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Bankruptcy Report: Enron Shifted Assets

March 6, 2003

HOUSTON (AP) _ Executives of failed energy merchant Enron Corp. shifted billions of dollars in assets off its balance sheet so it could report huge profits and make its debt look lower than it was with the help of willing lawyers, banks and auditors, according to a bankruptcy examiner.

Neil Batson, in a lengthy report Wednesday to the court overseeing what was once the largest corporate bankruptcy in U.S. history, said that Enron repeatedly broke Securities and Exchange Commission rules and materially misrepresented its financial condition.

In a 2,000-plus page report, Batson described how Enron used special purpose entities and various accounting techniques to conceal its poor performance.

``There is nothing improper about the use of structured finance and SPEs to achieve and report business results,″ Batson stated. ``Enron, however, used structured finance to report results it had not achieved.″

The report said that because many transactions were improper and possibly illegal, as much as $5 billion in cash and assets could be recovered by the bankrupt company and its unsecured creditors, according to published reports.

Batson, who is responsible for recovering assets for Enron creditors, suggested in the report that Enron could reclaim between $1.7 billion and $2.1 billion in assets that it moved off its balance sheets to enable those SPE deals, according to Dow Jones News Service. The report says Enron could also recover an additional $2.9 billion in assets that were fraudulently moved out of the company shortly before its bankruptcy filing.

The New York Times said the report said creditors could properly try to recover about $3.9 billion in assets by seeking to consolidate entities improperly segregated from Enron. The newspaper said the report concludes $2.9 billion in asset transfers could be recovered.

The Houston Chronicle said Batson repeatedly suggested in the report that Enron’s two biggest creditors, Citibank and J.P. Morgan Chase & Co., knowingly facilitated the company’s improper financial practices. Arthur Andersen LLP, the company’s auditor, and unnamed lawyers are repeatedly cited as blessing the maneuvers, the newspaper said.

Many Enron documents were later shredded. David Duncan, a former Andersen partner in charge of Enron’s account, was fired in January last year and pleaded guilty to obstruction of justice in April.

Enron’s former chief financial officer Andrew Fastow, who allegedly masterminded financial schemes that brought down the Houston-based company, has been charged with fraud, money laundering and conspiracy. He is free on $5 million bail while he awaits trial.

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