UBS Warburg, which took over Enron Corp.’s energy trading arm in February for no cash down, made a deal to protect itself from liability associated with the bankrupt company’s questionable trading practices. However, the UBS AG subsidiary hired several of the upper echelon in Enron’s trading team, including former COO Greg Whalley, who is now the managing director of the UBS energy trading unit. Now under the microscope of FERC in its investigation of California trading practices, some want to know if the “new” UBS energy traders are using the same old tactics of their former employer.

The UBS traders who had worked for Enron are expected to be questioned by staff of the Federal Energy Regulatory Commission, including Whalley. He was president and also COO of Enron until last fall. In response to the questions about its trading practices, UBS Warburg Wednesday released the following statement:

“UBS Warburg entered the energy trading business in February 2002. UBS Warburg is committed to conducting its energy trading business consistent with all legal and regulatory requirements and the highest risk management and ethical standards. UBS has not engaged in any trading activities with California Independent System Operators. Moreover, any such future energy trading conducted by UBS will be in compliance with all legal, regulatory and ethical requirements.

“As is its practice, UBS Warburg operates its trading activities under strict risk guidelines and will continue to monitor all energy trading business to ensure full compliance with all applicable laws and regulations. UBS will cooperate with all federal and state investigations into Enron’s trading activities.”

UBS, which had no experience in energy trading before taking over the Enron operation, gave Enron nothing in return for taking over the unit. However, if the unit makes money, Enron creditors will receive a percentage of the profits over a period of up to 10 years. However, if the trading unit fails to produce, Enron’s creditors would recover much less.

So far, UBS has declined to detail how the energy unit is performing. An unidentified source told the Wall Street Journal that the energy arm had experienced a “slow start” in rebuilding volume. UBS risk management professionals also are spending a considerable amount of time clearing potential counterparties because of other energy companies’ “financial health,” the source said.

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