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CNN Sunday Morning

Enron Directors' Report Unflattering

Aired February 03, 2002 - 07:04   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.
MILES O'BRIEN, CNN ANCHOR: The spotlight falls again this morning on Enron and it's again revealing some ugly blemishes. As we told you at the top of the hour, the company's directors commissioned a report on the bankrupt energy giant and it's not very flattering. CNN's Brooks Jackson has that.

(BEGIN VIDEOTAPE)

BROOKS JACKSON, CNN SENIOR CORRESPONDENT (voice-over): The report accuses Enron's former chief executive Ken Lay of failing to do his job while key underlings were helping themselves to millions they weren't entitled to and violating basic rules of accounting and ethics. It says Lay personally approved some of the off-the-books partnerships whose belated disclosure triggered Enron's spectacular fall.

Quote - "He bears significant responsibility for those flawed decisions." It says, "Lay, while earning $7 million a year, was functioning more as a director than a real member of management." Overall, it cited "an absence of forceful and effective oversight by senior Enron management."

The report was issued by University of Texas Law School Dean William Powers who came on to Enron's board three months ago to oversee the internal investigation.

(on-camera): And even though the board asked for it, the report blasts them too, saying the board should have prevented the abuses by being more vigilant.

Quote - "The Board of Directors failed, in our judgment, in its oversight duties. This had serious consequences for Enron. There's nothing in the report about Enron's connections to the Bush administration, political contributions or lobbying and nothing about the hundreds of millions in Enron stock sales by Lay and other top managers.

The investigators' mission was to focus on the partnerships that hid Enron's losses and debts from the public and for those, the report says, "many are to blame," but especially Andrew Fastow, the Enron executive who set up the partnerships and who received $30 million in profits from them personally. It says, Fastow - quote - "should not have received those millions." It says Fastow "refused to talk to the investigators." In one deal turned up by the investigation, a Fastow underling named Michael Kopper, received more than $10 million from Enron by investing $125,000 in one of Fastow's off-the-books partnerships. It said Kopper wouldn't talk to the investigators either.

The report faults Enron's law firm, Vincent & Elkins saying, "it should have brought a stronger, more objective and more critical voice to the disclosure process." And as for Enron's documenting shredding accounting firm, it says, "Arthur Andersen did not fulfill its professional responsibilities, collecting millions in fees while making simple and not so simple accounting mistakes."

All together, a picture of greed, self-dealing, irresponsibility and incompetence. Enron's own report says the abuses that triggered the company's downfall could have been avoided and should not have happened.

Brooks Jackson, CNN, Washington.

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