Attorneys for shareholders say at least five people witnessed documents being shredded inside Enron since late November in the finance and accounting departments, after SEC subpoenas had been served.

One woman used the shreds as packing material. When she got home, she noticed the fine print on the slips.

MAUREEN CASTANEDA, FORMER ENRON EMPLOYEE: There was a lot of arrogance at the company. I mean, to the point where -- an arrogance at the level where you think you can lie to Wall Street and get away with it.

LAVANDERA: Enron has opened the doors to FBI investigators. They'll be allowed to interview people who worked on the 19th and 20th floors, where the alleged shredding occurred. But some attorneys want sensitive documents taken into protective custody and out of the Andersen and Enron offices.

BILL LERACH, ENRON INVESTIGATORS ATTORNEY: What we want is the right to question Arthur Andersen people and Enron people about the document destruction that has admittedly occurred.

RUSTY HARDIN, ARTHUR ANDERSEN ATTORNEY: We feel very badly about what happened to the investors. I mean, there's nothing we can say that will make it better for those people. And we very, very much feel badly about, but we know that we did what we thought is right and we're trying to do what we think is right now. And that's all we can do.

LAVANDERA (on camera): Enron says it has issued several e-mails instructing employees not to destroy any documents, no matter what it is. In the meantime, a federal judge is expected to decide on Wednesday how investigators will go about preserving the financial documents that still exist and Andersen and Enron.

Ed Lavandera, CNN, Houston.

(END VIDEOTAPE)

ZAHN: Now we move onto the big question. Did Enron bully its stock analysts? Long before Enron collapsed like a house of cards, at least one analyst had his doubts about the company's stability.

Stock analyst John Olson, it turns out, was ahead of the curve when he downgraded Enron stock back in June. He joins us now from Houston. He is associated with Sanders Morris Harris Group.

And Carol Coale also joins us at Prudential securities, who devalued Enron stock several times over the past eight years.

Thank you both for being with us this morning.

JOHN OLSON, STOCK ANALYST: Thank you.

CAROL COALE, PRUDENTIAL SECURITIES: Hi, Paula.

ZAHN: Hi. John, if you would, we have a graphic of a letter that was sent to you -- or actually to your boss -- from Ken Lay, the head of Enron. And I'm going to read this out loud and I want you to describe to me what you thought this note meant. If you look at the fine print, it says, "Don," who is your boss, "John Olson has been wrong about Enron for over 10 years and he is still wrong. But he is consistant -- Ken"

When your boss showed you that note, what did you think?

OLSON: Well, I looked at the note, Paula, and I looked at it again and I told my boss when he asked me about it, I said, "You know, I'm old and worthless, but at least I can spell the word consistent."

ZAHN: Yeah, I noticed there was an "A" in there. I didn't know if that was our problem or his problem.

OLSON: Yeah. No, I have seen this happen before. Enron played hardball with everybody outside of the firm. They played hardball with Wall Street, with their auditors, with their attorneys. They like to game the system. And this was sort of part and parcel of that kind of gamesmanship, if you will.

ZAHN: But, John, hardball is one thing. In your judgment, did this constitute any kind of threat about your future in your own company, based on your downgrading Enron's stock? OLSON: No one likes to get letters like this, or notes to their boss and whatever. And I rarely have ever had this kind of situation happen before, Paula. I can live with it; I'm sure Carol could, too. We have scars all over our bodies from people who are unhappy with our recommendations at any particular point.

I didn't like it. I don't -- fortunately, I work for a very, nice bunch of people. And I think they could see exactly what was happening here.

ZAHN: Carol, were you ever threatened because of moves you made in downgrading Enron's stocks?

COALE: In 1994, we were out in front with a hold rating, we went from a buy to a hold, and not only did they attack me on a personal level with the press, trying to discredit me, saying that I was incorrect, unfounded.

And I was relatively new to the industry, so they used that as an attack on my credibility. But they also hit me on a personal level. I'm actually a native Houstonian, have a lot of friends in town, my parents live here. And they were literally, you know, down in the trenches with my friends at the little league games berating me with -- with some of my longtime friends.

Recently, the

ZAHN: That's terrible.

COALE: Pardon me? I know.

ZAHN: That's terrible.

COALE: In this recent downgrade, they were actually relatively quiet. I didn't receive a letter like John did, and I didn't receive much in the way of verbal beratement, which made me feel like the call was actually a good one. But I was a little later than John; I downgraded them in October. And I believe my colleague did something earlier this summer.

ZAHN: But, Carol, we should also make it clear that you had some encounters with Enron management, that also left a sour taste in your mouth. You asked some very tough questions of Jeff Skilling, who was running the place at one time. Did he lie to you?

COALE: In March, we had heard through -- Houston's actually a very small big town. And we had heard that there were some troubles in the bandwidth paradise. And I confronted him in a one-on-one in March, and he tried the softer side. This time, he tried honey instead of vinegar and said, "Well, now, Carol, if you downgrade our stock here, we've got positive events that will probably get the stock up in just a very short period of time. And we want you to look good as an analyst, and if you downgrade us here, that would be a mistake on your part."

So, yes, you know, we felt -- I felt like I was asking the right questions and was basically being besieged. And that was...

ZAHN: John...

COALE: ... one in a series of different questions.

ZAHN: John, I just wanted to give you a chance to close off this segment. What is the reality of being maybe one of 16 analysts that is downgrading the stock and not promoting it?

OLSON: Well, you feel the pressure directly and indirectly. You're out in the wilderness and everybody is in love with a story that was never quite what it seemed to be. And they were terrific at putting good cosmetics into their financial statements and terrific at showing earnings momentum. And we could never understand how that earnings momentum occurred. And I have to say that, at the end of the day, we were -- once we found out, I mean, everything just -- just fell apart for them.

ZAHN: And I guess those of us that weren't as exposed to the details are learning more and more on a daily basis to prove exactly what you just said.

John Olson and Carol Coale, thank you both for getting up early to join us this morning. We appreciate your time.

OLSON: Thank you.

COALE: Thanks, Paula.

ZAHN: Good luck to both of you.

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