In a blistering comeback to Enron Corp.’s lawsuit against its former merger partner, Dynegy Inc. attorneys last week filed a 51-page response in U.S. Southern District Bankruptcy Court of New York to answer charges that Dynegy had been responsible for Enron’s downfall.

“Simply put, Enron’s problems have nothing to do with Dynegy’s termination of the merger agreement, which Dynegy had a clear right to do…Enron sealed its fate with startling disclosures. The 10Q stunned the bond energy trading markets…and had a devastating effect on Enron,” said Dynegy attorney Daryl Bristow of Baker Botts LLP of Houston. He said that by the time Dynegy had exercised its right to terminate the merger — three weeks after the agreement had been signed — “Enron was not only on an inevitable path, it was dead.”

He noted that the internal Enron report released Feb. 2 indicates that former chairman and CEO “Ken Lay may not have known the truth. It indicates Jeff Skilling [former CEO] may not have known the truth. The board of directors may not have known the whole truth. If there is anything to that, ladies and gentlemen, how in the world could Dynegy have known the whole truth?”

When Enron filed for bankruptcy in December, it also filed a $10 billion lawsuit against Dynegy, claiming its former rival and three-week-long merger partner had pulled out of the merger agreement, which it claimed precipitated the complete stock fall. Enron also claimed that Dynegy had pulled out of the merger basically to obtain Enron’s Northern Natural Gas Pipeline Co. (NNG). Dynegy took control of NNG two weeks ago, although Enron has the option to repurchase it by June 30, 2002 (see NGI, Feb. 4).

Bristow blasted any attempt by Enron to claim that Dynegy had “somehow, someplace, somewhere” been responsible for Enron’s bankruptcy. He said Dynegy’s response to the lawsuit detailed several instances from Enron’s internal investigation to counter claims made by the bankrupt company.

“The problems that brought Enron down are Enron’s problems, not Dynegy’s problems. They were not caused by Dynegy. Dynegy was not involved,” Bristow said. He repeated the story of how the companies had come to a merger agreement in early November based on information that Dynegy had been given by Enron. “Dynegy relied on those statements…that were to be relied upon,” but he said Dynegy had inserted the “material adverse change” clause into the agreement as part of a standard agreement.

“As the report of the special committee of Enron’s own board confirms, and as we have referred to in our answer … at the core of what occurred, as the business model and business activity as alleged in our answer, [it] is essentially a series of failures of disclosure, half disclosure, disclosures not true,” said Bristow. “The manipulation of financials so impacted the marketplace … that there was a total loss of credibility.”

Bristow said that Enron tried to pull Dynegy “into this circle of finger pointing,” but he said a “critical point” occurred when Enron filed its 10Q statement on Nov. 19. With that filing, which disclosed that Enron had underreported its earnings for four years, Bristow noted that “not one journalist…not one news article…not one television account…no one has ever [since] hinted or suggested that Dynegy had anything to do with the spiral that brought Enron down.”

Steven Rosenfeld of Paul, Weiss, Rifkind, Wharton & Garrison of New York, the firm which filed the response, said that motions also were filed Monday to withdraw Enron’s lawsuit from the New York City Southern District Bankruptcy Court and move it to federal court in Houston.

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