The bankruptcy judge overseeing Enron Corp.’s case may decide today whether to move the venue to Houston. Judge Arthur Gonzalez deferred the decision last week on whether to move the case in a lawsuit filed by former merger partner and rival Dynegy Inc., which is involved in several lawsuits with Enron (see related story). Meanwhile, despite claims to the contrary, internal Enron documents seem to indicate that former CEO Jeffrey Skilling may have known more about the dubious off-balance sheet transactions, which precipitated the energy trader’s collapse last year.

Skilling has claimed in recent interviews that he was unaware of the details of off-balance sheet transactions that pushed the company toward bankruptcy in December, but The Wall Street Journal reported Wednesday that internal company documents indicate management and the board of directors considered the dubious deals “integral” to Enron’s growth. In recent days, Skilling has denied intimate knowledge of the transactions, while former CFO Andrew Fastow, who set them up, has indicated through attorneys that he did so with Enron management’s full knowledge.

Meanwhile in New York City, Dynegy dropped a request on Friday to depose current CFO Jeffrey McMahon to testify about why Enron filed for Chapter 11 in New York instead of in Houston, where it is headquartered. Dynegy, which had intended to merge with Enron before pulling out in late November, wanted McMahon to give a deposition on why Enron chose New York. However, Dynegy still wants the bankruptcy case moved to Houston; Enron is opposed.

Enron had not wanted McMahon or any of its executives deposed, telling the court last week it was “unnecessary, unduly burdensome and disruptive.” In a motion, Enron said of the request for the deposition that “officers are often misused as a tool of harassment and [depositions] should not be allowed unless there is no other source for the same information.” Instead, Enron argues that general counsel Mark Haedicke, one of four people Dynegy had requested to supply depositions, could testify instead.

In documents obtained by the Journal, the newspaper reports that they “reinforce the notion that top Enron officials, including Chairman Kenneth Lay and former President Jeffrey Skilling, were directly involved in the creation and oversight of the partnerships, which were run by former Chief Financial Officer Andrew Fastow.” Skilling was promoted to CEO in January 2001 and then abruptly resigned six months later, citing personal reasons. Fastow was ousted in late October 2001 following the release of third quarter earnings and subsequent reports about the off-balance sheet transactions. Lay remains chairman and CEO of the bankrupt company.

The Journal’s documentation includes an internal memorandum between an Enron attorney and Skilling regarding procedures to monitor the transaction partnerships. Also cited are documents from meetings of Enron’s board and the board’s finance committee. According to the Journal, the Enron documents indicate that in mid-1999, the company began using the partnerships to “confront changing business conditions.” Lay has already said that Enron’s partnerships were used to help the company, and has said the transactions were reviewed by the board and management to prevent conflicts of interest.

Both Congress and the Securities and Exchange Commission (SEC) are investigating the partnerships, and more than 60 lawsuits have been filed by shareholders against the board and management. Some of the lawsuits allege the company was negligent in allowing the partnerships.

The Journal cited a June 1999 board meeting which indicates Skilling said that “because of changing accounting rules affecting off-balance sheet transactions, Enron had been analyzing new types of financing vehicles…Lay and Skilling were identified as being designated by Enron’s board to help ensure that the company received fair consideration in one of the early partnership deals.” The draft version of minutes from a October 2000 meeting of the Enron board’s finance committee cites then-CFO Fastow as talking about “the need for outside private partnerships to help manage the company’s finances so that Enron could “continue to grow.” Enron planned to continue making “significant capital investments…some of which would not generate cash flow or earnings for a number of years,” the Journal said.

In 1999, one group of off-balance sheet deals, the LJM partnerships, was started and managed by Fastow. The Journal cited Enron documents that “show that an early transaction involved the hedging of the value of an Enron investment in Rhythms NetConnections Inc., a data-communications company. According to one document, Mr. Fastow discussed how Enron could protect the value of that holding through a complicated swap arrangement that also involved Enron stock and a $50 million LJM payment.”

In its November 2001 filing with the SEC, in which it restated its earnings for the past four years, Enron said that it had incorrectly accounted for the Rhythms/LJM transaction, and had retroactively reduced its reported net income for 1999 and 2000 by about $100 million, or 5%.

The Journal found internal documents showing that Enron’s board and “top management were aware of the possible conflicts of interests in having Enron’s chief financial officer running partnerships that eventually did hundreds of millions of dollars of business with the company.” In a June 1999 presentation to Enron’s board, the Journal cited the “huge profit potential in Mr. Fastow’s partnership compensation formula, under which he stood to reap as much as half of partnership profits in addition to management fees.” Enron has already revealed that Fastow recouped more than $30 million from the outside partnership management activities.

However, to avoid potential conflicts of interests by the former CFO, Enron’s board set up a review process for the outside partnership transactions. The review included “approval by Skilling and two other senior Enron officials,” said the Journal.

Meanwhile, Enron Corp. affiliates have continued to file for Chapter 11 bankruptcy protection. Telecommunications products trader Enron Broadband Services LP filed for bankruptcy protection in U.S. Bankruptcy Court in Manhattan listing assets of $64.5 million and debt of $63.7 million, not including off-balance sheet and contingent obligations. Affiliate Enron Freight Markets Corp. also filed, listing $6.3 million in assets and $4.7 million in debts.

Bankruptcy petitions have also been filed by Energy Information Solutions, EESO Merchant Investments and Enron Federal Solutions, all of which are 100%-owned by bankrupt unit Enron Energy Services Operations.

Enron and its lender banks announced they have agreed to postpone until Jan. 30 the deadline to complete paperwork for a $1.5 billion loan, according to Enron attorney Martin Bienenstock of Weil Gotschal and Manges. The agreement was approved in late December by the New York bankruptcy court handling the case. It gives Enron lenders J.P. Morgan Chase & Co. and Citicorp more time to complete paperwork on financing for the debtor-in-possession, or DIP. The original deadline had been Jan. 7, the day Enron will hold an auction for its trading unit.

J.P. Morgan and Citicorp arranged the loan in early December after Enron filed for bankruptcy. Responding to rumors that the banks were having difficulty in finding syndication partners to finance a loan for Enron, Bienenstock said Enron agreed to the delay because it has enough money to fund its business for the time being and the loan was not essential.

In a yearend press conference originally set up to update the public about international affairs, President Bush responded to questions, saying he had not had any contact with Enron Corp. officials since the bankruptcy filing, but said he was concerned about the city of Houston and the ex-Enron employees who had lost their “life savings” when the company declared bankruptcy.

Bush noted that there were going to be a “lot of investigations” into what happened both in terms of what happened to the company as well as what can be done to prevent anything like it happening again.

“I’m very concerned about Houston and what happened to the employees who saw their life savings dissipate,” said Bush in answering a few questions about the debacle. However, he did not have any opinion on what he expected would be the outcome of the investigations.

Bush and Enron Chairman and CEO Kenneth Lay are long-time friends, and Lay had once been touted as a possible Energy Secretary candidate. Lay also was one of Bush’s largest personal campaign contributors, and Enron was one of the Republican Party’s leading contributors as well.

In other news, Enron was given permission in late December by Judge Arthur J. Gonzalez of the U.S. Bankruptcy Court in Manhattan to complete two previously planned asset sales that will raise a total of about $309 million. Enron planned to sell two wind-power facilities in Texas for about $175 million to American Electric Power Co. (AEP). Affiliate Enron Wind Development Corp., which isn’t part of the bankruptcy case, owns the power generating facilities.

In a separate sale, a partnership run by AltaGas Services Inc. and TransCanada Pipelines Ltd.’s TransCanada Energy unit will pay about $134 million for Enron Canada Power Corp.’s right to electricity from a plant in Alberta. Neither of the planned assets are included in Enron’s bankruptcy proceedings.

Gonzalez approved Enron’s request to proceed with the transactions, noting that closing costs and fees will slightly reduce the overall proceeds from the sales. Said Gonzalez in a seven-page order, “Enron has demonstrated good, sufficient, and sound business purpose and justification for the sale of the assets.”

Enron also indicated in court papers that other asset sales continue to be negotiated, including the sale of Enron LNG Power Atlantic Ltd. to an undisclosed buyer for $266 million, and Enron Oil & Gas India Ltd. to BG plc of the United Kingdom for $388 million.

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