In an unexpected twist, the SEC on Friday asked the U.S. Bankruptcy Court for the Southern District of New York to reject Enron Corp.’s hiring of Stephen F. Cooper as CEO, calling the terms of his million dollar contract and bonus guarantee inappropriate. Enron wants court approval to hire the bankruptcy specialist as an independent contractor, with the title of interim CEO and chief restructuring officer, at an annual salary of $1.32 million a year and a bonus of at least $5 million once the restructuring is completed.

Cooper, 55, was named in late January to replace Kenneth Lay. Enron then created an office of chief executive that included Cooper as well as Enron officers Jeff McMahon and Ray Bowen. Cooper is a managing partner with New York-based consulting firm, Zolfo Cooper LLC, which specializes in bankruptcies, and he also is expected to provide the Houston-based company with up to 15 “associate restructuring officers” at an annual cost of $864,000 each under the proposed agreement, according to papers filed Friday by the SEC.

“In a Chapter 11 case with public policy implications that are as far reaching as Enron’s, creditors, security holders and the public are entitled to a chief executive officer whose selection can not be subject to question,” said the SEC filing. Cooper’s employment contract casts “doubt on the fairness of Enron’s handling of its bankruptcy and on the bankruptcy process as a whole.”

Judge Arthur Gonzalez is expected to hear the case on March 13 (Wednesday), the court said.

Enron also asked the federal bankruptcy court last week for an eight-month extension to file a reorganization plan, which would mean that its 350,000-plus creditors may have to wait longer to be paid the $49 billion they are owed. Enron said it needed more time to “develop and implement a viable long-term business plan” that would also allow creditors to evaluate where they stand.

Enron, which has seen about $80 billion of its market value disappear since last August, has the right to offer a recovery plan in the first 120 days after filing for bankruptcy on Dec. 2, 2001. Courts normally extend the exclusive period in most complex cases. However, creditors also have the right to advance their own reorganization plans. Enron asked Gonzalez to set an April 11 hearing on its extension offer. If Gonzalez grants the extension, Enron then would have the sole right to file its reorganization plan until Dec. 1.

Telling the court that it was not in a position to “begin to evaluate the universe” of claims so far made against it, Enron said it has identified at least 350,000 creditors and “hundreds of thousands” of contracts and other obligations for which it may be liable.

Gonzalez is likely to grant the extension, according to sources, because it also would allow creditors more time to evaluate their chances for recovering assets. Earlier last week, he allowed Enron the right to disburse $5 million among many of the laid-off employees, which will amount to them receiving an average of about $1,100 more in severance. The former employees were given $4,500 each in severance when Enron dismissed them following the bankruptcy filing.

Enron also is faced with finding another auditor after firing Arthur Andersen earlier this year. Cooper said it was “likely” that Enron would have to postpone filing its 2001 financial report until a new auditor is found. The report is supposed to be filed with the bankruptcy court by March 29, according to court documents.

Cooper indicated, however, that despite having trouble finding an auditor, the senior management team now in place at the bankrupt company — except for him — would most likely remain in place after the restructuring is completed. Enron also is negotiating another package of retention bonuses with creditors to keep its 4,000-plus employees from leaving, Cooper said. He said the company had to ensure that the organization keeps its intellectual capital, but he did not detail how many employees would be paid, nor how much they would be paid. In late 2001, retention bonuses totaling nearly $150 million were paid to about 600 employees considered key to the rebuilding.

Cooper also believes the company has some legal claims from which it may be able to recapture money, but he added that it may be difficult to determine what the amount would be. Cooper has said that Enron plans to target Andersen, former legal advisers Vinson & Elkins, and former executives, but no lawsuits have been disclosed. Enron also is seeking $10 billion in damages from its former merger partner Dynegy Inc. Enron claims Dynegy improperly pulled out of a three-week deal in November 2001, but Dynegy has denied the charges.

Meanwhile, Enron has completed an agreement to waive privacy laws regarding its tax records and will provide all tax returns and related information including those of its affiliates from 1985 to 2001. The deal, first announced in February, allows the Senate Finance Committee to begin an investigation of the Houston company’s tax shelters.

In a joint statement, Finance Committee Chairman Max Baucus (D-MT) and Sen. Charles Grassley (R-IA), said the agreement “paves the way for a thorough and comprehensive probe to determine whether Enron may have engaged in aggressive tax planning to avoid paying federal income taxes or exploited loopholes in our tax system.” However, Enron’s voluminous tax records will take several weeks to be reviewed, and the Finance Committee indicated that hearings on the documents would not be set until then.

©Copyright 2002 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.