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By Michael France Nothing about the Enron saga shocks anymore. So much dirty laundry has already been aired about the failed energy giant that the arrival of a 1,100-page report from the company's bankruptcy examiner with new details of alleged corporate malfeasance was all but ignored by the national media. That's a shame, because examiner Neal Batson's report contains some fascinating analysis about the performance of the one group that has done the best job of evading blame for the fiasco: the company's lawyers.
Providing what is, in many ways, the first official condemnation of the company's attorneys, Batson argues that both Enron's inside and outside counsel may have committed malpractice in many deals. "The evidence reveals little or no direct evidence of a particular attorney's knowledge of wrongful conduct by an Enron officer," writes Batson, an Atlanta corporate attorney who was appointed by the bankruptcy judge in the case to investigate the role of attorneys, accountants, bankers, directors, and managers in the company's demise. "In some instances, however, there is circumstantial evidence that would be sufficient for a fact-finder to infer that an attorney possessed such knowledge."
All of the law firms and in-house attorneys named by Batson have denied wrongdoing. And the examiner acknowledges that they may have viable factual and legal defenses. But, on balance, he concludes that there's good reason to believe a jury would rule against many attorneys that advised Enron.
BUILDING A CASE. The outside law firm that draws the majority of Batson's fire is Houston-based Vinson & Elkins. It billed the company more than $160 million from 1997 to 2001. He says the company could face liability for its advice on several structured-finance transactions that the company allegedly used to boost its reported financial performance. Going into some of the deals in great detail, he provides evidence that V&E knew that many of the company's transactions appeared to lack any legitimate business purpose.
Andrews & Kurth, also based in Houston, is criticized too. It billed the company nearly $30 million during the same five-year period before 2001. The law firm played a particularly significant role in writing opinion letters for Enron's many securitization transactions under Financial Accounting Standard 140. These deals, which the examiner attacked as possibly illegitimate, needed a legal opinion letter in order to pass muster with auditors.
Outside lawyers don't take all the heat. Enron General Counsel James Derrick, as well as several of his lieutenants, are faulted by Batson. "There is sufficient evidence from which a fact-finder could determine that Derrick committed malpractice based on negligence in connection with the performance of his duties as General Counsel of Enron," Batson writes.
WAKE-UP CALL? Of course, the interesting question now is whether the lawyers will pay for their alleged misdeeds. Enron's creditors are seeking to sue V&E, Andrews & Kurth, and one other outside law firm for their role in the company's downfall. Lawyers have also been named as defendants in several shareholder lawsuits.
So far, there has been no indication at all that state bar disciplinary authorities -- or U.S. Justice Dept. prosecutors, for that matter -- have any interest in cracking down on the company's attorneys. Perhaps, in the wake of Batson's report, that will change. France covers legal affairs for BusinessWeek in New York