Risk & Compliance

Lay Steps Down, Duncan Clams Up

Enron CEO says he's spending too much time dealing with investigators to run company; Duncan reportedly wants immunity. Elsewhere: GAO asked to loo...
Stephen TaubJanuary 24, 2002

Let the games begin.

On the eve of the first two of nine scheduled Congressional hearings over the next five weeks, Kenneth Lay resigned as chairman and chief executive officer of Enron Corp., the company announced Wednesday evening.

Lay, who will remain on the company’s Board of Directors, will be succeeded by a restructuring specialist.

“This was a decision the board and I reached in cooperation with our creditors’ committee,” said Lay, in a press release. “Unfortunately, with the multiple inquiries and investigations that currently require much of my time, it is becoming increasingly difficult to concentrate fully on what is most important to Enron’s stakeholders.”

Meanwhile, David Duncan, the fired former Andersen auditor of Enron, refused to testify at Thursday’s scheduled hearings by the House of Representatives Energy and Commerce Committee unless he receives immunity, according to published reports.

Committee chairman Rep. Billy Tauzin, however, reportedly told CNN that Duncan will not be granted immunity unless the Justice Department gives the word. “I will not provide immunity to anyone without consent of the Justice Department, who is doing a criminal investigation,” Tauzin told CNN. “I have not received such a green light to this date, as to whether or not they change their mind I can’t say.”

Lawyer Robert Giuffra said Duncan, who finally got access to documents from his Andersen files on Tuesday, will plead the Fifth Amendment and not testify. Giuffra said the former Andersen partner will testify today–if he is granted immunity.

The other hearings scheduled for Thursday will be hosted by the Senate Governmental Affairs Committee, chaired by Connecticut Democratic Sen. Joseph Lieberman. Among the scheduled witnesses: Former SEC Chairman Arthur Levitt and former SEC Chief Accountant Lynn Turner. These hearings will focus on pension rules, investor confidence, derivatives trading and the energy market.

Meanwhile, the New York Times reported on Thursday that as many as 80 Andersen employees were involved in shredding Enron documents, citing representative James Greenwood, the chairman of the House Energy and Commerce Committee.

Last October, Duncan reportedly warned Enron’s chief accounting officer that the company’s upbeat earnings announcement for the third quarter–a quarter in which Enron actually took huge losses–could be misleading to investors. The report added that his advice, which was made after consulting with Andersen attorneys, was ignored.

Nancy Temple, one of the attorneys who was subpoenaed to testify at Thursday’s hearing, asked Duncan to delete her name and any reference to having consulted with the Andersen attorneys from his memo, according to the published reports. “If my name is mentioned it increases the chances that I might be a witness, which I prefer to avoid,” Temple reportedly wrote.

In other related developments:

  • Senate Banking Committee Chairman Paul Sarbanes on Wednesday asked the General Accounting Office to investigate the growing number of earnings restatements by U.S. corporations. In a letter, the Maryland Democrat asked the GAO to probe the “proliferation of restatements of earnings and other financial data which have been issued in recent years by publicly traded companies.”
  • The Senate Finance Committee on Wednesday asked Enron for permission to publicly disclose its tax information. The reason: So, the public can better understand the events that led to Enron’s demise.
  • Civil rights activist Al Sharpton offered on Wednesday to help President Bush’s mother-in-law recoup the $8,000 that she lost from her investment in Enron stock. The offer is part of Sharpton’s campaign to get government help for victims of the company’s financial collapse.
  • Army Secretary Thomas White, a former top Enron executive, said Wednesday he suffered “significant personal losses”in the company’s bankruptcy but still collected $12.1 million when forced to sell his holdings after taking office.
  • SEC chairman Harvey Pitt said Wednesday he will proceed with his plans to reform the accounting disciplinary system despite the resignation of the Public Oversight Board, which currently oversees the profession.
  • Retired Senator Howard Metzenbaum, who currently heads up the non-profit Consumer Federation of America, told Reuters that Pitt should resign as SEC Chairman because of his past work representing accounting firms. “I think it would be appropriate for him to gracefully step out,” Metzenbaum told the wire service. “It raises too many questions.”

Big day for asset-backed securities

At least three companies raised $4 billion in the asset-backed securities market on Wednesday.

  • Honda Motor Co. Ltd. issued about $2 billion of asset-backed securities, supported by car loans it originated. Banc One Capital Markets and Salomon Smith Barney were the deal’s joint lead underwriters and book managers. The company should have plenty of receivables: Honda reported brisk car sales over the past six months–but unlike other car companies, the auto maker has steered clear of offering zero percent financing to customers.
  • Financial services company MBNA Corp. did a little financing of its own, issuing $1 billion five-year asset-backed securities, supported by receivables from its credit card program. Salomon Smith Barney led the deal’s underwriting group.
  • Citibank, Citigroup’s commercial banking unit, priced $1 billion in senior asset-backed securities, supported by credit card receivables. Salomon Smith Barney, another Citigroup unit, led the deal’s underwriting group.

In other financing news:

  • Ford Motor on Thursday plans to issue $5 billion of convertible securities, which would be a record amount. It had initially planned to borrow $3 billion.
  • Household Finance Corp., a unit of Household International Inc. increased its planned five-year global note offering to $2.5 billion from an initially planned $2 billion.

In Brief

  • Kmart management said Kmart stock comprised 14 percent of the company’s $1.3 billion in 401(k) assets. About 3.5 percent of the plan is Kmart stock bought by employees, while 10.5 percent is stock provided by the company to match employee investments.
  • The SEC named Linda Chatman Thomsen as deputy director of the Division of Enforcement. Thomsen succeeds Stephen M. Cutler, who was appointed director of the division in October 2001. Thomsen will assist the enforcement director in formulating policies and will play a key role in the management of the Division of Enforcement, said the SEC. Thomsen, 47, came to the Commission in 1995 as assistant chief litigation counsel. In 1997, she was named assistant director for the division of enforcement, and in 2000, she became associate director for the division.