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Monday, 14 January, 2002, 23:49 GMT
Enron chief 'was warned of trouble'
Enron's HQ in Houston
The shine is off Enron's management
Enron chairman Kenneth Lay was warned in August of the accounting irregularities that brought the once-mighty energy trading company to its knees, US officials have said.

Enron chairman Kenneth Lay
Was Kenneth Lay warned about irregularities?
Members of the House of Representatives' Energy and Commerce Committee have been told that an Enron employee wrote to Mr Lay pointing out the questionable nature of some partnerships involving other company executives.

Among other things, committee chairman Billy Tauzin and investigations subcommittee chairman James Greenwood said, the unidentified employee warned Mr Lay that the chief financial officer, Andrew Fastow, was involved in one of the partnerships.

Mr Fastow is accused in a law suit of selling 95% of his stock in the three years before the company's collapse.

In all, 28 of Enron's senior management allegedly sold off nearly half their collected holdings before the company's plight went public.

Three other partnerships were mentioned in the letter, along with "the potential impact on Enron's financial statements due to the decline of Enron's stock and the merchant investments placed in these entities".

Accounting methods

The partnerships - designed to keep debt off the balance sheet - were shrouded in a "veil of secrecy", the letter warned.

And according to Mr Tauzin and Mr Greenwood, it explained that several senior employees had "consistently and constantly" questioned Enron's accounting methods.

Their worries were directed, among other people, to the company's then chief executive, Jeffrey Skilling.

The House Energy and Commerce Committee is just one of six congressional committees looking into the downfall of Enron, once the seventh biggest company in the US.

Arthur Andersen

News of the warnings emerged ahead of Enron's accountants, Arthur Andersen, launching a partial explanation of its role in the affair.

Andersen is being probed by US officials after it destroyed key documents relating to Enron.

Investigators want to ascertain whether the documents were destroyed in order to avoid blame once Enron's financial difficulties were revealed.

But in a statement late on Monday, Andersen said it had merely reminded its staff, who were auditing Enron's accounts in October, that it was company policy that "only final documents will be retained; drafts and preliminary versions of information will be destroyed currently".

Andersen's policy was also to delete voice messages monthly and to delete emails in a way that would make it impossible to retrieve them later.

Only essential information that supports an audit's conclusions should be kept; including working papers and correspondence still deemed useful.

However, the reminder also spelled out that "no related information will be destroyed" in cases of threatened litigation.

In revealing that it had sent out the reminder, Andersen stressed that "it is important to recognize that the release of these communications are not a representation that there were no inappropriate actions".

The reminder was sent by email four days ahead of Enron reporting its first quarterly loss in more than four years.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Rob Watson reports from Houston
"Enron dominated this city"
Democratic National Committee's Jennifer Palmieri
"This will not be a great problem for the Bush administration"
See also:

14 Jan 02 | Business
Andersen attacked for Enron role
14 Jan 02 | Business
Regulators probe Enron stock selloff
12 Jan 02 | Americas
US appoints Enron inquiry chief
10 Jan 02 | Business
Enron documents 'disposed of'
10 Jan 02 | Business
Enron collapse prompts inquiry
12 Dec 01 | Business
Enron to start $6bn sell-off
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