Another year, and still the revelatory stories about Enron Corp.’s apparent misdeeds continue. Federal investigators combing through the convoluted stack of special purpose entities (SPEs) now are examining whether the company misled investors not only about its energy trades, but also covered up the actual value of its “real” assets — natural gas pipelines and power plants.

While the federal and state investigations appear ever growing and never ending, at least two related Enron issues were resolved last week. In an out-of-court settlement Thursday, a group of 11 insurers agreed to pay JP Morgan Chase & Co. nearly $654 million of the $1.1 billion the banker lost through natural gas trades that were defaulted on by Enron. Meanwhile,a U.S. Senate committee reportedly has found that former Treasury Secretary Robert Rubin, who also chairs Citigroup’s executive committee, and other bankers did not break the law when they contacted government officials regarding Enron and its credit rating in November 2001. Enron declared bankruptcy a month later.

On the Senate Committee on Governmental Affairs web site Friday, the committee indicated that “no improper influence was brought to bear by government officials” on Moody’s Investors Service] and the bankers who contacted government officials regarding Enron and its credit rating. Last August, a shareholder lawsuit accused Rubin, Citibank CEO Sanford Weill and other directors of the company of mismanagement regarding $1.2 billion in loans to Enron. “This bipartisan report concludes there was nothing improper about the call and should put this matter to rest,'” said Leah Johnson, a spokesperson for Citigroup.

Ongoing is a federal investigation into the real value of Enron’s gas pipelines and power plants, according to a story first reported in The New York Times. Apparently, investigators question whether Enron knowingly was carrying assets on its books at inflated prices, a question which first was raised by new managers put in place after the company filed for bankruptcy protection. In a statement to the bankruptcy court last April, management reported that the value of assets on Enron’s balance sheet would have to be reduced by at least $11 million and probably more following the loss in value when Enron filed for bankruptcy (see NGI, April 15).

However, the statement also indicated there were potential problems with “valuations of several assets, the historical carrying value of which current management believes may have been overstated due to possible accounting errors or irregularities.” Enron’s statement to the U.S. Bankruptcy Court did not identify the assets, but according to the Times, witnesses have told government investigators that primarily three Enron holdings are involved, with Houston Pipe Line (HPL) the largest.

HPL, which is estimated to be worth about $800 million, was carried on Enron’s books at a value of more than $4 billion — the value assigned to it when Enron was created through the purchase of Houston Natural Gas by InterNorth. InterNorth/Enron paid several billion dollars more than the total book value and chose to increase the valuation under a “fair value adjustment” under accounting rules.

Former executives apparently have told investigators that Enron argued that HPL would be “extremely valuable in the future, when it could be used as a hub in a nationwide pipeline system.” However, Enron subsequently sold off parts of the system, and “since no acquirer was willing to pay the value that had been assigned to the system, accounting rules normally would have required Enron to record a loss on those sales.”

To avoid the loss, Enron apparently moved billions of dollars in fair value adjustment from HPL onto a storage area associated with the system. Enron never restated the assets’ value, according to sources, and “the exaggerated value represented several billion dollars worth of the $14 billion write-down that Enron’s new management said would be appropriate.”

At least two other assets also were carried at “inappropriate values,” including a cogeneration plant and a deepwater drilling project, the Times reported. For example, the Mariner drilling project was 97% owned by Enron, and sources have indicated that the new management said its value should have been written down by $300 million to $400 million.

Ultimately, investigators are trying to determine first whether the new management’s assessments are correct, and former employees are being questioned to learn whether Enron’s management knowingly carried the assets at inflated values to avoid write-downs.

An unnamed source told the Times that investigators have reached “an important turning point,” focused on whether Enron had a “WorldCom problem,” meaning it moved expenses around on its books to mislead investors about the actual financial health of the company.

According to the report, investigators are hoping to be able to issue a “superseding” indictment against former CFO Andrew S. Fastow, who already has been charged in a 78-count indictment. If the investigation proves fruitful, sources said that prosecutors would have an easier case to present to a jury, as well as enabling evidence of possible criminal activities of upper management.

When Fastow was indicted in a Houston courtroom earlier this year, prosecutors outlined a possible role played by Richard A. Causey, the former chief accounting officer, for improper activities involving one of the SPEs. Any evidence found now of possible improper accounting decisions could put more pressure on Causey to cooperate, sources said. So far, Causey has not indicated he is willing to plead guilty to any charges.

Since Enron’s collapse, investigators have pursued four areas for possible criminal activity at the company: accounting and partnership issues; energy trading activities; possible insider trading by former CEO Kenneth L. Lay; and possible misrepresentations of the company’s broadband division.

Within the broadband division, investigators are examining statements made by the company between 1999 and 2001, which insisted the division was going to become the backbone of future growth at Enron. In recent weeks, the Federal Bureau of Investigation has arrived “unannounced at the homes of some broadband executives, confronting them with what the agents said was potential evidence of fraud,” according to the Times.

Meanwhile, last Thursday, JP Morgan recouped about 60% of its $1.1 billion loan to Enron in an out-of-court settlement with insurers. In addition to the settlement payment to the banker, the agreement allows the group of insurers to sell JP Morgan their pending bankruptcy claims against Enron. The agreement will reduce the total insurance payment by 13%, JP Morgan said. After taxes, the settlement will cost JP Morgan about $260 million in the fourth quarter, said CEO William Harrison. Another $600 million also will be set aside for the other legal matters involving Enron, including $80 million to pay the costs of settling with federal and state regulators about biased stock research.

A jury was set to begin deliberations in the case on Thursday after hearing nearly three weeks of testimony. According to JP Morgan, the insurers approached the bank on New Year’s Eve to discuss an out-of-court settlement. The nation’s second largest banker had filed a lawsuit last year seeking $1.1 billion from the insurance companies, which in turn countersued, claiming they were deceived into backing trades disguised as loans between JP Morgan, Enron and the bank’s offshore entity, Mahonia Ltd..

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