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They used to love to go to work. It was challenging, innovative — and the people they worked with were talented. Those days seem long ago. Today, like virtually everyone at Enron Corp., the in-house lawyers at the bankrupt company are struggling. They are confused about the legal department’s management, upset by decisions they attribute to General Counsel James Derrick and devastated by the condition of the company many revered. For the past three months, it hasn’t even been clear who is in charge. In recent weeks, Derrick, who had always been a hands-off manager, receded further into the background, according to several Enron lawyers who work under him. Many believed he was virtually out the door. “No one can understand how anyone on the 50th floor in a position of authority still has their job — including Jim Derrick,” declares one lawyer who, like almost all of those interviewed, asked that his name not be used. Derrick “doesn’t even know the names of most of his lawyers,” this source says. During the past few months he’s been missing in action, cloistered in the executive offices on the 50th floor, the lawyer says. As far as he can tell, Derrick never even made an appearance on the floors below, where his lawyers work, to “rally the troops.” Increasingly, they turned for leadership to Mark Haedicke. As managing director and general counsel of Enron Wholesale Services, Haedicke was in charge of one of the company’s largest and most important divisions. His role had been expanding even before the crisis. Many saw him as the heir apparent. Some lawyers thought his ascension to the top was a done deal in December. “There was talk that his secretary was packing her bags to move to 50,” says one. “You hear something once, you’re not sure. You hear it enough, you know it’s true.” He even heard it from Houston law firms, he adds. And then the done deal wasn’t. The word at Enron is that in late December or early January, Derrick was asked by the board to stay. Some believe it’s because the board wants a general counsel who was just as involved in any questionable decisions as it was. Though Haedicke lost the job that many colleagues believe he desired, he and about 15 of his lawyers have been hired by UBS Warburg, which in January successfully bid for Enron’s trading business. They are expected to start in a matter of weeks. Haedicke declined requests for an interview. Some colleagues suggest he’s lucky that he didn’t land the GC job. “Anybody that’s getting away from Enron is moving to a better position,” says one. A half-dozen in-house attorneys, including some who criticize Derrick, praise his honesty, intelligence and affability. “I think he is a very honorable person,” says Mark Evans, general counsel of Enron Europe, based in London. “He’s a really smart guy, and I don’t think he would ever do something dishonest,” offers another lawyer, who is one of his harshest critics. SUPPORTIVE, ACCESSIBLE Though he isn’t in close touch with his lawyers, who numbered more than 200 last year, he is not inaccessible. “If I ever had any issues or questions, I would not have hesitated to send him an e-mail or give him a call,” says one lawyer. He was good at responding and “very supportive,” she adds. The single issue that drew the most criticism was Derrick’s hiring of Houston’s Vinson & Elkins to investigate the now-famous letter Enron vice president Sherron Watkins sent CEO Kenneth Lay last August. After detailing concerns about several off-balance sheet partnerships, Watkins argued that executives “must have the transactions reviewed by objective experts in the fields of securities law and accounting.” She also suggested that Derrick hire a law firm to investigate the transactions, and that the lawyers hire independent accountants. “Can’t use V&E due to conflict — they provided some true sale opinions on some of the deals,” Watkins wrote. What she didn’t say, but everyone at Enron knew, is that Vinson & Elkins was the firm that the company used most often, and the firm where Derrick had worked for 20 years before taking over as Enron’s general counsel in 1991. Yet Derrick hired Vinson & Elkins anyway. “Clearly, if you were going to do an in-depth investigation into those structures,” says Evans from London, “and you wanted that to be particularly rigorous, you would not use the firm involved in structuring them.” CRITICS WITHIN Other Enron lawyers are less circumspect. “It was absolutely against any common sense,” says another who works abroad. “I don’t have to be a lawyer to determine that.” Says a third attorney in Houston: “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.” Did any Enron lawyers complain to Derrick at the time? One in-house lawyer who knew about Watkins’ letter guessed that no more than 25 people were aware of its existence. A few were surprised by Derrick’s decision, he says, but he knew of no one who complained. Derrick refused to comment for this story. His attorney, Clifford Gunter, a partner at Houston’s Bracewell & Patterson, states: “No in-house lawyer ever warned Jim about using V&E for that preliminary review.” Watkins, of course, didn’t count because she wasn’t a lawyer. One in-house lawyer who apparently did not complain had already fired a pre-emptive strike at the partnerships months earlier, when he secretly hired an independent law firm to investigate. Jordan Mintz, now general counsel of corporate development, first raised issues in connection with the related-party transactions last winter and tried to address them through normal company channels, according to a person with knowledge of the circumstances. Then last spring, without consulting Derrick and without his knowledge, Mintz hired New York’s Fried, Frank, Harris, Shriver & Jacobson, partly because they had not previously done work for Enron, the source says. The law firm recommended that Enron discontinue partnerships like the ones Mintz’s boss, Chief Financial Officer Andrew Fastow, had devised and in which he held a financial interest, according to an article posted last month by the online magazine Salon. DID OUTSIDE HIRING Ironically, several Enron lawyers say that one of the few ways Derrick was a hands-on manager was when it came to hiring outside counsel. One of “Jim’s rules,” several lawyers say, is that he has to be involved in selections. Asked to comment on Mintz’s actions, Derrick’s lawyer says that Derrick wasn’t angry when Mintz later told him what he had done, adding: “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.’” Speaking of the advice Fried Frank offered, Gunter adds: “Jim has never seen the Fried Frank materials. 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.” Last week the House of Representatives Energy and Commerce Committee sent a letter to Derrick requesting a copy of the Fried Frank report and all memoranda or e-mails Mintz wrote in response. One matter that has roiled the legal department involves Kristina Mordaunt. An in-house lawyer who once worked directly for Fastow, Mordaunt is reported to have invested in one of the controversial partnerships Fastow created and to have kept that fact from her superiors until October, when she told Derrick, according to an Enron lawyer. Derrick responded, his lawyer says, by thanking her for the information and asking her to report it to the lawyers who worked for the special committee the board had established to investigate the partnerships (the committee’s report is expected to be completed by this week). Mordaunt was fired two weeks later, on Nov. 7, Derrick’s lawyer Gunter says. Some Enron lawyers say they find the delay inexplicable. In January, Salon reported that Mordaunt invested $6,000 and received in return more than $1 million — numbers the magazine says it could not document. Mordaunt’s lawyer, Hayden Burns of Houston’s Burns, Wooley, Marseglia & Zabel, says his client is “cooperating with the investigations” and will have no further comment. Derrick’s lawyer refused to answer additional questions about Mordaunt and other subjects. The majority of the in-house lawyers interviewed said that until recent events, working at Enron had been an exhilarating experience. “My first several years at Enron were some of the best work experience I’ve had in my legal career,” says one. “There was a real esprit de corps,” says another. “You just walked into the lobby and you felt electrified.” All that has changed. Enron officials did not answer questions about the number of lawyers who remain, but the situation seems to vary among the business units. In England, Evans says Enron Europe employed 30 lawyers until November. Now there are five who are selling assets to maximize cash for the creditors. One lawyer in Houston says he knows about 10 lawyers who were laid off when the company filed for bankruptcy in early December, but most were hired back to handle work related to the congressional committees investigating the company’s demise. Others are working on the bankruptcy, and still others are serving the normal demands of the energy businesses that remain in operation. Many sound disillusioned. But they also defend the quality of the legal work, which they maintain has been unfairly tainted. Asked if they’re worried about subpoenas, they say they’re not. “It’s a possibility,” responds one. “But it’s not something that causes me to lose sleep. I’ll tell the truth. I wasn’t involved in any of this stuff.” He pauses before adding: “I think there are other lawyers here who do worry.” Most of all, they struggle to understand what happened. “It’s easy to say it’s the evil empire,” says one. “Or they’re a bunch of crooks. I think money was part of it. But I just don’t think it was that simple.” She herself is still groping for answers. “And I was right here. How can everyone from the outside think they see it so clearly?”

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