Return to Transcripts main page

CNN Sunday Morning

Investment Partnerships Force Enron Collapse

Aired February 03, 2002 - 11:02   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.
FREDRICKA WHITFIELD, CNN ANCHOR: More now on our top story, that report on the Enron debacle. As you just heard, the report casts an unfavorable light on Enron executives and the questionable partnerships that earned them tens of millions of dollars. CNNFN's Allan Chernoff is live from New York with more details. Hi there, Allan.

ALLAN CHERNOFF, CNNFN CORRESPONDENT: Good morning, Fredricka. First of all, let's talk about the report based on those investment partnerships. That was the focus. These were the investment partnerships whose unraveling forced Enron to restate its financials, which eventually led to the company's collapse.

Now the report says that these investment partnerships were used to hide losses, hide debt, and inflate profits. In fact, according to the report, these partnerships were used to actually report profits on investments that Enron was actually losing money on.

Let's get a few quotes from the report and give you some detail. First of all, "many of the most significant transactions apparently were designed to accomplish favorable financial statement results, not to achieve bona fide economic objectives." Meanwhile, these partnerships were reaping huge profits for the executives running them.

Let's look at some more of the report. "Enron employees involved in the partnerships were enriched by tens of millions of dollars they never should have received."

At the top of the list, Andrew Fastow, the former Chief Financial Officer of the company, he earned more than $30 million. But we also have a new name coming to light here as a result of the report.

Michael Copper, an executive with the Global Finance Department of Enron, he earned according to the report, $10 million from involvement with these partnerships, and there were two other people who earned $1 million from these partnerships.

Now the board had approved Fastow's involvement with the partnerships, but not Mr. Copper and not the other people as well. Now Representative Billy Tauzin, the Chairman of the House Energy and Commerce Committee, has said that he believes this points to security fraud.

(BEGIN VIDEO CLIP)

REPRESENTATIVE BILLY TAUZIN (R) LOUISIANA: Not only were there corrupt practices, not only was there hiding of the fact the debt was being put off the balance sheets and profits were reported that didn't exist, but we found more than that. I think we're finding what may clearly end up being security fraud.

(END VIDEO CLIP)

CHERNOFF: Now Tauzin says that at hearings coming up, Mr. Fastow will plead the Fifth Amendment. He will invoke his Fifth Amendment right, as will Mr. Coppers. He says that Jeff Skilling, the former President of the company will be testifying in full.

Now in terms of the blame, the report says, while the board itself does bear responsibility, it had approved the partnerships' involvement with Andrew Fastow, and also it says that the board pretty much stopped paying attention to these partnerships.

It also lays blame on management, basically saying that no one in management accepted primary responsibility for oversight, and that would include Ken Lay, the Chairman, CEO of the company, as well as Jeff Skilling. The lawyers for the firm, Vincent & Elkins, also getting some blame as well as the firm's accountants, Andersen.

Let's go back to the report, another quote: "Enron's accounting treatment was determined with extensive participation and structuring advice from Andersen. Anderson billed Enron $5.7 million for advice in connection with the LJM and Chewco transactions."

Now Andersen is responding to the report, saying that: "It does not reflect an independently credible assessment of the situation. But instead, represents an attempt to insulate the company's leadership and the Board of Directors from criticism by shifting blame to others."

That the Andersen Response to the Powers Report. Now this, of course, is plenty of meat for Congressional investigators to chew on, and as you said Fredricka, we will be having hearings on Capitol Hill tomorrow.

WHITFIELD: All right, thanks very much, Allan, a very comprehensive report. You did a great job in helping us all understand it. Thank you.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com