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If asked, Vinson & Elkins would not have been able to conduct a truly independent investigation into Sherron Watkins’ allegations of accounting irregularities at Enron Corp., because the Houston-based firm had such a close relationship to its largest client, a V&E partner testified for the defense on April 5 at the criminal trial of former Enron executives Kenneth Lay and Jeffrey Skilling. “Because of the relationship between Enron and Vinson & Elkins, Vinson & Elkins would not be considered fully independent for the scope of doing a full-blown independent investigation,” Max Hendrick testified in U.S. District Judge Sim Lake’s courtroom in Houston. Hendrick said it wasn’t simply the millions of dollars in fees V&E earned from Enron each year — it was the number of continuing engagements and its participation in Enron work that would have made it impossible for the firm to do a totally independent investigation for Enron into allegations then-Enron Vice President Watkins brought to Chairman Lay in August 2001. Hendrick, a trial partner in Houston, testified that then-Enron General Counsel James Derrick did not hire the firm for a full-blown investigation into Watkins’ investigations. “We were hired to conduct a preliminary investigation into facts and allegations in the Watkins materials.” In a memo Watkins sent to Lay in August 2001, Watkins suggested the company would “implode in a wave of accounting scandals.” Hendrick says he and partner Joe Dilg, who worked on the probe with him, conducted a serious and professional preliminary investigation. He agreed with an attorney for Lay that neither he nor Dilg were prepared to jeopardize their careers to do a “whitewash” for Enron. Hendrick’s assessment of the scope of V&E’s performance is in stark contrast to what Watkins told the jury in March, when she testified as a prosecution witness. Watkins characterized the investigation V&E completed in October 2001 as “bogus,” and she suggested that V&E may have breached a duty to Enron, once a high-flying energy company in Houston, by failing to fully investigate the complaints she brought to Lay. Hendrick’s description of a meeting held on Oct. 16, 2001, where he and Dilg briefed Watkins on results of the investigation, also differs from Watkins’ testimony about the meeting. Watkins testified that Dilg, currently managing partner of the 720-lawyer firm, became quite emotional during the meeting, his voice cracked, and she thought he was close to tears. She also testified that she became agitated during the meeting. [See "Watkins Testified V&E's Enron Investigation Was �Bogus,' " Texas Lawyer, March 20, 2006, page 1.] But under questioning by Bruce Collins, a partner in Carrington, Coleman, Sloman & Blumenthal in Dallas who represents Lay, Hendrick testified he didn’t recall anything unusual about Dilg during the meeting. “Was his voice cracking?” Collins asked Hendrick. “No, I didn’t notice anything out of the ordinary in Mr. Dilg’s demeanor,” Hendrick testified. “Was Ms. Watkins up, running around the room, waving her arms?” Collins asked Hendrick. “I don’t recall her acting anxious or running around the room. She did express on a couple occasions that she felt Enron was a risky place to work, and she felt like she ought to accelerate her job search,” Hendrick testified. Hendrick and Dilg talked to Watkins about an Oct. 16, 2001, written report titled, “Preliminary Investigation of Allegations of an Anonymous Employee.” While Hendrick defended the investigation, Enron Task Force prosecutor John Hueston spent hours during cross-examination attempting to show jurors that V&E did only a perfunctory probe into Watkins’ allegations. Hendrick testified on cross that he and Dilg interviewed a total of 11 individuals, including Watkins, during their investigation. But under questioning by Hueston, an assistant U.S. attorney, Hendrick conceded that, at the time, they failed to interview numerous former and current Enron employees who might have had valuable information about questions raised by Watkins, including Skilling, who had then just left his chief executive officer job at Enron, and Ben Glisan, then Enron’s treasurer. Hendrick testified that he and Dilg met with Derrick to lay out the scope of the investigation, and they were asked to do a preliminary investigation into the “core issues” Watkins raised in her complaints to Lay. The firm was not asked to hire outside accountants to review work done by Enron’s accounting firm Arthur Andersen, he testified, or to review each transaction. “We certainly were not asked to go in and review the transactions on a transaction-by-transaction basis,” Hendrick said. Dilg has declined to comment on Watkins’ testimony. Hendrick took the witness stand at 8:30 a.m. on April 5, and he finished his testimony mid-afternoon that same day. As of presstime on April 5, Derrick, Enron’s GC from 1991 through March 2002, had just started his testimony, with Skilling scheduled to be the next defense witness. Hendrick testified that he and Derrick have been in frequent contact, and that the two are considering opening an office in Houston for a law firm. Hendrick did not identify the firm. Derrick’s wife, Bracewell & Giuliani partner Carrin Patman, also declines to identify the firm. Health concerns While the criminal trial marches along in its 10th week, Lay’s lead defense attorney, Houston solo Michael Ramsey, is preparing for surgery in a Houston hospital and is expected to miss weeks of the trial. Last month, Ramsey had a stent inserted in an artery. But additional medical tests revealed a blockage in his carotid artery. Ramsey was scheduled to have carotid artery surgery on April 5, but it has been delayed pending the results of more medical tests. According to an April 5 statement from Kelly Kimberly, a spokeswoman for Lay, Ramsey’s surgery has not been rescheduled. Prosecutors allege Skilling and Lay participated in a conspiracy to misrepresent the true financial condition of Enron, but the defendants have blamed Enron’s problems on criminal acts by former Enron Chief Financial Officer Andrew Fastow, who pleaded guilty to two criminal charges and agreed to a 10-year prison sentence. Skilling and Lay have pleaded not guilty. Skilling faces 28 criminal charges and Lay faces six charges in the trial in United States v. Jeffrey K. Skilling, et al.

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