Risk & Compliance

Fire at Former House of Fastow

Arson suspected; indicted former Enron CFO used house as collateral for bail bond. Plus: Two recent CFO polls offer two views of the economy. Can b...
Stephen TaubDecember 3, 2002

The Enron saga took a bizarre twist just a day short of the one-year anniversary of the energy company’s historic bankruptcy filing.

An unfinished home once owned by former Enron CFO Andrew Fastow was deliberately set on fire early Sunday morning. The home, located in a wealthy suburb of Houston, is valued at about $4 million. The fire reportedly caused damage to the front portion of the 11,493 square-foot house.

According to the Houston Chronicle, arson investigators say they have found no indication that the fire was set by someone connected to Fastow. “I wouldn’t say we have suspects yet, but we have leads,” Houston Fire Department Arson Bureau chief Roy Paul told the paper.

According to the Houston newspaper, there were witnesses to the arson. Apparently neighbors saw a white male fleeing in a black SUV. “That truck was recovered in an area parking lot later Sunday morning and is being processed for evidence, as are items found at the scene of the fire,” Paul told the Chronicle. The truck reportedly had been stolen from the parking lot of a nearby nightclub.

Paul told the Chronicle the fire was set by pouring flammable liquid on the front door of the house and lighting it.

“Right now, we have no idea why this fire was started,” Houston Fire Department spokesman Jay Evans told the Associated Press. “No suspect has been arrested and the case is under investigation.”

Fastow’s former home was reportedly sold in October to Thomas Hook, the chief financial officer of Hilcorp Energy. About $300,000 of work remained on the house when Hook purchased it. It was not immediately clear whether Hook and his wife had moved into the home yet.

The proceeds of the sale will be turned over to the U.S. Marshal’s Service until a judge rules on whether the house was stolen from Enron, which filed for bankruptcy in December amid fraud charges.

On October 31, a grand jury indicted Fastow on 78 counts of fraud, money laundering, and other felonies. The house is one of five properties the former Enron finance chief used as equity to help secure a bail bond after the indictment was handed out.

Prosecutors also froze $14 million in Fastow family bank accounts. Fastow has pleaded innocent to all charges.

Two Polls, Two Views

Is this the same group of CFOs?

Last week, CFO.com reported on an American Express poll that showed that finance chiefs at middle-market companies are downright bearish about the economy. Indeed, according to the survey of 485 middle-market CFOs, more than two-thirds of the respondents said they believe that in 2003 the economy either will stay flat, act erratically, or decline further. The survey also indicated that finance chiefs at middle-market companies will focus on controlling indirect costs.

But this week, another poll of middle-market finance chiefs is out—and this one has a completely different take. Indeed, according to Fleet Capital Corp.’s annual Middle-Market survey, nearly 70 percent of chief financial officers are optimistic about the economy’s expansion in 2003.

That’s the highest percentage of CFOs expecting economic expansion in the survey’s five-year history, said Fleet. Just 5 percent of CFOs expect the economy to contract—the lowest percentage in the survey’s history.

“This is positive news since the manufacturing sector typically leads the economy out of recession,” says Wayne Ayers, chief economist for FleetBoston Financial. “The fundamental groundwork is in place for a strong, sustainable expansion kicking in toward the middle of next year.”

Of course, it’s not overly surprising that the American Express and Fleet surveys don’t exactly sync up. American Express sells products and services that help corporations manage their spending, while Fleet lends to corporate borrowers.

Still, the middle-market CFOs in the Fleet survey seemed remarkably upbeat. For example, 71 percent of the survey respondents expect their companies to report higher revenues in 2003. Last year, just 51 percent of the survey’s participants anticipated revenue growth.

Only 3 percent expect their revenues to contract, versus the14 percent who expected contraction in last year’s survey.

Also, 61 percent of the participants said the current state of the economy had not caused them to alter their plans for growth or expansion. In fact, 21 percent said they have actually accelerated their growth plans.

If so, maybe they should tell their bosses about those plans. According to yet another economic survey, this one conducted by the Business Roundtable, 57 percent of respondents expect their U.S. capital expenditures in 2003 to be the same as 2002 levels. About a quarter of the chief executives in the Business Roundtable survey expect a decline in capital spending; only 19 percent expect higher capital spending.

The pessimistic outlook doesn’t jibe with the Fleet survey. “Clearly the economy is not yet out of the woods, but based on the trend line over the survey’s five-year history, it appears CFOs believe the worst is over,” says James Connolly, Fleet Capital’s president and CEO. “They are now seeing opportunities for growth within their own companies.”

How strong is the CFOs’ conviction? One indication: 46 percent said their financing requirements would increase in the next 12 months. This is the highest percentage of CFOs citing an increase in financing requirements in the survey’s history, said Fleet.

In fact, 40 percent said credit availability from their current lender has increased in the past 12 months. And 90 percent said they have been able to find the financing needed to execute their business plans.

Other key findings from the survey:

  • More than 40 percent of CFOs said their relationship with their current lender has improved.
  • 54 percent expect their cost of capital to rise next year, while 41 percent expect financing costs to remain flat.
  • Nearly one in five (18 percent) expect to participate in a merger, acquisition, or divestiture in 2003.
  • 43 percent of the CFOs believe that the purchase price for companies in their industry as a multiple of earnings will increase in 2003, the highest percentage to feel this way in the past four surveys. This compares with 17 percent in 2002.

NUI Announces Restatement

At least two companies—including an energy company—announced they will restate prior financial reports.

NUI Corp. said it will probably restate results downward for fiscal years 2000 and 2001 and upward for certain quarters in fiscal 2002 as a result of a three-year audit conducted by PricewaterhouseCoopers.

The Bedminster, New Jersey—based company expects PwC to complete its audit in December.

The audit of fiscal years 2000 and 2001 was undertaken because NUI changed auditors from Arthur Andersen LLP and it adopted certain accounting standards during fiscal year 2002, the company indicated.

NUI said none of the anticipated adjustments are expected to have a material effect on the company’s future results and substantially all are noncash in nature.

The adjustments mostly relate to the timing of the recognition of certain costs between fiscal years 2000 and 2002, the company added. “The majority of these adjustments affect previously reported results contained within the company’s discontinued operations,” added NUI management in a press release.

In addition, First Investors Financial Services Group Inc. restated its financials for the three fiscal years ended April 2002 to reduce retained earnings by about $1.2 million, according to a regulatory filing.

The company noted that the restatements correct prior misstatements. Those misstatements were apparently discovered by the company as it was performing additional control procedures adopted during the first quarter of 2003 at the request of its new auditor, Grant Thornton LLP.

The company indicated the restatement did not affect net income for the first quarter of 2003 or fiscal year 2002.

In the restatement, the company reduced restricted cash by more than $1.5 million.

Meanwhile, eFunds Corp., a provider of electronic payment services, acknowledged that the Securities and Exchange Commission requested more information last month as part of the commission’s probe of the company’s 2001 results.

The requests related to various transactions that occurred in 2000 and 2001, including data license and software sales.

The company stated it is fully cooperating with the SEC.

Changes in Ashland Finance Department

Ashland Inc., the maker of Valvoline motor oil, said it is consolidating financial functions under Daniel B. Huffman, who has been named vice president, finance.

Huffman will be responsible for treasury, financing, financial services, and the trust investment function for the assets of the employee benefit plans. Huffman, who has served as Ashland treasurer since October 1998, will continue to report to J. Marvin Quin, Ashland senior vice president and CFO.

In addition, Daragh Porter has been named Ashland’s treasurer and head of its treasury, finance, and financial-service groups. She has served as the company’s general auditor since November 2001, and will report to Huffman.

William Kosto, assistant general auditor, will succeed Porter as general auditor and head of the Ashland internal-audit department. He will report to the audit committee of the company’s board of directors, and administratively report to Quin.

Charles Seal, director, trust investments, for the assets of the employee benefit plans, will report to Huffman.

Huffman joined Ashland in 1968, serving first in the corporation’s planning and analysis department. In 1979 he was promoted to the treasury and finance department as the manager of long-term finance. Huffman was named assistant treasurer in 1983 with responsibility for long-term finance activities and was named treasurer in 1998.

(Editor’s note: To see how Ashland stacks up with rival Sunoco in our CFO PeerMetrix optimal cash ranking, click here.)