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John Murchison Jr., a litigation partner in Vinson & Elkins, spends most of his time these days helping prepare the Houston firm’s defense in Enron Corp.-related shareholder suits. But he says he still manages to squeeze in fee-paying client work on some days. Either way, Murchison remains assured that the enormity of the Enron debacle, rather than any wrongdoing on the firm’s part, has set up Vinson & Elkins for its predicament. “We wouldn’t be in this case except for two things: Enron went into bankruptcy, and Arthur Andersen lost its viability. The plaintiffs didn’t add us until later. They are looking for somebody to blame,” Murchison says. Murchison is responding to new allegations against Vinson & Elkins included in a plaintiffs’ filing in Mark Newby, et al. v. Enron Corp., et al., submitted June 10 in the U.S. District Court for the Southern District of Texas. The plaintiffs are Enron shareholders. The 87-page filing opposes Vinson & Elkins’ earlier motion to dismiss the claim. The plaintiffs, led by William S. Lerach, a partner in Milberg Weiss Bershad Hynes & Lerach in San Diego, allege in the filing that “… Vinson & Elkins was participating with Enron’s top insiders to repeatedly structure non-arm’s-length contrived deals involving secret no-loss guarantees and cash offset deposits with controlled entities. Vinson & Elkins knew that Enron’s secret control of its counterparties and the secret no-loss guarantees deprived these transactions of economic substance and the involvement of independent third parties which were at economic risk.” Specifically, the plaintiffs allege that Vinson & Elkins lawyers knew about and helped structure the now infamous off-balance-sheet companies at Enron, including Chewco, JEDI, LJM1, LJM2, Mahonia and Yosemite. The off-the-books companies, the plaintiffs allege, were used to bolster the financial figures that the company reported to shareholders in filings with the Securities and Exchange Commission. Murchison’s response to the new filing, while detailed and specific, foreshadows how time-consuming and laborious it will be to defend Vinson & Elkins, which has hired John Villa, a partner in Washington, D.C.’s Williams & Connolly, and Joe Jamail, a partner in Jamail & Kolius in Houston, to represent the firm in the litigation. “It’s all how you say it,” Murchison says. “The problem is not that there are not answers but that there are so many complex and different transactions with so many people involved, and it takes a lot of time and detail to explain it. We vehemently deny, however, that we participated in any type of fraudulent scheme.” Overall, Murchsion contends that the allegations won’t stick against Vinson & Elkins. Murchison notes a U.S. Supreme Court case that gives protection to lawyers in securities litigation, Central Bank of Denver v. First Interstate Bank of Denver. That 1994 case says private plaintiffs cannot bring securities litigation against lawyers and other professionals simply because they allegedly aided or abetted other defendants by working on a deal. In many of the instances where the plaintiffs allege the firm’s partners played a broad role in structuring or strategizing about a transaction or an SEC filing, Murchison contends that the Vinson & Elkins lawyers had only a limited and discrete task. For example, the plaintiffs contend in their filing that Vinson & Elkins lawyers helped prepare an offering statement given to prospective investors in LJM2, one of the off-balance-sheet companies. In its filing, the plaintiffs allege that former chief financial officer Andrew Fastow controlled and operated LJM2 to hide losses. Fastow’s attorney, John W. Keker, a partner in Keker & Van Nest in San Francisco, declines to comment and directs questions to his spokesman, Gordon Andrew, who was not available by press time. In reality, Murchison says, the general counsel for Enron Global Finance, Scott M. Sefton, sent an offering statement draft to Vinson & Elkins partner Robert S. Baird and asked him to review it to determine if it was injurious to Enron. “We wanted to make it clear that Enron was disassociated with LJM2,” Murchison says. He says Baird told him that when he looked at the draft for the offering it was the first time he’d heard of the LJM entities. Baird did not return telephone messages seeking comment by press time. Sefton declines to comment. ERRONEOUS FACTS? In other instances, Murchison contends, plaintiffs have attempted to hold Vinson & Elkins accountable for concerns that were not within the purview of outside counsel. For example, the board created controls to assure that Fastow-controlled, off-the-books companies were kept at arm’s length, Murchison alleges. The plaintiffs contend in the June 10 filing that Vinson & Elkins was responsible for failing to stop any transgressions from that internal corporate policy. But Murchison says, “We were not in a position to evaluate what was arm’s length. We have never been aware of any secret no-loss agreements.” With some of their allegations in the filing, Murchison contends, the plaintiffs have reported erroneous facts to the court. For instance, the plaintiffs contend that Vinson & Elkins lawyers knew that Chicago firm Kirkland & Ellis was not providing independent representation to Chewco and its investors. “In fact, Kirkland & Ellis had been hand-picked by Fastow to play that role, was being paid by Enron and was taking its instructions from Fastow and Enron,” the plaintiffs allege in the filing. Lawrence Urgenson, a partner in Kirkland’s Washington, D.C., office, refers to a previously issued statement by the firm that says it never represented Enron. Kirkland only represented third parties in transactions with Enron, according to the statement. Urgenson did not have a comment by press time about whether Enron paid for Kirkland’s services to the third parties. “Because there was no legitimate independent outside investor in Chewco, the Chewco/JEDI deal was nothing more than a contrivance and device to deceive, a sham deal with no economic substance or risk transfer or involvement of parties independent of Enron,” the plaintiffs allege in the filing. But Murchison denies that claim. “We didn’t select Kirkland & Ellis. I don’t know whether it was Fastow or not. We don’t have any reason to believe that they [Kirkland & Ellis] didn’t play an independent role, and we don’t know who paid their legal fees. It would not be usual, however, for a company, as part of the business transaction, to pay their opposing side’s legal fees. It doesn’t create an attorney-client relationship because the fees are paid by the company,” Murchison says. Generally, Murchison says, “The plaintiff lawyers are treating off-the-balance-sheet transactions as phony. But that’s the way billions of dollars have been handled by corporations across America. I don’t think that there is anything mysterious about that except that the accounting is mysterious to most of us. But there is nothing illegal about it. You can argue that it doesn’t show debt so it isn’t good. But I don’t think there is anything we did that is unethical. Companies are entitled to do whatever the law and the SEC allows.” Helen Hodges, a partner in Milberg Weiss in San Diego, declines to respond to Vinson & Elkins’ characterization of the new filing. “We’re not going to debate the case in the press,” she says. Roger Greenberg, a partner in Schwartz, Junell, Campbell & Oathout in Houston, who serves as local counsel for the plaintiffs, says, “We believe strongly the court will uphold our pleading against V&E.” He declines further comment.

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