X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Douglas McCollam’s article “Vinson & Elkins’ Smoking Gun”reports that a Vinson & Elkins attorney prepared a letter agreement that “brought down the house of Enron. …” and suggests that the letter may be Exhibit A in a malpractice case against Vinson & Elkins. This reflects a misunderstanding of the role of Vinson & Elkins as opposed to Enron [Corp.] and its accountants. First, there was nothing improper about the two-page letter agreement which amended a loan agreement between a special purpose entity called “Chewco Investments L.L.P.” and a limited partnership called JEDI to create a reserve account. The agreement has become important because [Arthur] Andersen [LLP] now cites it as the basis for finding that Chewco was inadequately capitalized in 1997, thus changing Enron’s accounting treatment for transactions involving Chewco. Tom Bauer, the partner at Andersen who was responsible for the accounting issues related to the Chewco transaction, testified on Feb. 7 before the Oversight and Investigations Subcommittee of the House Energy and Commerce Committee. Bauer asserted that “Enron withheld information from me and misled me on the accounting issues related to Chewco.” He said that four years after the Chewco transaction, he was “appalled to discover a document I had never seen before, a two-page side agreement between JEDI and Chewco amending their 1997 loan agreement. … Enron gave me the loan agreement during the 1997 audit, but they did not reveal the existence of the contemporaneous side agreement.” Bauer said “the side agreement materially altered the accounting treatment of Chewco.” Bauer claimed “the side agreement was withheld. Mr. [Ben] Glisan (then an Enron accountant) gave us the document that the side agreement would have been appended to.” Bauer went on to say that it is “fair to say” that it was Glisan who failed to give him the side agreement: “[W]e did ask him for all the documentation.” The report of the investigation by the Special Investigative Committee of the Board of Directors of Enron (“Powers Report”) dealt at length with the letter agreement. The Powers Report stated, “the evidence also indicates that Glisan, who had principal responsibility for Enron’s accounting for the transaction, attended meetings at which details of the reserve accounts and cash collateral [the letter agreement] were discussed.” (Report at 52-53.) The report concluded: “We do not know whether Chewco’s failure to qualify resulted from bad judgment or carelessness on the part of Enron employees or Andersen, or whether it was caused by [Michael] Kopper or other Enron employees putting their own interests ahead of their obligations to Enron.” (Report at 54.) Vinson & Elkins has no knowledge about whether Enron showed the letter agreement to Andersen in 1997 or not. Both the Powers Report and Bauer’s testimony recognize, however, that Vinson & Elkins had no responsibility to provide the document to Andersen. Vinson & Elkins’s records show that the closing documents provided by Vinson & Elkins to Enron included the letter agreement. Vinson & Elkins, of course, had no role in determining the accounting significance of the letter agreement. When the facts are understood, there is no smoking gun and no basis for suggesting malpractice. Harry Reasoner Vinson & Elkins Houston

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.