In what seems like the never ending tale of woe, there was at least a little good news for Enron Corp. after the U.S. Bankruptcy Court in New York approved a deal late Friday for UBS Warburg to pick up its quickly fading wholesale energy trading unit. Tuesday, the bad news returned. An attorney claimed to have a box of Enron documents shredded by employees, several states began work on a class action lawsuit, and by the end of the day, federal guards were posted in the downtown Houston headquarters to prevent any more documents from being “lost.”

William Lerach, an attorney representing 29 shareholders who are suing current and former Enron executives and directors, was surrounded by a throng of media and bystanders as he carried a box of shredded paper into a Houston federal court Tuesday. Lerach said the box contained “shredded evidence” from Enron, and asked District Judge Melinda Harmon to ban any more shredding by Enron or its former auditor Arthur Andersen.

Harmon said she will rule on the motion at 3 p.m. CST Wednesday. She also encouraged the parties involved in the lawsuits against Enron to work out a plan to halt any more document destruction, either by Enron or Andersen. Meanwhile, FBI agents were sent to Enron headquarters early Tuesday and posted on the 19th and 20th floors of the 50-story building, where accounting activity takes place, to investigate more document shredding charges.

Enron spokesman Mark Palmer said the guards were sent to the company at the request of attorneys for Enron.

“We proactively offered our full cooperation in any investigation the Department of Justice might wish to conduct,” Palmer said.

The shredded material in question was given to Lerach and his partner Paul Howes, both of the law firm Milberg, Weiss of San Diego, CA by Maureen Raymond Castaneda, formerly Enron’s director of foreign exchange and sovereign risk. She told attorney Howes in a court brief on Monday that she saw accounting and finance department employees shredding thousands of Enron documents as late two weeks ago, when she left the company. She claims the “gather-review-shred” process began Oct. 31, 2001, when the Securities and Exchange Commission launched a formal investigation into Enron, and was still going on at least through Jan. 14, her final day.

However, in a statement released Monday, Enron reiterated that it had put in place a strict policy late last year regarding the shredding of pertinent documents.

“Since Oct. 25, Enron has notified employees in no uncertain terms that they are to preserve all documents and materials,” said Enron. “The company sent out four e-mails to that effect from Oct. 25, 2001 through Jan. 14, 2002… Enron’s communications with its employees were very clear on the destruction of documents, and any breach of the company’s policy will be dealt with swiftly and severely.”

Castaneda agreed that Enron had sent out at least two e-mails on the shredding policy in a story first reported by ABC News on Monday night. Ironically, Castaneda took some boxes of the shredded documents home and planned to use them as packing material as she prepared to move to a more affordable house, after her layoff. She gave Lerach and Howes the documents, which Howes said were “clearly marked” as being related to the notorious off-balance sheet transactions.

“It’s an absolute smoking gun,” Howes said to a roomful of media.

Also Tuesday, several states indicated they will join together in a class-action lawsuit in an attempt to recoup some of the $1 billion-plus lost in their states through lost retirement funds invested in Enron of their teachers, firefighters and other public employees. Some states already have begun taking action against Andersen, and Florida has already filed subpoenas against Andersen for a potential civil lawsuit.

“We owe it to these public servants to get back as much of their money as we possibly can,” said Betty Montgomery, Ohio’s attorney general. Attorneys general in Georgia, Ohio and Washington state have asked the U.S. District Court in Houston to make them the lead plaintiffs in existing investors’ securities fraud litigation.

Money lost in retirement funds that were tied to Enron stock varies widely, however, Florida lost about $300 million; Georgia lost about $127 million; Washington lost $103 million; and Arizona lost about $35 million. Rhode Island only lost about $4.7 million, selling all of its Enron stock in early August.

UBS Warburg, however, thinks it has won and not lost after a deal to acquire Enron’s wholesale marketing and trading unit was approved late Friday by a bankruptcy court in New York. UBS will pick up the once exalted unit for basically nothing down. It in turn will give Enron one-third of the profits in a structured transaction over a 10-year period (see Daily GPI, Jan. 14).

“This is a unique opportunity for UBS Warburg as this technology-based trading business leverages the firm’s worldwide strengths of trading, market making and risk management,” said UBS Warburg CEO John P. Costas. “We look forward to re-establishing the business and to providing clients with superior service.”

The UBS deal still requires approval under Hart-Scott-Rodino and by the Federal Energy Regulatory Commission. Also, the approval may be challenged in court by creditors, who have up to 10 days to dispute Judge Arthur Gonzalez’s ruling.

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