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Who would want James V. Derrick Jr.’s job now? The embattled general counsel at bankrupt Enron Corp. faces inquiries from congressional investigators, plaintiffs’ lawyers and federal prosecutors. A mob of reporters hangs outside the door of the bankrupt company’s headquarters in downtown Houston waiting for the day’s dose of bad news. Despite the troubles, Mark Haedicke, managing director and general counsel of Enron subsidiary Enron North America Corp., allegedly encouraged rumors in January that he would replace Derrick, according to five Enron in-house lawyers and three outside lawyers. “I heard that Jim was going,” says Stephen Susman, founding partner of Houston’s Susman Godfrey. Not so, it turns out. Although he’s still the head lawyer, questions remain regarding whether Derrick knew how business executives at his company allegedly cooked the books to boost its stock price. When suspicions arose from Enron executive Sherron Watkins, Derrick hired Vinson & Elkins, his former law firm, to examine the allegations, even though the firm previously had worked on matters related to the deals that triggered the alleged accounting errors. Derrick and Vinson & Elkins declined to comment for this story. By all accounts, Derrick is a bright and successful lawyer. A native of Graham, Texas, he earned his undergraduate degree in 1967 from the University of Texas. While a student at the UT School of Law, Derrick distinguished himself as an associate law review editor. After he graduated in 1970, he clerked for U.S. Circuit Court of Appeals Judge Homer Thornberry, and in 1971, he took a job at Vinson & Elkins in Houston. Derrick became partner in 1977 and stayed at the firm until he joined Enron in 1991, replacing Gary Orloff, Enron’s GC of 17 years who subsequently joined Bracewell & Patterson as a partner. At the time of his appointment, Derrick told Texas Lawyer that the job was “a chance to see the practice of law from a different perspective. I’ll be participating with the management group; it’s a rather unique opportunity.” For most of his 11 years as Enron general counsel, Derrick’s job had challenges but also perks. Publicity shy and averse to attention, according to his wife, the 57-year-old Derrick nevertheless served as a trustee of the Law School Foundation at the University of Texas and as president of the executive committee of the law school’s alumni association. In 2001, the Anti-Defamation League’s Southwest Regional Office honored Derrick and his wife, Carrin F. Patman, with its 2001 Karen H. Susman Jurisprudence Award, which recognizes legal professionals devoted to constitutional principles and committed to the fundamental values that characterize the United States. Financially, Derrick’s job offered enviable rewards. Although his compensation isn’t reported in Enron’s proxy statement — he’s not one of the five highest-paid executives — he did sell more than $12.5 million in Enron stock that he received as part of his compensation package, according to information reported to the SEC. Acutely aware of the allegations that plaintiffs’ lawyers have hurled about Enron executives — chairman Ken Lay in particular — about dumping stock before the bankruptcy, Derrick’s wife stresses that her husband only sold shares when it was a financial imperative. “Jim never exercised a stock option that wasn’t about to expire. He sold the minimum number of options he could,” says Patman, a partner in Houston’s Bracewell & Patterson. “Plaintiff lawyers are acting as if [he] unloaded the stock. He believed in the company, and he invested in the company.” In his most recent options transaction in June, he exercised only 10 percent of his then-vested and profitable options, she says. The options are worthless now. “I’m not complaining,” Patman says. “It just debunks totally the notion that he was selling off stock.” It was through Enron that Derrick met Patman, the granddaughter of the late Democratic U.S. Rep. Wright Patman of Texarkana. As an associate with Bracewell, she worked on Enron matters. They married in 1997. She says she is a staunch Democrat, and her husband is a Republican who — like some other Enron executives — has contributed to his party’s candidates. But unlike Lay, Derrick didn’t have a reputation for cultivating contacts. “He is not a social climber, not a political hotshot,” says Susman, the Houston trial lawyer. He’s “just a regular kind of general counsel,” Susman says. With 19 assistant general counsel reporting to him at one time and a legal department that used to have 245 lawyers, Derrick’s role has kept him busy, particularly when Enron was still making deals instead of warding off plaintiffs’ lawyers. “If we went out to dinner even for an hour,” recalls Patman, “he would receive 12 or 15 voice mails just in that time. Always lawyers were seeking his approval. It was exciting to watch the company grow. He was running all the time.” But four current in-house lawyers say he was not always running the show. They allege Derrick took a back seat to aggressive and powerful former Chief Executive Officer Jeff Skilling and to now-fired Chief Financial Officer Andrew Fastow. Attorneys who were supposed to report to Derrick or his subordinates instead took marching orders from Fastow or people in his group, say two in-housers who request anonymity. “Derrick had a lot of authority. But, no question, the business people had a lot of control,” says one. “He didn’t seem very hands-on,” says one in-house lawyer. “He was known as the Wizard of Oz because [he was] heard but not seen.” This in-house lawyer, who started at Enron in the late 1990s, says she met Derrick only once after her initial job interview. Enron’s outside lawyers, partners in some of the most prestigious firms in Houston, share a different impression. “He knew about cases. He had a lot of delegation, but he was always knowledgeable. I never had any impression that Jim was not fully in charge of the legal department. He is one of the most competent general counsel I know,” says Susman. “He was not asleep at the wheel,” says another partner in an outside firm who does not want to be identified. Susman and other outside counsel contend that Enron’s legal territories were too expansive for Derrick to be expected to be everywhere, all the time. “The role of any general counsel in any large organization is to manage the legal department and surround himself with qualified people. Jim is not a securities lawyer and never has been. His background at V&E was as a business lawyer,” says J. Clifford Gunter III, a partner in Bracewell. With help from Patman, Gunter is defending the Enron GC in the shareholder suits that have been brought against him and other current and former Enron executives and directors and Enron’s former accounting firm, Arthur Andersen. For some legal experts, however, that rationale falls short. Geoffrey Hazard, a professor at the University of Pennsylvania Law School who specializes in legal ethics, says the “I’m-not-a-securities-expert defense” raises more questions than answers. “Well, did you have access to an expert? And if not, didn’t you realize you should have?” Hazard asks. NO COMPLAINTS? As the Enron scandal unfolds, the fundamental question for Derrick is this: What did he know about the partnerships created by Fastow involving transactions that ultimately led to a $1.2 billion plunge in shareholder equity, and when did he know it? In June 1999, the Enron general counsel could have learned some details about Fastow’s partnerships. That month, according to documents produced by the company’s lawyers at Vinson & Elkins, Enron’s board approved a waiver of the Enron code of ethics to permit Fastow to act as general partner in one of the partnerships that has raised so many questions. In October that year, the board’s finance committee reviewed another Fastow partnership transaction and approved it, waiving the company’s code of ethics for the former Enron CFO a second time, the Vinson & Elkins documents show. As part of his general counsel duties, Derrick attends meetings of the board and its committees, one Enron lawyer says. That same lawyer believes Derrick probably attended those two gatherings in 1999, but adds, “He would not have advised the board to approve or not. All he would have done is gone over the information.” In the spring of 2001, Jordan Mintz, now general counsel of corporate development, took steps — initially without Derrick’s knowledge — to investigate transactions at Enron, one Enron lawyer says. Without consulting Derrick, even though the Enron general counsel required his lawyers to notify him when they hired outside counsel, Mintz hired New York’s Fried Frank Harris Shriver & Jacobson to prepare a report that has not been made public. Michael Rauch, one of the managing partners of Fried Frank, declines to comment. Gunter says Derrick wasn’t angry when Mintz later told him what he had done. “Jordan never asked permission. But had he done so, Jim would have said, ‘Of course. We’d be glad to have Fried Frank opine on that,’ ” Gunter says. Derrick hasn’t read the Fried Frank report, according to his lawyer, but a U.S. House of Representatives subcommittee in late January requested a copy of it. “Jim has never seen the Fried Frank materials,” Gunter says. “All of this came to light after all of the litigation started. I have, of course, seen them, but Jim hasn’t, and there’s not any need to educate him on that.” But Derrick has read the report he asked Vinson & Elkins to produce this past fall, a document that’s been bandied about in the press since January, drawing criticism of Derrick and the Houston law firm. In August, Enron executive-turned-whistleblower Watkins met with Lay, the chairman, after she sent him a detailed letter describing the “elaborate accounting hoax” at the company, according to Watkins’ memo, which is posted on a House committee Web site. Watkins asked Lay to hire an outside firm to review the matters, but she specifically warned him off Vinson & Elkins, the memo states. The reason? Lawyers at the firm had issued true-sale opinions on some of the sales of assets made from Enron to Fastow-controlled partnerships. Despite Watkins’ objections, Derrick hired his old firm. Several Enron in-house lawyers now say they questioned the decision to hire Vinson & Elkins, at least among themselves. One, who does not want to be identified, says she went to her boss. She says he agreed with her concerns, but she does not know if he followed through and went to Derrick. Another in-house Enron lawyer who knew about Watkins’ letter at the time guessed that no more than 25 people were aware of its existence. A few were surprised by Derrick’s decision to hire Vinson & Elkins, he says, but he knows of no one who complained. Derrick’s attorney, Gunter, insists, “No in-house lawyer ever warned Jim about using V&E for that preliminary review.” The report Vinson & Elkins produced Oct. 15 states that accounting firm Arthur Andersen approved of the practices mentioned in Watkins’ memo and draws the conclusion Enron did not have to investigate further. But days later the Securities and Exchange Commission opened an inquiry into the partnerships. Derrick’s lawyer suggests the general counsel didn’t raise questions about the Vinson & Elkins report because that was outside the realm of his responsibilities. “It’s not his purview to question it or second-guess it. He took and turned it over to the office of the chairman,” says Gunter. Derrick’s friends and close associates suggest the controversy raised by the general counsel’s decision to hire Vinson & Elkins is overblown. “That whole Sherron Watkins thing was much ado about nothing. Enron had a long relationship with V&E. Who else are you going to get to do this quickly?” asks Susman. But other lawyers, even those who work for Derrick, question the general counsel’s decision. “Clearly, if you were going to do an in-depth investigation into those structures, then if you wanted that to be particularly rigorous you would not use the firm involved in structuring them,” says Mark Evans, GC of Enron Europe. Others are bolder. “It was absolutely against any common sense,” says another Enron lawyer who works abroad. “I don’t have to be a lawyer to determine that.” Alleges a third: “You have to realize that Derrick was asleep at the wheel. He can’t have a memo coming out criticizing these structures. So he hires his old firm.” In the next few weeks, with the House committee seeking to question Mintz about the Fried Frank report, and the committee of outside directors, led by Wilmer, Cutler & Pickering lawyers, expected to issue its report, Derrick may face more second-guessing of his decisions.

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