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Enron Counsel Warned About Partnerships

Probe: Company's legal executive asked opinion of law firm in April. Congressional investigators say it was to 'halt this practice.'

January 31, 2002|RONE TEMPEST | TIMES STAFF WRITER

HOUSTON — The earliest warning sign yet about Enron Corp.'s outside investment partnerships may have come from the company's in-house legal counsel.

In April, Enron legal Vice President Jordan Mintz independently asked a prominent New York law firm to review the partnerships and provide legal advice.

The resulting opinion, issued six weeks later by law firm Fried, Frank, Harris, Shriver & Jacobson, advised Enron to "halt this practice," according to congressional investigators.

Sources in Enron said Mintz was concerned about the partnerships and took action without the knowledge or approval of senior management, including Enron General Counsel James V. Derrick Jr. and Chief Financial Officer Andrew S. Fastow.

Mintz's action came four months before Vice President Sherron S. Watkins sent her memo to Chairman Kenneth L. Lay warning of the energy company's impending collapse.

Mintz used the law firm's opinion to write one of several memos opposing the network of off-the-books partnerships in which some senior executives, notably Fastow, had financial interest. Enron used some of the partnerships to hide debt from shareholders' view.

At the time, it was a precarious route for Mintz, a 45-year-old father of five, in the still-highflying corporation. Fastow had recruited him for vice president and general counsel for Enron Global Finance. Contacted Wednesday, Mintz declined to comment, citing attorney-client privilege.

Mintz's role in the Enron saga began to emerge this week as congressional investigators asked Enron to provide a copy of the Fried Frank report.

The disclosure of Mintz's concerns is seen by investigators as more evidence that top Enron executives were aware of the company's problems long before they were publicly acknowledged.

Financial analysts began scrutinizing the company when Jeffrey K. Skilling resigned as chief executive Aug. 14, but Skilling and Lay insisted that the company was on solid footing.

Another executive who may have been aware of the company's problems was Jeffrey McMahon, the former company treasurer promoted to president this week.

In an Aug. 22 memo to Lay, Watkins identified McMahon (and former Vice Chairman J. Clifford Baxter, who was found dead last week from what police say was a suicide) as one of the executives concerned about the partnerships.

McMahon was asked Wednesday about his objections to the partnerships. But McMahon, speaking to reporters in a conference call about the company's restructuring, declined to comment.

"All these things are under investigation by a variety of departments and authorities and whatnot. So in lieu of that, I think I'd prefer just to stick on the restructuring topic today," McMahon said.

Mintz was recruited to Houston to work with Exxon Corp. and later was hired by a large local law firm, Bracewell & Patterson, where he worked as a tax attorney for nine years.

In 1996, Enron was one of his firm's clients during a thwarted hostile takeover attempt by Houston energy magnate Oscar Wyatt. Impressed with his work, Enron hired Mintz later that year to work in the corporate tax division.

In October 2000, Fastow recruited Mintz to the legal team of Enron Global Finance. It was there that Mintz first encountered the system of partnerships.

Mintz was one of several in the legal department wary of the possible conflict of interest involved in doing business with entities controlled by other Enron insiders.

By April of last year, Mintz's concern was such that he believed Enron could benefit from outside scrutiny. One reason for this, as Watkins noted in her memo to Lay, was that Enron law firm Vinson & Elkins had approved many of the controversial partnerships. Derrick was a former partner at Vinson & Elkins.

Among colleagues at Enron, it was understood that one of the main reasons Mintz hired Fried Frank was that it had strong expertise in securities law and had no affiliation with Enron.

Six weeks later, the review by the New York law firm, according to a letter to Derrick from the chairman of a House congressional committee, concluded that Enron should "halt this practice" of the special partnerships.

In the letter to Derrick, Reps. W.J. "Billy" Tauzin (R-La.), chairman of the House Energy and Commerce Committee, and James C. Greenwood (R-Pa.), chairman of the subcommittee on oversight and investigations, asked for a copy of the law firm report.

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