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CNN Sunday Morning

New Enron Report Scathing

Aired February 03, 2002 - 09:00   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: More now on Enron and the scathing new report that is naming names and pointing some fingers. Allan Chernoff of CNN Financial News joins us from New York with more on that. Good morning, Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: Good morning, Miles. Well, the report is 217 pages, a massive book here, and it was filed with the Bankruptcy Court late yesterday. This report basically describes a culture of financial deception, and it details the network of outside partnerships that it basically says were used to create a facade, to hide major losses made by Enron into investments.

It essentially says that these partnerships were used to cover up those losses and created the perception that there were hedges created by these partnerships that would essentially cover losses made by those investments; when in fact, these partnerships were primarily owned by Enron, and in fact, most of them being run by the former Chief Financial Officer of Enron, Andrew Fastow.

Now let's step back just a moment. It is an internal report from Enron, but the person who directed it is William Powers. He's a brand new member of the Board of Directors. He was brought on to essentially run this report, and the chief investigator was William McLucas, who had been the former head of enforcement for the Securities and Exchange Commission.

Now there's plenty of blame all over the place. The report does point out that Andrew Fastow, the former Chief Financial Officer, personally earned more than $30 million from running some of these partnerships, and it brings a new name to the table as well, a fellow by the name of Michael Copper, and he according to the report, earned more than $10 million personally from running some of these partnerships.

There's also lots of blame for Andersen, the auditing firm for Enron. The report says that Andersen did, in fact, consult with Enron on the accounting treatment for these partnerships, and that Andersen was paid $5.7 million for its work on those partnerships.

The report is highly critical of Ken Lay, the Chief Executive Officer of the company; Jeff Skilling, the former President of the company; and Andrew Fastow, the former Chief Financial Officer, and it is critical of the board, saying that the Board of Directors never should have approved Andrew Fastow's running of these outside partnerships.

Now tomorrow, we'll have a lot of drama because Ken Lay and William Powers are scheduled to testify on Capitol Hill. Miles.

O'BRIEN: CNN's Allan Chernoff in New York, thank you very much. We appreciate it.

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