Risk & Compliance

Where in the World is Andrew Fastow?

Ex-Enron CFO "cannot be found" by congressional committee. Meanwhile, other Enron executives decline offer to appear before House Financial Service...
Stephen TaubDecember 12, 2001

Will he show?

Apparently, that seems to be the big question surrounding former Enron CFO Andrew Fastow as a congressional panel kicks off hearings today. The panel will be conducted by two financial services subcommittees to determine whether there were accounting violations committed by Enron Corp. and its auditor.

Joseph Berardino, chief executive at Big Five accounting firm Arthur Andersen LLP — Enron’s longtime auditor — and Robert Herdman, chief accountant of the Securities and Exchange Commission, plan to appear before the panel. Enron and ex-Enron officials, including Fastow, do not intend to show up.

“We don’t believe we would be able to adequately serve the interest of the committee while at the same time trying to serve the interest of our credit shareholders and our current and former employees,” Enron spokeswoman Karen Denne told the Associated Press.

But some congressman don’t see it that way. “I don’t think they want to, or are not prepared, to answer some very pointed questions about what went wrong,” Rep. Michael Oxley (R-Ohio), chairman of the House Financial Services Committee, told the AP.

Oxley said his committee does not plan to subpoena Fastow to force his appearance. But the House Energy and Commerce Committee, which is conducting its own probe, has given Fastow until December 21 to meet with committee investigators — or face a subpoena to testify at a hearing, according to the wire service. “Quite simply, he cannot be found,” said Ken Johnson, a spokesman for Rep. Billy Tauzin (R-La.), the panel’s chairman. “We are troubled by his unresponsiveness.”

Last week, rumors began surfacing that Fastow had purchased airline tickets and might be planning to leave the country. Indeed, CFO has been told by one source close to Enron that Fastow may have plans to travel to Israel. CFO’scalls to Fastow’s lawyer have so far gone unanswered.

Wednesday’s hearings are intended to help Congress “understand as best we can what structurally went wrong, what mistakes were made and what mistakes were not noticed,” Oxley was quoted as saying.

Among the topics to be discussed at the hearings include accounting practices by the company and Andersen, potential securities law violations, and Enron’s handling of its employees’ 401(k) retirement plans, Oxley said.

“The people who have run Enron are crooks who have ripped off American consumers, they ripped off their employees and they’re now in line for a welfare payment” from tax breaks in the economic stimulus package before Congress, said Rep. Bernard Sanders (I-Vt.), a member of the Financial Services Committee, in an interview with the AP.

The hearings are being conducted by the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises and the House Subcommittee on Oversight and Investigations.

E&Y’s Role Being Probed in Superior’s Collapse

No doubt, the heat is being turned up on the Big Five.

The latest case: Ernst & Young’s role in the collapse of Superior Bank.

Regulators estimate that the thrift lost between $450 million and $550 million. On Monday, Chicago’s Pritzker family and New York real-estate investor Alvin Dworman agreed to a settlement with federal regulators under which the thrift’s former owners agreed to pay $100 million to the government immediately, and another $360 million over 15 years in exchange for avoiding civil litigation.

E&Y, Superior’s former auditor, said it is cooperating with a grand-jury investigation into the financial institution’s collapse, according to The Wall Street Journal.

E&Y spokesman Larry Parnell said the auditor has voluntarily provided its working papers and other records to a federal grand jury in Chicago that is “looking into the collapse of Superior Bank,” according to the Journal.

Parnell also told the paper that his firm is “not a target of any investigation” and has not received a subpoena.

In October, Ellen Seidman, then director of the Office of Thrift Supervision, told Congress that Superior’s former management used improper accounting methods to report “inflated assets, earnings and capital,” and said E&Y auditors “failed to take exception to this improper reporting,” according to the Journal.

Parnell told the paper, “There is no indication of any accounting mistakes.”

Wall Street’s Great IPO Revival

In a week that will probably see 11 companies go public, two companies went public on Tuesday — Aramark Worldwide and Aluminum Corp. of China (Chalco).

Aramark’s share price climbed more than 10 percent to close at $25.40. The food service company raised $690 million by selling 30 million shares at $23 each.

The price of Chalco’s U.S. listed shares rose 3.8 percent in their first day of trading. China’s largest aluminum producer raked in $458 million from its IPO.

Chalco is the sixth non-U.S. company to sell and list its shares in the United States so far this year, according to Dealogic.

In other IPO news, Protarga Inc., a drug development company, filed to go public.

Other Financing News

  • Cellco Partnership, a joint venture between Verizon Communications and Vodafone Group, is expected to issue $2.5 billion in a two-tranche debt deal in the private placement market. The offering is expected to consist of 2-year floating rate notes priced at 40 basis points over the 3-month Libor rate and 10-year fixed rate notes priced at 125 basis points over comparable U.S. Treasurys.
  • Interpublic Group of Cos. issued $500 million of 20-year zero-coupon convertible bonds in the private placement market. The bonds were sold with a yield to maturity of 1 percent and a 32 percent premium to its stock’s Monday closing price. Moody’s rates Interpublic’s senior debt Baa1, while S&P rates it BBB-plus.
  • AT&T Wireless Services Inc. filed a shelf registration to sell up to $4 billion in common and preferred stock and debt securities. The company plans to use the net proceeds for general corporate purposes.
  • Chubb Corp. filed a shelf registration to offer up to $1 billion worth of debt securities, warrants, and preferred and common stock. The insurer will use the proceeds for general corporate purposes.
  • Moody’s cut the senior unsecured credit ratings on Nova Chemicals Corp. to Baa3 from Baa2. “The downgrade reflects Moody’s view that operating performance is likely to remain weak into 2002, limiting Nova’s ability to reduce its high debt levels,” Moody’s said in a press release. “Despite lower raw material costs, continued industry overcapacity is expected to offset potential near-term consumption increases, and a sustained recovery in the domestic as well as key foreign economies is needed to support higher margins.”

In Brief

  • As expected, the Federal Reserve on Tuesday cut short-term interest rates a quarter-point to 1.75 percent. Also as expected, many banks cut their prime lending rate, to 4.75 percent.
  • The Federal Trade Commission approved the $10.3 billion purchase of Ralston Purina by Nestle S.A. To receive approval, however, the companies agreed to sell two of Ralston’s brands of dry cat food, MeowMix and Alley Cat.

Apparently, FTC officials do not believe the merger will create a cartel in the other cat food sectors, including wet, wet-and-dry, and those little treats you feed them when they’ve been extra good.