2 Enron Executives Plan to Leave Firm
Two top Enron Corp. executives criticized for failing to oversee the energy giant’s complex partnerships are negotiating their exit from the company and are expected to respond to the allegations against them at a closed board meeting Tuesday, their lawyer said Saturday.
The two executives, Chief Accounting Officer Richard A. Causey and Chief Risk Officer Richard B. Buy, remain under contract to the fallen energy-trading company. But they are interested in departing to prepare for a raft of lawsuits, said the lawyer, J. C. Nickens. In addition, Enron’s new management has essentially eliminated their jobs, he said.
“It’s not their desire to leave the company on some sort of favored basis,” Nickens said. The pair “would like to be covered for their obligations under the contracts.” Nickens declined to elaborate, citing the confidentiality of their contracts.
It was unclear whether the two executives would be entitled to bonuses awarded to several senior executives as Enron collapsed last fall.
Buy and Causey signed off on Enron’s creation of a network of partnerships headed by other Enron officers and approved several transactions with these entities. The deals, according to a report by a special committee of Enron’s board released last week, allowed Enron to conceal debt and investment losses while enriching the Enron officers who had invested in the partnerships.
Nickens said he plans to file a letter refuting the allegations against Buy and Causey at a meeting of Enron’s board Tuesday. The executives declined to testify under oath last week at a House committee hearing on Enron’s demise.
Causey, a former accountant with Enron’s auditor, Andersen, has had responsibility for ensuring that Enron filed accurate financial statements with the Securities and Exchange Commission. Buy’s job has been to analyze and control risks in Enron’s investments and trading operations.
But Enron’s internal report suggested that Causey and Buy failed to perform their responsibilities.
For example, the report said Vincent Kaminski, chief of Enron’s internal research division, warned Buy that a 1999 deal to shield Enron from potential losses associated with its investment in online firm Rhythms NetConnections exposed Enron to serious problems. Under the terms of the deal, Enron would essentially shield itself from Rhythms’ losses by selling contracts to a partnership backed by Enron stock.
The contract provided that the partnership, LJM Cayman, would cover any losses Enron suffered from the Rhythms investment.
Kaminski told investigators he recommended that Buy halt the deal because of the “obvious” conflict of interest associated with negotiating such a deal with LJM Cayman, a partnership headed by Enron’s chief financial officer, Andrew S. Fastow. Kaminski said he also warned Buy that the terms of the deal were too favorable to Fastow’s partnership and that the partnership’s credit was shaky because it was backed by Enron’s own shares.
Buy told investigators he did not recall such conversations with Kaminski, the report said. At some point, he told investigators, his division analyzed the deal and recommended changes in the structure to shore up the partnership’s credit.
It’s not clear whether his changes were implemented. But in April 2000, the report said, Enron unwound the deal in a complicated transaction in which the company received shares worth about $70 million less than a cash-and-options package given LJM Cayman. Causey OKd the deal, the report said. The report also suggests that the transaction did not truly transfer risk from Enron because the LJM Cayman partnership was propped up with Enron’s own shares.
Without disclosing the contents of his letter to the board, Nickens said Buy “basically disagrees” with the contention that such deals “did not have economic substance.” As for Causey, Nickens said he largely acted on the advice of Andersen.
