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http://www.msnbc.com/news/669708.asp
Although some details are still murky, one thing is clear: Arthur Andersen,
Enron�s outside accountant, is in big trouble, and it (or its insurers) will
have to fork over big bucks. Andersen�s big problem stems from a company
called JEDI�as in �Star Wars��that Enron now says should have been on its
books since 1997. Andersen allowed JEDI to remain off the books for years.
The other deal, involving a company called Raptor, caused the net-worth
disappearance that set Enron on the road to ruin.
JEDI stands for Joint Energy Development Investments. It was a partnership
between Enron and the California state-employees� pension fund, known as
Cal-pers. The Force was with Enron, which invested the money�$250 million
each from itself and Calpers�in power plants, energy stocks and such, making
more than 20 percent a year. Pretty neat. In late 1997, Calpers was willing
to invest $500 million in a new partnership, JEDI 2. But it wanted to first
cash in its JEDI 1 chips, worth $383 million. Instead of just liquidating
JEDI, Enron got cute. (I�m not sure why. Enron declined to comment.) It went
looking for an outsider to fork over $383 million and take Calpers�s place.
Enter something called Chewco Investments�as in Chewbacca of �Star Wars�
fame. Chewco was a partnership of Enron employees and some undisclosed
outsiders. (Who they are and how much they made is a mystery, because Chewco
is a private entity.) Chewco�s investors didn�t have a spare $383 million.
So Enron lent Chewco $132 million and guaranteed a $240 million loan that
Chewco took out elsewhere. Enron was thus at risk for its own JEDI stake and
essentially all of Chewco�s. That being the case, it�s a mystery why
Andersen let Enron keep JEDI off its books. Accounting experts who have
looked at this transaction, which Enron disclosed last month, just shake
their heads. Andersen has refused to comment, saying it�s too early to reach
conclusions. Enron has restated its earnings dating back to 1997 because it
says JEDI should have been on its books since then. Guess what? The restated
profits are far lower than the original ones.
Now, to the deals that sank Enron. As in JEDI, Enron won�t comment.
These transactions involve four companies called Raptor. It looks like the
Raptors were set up to let Enron use financial gymnastics to get gains from
stocks it owned without actually selling them. The major holdings were
Rhythms Net Connections, a now bankrupt start-up telecom company, and
NewPower Holdings, which competes with established power companies for
customers. At their height, Enron�s stake in these companies totaled about
$2 billion. Friday�s value: about $40 million. Enron won�t say why it didn�t
just sell the stock and take its profits. The most logical explanation is
tax avoidance.
Now, the key to Enron�s undoing. The company committed to put $1.2 billion
of Enron stock into the Raptors to make them more creditworthy. It didn�t
promise a fixed number of shares�it promised $1.2 billion worth, regardless
of the share price. A seriously dumb move for a company that talks about
hedging risks. In return for that commitment, the Raptors gave Enron $1.2
billion of promissory notes. Enron put them on its balance sheet as an
asset. When a company adds to its assets and nothing else changes, its net
worth rises. Hence, Enron marked up its net worth by $1.2 billion.
But as the stock prices of Rhythms, NewPower and Enron all sank,
Enron faced having to fork over a ruinous number of new shares. So Enron
paid $35 million to the Raptors� outside investors�yet another mysterious
partnership�and liquidated the Raptors. That eliminated the notes, which
eliminated the aforementioned $1.2 billion from Enron�s net worth. That set
off the now famous October run on Enron�s credit, which ultimately led to
bankruptcy. Now, far too late, Enron says it shouldn�t have counted the
notes as assets.
The bottom line: numbers matter. So does truth. Enron was too clever
by half. And that�s a good way to end up looking stupid.
With Debra Rosenberg in Washington and Anne Belli Gesalman in Houston. Sloan
is NEWSWEEK�s Wall Street editor. His e-mail address is [EMAIL PROTECTED]
=======
http://stacks.msnbc.com/news/648110.asp
Enron taps $3 billion from bank lines
Move is seen as a pre-emptive strike to ensure liquidity
By John R. Emshwiller, Rebecca Smith and and Jathon Sapsford
THE WALL STREET JOURNAL
Oct. 26 � Enron Corp. drew down about $3 billion, the bulk of its available
bank credit lines, in a bid to restore confidence in its financial strength
and liquidity. Enron will use part of the money to offer to redeem about
$1.85 billion of outstanding commercial paper � short-term corporate IOUs �
according to a person familiar with the matter, with the remainder providing
the energy concern with a cash cushion. Some observers believe the move is a
pre-emptive step by Enron to ensure that it had adequate liquidity should
its access to bank lines be interrupted. The person also said Enron was
talking to its banks about a new, multibillion-dollar credit line.
***
Internal documents related to one of the Fastow partnerships disclose that
Enron also did as much as hundreds of millions of dollars of business with
an entity connected to another company official, who has since left Enron.
While Enron disclosed its Fastow-related transactions in SEC filings, a
computerized search of the SEC�s database of public filings produced no
reference to this other employee-related entity known as Chewco.
Chewco was established in 1997 �with approximately $400 million in
capital commitments� to buy an interest in Enron assets, according to one of
the partnerships documents. The document didn�t further specify what assets
were purchased, and it didn�t disclose the financial impact of the
transactions for either Chewco or Enron. Chewco was being run by Michael
Kopper, a managing director in Enron�s Global Equity Markets Group,
according to the document.
Enron, which has maintained that its complex financial transactions
with employee-related entities were legal and properly disclosed, didn�t
have any comment regarding its dealings with Chewco.
Kopper, who Enron says left the company this year to focus on helping
to run the Fastow-related partnerships, didn�t return phone calls. A person
at his office in Houston Thursday said Kopper was traveling. In response to
questions about Chewco, an Enron spokesman would say only that �Michael
Kopper was never an executive officer of Enron.� Fastow repeatedly has
declined interview requests. He severed his relationships with the
partnerships in July.
This statement is an apparent reference to SEC disclosure regulations
regarding related-party transactions. Under SEC rule S-K, a company has to
report any transaction that exceeds $60,000 and involves �any director or
executive officer.� By contrast, Fastow, as CFO, would have fallen into that
category, but Kopper, as managing director of a business unit, presumably
wouldn�t have.
However, reporting guidance issued by the Financial Accounting Standards
Board seems to have a broader definition, one that might include Kopper.
According to FAS Statement 57, a related-party transaction involves a
�material� piece of business between the company and a member of management.
The statement defines management as directors, top officers, vice presidents
in charge of major business units and �other persons who perform similar
policy-making functions. Persons without formal titles may also be members
of management.�
Copyright � 2001 Dow Jones & Company, Inc.
All Rights Reserved.
=========
http://biz.yahoo.com/smart/011205/200112051onthestre.html
Wednesday December 5, 4:43 pm Eastern Time
SmartMoney.com - On the Street
The Signs Everyone Missed
By Matthew Goldstein
``WE WERE FOOLED just like everyone else.''
That's pretty much been the line the mutual-fund industry has taken when it
comes to Enron (NYSE:ENE - news), the beleaguered energy-trading company
that went from Wall Street darling to junkyard dog practically overnight.
The fund managers who got caught holding the bag when Enron's stock began
crumbling in October � and there were lots of them � say that just like
ordinary investors, they were blindsided by Enron's recent earnings
restatements and its questionable off-balance-sheet accounting practices.
To some extent, that's a legitimate excuse. The Big Five accounting firm
Arthur Andersen � now taking heat from securities regulators and lawyers
representing disgruntled Enron shareholders � had given its official seal of
approval to Enron's financial reporting all along. Enron officials,
meanwhile, were notorious for providing only scant details about the
operation of its bustling energy-trading business, a practice that forced
analysts and investors to rely solely on the numbers in Arthur
Andersen-approved quarterly reports.
Enron's corporate filings, moreover, made only passing references to the now
infamous LJM limited partnerships that its former Chief Financial Officer
Andrew Fastow established in late 1999. It's now known that Enron used those
partnerships, among other things, as vehicles to hedge against potential
losses in some of its investments. Enron's decision to treat those
partnerships as off-balance-sheet transactions is the main reason it had to
restate earnings last month. (An Enron filing last month revealed that the
company had to take a $462 million charge against earnings because of its
dealings with the LJM partnerships, in addition to a $1.2 billion write-down
of shareholder equity.)
But the messy accounting practices at Enron might have been exposed a lot
earlier had Wall Street been paying more attention. Enron dropped a big clue
about the nature and purpose of those LJM partnerships nearly a year before
those deals began grabbing headlines. The information was buried deep inside
the prospectus, or offering statement, for NewPower Holdings (NYSE:NPW -
news), a two-year-old residential electrical-power company that Enron spun
off in October 2000 in a splashy $579 million initial public offering. The
Sept. 14, 2000, filing revealed that the LJM limited partnerships were far
more active than Enron officials had been letting on, and were maintaining a
far closer working relationship with Enron than had been believed at the
time.
Specifically, the filing reveals that in July 2000 one of the LJM
partnerships paid $50 million for warrants (which are akin to options) to
buy 4,651,600 shares of NewPower common stock beginning Dec. 31, 2000,
exercisable at a price of five cents each. Enron, in a Nov. 8 filing, says
it believes LJM ``still owns these investments.'' LJM officials couldn't be
reached for comment.
On its face, the transaction isn't terribly unusual. Private financing deals
of this sort are common before a company goes public. As a result, this
isn't the kind of disclosure you'd expect an ordinary investor to pay much
attention to, let alone fully understand. And in the absence of the current
uproar over Enron's accounting practices, this deal involving the LJM
partnerships probably wouldn't raise too many eyebrows in the financial
press, either.
But for money managers and Wall Street analysts � the professionals who are
paid to dissect corporate filings with a fine-tooth comb before making
investment decisions or recommendations � this deal should've prompted
further inquiries. Simply put, a $50 million pre-IPO transaction isn't an
insignificant one. In fact, of all the big name pre-IPO investors in
NewPower � GE Capital, a division of General Electric (NYSE:GE - news), the
California Public Employees' Retirement System, IBM (NYSE:IBM - news) and
Donaldson Lufkin Jenrette Merchant Bank (now a part of Credit Suisse First
Boston) � no investor paid more money to buy shares than the LJM
partnerships. If nothing else, the LJM investment in NewPower should've
served notice that Enron-sponsored partnerships were more than bit players
on Wall Street.
Moreover, like other Enron corporate filings last year, the NewPower
prospectus disclosed Fastow's dual role as Enron CFO and managing agent for
the LJM partnerships � a relationship that will be scrutinized when Senate
hearings into the Enron debacle begin on Dec. 12.
And the NewPower prospectus contained a phone number for LJM and a mailing
address � something that hadn't previously appeared in any Enron documents.
Curiously, the mailing address was a building at 333 Clay St. in Houston,
which, until recently, was mostly filled with Enron offices. When you call
the number nowadays � 713-345-5867 � the following recorded message is
heard: ``You've reached a nonworking number at Enron.'' Presumably, the
phone number was in operation back in October 2000. A simple phone call by a
diligent fund manager might have revealed that there was a rather close
working relationship between Enron and the LJM partnerships � not the
arms-length transactions that Enron had originally described. That might
have led him or her to question why Enron had never mentioned the
partnerships in its financial reporting.
The NewPower filing even contained the names of two contact people for the
LJM partnerships � Kathy Lynn and Michael Kopper � who were later identified
by Enron in a Nov. 8 filing with the Securities and Exchange Commission as
Enron employees, who left the company in the past several months. Enron now
says it believes Kopper, a former managing director of Enron's Global Equity
Markets Group, has bought out Fastow's interest in the LJM partnerships.
Lynn was a former vice president of one of its divisions, Enron
International. Again, these names would've meant nothing to most individual
investors. But to fund managers and Wall Street analysts who are supposed to
spend their time getting to know corporations and top executives intimately,
these names might have been another indication of the close relationship
between Enron and the LJM partnerships.
Analysts and the rest of the Wall Street community deserve blame for
ignoring such troubling details surrounding Enron's outside investment
activities, says Bill Singer, a New York securities lawyer and former
attorney for the National Association of Securities Dealers. ``It was there
for everyone to see, but everyone just didn't want to see it,'' says Singer,
a partner in Singer and Frumento. ``Wall Street wasn't really asking the
questions that should have been asked.''
Of course, it's possible that some money managers and analysts were aware of
these connections and did raise questions about LJM with Enron officials.
And given Enron's sterling reputation on the Street up until a few months
ago, it's possible those questions were answered to the money managers'
satisfaction. It's easy to say with the benefit of hindsight that the Wall
Street pros should've known more. But with so few money managers and Wall
Street analysts wanting to talk about Enron these days, it's difficult to
determine what anyone knew and when they knew it.
In any event, the Enron debacle should be a reminder to Wall Street that
research counts, and that fund managers and analysts can't take what
companies say as gospel. There's also a lesson here for investors �
especially do-it-yourselfers. As tedious as it may be, it pays to read, or
at least skim, some of those endless documents that all public companies
must file with the SEC. Sometimes buried deep within all the mind-numbing
legalese are some real gems that can help you determine whether a company
really is all it says it is.
========
KOPPER
MICHAEL J. 4/8/99 SC 13D/A
Amended Ownership Statement BRIGHAM EXPLORATION CO Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 1/14/00 SC 13D/A
Amended Ownership Statement CARRIZO OIL & GAS INC Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 2/12/99 SC 13D/A
Amended Ownership Statement CROWN ENERGY CORP Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 9/9/99 SC 13D/A
Amended Ownership Statement ENRON CAPITAL & TRADE RESOURCES CORP
KOPPER
MICHAEL J. 4/8/99 SC 13D/A
Amended Ownership Statement ENRON CAPITAL & TRADE RESOURCES CORP
KOPPER
MICHAEL J. 3/22/99 SC 13D/A
Amended Ownership Statement ENRON CAPITAL & TRADE RESOURCES CORP
KOPPER
MICHAEL J. 1/13/99 SC 13D/A
Amended Ownership Statement ENRON CAPITAL & TRADE RESOURCES CORP
KOPPER
MICHAEL J. 11/19/01 10-Q
Quarterly Report ENRON CORP/OR/
KOPPER
MICHAEL J. 3/13/00 SC 13D/A
Amended Ownership Statement ENRON CORP/OR/
KOPPER
MICHAEL J. 2/24/00 SC 13D/A
Amended Ownership Statement ENRON CORP/OR/
KOPPER
MICHAEL J. 1/14/00 SC 13D
Ownership Statement ENRON CORP/OR/
KOPPER
MICHAEL J. 10/8/99 SC 13D/A
Amended Ownership Statement ENRON CORP/OR/
KOPPER
MICHAEL J. 9/3/99 SC 13D/A
Amended Ownership Statement ENRON CORP/OR/
KOPPER
MICHAEL J. 6/20/00 SC 13D/A
Amended Ownership Statement ENRON NORTH AMERICA CORP
KOPPER
MICHAEL J. 4/26/00 SC 13D/A
Amended Ownership Statement ENRON NORTH AMERICA CORP
KOPPER
MICHAEL J. 4/11/00 SC 13D/A
Amended Ownership Statement ENRON NORTH AMERICA CORP
KOPPER
MICHAEL J. 2/24/00 SC 13D/A
Amended Ownership Statement ENRON NORTH AMERICA CORP
KOPPER
MICHAEL J. 1/12/00 SC 13D/A
Amended Ownership Statement ENRON NORTH AMERICA CORP
KOPPER
MICHAEL J. 3/13/00 SC 13D/A
Amended Ownership Statement FIRSTWORLD COMMUNICATIONS INC Real Time Quote,
Delayed Quote, Chart, Company Dossier, Financials, IPO Express, Annual
Report
KOPPER
MICHAEL J. 1/14/00 SC 13D
Ownership Statement FIRSTWORLD COMMUNICATIONS INC
KOPPER
MICHAEL J. 10/8/99 SC 13D/A
Amended Ownership Statement INLAND RESOURCES INC Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 10/8/99 SC 13D/A
Amended Ownership Statement INLAND RESOURCES INC Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 10/8/99 SC 13D/A
Amended Ownership Statement JOINT ENERGY DEVELOPMENT INVESTMENTS II LP
KOPPER
MICHAEL J. 9/9/99 SC 13D/A
Amended Ownership Statement JOINT ENERGY DEVELOPMENT INVESTMENTS LP
KOPPER
MICHAEL J. 3/22/99 SC 13D/A
Amended Ownership Statement KAFUS ENVIRONMENTAL INDUSTRIES LTD
KOPPER
MICHAEL J. 1/13/99 SC 13D/A
Amended Ownership Statement KAFUS ENVIRONMENTAL INDUSTRIES LTD
KOPPER
MICHAEL J. 6/20/00 SC 13D/A
Amended Ownership Statement KAFUS INDUSTRIES LTD
KOPPER
MICHAEL J. 4/11/00 SC 13D/A
Amended Ownership Statement KAFUS INDUSTRIES LTD
KOPPER
MICHAEL J. 4/26/00 SC 13D/A
Amended Ownership Statement QUANTA SERVICES INC Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 1/12/00 SC 13D/A
Amended Ownership Statement QUANTA SERVICES INC Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 2/24/00 SC 13D/A
Amended Ownership Statement REPAP ENTERPRISES INC Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 2/24/00 SC 13D/A
Amended Ownership Statement REPAP ENTERPRISES INC Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 2/24/00 SC 13D/A
Amended Ownership Statement REPAP ENTERPRISES INC Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 9/9/99 SC 13D/A
Amended Ownership Statement SHERIDAN ENERGY INC Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 9/9/99 SC 13D/A
Amended Ownership Statement SHERIDAN ENERGY INC Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 9/9/99 SC 13D/A
Amended Ownership Statement SHERIDAN ENERGY INC Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 9/3/99 SC 13D/A
Amended Ownership Statement SHERIDAN ENERGY INC Real Time Quote, Delayed
Quote, Chart, Company Dossier, Financials, IPO Express, Annual Report
KOPPER
MICHAEL J. 2/24/00 SC 13D/A
Amended Ownership Statement SUNDANCE ASSETS L P
KOPPER
MICHAEL J. 1/14/00 SC 13D/A
Amended Ownership Statement SUNDANCE ASSETS L P
KOPPER
MICHAEL J. 9/9/99 SC 13D/A
Amended Ownership Statement SUNDANCE ASSETS L P
==========
http://www.cfo.com/Pge_mag_detail_archives/1,4583,%7C83%7C10%7C1999%7C1340,0
0.html
CFO.com The
ANDREW S. FASTOW - ENRON CORP.
Category: CAPITAL STRUCTURE MANAGEMENT How Enron financed its amazing
transformation from pipelines to piping hot.
Russ Banham, CFO Magazine, Oct 1999
When Andrew S. Fastow, the 37-year-old CFO of Enron Corp., boasts that "our
story is one of a kind," he's not kidding. In just 14 years, Enron has grown
from a heavily regulated domestic natural-gas pipeline business to a fully
integrated global energy company with thriving activities in natural gas,
electricity, infrastructure development, marketing and trading, energy
financing, and risk management. And much of that growth has been fueled by
unique financing techniques pioneered by Fastow.
"When I came here in 1990, Enron was a company with a $3.5 billion market
capitalization," says Fastow. "Today, we're around $35 billion, and that's
without issuing a whole lot of equity. We've increased shareholder value,
grown the balance sheet, maintained a stable outlook from the rating
agencies, and achieved a low cost of capital."
In fact, when energy stock analysts look for paradigm companies to vaunt,
they point resolutely in the direction of Houston-based Enron, with $31
billion in revenues last year. And when they seek to explain how Enron has
remade itself so completely, they point to "remarkably innovative
financing." Says Ted A. Izatt, senior vice president at Lehman Brothers Inc.
in New York: "Thanks to Andy Fastow, Enron has been able to develop all
these different businesses, which require huge amounts of capital, without
diluting the stock price or deteriorating its credit quality-- both of which
actually have gone up. He has invented a groundbreaking strategy."
Fastow's expert balancing act, in fact, has earned him this year's CFO
Excellence Award for Capital Structure Management. "We needed someone to
rethink the entire financing structure at Enron from soup to nuts," says
Jeffrey K. Skilling, Enron president and chief operating officer. "We didn't
want someone stuck in the past, since the industry of yesterday is no
longer. Andy has the intelligence and the youthful exuberance to think in
new ways. He deserves every accolade tossed his way."
Looming Legacy
Enron's challenge in entering multiple deregulating energy markets has been
to secure the necessary capital without sacrificing its credit rating. And
that challenge was particularly apparent in 1997 when the company's debt
load, as a result of enormous growth, was higher than was consistent with
its BBB+ credit rating. "Retaining a high investment grade rating was
critical to the success of our energy franchises," Skilling says. "If we
were downgraded, we could lose critical market share in North America."
One option was to post significant collateral to continue doing deals,
anathema to both Skilling and CEO Kenneth L. Lay. So instead Fastow, who at
the time was the company's senior vice president of finance, reorganized
finance into an internal capital-raising machine. "We transformed finance
into a merchant organization, one engaged in the intermediation of both
commodity and capital risk positions," he recalls, adding "Essentially, we
would buy and sell risk positions."
Such a transformation, however, required a team of finance personnel with
the skill sets to develop capital structuring and structured finance deals.
Consequently, Fastow tripled the staffing devoted to the company's financing
activities to more than 100, culling a diverse group of financial experts
from commercial banking, investment banking, corporate finance, and the
rating agencies. Their mandate: sell capital risk so it becomes a
competitive advantage.
The upside potential of such an endeavor--for both the company and the
team--were huge. The natural-gas and electricity industry, in all practical
respects, is the largest and fastest- growing industry in the world today,
in terms of both capital investment and revenue. But to launch an energy
trading operation required a reservoir of capital just to get started. And
therein lay the rub: Conventional financing techniques would jeopardize its
BBB+ rating from Standard & Poor's and other agencies, raising the cost of
capital.
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