{(b)(5))

Any thoughts or recommendations? | wil send around a separate note discussing the Enron issue in more detail

2 02425

01300000001034


Enron Chairman Gave Warning to Bush Officials on Company's Collapse Page 2 of 3

worried that the company might have to default on its obligations. He brought
to the secretary's attention “that he was having problems with his bond rating
and he was worried about its impact on the energy sector," Fleischer said.

Afier that conversation, Evans spoke to O'Neill *‘and they both agreed no
action should be taken to intervene with their bond holders,” Fleischer said.

The spokesman had said Wednesday he did not know of anyone in the White
House who discussed Enron's financial situation.

Fleischer also brushed aside talk of any conflict in the Justice Department
investigation and said there was no reason to tum the probe over to a special
counsel.

Lay gave $25,000 to a leadership committee headed by then-senator and now
Attorney General John Ashcroft, according to the Center for Public Integrity.

An attorney for Enron welcomed Ashcroft's inquiry, the latest in a series of
governmental probes into the company’s demise, saying the investigation
would ‘*bring light to the facts."

‘We want to get to the bottom of this too," said Robert Bennett, a Washington
attorney representing the Houston-based company. **A lot of decent and
honorable people work at Enron and we should wait until the facts are out.”

Bush ordered a separate review Thursday of pension and corporate disclosure
rules that could jeopardize workers’ savings. “There has been a wave of
bankruptcies that have caused many workers to lose their pensions and that is
deeply troubling to me," Bush said.

The Justice Department is forming a national task force to look into the
company's dealings. The group will be headed by lawyers at the department's
criminal division and include prosecutors in Houston, San Francisco, New
York and several other cities, said a Justice Department official, speaking on
condition of anonymity,

The official declined to say when the investigation began. Enron faces civil
investigations by the Labor Department and the Securities and Exchange
Commission and subpoenas from congressional committees.

All are looking into the energy trading company's collapse, the largest
bankruptcy filing in U.S. history.

The failure hit employees and investors hard. Workers were prohibited from
selling company stock from their Enron-heavy 401(k) retirement accounts as
the company's stock plummeted. Many lost their life's savings.

Enron executives cashed out more than $1 billion in stock when it was near its
peak.

filev/CAWINDOWS\Temporary%20Intemet%20Files\OLK4274\Enron%20Chairman%20Ga..2 1/16/02
01200000000178


[(b)(5)]

Please review and let me know your thoughts.

2 02491

01300000001100


Recently ranked as high as No. 7 on the Fortune 500 list of the largest
U.S. companies, Enron literally ran itself inte the ground by fudging
its books, making secretive deals that enriched company insiders, and
relying too heavily on debt. Though it was formed in 1996 with the
merger of Houston Natural Gas and InterNorth, Enron became Argentina
only recently, said Lay, "on the advice of our attorneys."

That counsel came none too scon. Aa a South American state, 411 pending
U.S. and European lawsuits are rendered harmless, And the company
escapes what had been a daily fusillade of scorn from its former home.

Indeed, much as the French were baffled by America’s obsession with
President Clinton's sexual affairs, many South Americans say they don't
understand why Enron and its leaders have been vilified. As former
Colombian President Ernesto Samper explained: “In the United States,
you look at corruption as an abomination We look at it as an art.”

EXTRADITION DENIED

The U.S. State Department has refused to recognize Enron as Argentina,
and a spokesman said the Bush administration has officially requested
the extradition of Lay and the officers who allegedly fled with him.
Argentina, however, denied the request, explaining that an entire
country cannot be extradited. And besides, they added, Lay had pledged
to help pay off the nation's $132 billion debt.

Asked wheres the bankrupt Enren gat such a sum, Lay explained that after
proclaiming its nationhood status, the company had received an
emergency IMF loan. An IMP spokesman later confirmed the payment.

"From what we knew of their fiduciary practices, Enron appeared to have
all the hallmarks of a typical IMF fundee," said IMF communications
director Nestor Svingen. “At first, we did balk when they asked for
$232 billion, but when they explained that some of the money would go
to repay overdue IMF loans, we thought, ‘Oh, that's all right then.'"

"Not that we actually expect to see any money from anyone," Svingen
added. "It's just this little game we all play. Great fun if you like
numbers. Do you enjoy quadratic equations? I could do them all day."

Asked what Enron/Argentina had pledged to do with the extra $100
billion it requested, Svingen said the application had specified
funding for "civic infrastructure improvements."

“That usually means the president is going to build a palace," Svingen
explained.

2 01267

01200000000623


Lay joined the Union of Concemed Scientists and environmental groups in calling for curbs on
carbon in the atmosphere. The Clinton administration was supportive, but this year the Bush
administration reneged on a campaign pledge to impose limits on greenhouse gas emissions from
coal-buming power plants.

A multimillion-dollar lobbying campaign in Congress to secure legislation requiring states to
institute retail clectricity deregulation fared even worse.

Enron hired former New York representative Bill Paxon, a leading conservative, to run
Americans for Affordable Electricity, which commissioned studies and recruited business
support for deregulation, But the legislation never made it out of a congressional subcommittee.
At the same time, Enron was growing restive over the slow pace of deregulation in the wholesale
electricity market, the core of its business. Large parts of the country, especially the Southeast,
were still monopolized by regulated utilities that limited the opportunity for trading gas,
electricity and energy derivatives.

Political Pragmatism

Enron's political pragmatism was demonstrated in the 1998 New York Senate election, when it
dropped its support of the Republican incumbent, Alfonse M. D'Amato, after Democrat Schumer
endorsed Enron's goal of wholesale deregulation, sources said, Lay reciprocated by hosting
several fundraisers for Schumer, and Enron's political action committee contributed $7,500 to the
Schumer campaign.

The company's lobbying team expanded along with its political spending. It outgrew the two-
person operation that existed in 1989 and began to reflect Enron's interest in everything from
pipeline safety and derivatives trading to Overseas Private Investment Corp. loan guarantees. By
last year, its lobbying expenses exceeded $2 million a year and covered a raft of big-name
consultants, such as former Montana governor Mare F. Racicot, the new Republican National
Committee chairman, and former top aides to House Majority Leader Richard K. Armey (R-
Tex.) and House Majority Whip Tom DeLay (R-Tex.)

The hazards of Enron's cfforts to connect with both parties were evident last year, when shortly
before the November election, the company picked a Clinton administration Treasury official,
Linda Robertson, to run its Washington office.

A perturbed DeLay, whose campaign and related funds had received more than $100,000 from
Enron and Lay, briefly "excommunicated" Enron, a House source said. Robertson was not

invited to a series of meetings of electricity lobbyists held in DeLay's office last July, though an
Enron official did finally attend the sessions.

Enron had more success when Congress overwhelmingly approved legislation last year
containing a provision precluding the Commodity Futures Trading Commission (CFTC) from
regulating Enron's trading in energy derivatives. These instruments are traded largely between
electricity dealers and big wholesale consumers, which use them to hedge against price swings
that could adversely affect their businesses.

01200000000035


“Secretary O'Neill then contacted (Treasury) Undersecretary (Peter) Fisher to ask him to evaluate
whether the comparison was apt, and the Department of the Treasury advised that it was not apt as a
result of Secretary Fisher's review," Fleischer recounted.

- Peter Fisher to center stage once again, As a senior official of the Federal Reserve Bank of New
York, Fisher played a leading role in cobbling together a non-government-funded financial Heimlich
Maneuver for the strickened LTCM, animinated in that effort by concerns of systemic risks. Sounds
like Lay was trying to float the systemic risk possibility - and Fisher blew it away.

Told by a questioning reporter that it sounds like Lay was asking for a bailout, the White House Press
Secretary said, "! don't characterize it one way or another, | just report to you what was said. | leave
the characterization to others. That was the conversation with Secretary O'Neill.”

He later added that O'Neill told him the O’Neill-Lay conversation occurred in October.

- With respect to the O'Neill and Evans conversations with Lay, Fleischer told reporters, "This
morning, Secretary O'Neill and Secretary Evans made the information known, and we immediately
shared it and provided it to you.”

Asked specifically when President Bush learned that the two secretaries had talked to Lay, Fleischer
said, "This morning.”

- Attorney General John Ashcroft, another recipient of Enron campaign contributions during his
unsuccessful Senate race in 2000, recused himself from the Enron investigation, as did David Ayers,
Ashcroft's chief of staff who previously served as his campaign manager.

Earlier in the day, Fleischer at the White House had said that "the president has full faith and
confidence in the professional prosectors of the Department of Justice, and in the attorney general,
to get to the bottom of all the allegations of criminal wrongdoing by Enron."

- Speaking of the president and Enron, Fleischer was asked when Bush learned of Enron's financial
difficulties. "He learned fast fall,” the press secretary said.

“And | couldn't tell you if he leamed as a result of media accounts when everybody wrote that Enron
had gone bankrupt or through other any other mechanism,” Fleischer added. "He learned last fall.”

01200000001540


Fisher, Peter

Se TT

From: Gross, Jared

Sent: Thursday, January 10, 2002 1:05 PM

To: Fisher, Peter

Subject: FW: Economist: Rites of passage — With Enron and Argentina, credit derivatives pass an
important test

This is short but good.

= | Mesage———
From: Carleton, Norman
‘Sent: ‘Thursday, Jeruary 10, 2002 12:33 PM
To: Cetina, Ml; Sharer, James; Corfield, Anna; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eicher, Matthew; Gabllondo, Jose;

Grass, Jared; Hammer, Viva; Loe Sanatamorens (E-mail); Nickoloff, Peter; Novey, Michael; Pietrangeli, Fred; Rosedoro, Brian;
‘Schultheiss, Heidilynne; Whaley, Jean; Wiedman, Mark
‘Subject: Economist: Ries of passage — With Enron and Argentina, creat dertvatives pess an important test

Credit derivatives

Rites of passage

With Enron and Argentina, credit derivatives pass an important test

ARGENTINA'S debt default and the collapse of Enron, America's biggest bankruptcy, are together offering
the greatest test yet faced by dealers in the still young market for credit derivatives. These are
instruments that allow lenders to pass on to others the risk that borrowers will default-in return for a fee.
Billions of dollars of credit-default swaps, one class of such derivatives, were written on Enron and on
Argentina. Here is a chance, people who deal in credit derivatives think, to prove their products' worth.

In the early days, just a few years ago, the joke among traders at investment banks was that the busiest
person on a credit-derivatives desk was the lawyer. In all too many cases, buyers of credit-derivative
protection found that their interpretation of a contract differed vitally from that of the firm which had sold
it. Legal wrangles ensued, harming the young product's reputation. Yet so far, to the relief of the six or so
investment banks that dominate the market, there is no sign of trouble over the settlement of credit-
default swaps written on Enron.

Argentina might be more of a problem. In November, the government announced a restructuring of its
local debt on terms more favourable to itself. Some buyers of default protection on foreign-held debt
believe that, although the restructuring was described as voluntary, it met their contracts’ definition of a
“credit event", meaning that they should receive the debt’s full face value. One hedge fund In New York,
whose default swap expired soon after the restructuring, plans to sue J.P. Morgan Chase, one of the banks
most active in the market for credit derivatives, for rejecting their interpretation. But most owners of
credit-default swaps are now clearly entitled to their money, after Adolfo Rodriguez Saa, briefly president
of Argentina, announced in December that the country would stop paying interest on its foreign debt.

Even so, dealers and hedge funds are quarrelling over whether two particular government bonds,
maturing in 2018 and 2031, are covered by the default protection. The argument springs from the fact
that these bonds were issued as part of a debt exchange by the Argentine government last June. Some
sellers of protection fear that, because of this, the bonds may be treated less favourably than other
government debt in any future workout. Goldman Sachs and other credit-derivative dealers would prefer
not to accept these bonds-although they are reluctantly doing so. Ron Tanemura, the firm's head of credit

1

01200000001525


is this for the speech or other stuff?

Original Message-----

Pri Wiedman, Mark

Sent: Friday, January 04, 2002 5:47 PM

To: Roseboro, Brian; Bitsberger, Timothy
Subject: PW: Draft Memo on Enron/CFMA Articles

This is something to keep close tabs on -- would it make sense to meet with Heidi and
Norman on this?

From: Carleton, Norman <Norman.Carleton@do.treas.gov>

To: Roseboro, Brian <Brian.Roseborogdo.treas.gov>; Bair, Sheila
<Sheila.Bairgdo.treas.gov>; Gross, Jared <Jared.Gross@do.treas.gov>; Wiedman, Mark
<Mark.Wiedman@do.treas.gov>; Bitsherger, Timothy <Timothy.Bitebergeredo.treas,gov>; Smith,
Amy <Amy.Smith@do.treas,gov>

CC: Schultheiss, Heidilynne <Heidilynne.Schultheiss@do.treas.gov>; Nickoloff, peter
<Peter.Nickoloff@do.treas.gov>; Ellett, Martha <Martha.Bllettedo. trea: -gov>; Gabilondo,
Jose <Jose.Gabilondo@do,treas.gov>; Sutton, Gary <Gary.Sutton@do,treas.gov>

Sent: Pri Jan 04 17:29:36 2002

Subject: FW: Draft Memo on Enron/CPMA Articles

Attached ig a memo that detaile our first attempt to clarify what the press has been
saying in regarda to Enron and the Commodity Futures Modernization Act.

i talked to the Ken Raisler, a New York lawyer, about this. He told me that Enron did act
directly lebby the administration about the CFMA but was part of an energy coalition,
which Mr. Raisler represented, that did lobby on this issue. The exempt
commodity/electonic trading facility provision in the CPMA did not directly benefit Enron
Since EnronOmline waa not structured as a trading facility as defined in the CFMA.
Therefore, the major beneficiaries of these provisions are Enron's competitors, such as
the InterContinental Exchange and TradeSpark, which are stuctured as «lectonic trading
facilities. Enron did get the legal certainty it wanted that the CFTC cannot regulate
Enrononline. [(b)(5)]

Ken also told me that he had talked to then Assistant Secretary Lee Sachs about the exempt
commodity issue. According to Ken, Lee told him that the Treasury would not oppose the
CFMA because of the exempt commodity issue but encouraged the industry to reach a
compromise with the CFTC. In the end, Wall Street firms, energy firms, and the futures
industry, as well ag the PWG (including the CFTC) all supported passage of the CFMA.

Schultheigs, Heidilynne

: Priday, January 04, 2002 5:10 BM

To: Carleton, Norman

Subject: Draft Memo on Enron/CFMA Articles

Attached ie the draft memo on the Enron articles that ted that the CPTC and PWG

objected to the energy exclusion provisions of the CFMA, The three news articles are
downloaded as the latter pages.

01200000000007


SCIENTECH's IssueAlert Page 2 of

not be guaranteed even if their rate increase proposals are accepted, and bankruptcy will be very likely if the CPUC
only allows them to increase rates by 15 percent.

Over the last few weeks, pressure was put on the Federal Energy Regulatory Commission (FERC) to step in and solve
the problem. However, FERC issued its own order in carly December that mainly focused on mechanisms to keep
power generators active in the state and did not adequately address the core issues of high wholesale prices and rate
freezes. Due to the lukewarm response that FERC’s order received, it has been generally concluded that the CPUC and
Gov. Davis alone will have to solve the California energy crisis.

It is important to not overlook or discount the role that consumer advocates are playing in the negotiations. Harvey
Rosenfield, a long-time critic of the state’s utilities who led the failed attempt to overturn deregulation in California in
1998, remains very vocal that "the people of California should not have to pay one more penny to bail out the utilities
for the mistakes they made.” Consumer groups led by Rosenfield and Ralph Nader continue to put enormous pressure
on Gov. Davis, a Democrat, to keep any rate increase given to the utilities to a minimum. In fact, last week Nader
stated that Davis’ political future "hangs by a kilowatt hour” and that any decisions made in California will "reverberate
all over the country." In essence, consumer groups believe that utilities share the bulk of responsibility for the current
mess in the state, as they played a large role in California's 1996 restructuring legislation. If mistakes were made in that
legislation, consumer groups say, the utilities and not utility customers should be made to pay the price.

Speculation is growing that, on Jan. 4, the CPUC will approve an increase for extra costs that will be applied in
increments over the course of 2001, resulting in an ultimate rate increase that is somewhere in the range of 15 percent
to 30 percent (or more). This in effect will offer a compromise to both sides. The utilities will receive a rate increase
closer to what they claim is necessary, and utility customers will not get slapped with an immediate, all-at-once
increase in their electricity bills. However, the CPUC probably will not approve any back billing that the utilities have
also demanded. Both PG&E and SCE have claimed that their stranded costs were probably paid off months ago,
meaning that the rate freeze still in place for both utilities should have been lifted as a result. That theory being
accurate, both companies want to bill their customers retroactively to the date that the rate freeze should have been
lifted, which on its own could amount to several billions of dollars. Under the current arrangement, the rate freeze is
scheduled to stay in effect until March 2002, unless lifted by the CPUC.

Meanwhile, the question about the financial solvency of both PG&E and SCE continues to loom, SCE's parent, Edison
International, announced that it has eliminated its fourth-quarter dividend and reduced its work force by 400 jobs
because of financial problems related to SCE. In a statement last week, PG&E CEO Gordon Smith acknowledged that
PG&E has "virtually exhausted its financial resources” because it has borrowed on average $1 million per hour to pay
for power that it is obligated to provide to California consumers.

Both utilities have argued that the real cause of the problem in the state is the generators who unjustifiably continue to
charge exorbitant rates for power on the wholesale market. There may be some validity to this theory as power
generators who operate in California know that the state's [OUs have essentially been stripped of their own ability to
generate power and thus are heavily dependent on power bought on the wholesale market. This has given an enormous
amount of market power to the generators and allowed them to change rates that are not reflective of their own costs.
Some reports indicate that generators are charging as much as 30 times what it costs them to generate power. Yet,
without a cap on wholesale rates, generators remain able to charge whatever price the market will bear.

Duc to these high costs, some power generators have begun refusing to sell power to the California [OUs, out of fear
that the utilities will not be able to pay their bills. In an ironic twist, the same companies that have expressed concern
about selling power to PG&E and SCE actually own and control the plants that were divested by the two utilities as
part of their agreements in the state’s restructuring plan. Thus, companies outside of (and inside) California that own
California plants are refusing to sell power back into the state, power produced at plants that were once owned by
PG&E and SCE.

As a result, PG&E went on record last week saying that it may not have cnough power to serve customers in February
unless additional rulings come from the CPUC. PG&E says that it has enough power to supply customers through

01241

01200000000597


SEC Speech: Advancing Investors’ Interests (R. Herdman) Page 7 of 12

urged the Board to produce guidance for consolidation of special purpose
entities.

Some find it controversial when this is done formally, because the SEC is
sometimes seen as “dictating FASB's agenda." But such involvement with
agendas of standard-setters is an important part of our job, and I intend to
work hard to keep open lines of communication with the standard-setters.

Let me give you an example. With over 50% of SEC enforcement cases
being related to revenue recognition, there is a clear need for broad-based
principles. The FASB is considering adding such a project to its agenda and,
as Ed Jenkins knows I encourage it to do so.

Once standard setters have added projects to their agendas, they incur an
obligation to get the job done in a quality, timely and operational manner.

Standard-setting is a very difficult business, Standard-setters must
consider the interests of and input from many constituencies as they strive
to ensure companies provide investors with transparent, neutral
information about their performance. That is why groups like the FASB and
IASB operate in an open forum subject to a full comment process.

I think standard-setters should keep one word in mind as they develop
standards-balance, This includes avoiding complexity while providing
sufficient implementation guidance to ensure comparability among
companies and ensuring that relevant information is reliable. We all play a
part in this effort and need to realize that for the product as a whole to be
its best we will not always get our favorite rule or exception.

And lastly, in this Internet age, speed to completion is a key attribute for
standard-setters.

Another issue facing standard-setters is the need for convergence of
domestic and international accounting standards, Converging accounting
standards is critical to a continued, efficient expansion of our global capital
markets. Standard-setters should be cognizant of the effects on
international accounting as they carry out their activities in the future, and
I hope that convergence becomes a more near-term objective. Time does
hot permit a full discussion of my views on international accounting today,
but it will be a major focus for the Chief Accountant's Office.

With the continuing pressure to increase the efficiency of our global
markets, there is plenty of work ahead for the standard setters and I look
forward to working with them.

No Rule-Making By Speeches

The first time I spoke with Chairman Pitt about my coming to the SEC we
compared notes about our priorities. As you might expect by virtue of the
fact that I am here today, we found much in common. And near the top of
both lists was a commitment to address concerns that there has been rule
making by speeches!

As | mentioned earlier, the GAO recently reviewed the operations of the

files//C:\WINDOWS\Temporary%20Internet%20Files\OLK4274\SEC%20Speech' 0 1 5 5 8
01200000000212


{(b)(5)]

Please review and let me know your thoughts.

Thanks,
mike
Tracking: Recipient Delivery Read
Stewart, Lawranne Delivered: 21401 5:07 PIA Read: 213001 5:13 PM

02455

01300000001064


whether the comparison was apt, and the Department of the Treasury advised that it was not apt as a
result of Secretary Fisher's review,” Fleischer recounted.

- Peter Fisher to center stage once again. As a senior official of the Federal Reserve Bank of New
York, Fisher played a leading role in cobbling together a non-government-funded financial Heimlich
Maneuver for the strickened LTCM, animinated in that effort by concerns of systemic risks. Sounds
like Lay was trying to float the systemic risk possibility - and Fisher blew it away.

Told by a questioning reporter that it sounds like Lay was asking for a bailout, the White House Press
Secretary said, "| don't characterize it one way or another, | just report to you what was said. | leave
the characterization to others. That was the conversation with Secretary O'Neill.”

He later added that O'Neill told him the O'Neill-Lay conversation occurred in October.

- With respect to the O'Neil! and Evans conversations with Lay, Fleischer told reporters, "This
morning, Secretary O'Neill and Secretary Evans made the information known, and we immediately
shared it and provided it to you.”

Asked specifically when President Bush learned that the two secretaries had talked to Lay, Fleischer
said, “This morning.”

- Attorney General John Ashcroft, another recipient of Enron campaign contributions during his
unsuccessful Senate race in 2000, recused himself from the Enron investigation, as did David Ayers,
Ashcroft's chief of staff who previously served as his campaign manager.

Earlier in the day, Fleischer at the White House had said that “the president has full faith and
confidence in the professional prosectors of the Department of Justice, and in the attomey general, to
get to the bottom of ail the allegations of criminal wrongdoing by Enron."

- Speaking of the president and Enron, Fleischer was asked when Bush learned of Enron's financial
difficulties. "He learned last fall," the press secretary said.

"And | couldn't tell you if he learned as a result of media accounts when everybody wrote that Enron
had gone bankrupt or through other any other mechanism," Fleischer added, "He learned last fall.”

01200000001530


Nickoloff, Peter

From: Roseboro, Brian

Sent: Tuesday, January 15, 2002 7:24 AM
To: Nickoloff, Peter; Kmalmgre (E-mail)
Subject: FW: op-ed by Chairman Pitt

FYI

Original Message-—-~

From: Wiedman, Mark

Sent: Monday, January 14, 2002 6:55 PM

To: (Clanda, Richard; Warshawsky, Mark; Smetters, Kent; Worth, John; Huffman, Lucy; Roseboro, Brian; Myers, Juke
Ce: Flanagan, Rosemary; Fisher, Peter

Subject: opred by Chairman Pitt

Here's a good op-ed from Chairman Pitt,

SEC Putte Siatersent
Howto MY

01568

01200000000223


{(b)(5)]

Norman
—-~Original Message—--
From: Hammond, Donald
Sent: Thursday, February 15, 2001 8:26 AM
Tor DeMarco, Edward; Bilis, Dina; Huffman, Lucy; Carleton, Norman; McInerney, Roberta; Constantine, Eleni; Hughes, Gerry; Stewart,
Laweanne

Ce: Tishuk, Brian; Robins, Eric
Subject: RE: Bankruptcy Reform Mark-up Hearing

Ed,
{(b)(5))

Don
—-—Criginal Massage——
From: Eoward
Sent: ‘Thursday, February 15, 2001 8:22 AM
To: Hammond, Donald; Bilis, Dina; Huffman, Lucy; Carleton, Norman; McInerney, Roberta; Constantine, Eleni; Hughes, Gerry; Stewart,
Lawranne
Ce: Tistwk, Brian; Robbins, Enc
Subject: FW: Bankruptcy Reform Mark-up Meering

FYI

_ Message-~--
From: Robbins, Eric

Sent: Wednesday, February 14, 2001 5:45 PM
To: DeMarce, Edward

Cex Tishuk, Brian

Subject: Bankruptcy Reform Mark-up Hearing

((0(5)]

02501

01300000001110


Page | of 2

Wiedman, Mark
From: Carleton, Norman
Sent: Friday, January 11, 2002 9:47 AM

To: Cetina, Jill, Bair, Sheila; Berardi, Steve; Bitsberger, Timothy. Eichner, Matthew, Gabilondo, Jose;
Gross, dared; Hammer, Viva; Lori Sanatamorena oe cal lickoloff, Peter, Novey, Michael.
i, Fred, Roseboro, Brian; Schultheiss, Heigilynne; Whaley, Jean, Wiedman, Mark

‘Subject: FW: 1BN ) Treasury's O'Neil Comments on Enron Calls, Disclosur

Original Message-—---

From: LoriSantamorena@opd.treas.gov [mailto:Lori.Santamorena@bpd.treas.gov]
Sent: Friday, January 11, 2002 8:40 AM

To: norman.carieton@do.treas.gov

Subject: 18N ) Treasury's Nell Comments on Enron Calls, Disclosur

Forwarded by Lor! Santasorena/Spn ce 01/1 1399 aN
*PURLIC DRBT, US DEPT OF TREASURY"
<Gfkfmbloomberg.net> To: Leantancrunatnpd, treas.gov
ee:
Subject: | Treasury's O'Neill Comments on
@1/l1/02 08:27 AM Enron Calls, Disclosur

Treasury's O'Neill Coementa cn Boren Calls, Disclosure ules
2002-01-10 29:35 Mew vark}

Mashington, Jan. 10 (Bloomberg! -- the following are commate
fron U.S, Treasury Secretary Paul O'Neill on his ccaversationa
vith Enron Corp.'s chairran Ken Lay prior te Enron's bankruptcy
anda review by government regulators cf the adequacy of corporate
disclosure rules. O'Neill spcke during interviews co Cable Kews
Network and CNBC.

“"My firet call from Ken Lay was for hin to give we a heade-
up that they were stroggling and to offer the president of his
company to mpenk with the Undersecretary of Demeatic Finance
[Peter Fisher) to understand the pooiticna they had #o we could
make ure that ve were taking care of cur reaponaibility, which is
to make sure that the U.S. capital markets work,'' O'Nelil told
cm

“That was the purpose of Ken's call to me, to let me knew we
were welcome to have access to information so ve could understand
what they were doing and the possible exposure te the world's
capital sarket

““The second call, Ken called me to tell me they were in
discussions with Dynergy and it was an information-only call.
Subsequently, (Comserce Secretary) Don Evans called me to say he'd
bed a call and thet Ken bad told him that rating agencies were
looking at thes and there wan real concern if the rating agencies
Gowngraded thee that that could effectively scupper the desl with
Dynergy,'' be said.

00 whet he did foltewieg the calli

tly asked {Fiaher) to speak with the Enzon
people, hich he did, ac that we could saticty ourselves that the
Enron affaire were not gaing to have a negative impact an U.s
capital markets,'' O'Neill told CNBC,

Om vhetber he thinks ethics rules were broken:
“"7 chought it wae Basiness az uaua},'' he told CwEC. ~
calle every day fron the big players in the world. Enron was the

1/16/2002

01200000000025


Carleton, Norman

From: Carleton, Norman

Sent: Wednesday, ist 29, 2001 11:56 AM

To: Novey, Michael; Eichner, Matthew; Hammer, Viva

Subject: FW: Status of Retail Swap Study and the Enron Issue

Original Message—--

From: Carleton, Norman

Sent: ‘Wecnesday, August 29, 2001 11:15 4M

Tor Fisher, Peter; Roseboro, Brian; Bair, Shela; Nickoloff, Peter; Schulthelss, Heiddynne;
Jared; Smith, Amy; Sutton, Gary; Bilett, Martha; Gatriondo, Jose; McInerney,

Subject: Status of Retall Swap Study and the Enron Issue

{(b)(5)]

DeMarco, Edward; Hughes, Gerry; Gross,
Roberta; ‘Lori Sanatamorena (E-mail)

Any thoughts or recommendations? | will send around a Seperate note discussing the Enron issue in more detail.

Tracking: Recipient
Novey, Michae!
Eichner, Matthew
Hammer, Viva

Delivery

Delivered: 8/2901 11-58 AM
Delivered: 4/2901 11:58 AM
Delivered: 8/2901 11:58 AM

Read
Read: 8/3001 12:50 AM
Read: 82901 11:12 PA

02426

01300000001035


From: Jana Carter

To: DOM3.DOPO6(SHELTONA), MCGIVERNT
Date: 6/16/89 10:35am

Subject: bankruptcy legislation -Forwarded -Reply -Reply
{(b)(5)}

thanks—Jana

>>> Tom MeGivern 08/15/99 05:32pm >>>
((b)(5)]

Enron and its outside counsel, Cadwalader, have proposed some changes to the Working Group's proposed
financial netting legislation. The proposed changes were mentioned briefly at the last Working Group meeting.
Since that time Enron/Cadwalader have asked to meet with some part of the Working Group staff to discuss their
proposals which, as Norman mentioned in another email, generally are not supported by Working Group staff who
have reviewed them,

((b)(5)]

>>> Norman Carleton 06/15/98 04:48pm >>>
Alison,

{(b)(5)]

ce: Dom13.DOPO7(HUFFMANL), DOM3.DOPOS{TooheyF), DOM3.D...

02506

01300000001115


From: Lee Sachs

To: DOPOS.TeoheyF. GREENEMI, MCGIVERNT, NICKOLOFFP, ST._
Date: OIT5/99 11:27an
Subject: Enron's Bankruptcy Proposals -Reply

Jef's discuss at put 12-30 derivatives meeting.

>>> Norman Carleton 09/15/99 11:18am >>>
Representatives of Enron have given their proposed amendments to the bankruptcy netting provisions to staff of the
Senate Agriculture Committee. They hope that it will be included in a managers’ amendment.

{()(5)}

Comments. suggestions?
cc; DOPOS.LEVINEM

02519

01300000001128


{(b)(5)]

02151

01300000000760


From:
To:
Date:
Subject:

{(b)(5)}

ce:

Norman Carleton
GENSLERG, Sachs, MCGIVERNT

5/27/99 4:32pm

Working Group Comments on Enron/Cadwalader Proposals -Reply

Dom13.00P07.MCCLELLANM, DOPOS.TooheyF, CARTERJ, MC...

02541

01300000001150


Bair, Sheila

From: Bair, Sheila
Seat: Thursday, January 10, 2002 4:27 PM
To: Pat Parkinson (E-mail)
Subject: FW: Text of PResident's announcement today
Importance: High
Sensitivity: Confidential
FY!
—-Orignel Message--—

From: Davis, Michele

Sent: Thursday, January 10, 2002 4:10 PM

To: Bair, Sheila; Fisher, Peter; Holahan, Betsy; Nichols, Robert; Gross, Jared
‘Subject: Text of PResident's ennouncement todey

Home </index.ntmi> > News & Policies </news/> </news/releases/2002/01/print/20020110-1,htmi>
< i

inews/rel e2se5/2002/01/prnt/ 20020110. 1 nm >
For Immediate Release Office of the Press Secretary January 10, 2002 President Calls for Review of

Pension Regulations and Corporate Disclosure Rules REMARKS BY THE PRESIDENT IN MEETING
WITH HIS ECONOMIC TEAM REMARKS BY THE PRESIDENT IN MEETING WITH HIS ECONOMIC TEAM The
Oval Office 9:42 A.M. EST THE PRESIDENT: Thank you all for coming. | met with my economic security
team last week to talk about ways to create jobs. We're meeting again with the components of the team
to talk about one part of economic security, and that's pension security. One of the things we're deeply
concerned about is that there have been a wave of bankruptcies that have caused many workers to lose
their pensions, and that’s deeply troubling to me. And so I've asked the Secretary of Treasury, Secretary
of Labor and Secretary of Commerce to convene a working group to analyze pensions, rules and
regulations, to look into the effects of the current law on hard-working Americans, and to come up with
recommendations how to reform the system to make sure that people are not exposed to losing their life
savings as a result of a bankruptcy, for example. As well, Secretary of Treasury, along with the SEC, the
Fed, and the CFTC, are going to convene a working group to analyze corporate disclosure rules and
regulations. In light of the most recent bankruptcy, Enron, there needs to be a full review of disclosure
rules, to make sure that the American stockholder, or any stockholder, is protected. And so, I think this is
an important part of, obviously, other investigations that are ongoing. The Justice Department announced
and informed us late yesterday that they're in the process of investigating aspects of the Enron
bankruptcy. The administration is deeply concerned about its effects on the economy. We're also deeply
concerned about its effects on the lives of our citizenry. I'll be glad to answer a few questions.

01200000000893


3/9/2000 draft letter to bankruptcy conferees

The Honorable Orin G. Hatch
Chairman

Committee on the Judiciary
United States Senate
Washington, D.C, 20510

The Honorable Patrick J, Leahy
Committee on the Judiciary
United States Senate
Washington, D.C. 20510

Dear Chairman Hatch and Senator Leahy:

{(b)(5)]

02530

01300000001139


DeMarco, Edward

Se TTT

From: Pedri, Melissa

Sent: Friday, January 11, 2002 2:52 PM
To: DeMarco, Edward

Subject: article

not sure if you saw this.....thought you might be interested,

ittp/Awww.cnn.com/2002/LAW101/1 1/enroniindex.html

01200000001249


Carleton, Norman

From: Carleton, Norman
Sent: Thursday, February 15, 2001 10:07 AM
To: Hammond, Donald; DeMarco, Edward; Ellis, Dina; Huffman, Lucy; Mcinemey, Roberta;
Constantine, Eleni; Hughes, Gerry; Stewart, Lawranne
Ce: Tishuk, Brian; Robbins, Eric; Paulus, Michael; Sutton, Gary; Huffman, Lucy; McGivern, Tom;
Nickoloff, Peter, Schultheiss, Heiditynne; Gross, Jared
Subject: RE: Bankruptcy Reform Mark-up Hearing
Don,
[(6)(5)]
Norman
~-n-Onginal Message———-
From: Hammond, Donatd
Sent: Thursday, February 15, 2001 8:26 AM
To: DeMarco, Edward; Bilis, Dina; Huffman, Lucy; Carleton, Norman; McInemey, Roberta; Constantine, Eleni; Hughes, Gerry; Stewart,
Lawranne
Ce: Tistuk, Brian; Rebbirs, Enc
Subject: RE: Bankruptcy Reform Mark-up Hearing
Eq,
{(b)(5))
Norman,
{(b)(5)]
Don

02485

01300000001094


[(b)(5)]

02012

1300000000620 ©


Carleton, Norman

From: Ellis, Dina

Sent; Thursday, March 15, 2001 5:59 PM

To: Fisher, Peter; Paulus, Michael; Carleton, Norman
Ce: Gross, Jared

Subject: RE: Enron Meeting Request

seems ok to me...should be run through GC.

ocr Message
Fisher, Peter
Sent ‘Thursday, March 15, 2001 5:31 PM
Tor Paulus, Michael; Elis, Dina; Carleton, Norman
Cc: Goss, Jared
Subject: RE: Enron Meeting Request
| also see no reason to object
---~-Original Message—-—

From: Panis, Michact

Sent: Thursday, March 15, 2001 5:27 PM

Te: Bits, Cina; Fisher, Peter; Carteton, Norman
Ce: Gross, Jared

Subject: Erron Meeting Request.

Jeff Sxiting. President and CEO of Enron has requested 4 a vane? wilh the Secretary for April 5 to discuss the
West Coast energy crisis. | see no reason to object. Thor

02697

01300000001306


{(b)(5)]

01998

01300000000606


Nickoloff, Peter

From: Roseboro, Brian

Sent: Tuesday, January 15, 2002 7:20 AM
To: Nickoloff, Peter; Kmaimgre (E-mail)
Subject: FW: financial mkts working group
FYI

on Original Message-——

From: Oarida, Richard

Sent: Monday, January 14, 2002 6:43 PM

To: Carida, Richard; Wershewsky, Mark; Smetters, Kent; Worth, John; Huffman, Lucy; Wiedman, Mark; Roseboro, Brian; Myers, Julie
Cc: Flanagan, Rosemary; Fisher, Peter

Subject: RE: financial mkts working group group

é)

Maul Hm

(Clarida, Richard] A recent interview with Mr Pitt

01564

01200000000218


Thanks,
Mike

; 02489

01300000001098


Page 1 of 1
Carleton, Norman

From:  Lori.Santamorena@bpd.treas.gov
Sent: Tuesday, December 04, 2001 2:06 PM

To: Norman,.Carieton@so.treas.gov
Subject: Re: NYT: Collapse of Enron May Reshape the Battlefield of Deregutatio

{(b)(5)]

02564

1/15/02

01300000001173


Page 1 of 3

Wiedman, Mark

From: — Lori Santamorena@bpd.treas. gov

Sent: Thursday, January 03, 2002 1:49 PM

To: Mark. Wiedman@do treas gov

Subject: NYT: Collapse of Enron May Reshape the Battlefield of Deregulatio n

Mark- luckily, still had this article on Bnron...as we talked about at lunch

Lori

warded by Gori Santamarens/BEO on 22/04/02 Obsb0 FM

Worman.Carletonsdo.treas.gov Sheil. Beiredo.treas.gov, Steve.erardinds.treas, gov.

Te:

Timachy.Nitebergerad treas.gov, Jill Cetinasds. ex

fatthed.tichmersos. cress, gore Jose Gabi landesdo. trees gov,

12/04/01 12:57 PH Jared. Gross&do.ctreag.gov, Viva.Maneersca,treas.gov, Leantanorenadopé. tri
Peter .Mickoloffeds.treas.gov, Michael Woveyéds,treag.gov,

Pred. Pietrangelivdo.treas.gov, Brsan,Roseboroddo. treae.g

Neidilynne Schultheise@do.treas.gov, Janna. Shareredo. tress gov,

Jean. Waaleyeds treas.gov, Mark. Wiedwaneda.creas.gev

scr
Subject MYT: Collapse of Enron Yay Rewhape the Battlefield of
Deregulatio a

Decenber 4, 2002

wusTNESS

Collapee ef Enron May Reshape the Battlefield of Deregulation

By JOSEPH KAHN and JEFF GEE

WASHINGTON, Dec. 3 - The bankruptcy of Enron (news/quote) has Washington
debating the way it overseas the $200 billion power industry. But there is
bo congendue an erasing the legacy of Geregulation that the company's
politieal largess helped forge.

Congressicnal leader and top regulators are moving forvard on what had been
Baron's Ne. 1 objective: a puen to reduce local ceatrol of slectricity
trananiasion lines so that energy merchants like the Enron Corporation can
wee then to transport and ell power.

But the politica of power are shitting, and some of Enron's loogstandil
Sppanonts - chiet song then the Southern Corpany of Atlanta, which owna
many local power monopolies - gee a freah chance to slow deregulation, or
even roll ic back

Asceg those who have called for inquiries into Enron's collay re
Representative Hilly Tauzin, & prosinent Republican frow Louisiana whe ia
chalrman of the House Energy and Commerce Comittee; the Senate majority
leader, Ton Dagchle, and Senator Jeff Bingaman, a Democrat of Nev Mexico who
is chairman of the Senate Energy and Natural Reaources Committee.

All are vowing to get to the bottom of one of the scet precipitous business
ERSESIE in Metory. And sone senbers of Cooaress say Enron's dovafall, on
the heele of California's energy meltdown early this year, proves that

01/16/2002
01200000000042


Carleton, Norman

—_—— — oo,
From: McInerney, Roberta
Sent: Wednesday, August 29, 2001 6:48 PM
To: Carleton, Norman
Subject: RE: More on the Enron Issue
{(b)(5)]
en Onginal Message"

From: Carfeton, Norman

Sent: Wednesday, August 29, 2001 2:41 PM

To: Fisher, Peter; Rosebord, Brian; Bair, Shelta; Nickoloff, Peter; Schulthetss, Heidilynne; DeMarco, Edward; Hughes, Gerry; Gross,

Jared; Smith, Amy; Sutton, Gary; Enett, Martha; Gabliando, Jose; Mcinemey, Roberta; Lori Sanatamorena (E-mail); Novey,
Michael; Eichner, Matthew; Hammer, Vive
Subject: More on the Enron Issue

{(0{5)]

Thoughts?

02420

01300000001029


Nickoloff, Peter

Caen cance el

From: Deviin, Christine
Sent: Thursday, January 17, 2002 9:15 AM
To: Aufhauser, David; Clarida, Richard; Fisher, Peter; Flanagan, Rosemary, Hubbard, Glenn;

Huffman, Lucy, Kroszner, Randall; Maigren, Pippa; Murphy, Edward; Myers, Barbara;
Nickcioh Peter; Roseboro, Brian; Smetters, Kent; Warshawsky, Mark; Wiedman, Mark,
Worth, John

Subject: FW: [Fwd: AICPA response to Enron Bankruptcy]

PYI - trom Mark Warshawsky

ssece Original Message-----

Prom: Warshaweky, Mark

Sent: Thureday, January 17, 2002 9:12 AM

To: Devlin, Christine

Subject: PW: (Fwd: AICPA response to Enron Bankruptcy]

----- Original Message-
From: Pred Mittelstaedt [mailto:H.F.Mittelstaedt.1l@nd.edu]
Sent; Thursday, January 17, 2002 8:28 AM

To: Mark. Warshawskyede.treas.gov

Subject: (Pwd: AICPA response toe Enron Bankruptcy)

I thought that you might like to see this. Fred
AICPA_Management wrote:

January 16, 2002

>
>
>
>» To Members of the AICPA:

>

> As you are aware, the bankruptcy of Enron hae put unprecedented focus on the accounting
profession and ite

>» self-regulatory system. The AICPA, in recognition of its public interest
responsibilities, and at the insistence of the

> SEC, is developing a new regulatory model that represents a significant and substantive
change from current

> self-regulatory processes, This model would affect all firms doing SEC audits.

>

> The accounting profession has a successful, 100-year tradition of self-regulation, which
has contributed to the moat

> respected financial reporting aystem in the world. This is a tradition to which we have
been and are deeply committed.

> To maintain this commitment to excellence and support public confidence in America’s
security markets, we have always

> responded to valid criticisms and addressed market changes and environmental issues that
demanded our scrutiny.

>

> With this commitment in mind, we are diligently working to improve the profession's peer
review and disciplinary process

> as it relates to auditors of SEC regiatrants. Our objectives are to include public
participation and increase

> transparency, effectiveness, and timeliness.

>
> While the current self-regulatory model provides for significant public oversight over
the SECPS peer review process,

> there is no public oversight over discipline. Under the new model being explored, there

would be significant public
01853

01200000000509

1


the
inquiry, and that can be any number of people. That's why I say that,
Wendell.

Q On the Enron, is there concern that the White House and the
administration is in kind of a no-win situation -- one, if you all, and
Cabinet
officers, if they had taken action, that could be interpreted as helping a
corporate -- back a political sponsor; or, on the other hand, not doing
enough
at a time when people's savings are going down the drain?

MR, FLEISCHER: The President's approach is that people need to be
aaa’ this needs to be fully investigated to determine if there was any
Sronsdeing by Enron, And the administration has launched a criminal
investigation at the Department of Justice. The Department of Labor has
Peeking inte this since early December, in terms of wrongdoing by Bnron, in
effort to protect people's pensions.

And the President is focused not only on a criminal probe, through his
administration, but on policy changes, because there are lessons to be
tee tect pensioners and investors and employees in other companies who
going to retire. That's the President's focus. And if anybody else wants
focus on politics, that's their prerogative; but the President's focus is
on

getting to the bottom of this fully, theroughly criminal investigation and
a
thorough policy review.

Aside from the policy changes and the lessons in that, would he
consider some kind of help for the Enron employees who were basically
stuck,

unable to sell their stock as their pensions dwindled?

MR. PLEISCHER: You should take a look at a release put out by the
Department of Labor in the first week of December, where they announced the
investigation of Enron and the pensioners. The Department of Labor has a
Pension and welfare division that i# responsible for that, This is the

argest

bankruptcy in America's history; but, obviously, our vibrant economy has
had

many bankruptcies -- bankruptcies are not uncommon aff.
economy.

s in a vibrant

And there are other employees who worked at companies where the
companies
went bankrupt. The Department of Labor has provisions that are designed to
protect workers from bankruptcies, dealing with the obligations and the
credits
of bankrupt organizations. So Department of Labor is on the case, doing
its
job.

Q As the President's communicator, what do you make of all of the
many

Dewspaper headlines today that say this is going to dog him for the rest of
th

administration?

MR. FLEISCHER: The headlines I saw today, as the front page of the
USA

Today, one of the widest read papers in America, said "Bush Launches Probe

; 00712

Protect 401(k)s.*
01200000000057


Carleton, Norman

—___—_—
From: Hammond, Dr
Sent: Thursday, Februar 6 2001 10:25 AM
To: Carleton, Norman; DeMarco, Edward, Ellis, Dina; Huffman, Lucy; McInerney, Roberta;
Constantine’ Elen: Eleni, Hughes, Gerry; Stewart, Lawranne
Ce: Tishuk, Brian; Robbins, Eric; . Michael; Sutton, “cary; Huffman, Lucy; McGivern, Tom;
Nickoloff, Peter; Schuttheiss, Heidilynne; Gross, Jared
Subject: RE: Bankruptcy Reform Mark-up Hearing
Norman,
[(b)(5)]
Don
~-—-Original Message--—
From: ‘Garteton, Norman
Sent: Thursday, February 15, 2001 10:07 AM
To: Hammond, Donaki; DeMarco, Edward; Elis, Dina; Huffman, Lucy; McInerney, Roberta; Constantine, Eleni; Hughes, Gerry; Stewart,
Lawranne
Cc: ‘Tishuk, Brian; Robbins, Eric; Paulus, Michael; Sutton, Gary; Huffman, Lucy; McGivern, Tom; Nickolaff, Peter; Schulthess,

Heidilynne; Gross, Jared
Subject: RE: Bankruptcy Reform Mark-up Hearing

[(b)(5)]

Norman
----Onginal Message-—-

02483

01300000001092


From: Norman Carleton

To: Sachs, MCGIVERNT, GREENEMI, STEWARTLAW, NICKOLOFF...
Date: 15/99 11:18am
Subject: Enron's Bankruptcy Proposats

Representatives of Enron have given thelr proposed amendments to the bankruptcy netting provisions to staff of the
Senate Agriculture Committee. They hope that it will be included in a managers’ amendment.

{(b)(5)]

Comments, suggestions?

02549

01300000001158


Carleton, Norman

Sent Giecnesdey, Fabr 2001 2:34 PM

nt: . February 14, 12:

To: Suton Gay

Subject: RE: Proposed Changes to Netting Bill - Comments

No. I don't think they will.

soeee Original Message----~

Prom: Sutton, Gary

Sent: Wednesday, February 14, 2001 2:21 PM

To: Carleton, Norman

Subject: RE: Proposed Changes to Netting Bill -- Comments

Has the CFTC put out a draft yet?

were Original Message-----

From: Carleton, Norman

Sent: Tuesday, February 13, 2001 5:05 PM

To: Sutten, Gary; Bllis, Dina; Nickoloff, Peter; Schultheiss,
Heidilynne; McInerney, Roberta

Cc: Paulus, Michael

Subject: FW: Proposed Changes to Netting Bill -- Comments

toon-4 Original Message-----

From: Krimminger, Michael H. {mailto:MKriominger@FDIC.gov]
Sent: Tuesday, February 13, 2001 4:47 PM

To: 'norman.carletonédo.t: stephanie. martingfrb.cgov';
*Tom.McGivernédo.treas.gov'; jec.gov'

Cc; DeLoose, Michael; Ivie, Stanley R.; Tishuk, Barbara Starke
Subject: Proposed Changes to Netting Bill -- Comments

{(b)(5))

02472

01300000001081


November 6, 2001

TO: Norman Carleton
Office Director
Office of Federal Finance Policy Analysis

FROM: Heidilynne Schultheiss
Financial Analyst
Office of Federal Finance Policy Analysis

SUBJECT: Chronology of Enron Events and Recent Financia! Turmoil

Background

The stock and debt prices and credit ratings on Enron Corp. fell precipitously following
the disclosure of a third quarter loss, possible accounting irregularities, questionable related party
arrangements with company officers, and an SEC formal investigation in October 2001. The
following chronology of events preceding and through the recent financial turmoil at Enron
summarizes publicly available imperfect information for a company renowned for its opacity and
reluctance to disclose information. It was compiled from an assortment of public sources whose
accuracy and completeness cannot be independently verified, and thus must be evaluated
cautiously in that context,

Pre-Turmoil Enron Chronology

Enron was formed in July 1985 as a result of the merger of two troubled gas pipeline
firms, Houston Natural Gas and InterNorth of Omaha, Nebraska, creating an interstate natural
gas pipeline company. Enron first became involved in derivatives transactions in 1989, when
GasBank, the precursor to the North American and European wholesale trading business, was
launched and Enron began trading natural gas commodities. Following the deregulation of the
U.S. natural gas industry, the market revised its methods of contracting for gas in the wholesale
market. GasBank allowed producers and wholesale buyers to purchase firm gas supplies and
hedge the price risk of the new spot market simultaneously. Enron subsequently transformed
itself from a natural gas pipeline company into a more diversified energy company, specializing
in electricity, water, and bandwidth telecommunication markets, as well as risk
transference/derivatives markets. In 1999, Enron launched EnronOnline, the first global web-
based commodity trading site, and Enron subsequently became the world’s largest e-commerce

company. In 2001 it was estimated that 25 percent of OTC energy contracts were transacted by
or through Enron.

In 1990, Andrew Fastow, who would later become its controversial CFO, joined Enron.
At least as early as 1993, Enron was creating arrangements that allowed it to bring in outside
equity and borrow large sums for asset purchases without revelation on its balance sheet. It is
thought that Enron was attempting to restrain its debt load in order to maintain its credit rating
and sustain its tremendous growth. One such arrangement involved CALPERS.

! 01984

01300000000592


3/9/2000 draft letter to bankruptcy conferees

The Honorable Henry Hyde

Chairman

Committee on the Judiciary

United States House of Representatives
Washington, D.C.

The Honorable John Conyers, Jr.
Committee on the Judiciary

United States House of Representatives
Washington, D.C.

Dear Chairman Hyde and Representative Conyers:

{(0)(5)]

02532

01300000001141


SEC Speech: Advancing Investors’ Interests (R. Herdman) Page 3 of 12

about my plans.
Three-point Plan to Advance the Interests of Investors

I want to discuss with you a three-point plan for the SEC, the corporate
community, the accounting profession, and private sector standard-setting
bodies to work together to advance, not just protect, the interests of
investors.

Why do I make that distinction? As you all know, we at the SEC are sworn
to protect investors. And doing so can include a wide variety of actions. I
believe that by taking a proactive, inclusive approach we can do better than
that — we can actually make investors better off by providing them with
higher quality and more timely information. To do that means that we at
the SEC adopt Chairman Pitt's philosophy that government is a service
industry. It means that you all have roles to play, as well, And, with that
said, here are the three points:

e First, working together to get it right the first time. Our capital
markets are much more efficient if the financial statements you
prepare, or audit, reflect appropriate accounting policies and contain
appropriate disclosures. Getting it right after a restatement resulting
from a staff review or enforcement action by the Commission will still
be possible, but it’s far less desirable.

« Second, working together to improve the effectiveness of the
standard setting processes, To maximize the effectiveness of
standard setting, we must work together to ensure that the
appropriate parties are working on the right things and doing so in a
timely manner. By working better together, we can make our world
class system of standard setting and the application of those
standards more responsive to the information needs of investors.

* Third, working together to modernize financial reporting and
disclosure. I envision this part of the plan as a series of incredibly fun
things we can do together to shape financial reporting and disclosure
for the future. This effort will include looking at the types of
information disclosed and the nature and timing of how disclosure
occurs, This also will include the knotty issue of international
accounting. More modern financial reporting should equate to more
transparency to investors and more efficient capital markets.

Point 1—Working Together to Get it Right the First Time

Now, to point 1—working together to get it right the first time. Over the
years, one of the things that has truly distinguished the SEC as an agency
has been the willingness and ability of its staff to provide interpretative
guidance. We want to enhance that process!

In the area of accounting, the method of interpretation that first comes to
mind is the pre-clearance process. Many of you are aware of and have
utilized the pre-clearance process—in which you discuss an anticipated
event, & planned transaction or other accounting matter with the staff. You
ask us to concur with—and hope that we will respond that we do not object
to—your proposed accounting.

file://C:\WINDOWS\Temporary%20Internet'%20Files\OLK4274\SEC%20Spex 0 1 5 54
01200000000208


Carleton, Norman

_ —— ET
From: Carleton, Norman

Sent: Tuesday, February 20, 2001 4:00 PM

To: McGivern, Tom

Subject: RE: Briefing on Technical Changes

I think anyone who wants to attend should just go to the meeting. 1 don't expect hordes.

Incidentally, you missed the meeting today with Wall Street folks. When you have &
minute, I'd like to diseuss with you some of what they said, including the latest offer,
modified at the meeting, on the Enron proposal on swaps.

Thanks.
Norman

ae Original Message-----

Prom: McGivern, Tom

Sent: Tuesday, February 20, 2001 2:20 PM
To: Carleton, Norman

Subject: RE: Briefing on Technical Changes

Should we discuss who should attend, or should everyone who wants to go over?

~----Original Message-----

From: Krimminger, Michael H. [mailto:MKrimminger@FPDIC.gov]

Sent: Tuesday, February 20, 2001 1:09 PM

To: ‘Stephanie.Martin®frb.gov'; ‘norman, carleton@do.treas.gov';
'#carleyacftc.gov'; 'nancy.michaleski@occ.treas.gov'; ‘MooneyJ@sec. gov";
‘Joyce .Hansen@ny.frb.org'; ‘Michael ,Nelsona@ny,frb.org';

‘Tom. McGivern@do.treas.gov'

Subject: Briefing on Technical Changes

Please inform other attendees in your agencies that the meeting will be at
1730 Pennsylvania Avenue in the 6th fleor conference room. We will have
someone there to meet you when you arrive around 10 a.m.

Thanks,

Mike Krimminger

Tracking: Recipient Delivery Read
McGivern, Tom Delivered: 2/2040 4:00 PM Read: 2/2001 7:56 PMA

‘ 02499

01300000001108


{(b)(5)]

Attachments

{(b)(5)]

02157

01300000000766


From: @x.mail."Eric.Foster@ny.frb.arg*

To: ex.mai"Norman Caneton"), OOM3.DOPOR{CARLETONN)
Date: 6/2/99 8:38am

Subject: Fwd: commants

see atlached comments

02537

01300000001 146


Bitsberger, Timothy

From: Carleton, Norman
Sent: Monday, January 07, 2002 2:18 PM
To: Bair, Sheila; Berardi, Steve; Bisberger, Timothy; Elchner, Matthew, Gabilondo, Jose; Gross,

Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey, Michael;
Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman, Mark
Subject: DJ: IntercontinentalExchange Trade Volume Grew 1.500% In 2001

{(0)(5)}

Norman

January 7, 2002
IntercontinentalExchange Trade Volume Grew 1,500% In 2001

NEW YORK -- IntercontinentalExchange, an online energy and metals marketplace, grew its trade
volume 15-fold and increased the number of participating firms and users more than 400% in 2001,
ICE said Monday.

ICE volume and new-user interest skyrocketed in the autumn as Enron Corp. (ENE) filed for
bankruptcy protection and suspended trade on its EnronOnline Internet-based trading platform.

Capping off the year, ICE set a new daily record Dec. 27 with natural gas trading of 500 billion cubic
feet, breaking by 18% the previous daily record set Dec. 4, ICE said

More than 400 commodity trading firms execute trades on ICE. The platform matches many buyers
and sellers, providing less counterparty credit risk than platforms offering the same counterparty in
every deal.

Intercontinental Exchange, based in Atlanta, launched its metals trading on the Internet in August
2000 and its energy trading in October 2000.

ICE partners include American Electric Power Co. (AEP); Aquila Energy (ILA); BP Amoco PLC (BP),
Deutsche Bank AG (G.DBK); Duke Energy (DUK); El Paso Corp. (EPG), Goldman Sachs Group
(GS); Morgan Stanley Dean Witter & Co. (MWD); Reliant Energy (REI), Royal Dutch/Shell Group
(RD); Societe Generale SA (F.SGF) unit SG Investment Banking; Mirant Corp. (MIR), TotalFina Elf
SA (TOT); and Continental Power Exchange, which provided the trading technology and
management team.

-By Stephen Parker, Dow Jones Newswires; 201-938-4426; stephen.parker@dowjones.com

01200000001408


Page 1 of 3

Wiedman, Mark

From: Wiedman, Mark

Sent: Friday, January 11, 2002 6:10 PM

To: Carleton, Norman

Subject: RE: 1BN ) Treasury's O'Neill Comments on Enron Calls, Disclosur

| haven't heard from Sheila on the e-mails, though I've checked. [(b)(5)
err Nears on ough I've ((b)(5)}

----Original Message--~-~

From: Carleton, Norman

Sent: Friday, January 11, 2002 9:47 AM

To: Cetina, Jill; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gabilondo,
Jose; Gross, Jared; Hammer, Viva; Lori Sanatamorena (E-mail); Nickoloff, Peter; Novey, Michael;
Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean; Wiedman, Mark
Subject: FW: 1BN ) Treasury's O'Neill Comments on Enron Calls, Disclosur

From: Lori.Santamorena@bpd.treas.gov [mailto:Lori.Santamorena@bpd.treas.gov}
Sent: Friday, January L1, 2002 8:40 AM

To: norman.carleton@do.treas.gov

Subject: 1BN ) Treasury's O'Neill Comments on Enron Calls, Disclosur

+ Forvarded by Lori Santamorena/@?0 on 62/11/92 98039 AM
"PUBLIC DEBT, US DEPT OF TREASURTTM

<GeRoabloosberg.net> laantanorenasbpd.creas_gov

ect 188) Treasury's O'Neil] Comments o
on/2i/o2 08:27 AM , Disclosur

Treasury's O'Neill Comments on Enron Calls, Disclosure Rules
2002-01-20 19:38 (thew York)

Washington, Jan. 10 (Bloomberg) -- The following are comments
fron U.S. Treasury Secretary Paul O'WeSl1 ca his conversations
with Enzon Corp.'s chairmen Ken Lay prict to Enrca's bankruptcy
and « review by government regulators of the sdequacy of Sosporace

mews

disclosure rules. O'Neil] spoke during interviews on Cable
Network and CNBC.

“My firet call from Keo Ley was for him to give mes beads-
up that they were struggling and to offer the president of his
company to speak with the Undersecretary of Dowestic Finance
(Peter Fisher| to understand the positions they had so ve could
sake sure that we were taking core of our responsibility, which is
to make oure that the 0.8. capital earketa vork,** O'Melll told

“*“That was the purpose of Ken‘# call to me, to let me know we
were welcome to have access to infarration ao we could underetand

what they were doing and the possible exposure to the world’s
capital markets.

“the aecend call, Xen called se to tell we they were in
01/16/2002

01200000000053


SEC Speech: Advancing Investors’ Interests (R. Herdman) Page 6 of 12

Now let me talk about the responsibilities of registrants and auditors when
working together with the SEC staff to get it right the first time.

As has been said before, we encourage registrants to pre-clear with us
novel and unusual accounting questions. When you do so, please follow our
protocol and send us a clear and comprehensive submission, The
submission should explain the business purpose of the transaction,
accounting alternatives considered, and the reasons for your proposed
accounting treatment.

If you elect to pre-clear an issue with us, you should discuss it with your
auditors, including their national office technical experts, before coming in
to see us. We will want their insight prior to giving you an answer. Often
times, their technical experts can provide you with an appropriate answer.

Do your best to think of the related questions we inevitably must consider
and provide us with your thoughts on those issues as well, For example, we
recently received an industry paper arguing that the intangibles
fundamental to their business should be afforded an indefinite life that
results in no amortization under new FASB Statement 142.

It was an excellent paper. It thoroughly explained the facts, including the
historical impact of the governmental and regulatory environment in which
the industry operates. In other words, it was compelling! Well, almost.

It did not tell us anything about how impairment would be evaluated. Since

objective impairment testing is fundamental to an appropriate application of
Statements 141 and 142, we must consider those issues as well. And while

we can deal with that situation by asking questions, it slows things down.

We have updated our protocol to include this idea of addressing the follow-
on questions, and we are going to ask you to include your proposed
disclosure as part of your submission.

As I mentioned before, once a particular practice is accepted, many view it
as a precedent, so transparent disclosure is essential to ensure
inappropriate analogies do not get started. And, even more important,
quality disclosure is key for investors.

In addition, when you submit your Issue to the staff, we would like you to
tell us about your audit committee's views about your proposed accounting
treatment.

Point 2—Working to Improve the Effectiveness of Standard Setting

The second of my three points is working to improve the effectiveness of
standard-setting. As I stated at the outset, the SEC staff is on the front line
of financial reporting by virtue of our day-to-day activities, From that
vantage point, we will sometimes see issues that look to us like they
require a broader resolution in the form of new or revised standards. Chief
Accountants at the SEC have made formal recommendations to the FASB
on such issues in the past, such as Mike Sutton with the accounting for
business combinations, and Clarence Sampson with measuring financial
instruments at fair value. And, in 2 speech last summer, my predecessor

file://C\WINDOWS\Temporary%20Internet%20Files\OLK4274\SEC%20Spe: 0 1 5 57
01200000000211


Weekly Activity Report, Federal Finance Policy Analysis, June 22,
1998

[OUTSIDE SCOPE]

. On June 18, DAS Anderson and staff, along with the General
Counsel and staff, met with Enron representatives to hear
their concerns about the CFTC concept release.

[OUTSIDE SCOPE}

02018

01300000000626


Sincerely,

Lawrence H, Summers

cc: The Honorable Charles E. Grassley
The Honorable Robert Torricelli

02531

01300000001140


DRAFT
January 10, 2002

TO: Norman Carleton

Director

Office of Federal Finance Policy Analysis
FROM: Heidilynne Schultheiss

Financial Economist

Office of Federal Finance Policy Analysis
SUBJECT: Dow Jones Newswires and Washington Post Articles on Enron and the
Commodity Futures Modernization Act of 2000

BACKGROUND

{(b)(5))

02150

01300000000759


From: Norman Carleton

To: SHELTONA, Dom13.DOPO7.HUFFMANL, MCGIVERNT
Date: G/15/99 4:52pm

Subject: More on Bankruptcy -- Enron

{(b)(5)}

ce: NICKOLOFFP

02546

01300000001155


> participation in the peer review and disciplinary systems for members and firms auditing
SEC registrants.

>

> The new disciplinary and peer review system for members and firms auditing SEC
registrants would be managed by a Board,

> a majority of whom would be public members.

>

>» The new peer review system would enhance the reviews for the largest firms, requiring a
more rigorous and continuous

> form of monitoring the quality of the audit process. The reviews would be administered

by the staff of the new Board.

>

> On Thursday, January 17, 2002, SEC Chairman Harvey Pitt will hold a press conference
regarding these matters. As a

> result, we expect stories te run in all national and trade media. The developments over
the next few weeks and months

> will no doubt be rapid, We will keep you updated through Http://www.AICPA.org as
solutions are solidified.

>
> The AICPA has been and will remain actively engaged in developing a new model for those
conducting SEC audits and in

> demonstrating leaderehip and responsibility to the public interest.

>

James G. Castellano, CPA
Chair of the AICPA Board of Directors

Barry C. Melancon, CPA
AICPA President and CRO

vuwvv¥WV

H. Fred Mittelstaedt

Professor of Accountancy

374 Mendoza College of Business
University of Notre Dame

Notre Dame IN 46556-5646

E-mail: mittelstaedt.1and.edu
Phone: (219) 631-5087
FAX: (219) 631-5255

‘ 01854

01200000000510


electricity and natural gas to houscholds and small businesses; the other half to bankrupt
Northpoint Communications and other technology investments, and the early termination of a
structured finance arrangement. Excluding the charge, Enron would have met market
expectations. Investors questioned Enron's ability to expand from its successful core wholesale
energy business and its level of transparency. Moody's reviewed Enron for downgrade. Its
debt-to-capital ratio increased to 50 from 46 percent, and it hoped to sell some assets to reduce it.
Enron did not disclose its large reduction in equity in its earnings release, but instead waited.

On October 17, conflict-of-interest questions were raised regarding limited partnerships
run by Mr. Fastow. The charge related to the early termination of certain structured finance
arrangements was quantificd as $35 million. Enron held a conference call with sccuritics
analysts and investors in which it disclosed that its shareholder equity contracted by $1.2 billion
to $9.5 billion as a result of Enron’s repurchase of 55 million shares from Fastow (Enron had an
average 913 million shares outstanding in the third quarter) at a lower price and the cancellation
of the partnership note. Enron characterized the reduction as a “result of Enron's termination of
previously recorded contractual obligations to deliver Enron shares in future periods.” An
analyst explained that Enron had promised that a certain amount of Enron’s shares would be
worth SI billion, and when they plummeted and fell below that value, Enron bought them back,
One analyst conjectured that Enron had treated the shares as a buyback, but had never issued
them. The SEC sent a letter to Enron notifying it that it was beginning an informal inquiry.

On October 22, Enron confirmed that it had received a request for information from the
Texas regional office of the SEC regarding its controversial partnerships with Fastow. Analysts
speculated that its Enforcement division was investigating possible violations of securities laws.
The SEC reportedly was reviewing whether the transaction terminations should have been
treated as a balance sheet item or a loss that affected reported carnings (accounting rules specify
that a company’s transaction in its own shares cannot produce profits or losses, whatever the
effect on cash flow); and whether the related-party transactions were properly disclosed under
Rule S-K, where a company must report transactions that exceed $60,000 with “any director or
executive officer.”! There was speculation that Enron had used the off-balance sheet
transactions to shift losses off its books to avoid an effect on its income statement. Enron’s stock
price fell 20 percent and it was the most actively traded NYSE stock with 36 million shares
traded. Concerns about Enron’s credit rating emerged. Enron stated that it had properly
disclosed transactions, was cooperating with the SEC, and was confident it would not default. A
class-action suit was filed in U.S. District Court in Houston alleging misrepresentation and
failure to disclose and write down investments. It alleged that Enron insiders sold $73 million of
their holdings during parts of 2000 and 2001.

On October 23, worries arose that Enron might have to issue large amounts of stock in
the next 20 months to noteholders to repay about $3.3 billion in notes ultimately guaranteed by
Enron for certain entities like the Marlin Water, Atlantic Water, and Osprey ventures if certain
trigger events occurred (such as credit downgrades), Marlin owes almost $1 billion in debt and

' However, FAS Statement 57 issued a broader disclosure directive regarding related party
arrangements involving a “material” piece of business between the company and a member of its
management,

+

01987

01300000000595


Bair, Sheila

From: Bair, Sheta
Sent: Thursday, January 10, 2002 4:53 PM
To: Duncan, John
Subject: FW: DJ: Arthur Andersen Says It Destroyed Documents Related to Enron Account
FYI.
on Onginal Message-———
From: Carleton, Norman
Sent: ‘Thursday, January 10, 2002 4:50 PM
To: Cetina, Jil; Bakr, Sheila; Berardi, Steve; Bitsberger, Timothy; Ekhner, Matthew; Gabllondo, Jose; Gross, Jared; Hamner, Viva; Lori
Sanatamnorenn (E-mail Nickoloff, Peter; Novey, Michael; Pletrangell, Frec; Roseboro, Brian; Schulthess, Heldiynne; Whaley, Jean;
Subject: 0): Arthur Andersen Says ft Destroyed Documents Related to Enron Account
January 10, 2002
Major Business News

Arthur Andersen Says It Destroyed
Documents Related to Enron Account

By JUDITH BURNS
Dow Jones Newswires

WASHINGTON - Arthur Andersen LLP, already under fire for its audits of Enron Corp., said it has
destroyed documents sought by federal law enforcement officials investigating the Enron debacle.

In a statement issued Thursday, Andersen said it notified the U.S. Justice Department and the
Securities and Exchange Commission that individuals at the firm “disposed of a significant but
undetermined amount" of documents relating to its work for Enron. The Houston energy company
declared bankruptcy in December after announcing it had overstated four-and-a-half years worth of
earings.

The document destruction includes paper documents and e-mail correspondence.

Andersen said it has instructed employees to retain all existing documents "until further notice."

In addition, the Chicago-based Big Five accounting firm said it has asked former Sen. John Danforth
(R., Mo.) to conduct "an immediate and comprehensive review" of the firm's policies on document
handling and recommend improvements.

Andersen said destruction of Enron documents occurred "in recent months" by individual employees
involved in auditing the energy company.

Michael Donovan, a Philadelphia attorney with Donovan Searles, LLC, which has filed a class-action
1

01200000000891


From: — Hamenand, Donald

Sent: Thursday, February 15, 2001 8:26 AM

To: DeMarco, Edward; Eilts, Dina; Huffman, Lucy; Carleton, Norman; McInemey, Roberta; Canstantine, Eleni; Hughes, Gerry; Stewart,
lawrarme

Ce: Tishuk, Brian; Rabbins, Eric

Subject: RE: Bankruptcy Reform Mark-up Hearing

Ea,
{(b)(5)}
Norman,
{(b)(5)}
Don
~- Original Message-——
From: DeMarco, Edward

Sent: Thursday, February 15, 200% 8:22 AM
To: Hammond, Donald; Bile, Bins; Huffman, Lucy; Carleton, Norman; McInerney, Roberta; Constantine, Eleni; Hughes, Gerry; Stewart,
Lawranne

Cc: Tishuk, Bran; Robbins, Eric

Subject: PW: Bankruptcy Reform Mark-up Hearing
FYI

~—-Onginal Message-—-

From: Robbins, Eric

Sent: Wednesday, February 14, 2001 5:45 PM
To: DeMarco, Edward

Ce: Tishuk, Brian

Subject: Bankruptcy Reform Mark-up Hearing

{(b)(5)}

02484

01300000001093


{(b)(5)]

ISSUE AND DISCUSSION

{(b)(5)]

01508

01200000000162


WS].com -- From the Archives Page 4 of 4

Copyright © 2002 Dow Jones & Company, Inc. All Rights Reserved.
Copyright and reprint information,

01576

files’/C:\WINDOWS\Temporary%20Intemet20Files\OLK427- 1/16/02

01200000000231


Lay joined the Union of Concerned Scientists and environmental groups in calling for curbs on
carbon in the atmosphere, The Clinton administration was supportive, but this year the Bush
administration reneged on a campaign pledge to impose limits on greenhouse gas emissions from
coal-burning power plants.

A multimillion-dollar lobbying campaign in Congress to secure legislation requiring states to
institute retail electricity deregulation fared even worse.

Enron hired former New York representative Bill Paxon, a leading conservative, to run
Americans for Affordable Electricity, which commissioned studies and recruited business
support for deregulation, But the legislation never made it out of a congressional subcommittec.
At the same time, Enron was growing restive over the slow pace of deregulation in the wholesale
electricity market, the core of its business. Large parts of the country, especially the Southeast,
were still monopolized by regulated utilities that limited the opportunity for trading gas,
electricity and energy derivatives.

Political Pragmatism

Enron's political pragmatism was demonstrated in the 1998 New York Senate election, when it
dropped its support of the Republican incumbent, Alfonse M. D'Amato, after Democrat Schumer
endorsed Enron's goal of wholesale deregulation, sources said. Lay reciprocated by hosting
several fundraisers for Schumer, and Enron's political action committee contributed $7,500 to the
Schumer campaign.

The company's lobbying team expanded along with its political spending. It outgrew the two-
person operation that existed in 1989 and began to reflect Enron's interest in everything from
pipeline safety and derivatives trading to Overseas Private Investment Corp. loan guarantees. By
last year, its lobbying expenses exceeded $2 million a year and covered a raft of big-name
consultants, such as former Montana governor Mare F, Racicot, the new Republican National
Committee chairman, and former top aides to House Majority Leader Richard K. Armey (R-
Tex.) and House Majority Whip Tom DeLay (R-Tex.)

The hazards of Enron's efforts to connect with both parties were evident last year, when shortly
before the November election, the company picked a Clinton administration Treasury official,
Linda Robertson, to run its Washington office.

A perturbed DeLay, whose campaign and related funds had received more than $100,000 from
Enron and Lay, briefly "excommunicated" Enron, a House source said, Robertson was not
invited to a series of meetings of electricity lobbyists held in DeLay’s office last July, though an
Enron official did finally attend the sessions.

Enron had more success when Congress overwhelmingly approved legislation last year
containing a provision precluding the Commodity Futures Trading Commission (CFTC) from
regulating Enron's trading in energy derivatives. These instruments are traded largely between
electricity dealers and big wholesale consumers, which use them to hedge against price swings
that could adversely affect their businesses.

01200000000017


The 7th Annual Repo & Securities Lending Conference Page 6 of 6

e-mail |
Payment By:
© Credit Card [[selecty a

We'll call you for your account number and expiration date.

Please indicate if you have any special needs

|
a
- |
SEARCHFOR = | PULL SEARC
JUMP TO ANOTHER SECTION Frag area on BondMarkels con
SUBSCRIBE TO THIS PAGE _[[your e-mail address) ||

COMMENT | PRINT THIS PAGE | PRIVACY POLICY | TERMS & CONDITIONS | TOP OF P

02562

file://C:\WINDOWS\Temporary%20Internet%o20Files\OLK303 1 \repo. htm 1/15/02

01300000001171


DRAFT
January 10, 2002

TO; Norman Carleton

Director

Office of Federal Finance Policy Analysis
FROM: Heidilynne Schultheiss

Financial Economist

Office of Federal Finance Policy Analysis

SUBJECT: Dow Jones Newswires and Washington Post Articles on Enron and the
Commodity Futures Modernization Act of 2000

BACKGROUND
{(b)(5)}

01200000000010


Carleton, Norman

— —— a
From: Corteton, Norman 43,2007 nap
mt: uesday, February 13, 1 53 M
To: Hughes, Gerry
Subject: : Proposed Changes to Netting Bill -- Comments

wanes Original Message-----

Prom: Krieminger, Michael H. {mailto:Mxkrimminger@FDIC.gov)
Sent: Tuesday, Pebruary 13, 2002 4:47 PM

To: ‘norman. carleton@do.treas.gov' ; ‘stephanie.martinetrb. gov';
‘Tom.McGivern@do. treas,.gov'; ‘MooneyJs: +gov'

Cc; DeLeose, Michael; Ivie, Stanley ®.; Tishuk, Barbara Starke
Subject: Proposed Changes to Netting Bill -- Comments

{(b)(5)}

02497

01300000001106


derivatives, says that there is a grey area, but that Goldman will fall into line with market consensus, once
there is one.

Disputes are thus still breaking out in the market. But dealers In credit derivatives have lately been keen
to make their products more reliable. When lawyers were called In by buyers and sellers of protection on
Railtrack, the owner of Britain's rail network that was forced into administration last year, they quickly
brought in the industry trade body, the International Swaps and Derivatives Association, to sort things
out.

At issue was whether Railtrack's convertible bonds were covered by default protection. The association
opined, in favour of protection buyers, that they were. It did much last year to improve its rules on
contracts for credit derivatives. Its new “modified restructuring” rule clarifies the issue, keenly debated
over the past two years, of whether debt restructuring, as opposed to actual default or bankruptcy, should
count as a credit event. The trade body has also offered guidelines for what should happen to default
swaps on companies that Gemerge or spin off units.

With these improvements, growth In the market for credit derivatives Is likely to continue apace. It has
almost doubled each year since 1998, to a total of nearly $700 billion in value, according to the Bank for
International Settlements. Credit protection has particular appeal at a time of high corporate default rates.

Commercial banks are continuing to shed corporate-credit risk using default swaps. But new entrants-
insurance companies and fund managers-are coming into the market to assume risk, as sellers of
protection. Last year, Investors seeking attractive yields were eager to gain exposure to corporate credit
through “synthetic” collateralised debt obligations (CDOs), structured-finance vehicles mace up using
credit-default swaps. Investors may not be quite so gung-ho In future. Enron, for example, was one of the
credits contained in many synthetic CDOs, and its collapse will have led to losses for investors. In the
world of credit derivatives, caveat emptor still applies.

01200000001526


Weekly Activity Report, Federal Finance Policy Analysis, June 14 - June 18, 1999

{(b)(5)]

02518

'
01300000001127


"The selling of Enron was prolific,” Hollings said, calling the insider selling "a screaming red flag.”

If Enron officials felt the stock was undervalued, as they publicly attested, “why were they cashing
in?" Hollings said.

Hollings also said there was plenty of blame for the “shenanigans” associated with Enron's
collapse, which he likened to a "cancer." He cited Enron's role in persuading the Commodity
Futures Trading Commission against the Clinton administration's call for regulation of energy
derivatives, and subsequent congressional action to exempt from regulation the highly complex
energy derivatives Enron's special-purpose entities engaged in.

“We are all guilty for letting it happen," Hollings said of Enron's collapse.

Sen. Byron Dorgan, D-N.D., chairman of the committee's consumer affairs panel, described
Tuesday's hearings as the first of several that will delve into the roles in Enron's financial collapse
played by: Enron officials; Arthur Andersen, Enron's outside auditor; Wall Street analysts, and
regulators.

“This is about an energy company that morphed into a trading company involved in hedge funds
and derivatives. It took on substantial risks, created secret off-the-books partnerships and, in
effect, cooked the books under the nose of their accountants and investors,” Dorgan said.
Dorgan noted that Lay, Enron's chairman and chief executive, has agreed to testify at a future
hearing. Dorgan also said the committee will invite Skilling, Enron's former chief executive, and
Andrew Fastow, Enron's former chief financial officer, to testify at the same hearing.

“Was this just bad luck, incompetence and greed, or were there some criminal or illegal actions,
as has been suggested by the accounting firm that reviewed Enron's books?" Dorgan said.

01500

01200000000154


August 7, 2001

MEMORANDUM FOR FILES
From: Norman Carleton
Subject: Retail Swaps Study Group Interviews at FRBNY, 8/01 - 8/02/01
On August 1 and 2, the retail swaps study group conducted interviews of representatives
of market participants. The group interviewed representatives of two commercial banks, three
investment banks, one energy commodity firm, one electronic trading facility, and one trade
association. At each interview, a representative of the lead agency for the interview was the
designated note taker. These note takers will distribute summaries of the interviews to the group.
Main Treasury (DO) was not the lead agency for any of the interviews, What follows is a

bricf summary of what I believe we learned from the interviews, and it is not meant to substitute
for the forthcoming summaries.

((b)(5)]

01981

01300000000589


SEC Speech: Advancing Investors’ Interests (R. Herdman) Page 12 of 12

In the coming weeks and months, we will learn more about what really
happened. But, improvements cannot wait until a full analysis of all of the
facts is completed.

In that regard, I commend the 5 largest firms and the AICPA for their
announcements on Tuesday describing their initiatives that are designed to
improve financial disclosure and audit performance in the near term. In
light of those actions, it is clear that the profession recognized the need to
move forward in a positive way.

The profession is planning to provide guidance for this reporting season to
enhance disclosures and improve auditing coupled with additional rule-
making that would provide longer term solutions. This guidance would
strive to build on the recommendations of the Panel on Audit Effectiveness.
Tt would include guidance for company managements and audit committees
on deterring fraud. We at the SEC stand ready to facilitate those efforts.

The fact that the 5 largest firms and the AICPA are working together to
improve auditing is realistic and positive. I encourage the profession to
think more expansively about what can be done in this area, just as they
will be thinking about needed improvements in self-regulation.

In the meantime, here is something that I encourage preparers and
auditors to think carefully about during this year’s upcoming reporting
season: Look carefully at your accounting policies and identify the top 3 or
4 or 5 that require significant judgment or involve complex estimation
process to apply. Think hard about the sufficiency of the disclosures -not
just about the policies themselves-but also about the explanatory
information of the amounts included in the financial statements that is
subject to those judgments and estimates. Ask yourself whether investors
know enough about the impact of those judgments and estimates on the
financial statements. Then challenge yourself to improve these disclosures
in either the financial statements or in MD&A. Appropriate, transparent
disclosure is the most effective way to mitigate the potential for negative
surprises and to advance the interests of investors.

I would be happy to take questions.

Attp://www.sec.gov/news/speech/spch526.htm

Home | Previous Page Modified: 12/06/2001

files/CAWINDOWS\Temporary%20Internet%20Files\OLK4274\SEC%20Speec! ¢) 1 5 6 3

01200000000217


SEC Public Statement: How to Prevent Future Enrons (H. Pitt) Page 3 of 3

« An effective and transparent system of self-regulation for the
accounting profession, subject to our rigorous, but non-duplicative,
oversight, As the major accounting firm CEOs and the American
Institute of Certified Public Accountants recently proposed, the
profession, in concert with us, must provide assurances of
comprehensive and effective self-regulation, including monitoring
adherence to professional and ethical standards, and meaningfully
disciplining firms or individuals falling short of those standards, Such
@ system has costs, but those who benefit from the system should
help absorb them.

« More meaningful investor protection by audit committees. Audit
committees must be proactive, not merely reactive, to ensure the
quality and integrity of corporate financial reports. Especiaily critical
is the need to improve interaction between audit committee members
and senior management and outside auditors, Audit committees must
understand why critical accounting principles were chosen, how they
were applied, and have a basis for believing the end result fairly
presents their company’s actual status.

Analyst recommendations predicated on financial data they have
deciphered and interpreted. Analysts and their employers should
eschew expressing views without an adequate data foundation, or
when confused by company presentations.

Our system can be improved and modernized. In a crisis, some seek easy
answers to difficult problems by pointing fingers. But true reform requires
rigorous analysis, respect for competing views, and compromise and
stetesmanship by all concerned, We are up to the task, but only if we are
able to tap our best minds to produce our most creative solutions, and only
if we are able to discuss these issues openly and honestly. We are
committed to that end, and we seek participation from everyone with an
interest in our capital markets. Together, in partnership, we can make a
difference. That is our vision, and our mission.

http.://www.sec.gov/news/speech/spch530.htm

Home | Previous Page Modified: 12/11/2001

file://C:\WINDOWS\Temporary%20Intemet%20Files\OLK4274\SEC%20Pu 0 1 5 7 1 2
01200000000226


Wiedman, Mark

From: Carleton, Norman
Sent: Mo , January 07, 2002 2:18 PM
To: Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gabllondo, Jose; Gross,

Jared; Hammer, Viva; Lori Sanatamorena (E-mail): Nickoloff, Peter, Novey, Michael;
Pietrangeli, Fred; Roseboro, Brian; Schultheiss, Heidilynne; Whaley, Jean, Wiedman, Mark
Subject: OJ: IntercontinentalExchange Trade Volume Grew 1,500% In 2007

((b)(5)]

Norman

January 7, 2002
IntercontinentalExchange Trade Volume Grew 1,500% In 2001

NEW YORK -- IntercontinentalExchange, an online energy and metals marketplace, grew its trade
youume Fife and increased the number of participating firms and users more than 400% in 2001,
ICE sai inday.

ICE volume and new-user interest skyrocketed in the autumn as Enron Corp. (ENE) filed for
bankruptcy protection and suspe: trade on its EnronOnline Internet-based trading platform.

Capping off the year, ICE set a new daily record Dec. 27 with natural gas trading of 500 billion cubic
feet, breaking by 18% the previous daily record set Dec. 4, ICE said.

More than 400 commodity trading firms execute trades on ICE. The platform matches many buyers

and sellers, Providing less counterparty credit risk than platforms offering the same counterparty in
every dea

Intercontinental Exchange, based in Atlanta, launched its metals trading on the Intemet in August
2000 and its energy trading in October 2000.

ICE partners include American Electric Power Co. (AEP); Aquila Ener ly (ILA); BP Amoco PLC (BP);
Deutsche Bank AG (G.DBK); Duke Energy (DUK); El Paso rp. (EPG); Goldman Sachs Group
{ea Morgan Stanley Dean Witter & Co. (MWD); Reliant Energy (REI); Royal Dutch/Shell Group
RO): Societe Generale SA (F.SGF) unit SG Investment Banking; Mirant Corp. (MIR); TotalFina Elf
(TOT), and Continental Power Exchange, which provided the trading technology and
management team.

-By Stephen Parker, Dow Jones Newswires; 201-938-4426; stephen.parker@dowjones.com

01200000000005


Special Report: California's Deregulation of Electricity

Page 3 of

under the rubric of legal settlement negotiations. Under
the law, he said, third parties aren't allowed to
participate.

But Davis promised to involve the public soon. In a
brief interview with The Times, the governor said his
office was starting to reach out to consumer groups. "At
the end of the day, consumers will be full partners in the
decision as to whether the utilities survive and the lights
stay on,” he said.

Representatives of two consumer groups said Davis!
office had called them to set up discussions.

Other Western States Not Sympathetic

As the rhetoric escalated Wednesday, Western
governors met in Denver to consider broader solutions
to what is fast becoming a regionwide crisis--and to take
tums pummeling California for its role as the 800-
pound, ¢lectron-cating gorilla,

“Frankly,” said Wyoming Gov. Jim Geringer, "if we
got to the point where everyone is suffering like this and
we found out that California wasn't doing absolutely
everything to solve its problems, we'd start to see some
Teal resentment."

California was a national pioneer when it passed
legislation deregulating its electricity market in 1996,
freeing its major investor-owned utilities from
government price restrictions on energy. That
experience turned sour this year when electricity prices,
instead of going down, soared skyward, and electricity
supplics in California could not accommodate the load.

Edison said Tuesday that it would be forced to
declare bankruptcy next month if it is not granted relief
in the form of a rate hike and a federal cap on energy
prices. PG&F officials avoided use of the word
“bankruptcy” but said they would soon be unable to buy
power to serve their customers.

The Los Angeles Department of Water and Power
and some other municipally owned utilitics have been
largely unscathed by the crisis, DWP, in fact,
announced Wednesday that it was running at a sizable,
1,000-megawatt surplus, most of which was being sold
to help its ailing counterparts such as Edison and
PG&E.

Standard & Poor's, a major Wall Street debt-rating
agency, agreed Wednesday that Edison and PG&E are
headed toward insolvency, and said it could downgrade
the utilities’ credit ratings as early as today unless state
officials take steps to increase electric rates paid by
consumers.

The two utilities say they have spent $8 billion more
on wholesale electricity purchases than they have been
allowed to collect from consumers because rates are
frozen under terms of the state's electricity deregulation,
Consumer groups say the true figure is probably half

01230

01200000000586


Enron

{(b)(5))

02005

01300000000613


“offsets” based on the price of the stock from 1996 to 2000, when it was trading between $37.75 and
$43.44. It then used the locked-in value of the ESOP accounts to permanently offset the value of
pensions that employees had earned between January 1987 and January 1995.

In other words, Enron has reduced the amount of the pension by subtracting the former — and far

higher — value of the ESOP, even though the ESOP today has virtually no value and thus can't make
up for the difference.

Employees might have been all right if Enron stock had continued to rise, because gains in the
accounts could eventually have made up for the permanent offset. (The increases would have
depended completely on stock appreciation, because the company stopped contributing to the ESOP
in 1995.)

“It was as if someone assumed the stock would never drop,” says Stephen Bruce, a pension lawyer
in Washington, D.C. "It was a bad deal if the stock dropped," he says, because this precluded
employees from ever making up for the permanent offset.

Employees will still receive their pensions -- albeit at the reduced values. How much employees lost
depends on the size of the pension they had earned, and the value of their ESOP accounts from
1996 to 2000,

Employees did have some opportunity to protect themselves from the subsequent exposure to Enron
stock in their ESOP. One time each year from 1996 to 2000, employees could transfer one-fifth of the
value of their ESOP accounts into a 401(k) or an Individual Retirement Account and diversify out of
company stock.

Separately, Sens. Barbara Boxer (D., Calif.) and Jon Corzine (D., N.J.) said Tuesday they will
propose limits on the amount of company stock employees can hold as part of their 401(k) retirement
plans.

The proposed legislation would limit employee 401(k) investments in company stock to 20%, and it
would limit to 90 days the period of time an employer can require its workers to hold a matching stock
contribution before divesting themselves of it.

-- Bryan Lee contributed to this article,

01200000000934


VVVYVY Yee

But considering the long time it takes to build plants, in part because
of public opposition, the warnings were too little, too late. In fact, the
situation remained far off the radar screen of consumers, since most were
still insulated from price spikes by a rate freeze.

Then this summer, things started to spiral out of control.

San Diego was the first region to meet the conditions necessary for
full deregulation, and as hot summer months added to demand, customers’ bills
suddenly tripled.

The debt lead of PG&E and Edison began to balloon -- to what will be an
estimated $11 billion by the end of 2000 -- as they borrowed to pay for
power while being barred from passing that cost on to consumers.

Suddenly, the glow of deregulation had lost its luster.

It immediately became clear that California's failure to build power
plants as its rapidly growing economy pushed demand upward was a serious
problem. Increasingly, the state's growing technology economy depended on
electricity, and new home construction concentrated in hot areas like
Riverside and San Bernardino counties, where air conditioning is a must.

And for all the talk of competition, there was a serious flaw that made
the market singularly uncompetitive.

In order to encourage generators to create as much power as possible,
deregulation guaranteed the highest price for wholesale electricity.
Through a practice known as the "market clearing price," the last bidders
-- who are invariably the most expensive -- set the price everyone would
receive. In other words, if the first generator bids $30 for a certain amount of
megawatts but the last bids $100, those two bidders and everyone in
between receive $100. As the wholesale price of electricity skyrocketed to
$1,500 per megawatt hour this month from $30 before the storm, the high
cost has been compounded by the fact that everyone receives that amount.

Further, the law had encouraged utilities to sell their generatora and
existing electricity supply without guaranteeing acceae to affordable
power.

Rather than arranging to buy power on long-term contracts that could
have saved money, they were put in the position of having to buy their power on
a market where profit was the ultimate goal, and they and their consumers
had to pay the price,

Perhaps in the biggest misjudgment, policymakers neglected the huge
amount of money it takes to run power companies and attract customers. Thus, they
overestimated how much competition would flourish in the market.

Running power companies ig so costly -- $500 million to build a new
plant -- that only a handful of companies bought into the market. And once they
were here, the marketing cost of signing up new customers was
astronomical.

Indeed, gince choice has become available to California, less than

1 percent of residential customers has changed electricity providers.
The same goes for just 15 percent to 20 percent of industrial customers -- the
class that advocated deregulation in the first place.

At the end of the day, this experiment in deregulation hae come at a
staggering cost: $40 billion. That includes the $23 billion already paid
by customers when rates were frozen at artificially high levels, and the
$7.5 billion in bonds financing consumers' own rate reduction.

Now a new tab is running -- whatever share of the $11 billion in debt
that state utility regulators decide customera should pay.

The state's leaders are now casting around desperately for solutions to
put Humpty Dumpty back together again.

The PERC is encouraging the utilities to enter long-term contracts with
suppliers, and market clearing pricing is under review. The state's
utilities commission will decide Jan, 4 how much of a rate increase to
grant to PG&E and Edison. And a dozen or so power plants are under
construction.

Meanwhile, consumer advocates are backing a state ballot measure that
would not only re-regulate utilities but essentially make energy supply a
government function. And they are challenging the utilities efforts to

3

01200000001591


Wiedman, Mark
Ss

From: ‘Schultheiss, Heiditynne

Sent: Friday, January 11, 2002 11:12 AM
To: Wiedman, Mi

Subject: Enron/CFMA Memo

Attached is an updated copy of the Enron/CFMA memo. The first four pages are the memo; the following pages are the
downloaded newspaper articles. | will bring copies with me at 12 noon, but | thought you should have an advance copy

erento oe

01200000000009


From: Carleton, Norman
Sent: Friday, September 07, 2001 5:11 PM
To: Lori (E-mail)
Subject: FW: Retail Swaps Study-Blackbird & Enron Interviews
Bacied revere Enron inerview
FIRAL DOC. PINAL coo
verre Original Message~----

From: Carleton, Norman

Sent: Friday, September 07, 2001 11:55 AM

To: Alexander M. Brill (B-mail)

Subject: FW: Retail Swaps Study-Blackbird & Enron Interviews

Original Message

Prom: Remy, Christine (mailto:cremy@CFTC.gov)

Sent: Wednesday, August 15, 2001 9:39 AM

To: 'blaineb@sec.gov'; 'kurt.wilhelm@occ.treas.gov';
‘matthew.eichner@do.treas.gov'; 'mbrowne@fdic.gov';
'norman.carletonGdo.tre: '; "polisej@sec.gov'; ‘pwhitesfrb.gov';
‘patrick.parkinson@frb.gov'; ‘dombalagiano@sec.gov';
‘Joyce.Hansen@ny.frb.org'; ‘Diane. Virzera@ny.frb.org';
*Adelina.Bonannogny.frb.org'; 'Bob.Gasperini@ny.frb.org';
‘Heidilynne.Schultheissédo.treas.gov'; ‘Peter .Nickoloffedo.treas.gov'
Cc: Fox, Elizabeth L. R.

Subject: Retail Swaps Study-Blackbird & Enron Interviews

((0)(5)]

<<Blackbird interview -PINAL.DOC>> <<Enron interview - FINAL.doc>>

>

02062

01300000000670


((b)(5)]

02228

01300000000837


Special Report: California's Deregulation of Electricity

Page 4 of
that much.

S&P, which in October put both utilities on
"negative watch," said the utilities are "running out of
cash" and could default on payments due on $15 billion
in total direct debt early next year. As a result, S&P
wamed that it could downgrade the two utilities from
their current sterling "A+" ratings to "below investment
grade"--"reflecting the likelihood of imminent default"
unless it gets clear signals within the next 24 to 48 hours
that rates are headed upward.

Such a downgrade could increase the utilities’ costs
for borrowing money and depress their stock prices. It
also could compound California's problems by making
out-of-state power generators even waricr of selling
energy in the state, which some companies are doing
only because U.S. Energy Secretary Bill Richardson has
ordered them to do so.

“We are not advocates—-not taking a position cither
on the side of the utilities or ratepayers--but keeping
investors apprised as to the risks associated with their
investments,” said David Bodek, a director of Standard
& Poor's in New York.

The California Public Utilities Commission cannot
act unilaterally to raise consumer rates at its meeting
today. But to avoid the downgrade, Paul Fremont, a
utility analyst with the investment firm Jefferies & Co...
said the commission must at the very least send an
unmistakable signal that consumer rates are headed
upward and that the utilities will recoup some of their
losses.

Severin Borenstein, director of the UC Energy
Institute in Berkeley, said the PUC has little choice but
to authorize an increase to avert the utilities’ running
aground.

"It's clearly going to happen-the only question is the
structure of what's going to happen and how much," he
said. "We clearly are not going to keep rates at this
level, Some pain will be borne by consumers, we are
just arguing over how much.”

The perception of the utilities’ problems worsened in
the last week after Edison disclosed it was having
difficulty finding loans to finance the continuing
purchases of wholesale electricity in light of the
growing pile of debt related to undercollections.

PG&E had to borrow $2.7 billion in such funds in
October alone, and Edison $1.3 billion, The critical date
for refinancing that debt is "just weeks away," Bodek
said, yet it is not at all clear that lenders will front the
money without action by California to assure investors
of repayment.

Another Stage 2 Emergency Declared

The state’s electricity reserves sank low enough
Wednesday afternoon to trigger a Stage 2 emergency,

01231

01200000000587


December 18, 2001

Senator Eyes End To Enron-Type Special-Purpose
Entities

Dow Jones Newswires

WASHINGTON -- U.S. Senate Commerce Committee Chairman Fritz Hollings, D-S.C.,
pledged Tuesday to introduce legislation to eliminate the sorts of financial accounting
that led to the financial collapse of Enron Corp. (ENE).

At a committee hearing on the Enron debacle, Hollings called for legislation to eliminate
the use of special-purpose entities, which are partnerships or trusts through which
companies keep their debt off the books and, in Enron's case, overstate earnings.

Hollings said such off-the-balance-sheet transactions should end in order to protect
investors. Hollings also was highly critical of the amount of insider stock selling by top
Enron officials. He noted that Enron Chairman Kenneth Lay and former Chief Executive
Jeffrey Skilling each sold shares in recent months for more than $60 million, while
members of Enron's board sold shares worth more than $160 million.

"The selling of Enron was prolific," Hollings said, calling the insider selling "a screaming
red flag.”

If Enron officials felt the stock was undervalued, as they publicly attested, “why were
they cashing in?" Hollings said.

Hollings also said there was plenty of blame for the "shenanigans" associated with
Enron's collapse, which he likened to a "cancer." He cited Enron's role in persuading the
Commodity Futures Trading Commission against the Clinton administration's call for
regulation of energy derivatives, and subsequent congressional action to exempt from
regulation the highly complex energy derivatives Enron's special-purpose entities
engaged in,

"We are all guilty for letting it happen,” Hollings said of Enron's collapse.

Sen. Byron Dorgan, D-N.D., chairman of the committee's consumer affairs panel,
described Tuesday's hearings as the first of several that will delve into the roles in
Enron's financial collapse played by: Enron officials; Arthur Andersen, Enron's outside
auditor, Wall Street analysts, and regulators,

"This is about an energy company that morphed into a trading company involved in
hedge funds and derivatives. It took on substantial risks, created secret off-the-books
partnerships and, in effect, cooked the books under the nose of their accountants and
investors," Dorgan said

01200000000040


{(b)(5)}

Thoughts?
Tracking: Recipient Delivery Read
Bab, Sreta Delivered: 8/3001 9:33 AM Read: 3008 101 AM
Nickolotf, Peter Delivered: 830001 9:33 AM Read: B01 9:35 AM
Schuitheiss, Heialynne Delivered: A0K1 9:33 AM Read: 8/3001 0.33 AM

02231

01300000000840


VVV VY VV VV VV

That's when state Sen, Steve Peace took the reins and tried to make
something happen.

The San Diego legislator already had won the respect of his colleagues
for his work on another complex piece of legislation, reform of the workers*
compensation system.

During a hurried two-week conference in August -- dubbed the “Steve
Peace death march" for his propensity to keep negotiators at the table late into
the night -- the fine points of the energy law were hashed out.

Legi¢latore entrusted their judgment to Peace and the few colleagues
who worked on the bill. There was an abiding sense by @ number of participants
that few members of either house knew what was in the bill or even
understood it, It was passed by both houses of the Legislature unanimously
and signed into law the following month.

"People were grateful to Peace and (former Sen. Diane} Martinez for
taking it on," said Debra Bowen, D-Los Angeles, the current chair of the Senate
energy committee. "Historically, utilities were a pretty boring topic, and
I think term limits factored into it.*

The law was to end the monopolistic control that utilities held over
beth power production and supply by requiring them to sell off their
generators. It set rates artificially high so they could recover money
from bad investments. And it gave them nearly two years to prepare for
competition.

Moreover, residential customers would be granted an immediate 10
percent rate cut.

The system took effect April 1, 1996, and, at first, things seemed to
work well. Seen, though, there were warning signs.

It turned out the residential rate cut was actually going to be
financed with $7.5 billion in bonds that customers had to pay off. So the reduction
in real terms was closer to only 3 percent, not 10 percent.

Then in early 1999, the California Energy Commission, which tracks the
state's supply and demand, was warning of coming supply shortfalls.

Demand was skyrocketing, the agency pointed out in a Senate energy
committee hearing, and no new significant generation had been built in a
decade. Without more power, California was going toe run out. But
construction of new power plants takes at least two years from start to
finish, and the state was already running behind in accommodating the
growth.

Back in the early 1990s, however, the energy commission had painted a
far different picture. At that time, California had an oversupply of power,
perhaps as much as 30 percent more than it needed.

There was so much that when the utilities commission set up an auction
for the construction of new facilities in the early 19908, Edison and San
Diego Gas and Blectric Co. appealed to the Federal Energy Regulatory
Commission te halt the auction, arguing there was already too much
generation in California. The FERC obliged.

"If anybody had told us in 1996, or even in 1998, that we would
experience (such} load increases, we would have said, ‘You're crazy,' " said D.J.
Smith, a lobbyist for the California Large Energy Consumers Association
and one of the top advocates of deregulation. "Nobody had ever seen load
go up like that in a mature situation."

Still, production figures trom Edison Electric Institute, which provide
a crude indicator of demand, show consumption grew by 4 percent in 1996, 3.4
percent in 1997, nearly 5 percent in 199%, and a whopping 10 percent thia
year.

And surrounding states, including Arizona, Nevada, Oregon and
Washington, began to experience the same demand growth. Since California imported as
much as 25 percent of its power from thoi states, the amount available
was suddenly reduced by as much as half.

But considering the long time it takes to build plants, in part because
of public opposition, the warnings were teo little, too late. In fact, the
situation remained far off the radar screen of consumers, since most were
etill insulated from price spikes by a rate freeze.

Then this summer, things started to spiral out of control.

San Diego was the first region to meet the conditions necessary for
full deregulation, and as hot summer months added to demand, customers’ bills
suddenly tripled.

The debt load of PG&E and Edison began to balloon -- to what will be an

01689

01200000000345



((b)(5)]

Attachments

((6)(5)]

02153

01300000000762


WSJ.com -- From the Archives Page | of 4

FROM THE ARCHIV

SEE FOR OLR:
January 4, 2002 @ Symbo
——— . $$ | print
. fv Ss.
Money & Investing Ad
*, : r Help
WSJ.com Audio: Big Five Accounting Firms Urge SEC
Business Update To Issue New Disclosure Guidelines
Markets Recap
WSJ on Audible By JUDITH BURNS
Learn More Dow Jones Newswires
Journal Atlas: WASHINGTON -- Big Five accounting firms have petitioned the
Table of Contents = Securities and Exchange Commission to issue new guidance to
Headlines improve disclosure in corporate annual reports.
Business Index
Search In the wake of huge financial restatements last year, including a $569
News Search million restatement by Enron Corp., the Big Five firms suggested the
Past Editions te consider new rules setting minimum standards for corporate
Briefing Books ISCIOSUTE,
Quotes As a short-term fix, the Big Five firms asked the SEC to provide
"immediate guidance” on disclosing off-balance sheet transactions,
Tools: over-the-counter derivatives contracts and related party transactions,
E-Mail three hot-button areas in Enron's financial debacle.
Mobile & Wireless
Business Box Without mentioning Enron by name, accounting firms said their
Market Browser proposal targets "issues that recently have resulted in impaired investor
WSJ Yogi confidence in our financial reporting system.”
Resources: Enron Debacle Wal “There are compelling reasons for the
Help a Has Leodersnip of Commission to act quickly,” the Big Five
"s New Chief firms said in a letter posted on the SEC's
New Fi :
onapyenne Harvey Pitt (Dec. 31. Web site (www.sec.gov) Friday. The
Your Account 2001) :
accounting firms urged the SEC to issue an
Contact Us Tum SEC's Herdiman interpretative release "as soon as possible”
WSJ.com Gifts Lal Urges Accounting to improve 2001 annual reports by beefing
Glossary Firms to Improve up disclosure in the management discussion
Auditing, Citing Enron's Fall and analysis section
(Dec. 7, 2001) ~
Free Journal Sites: While some companies dish up meaty analysis, “many other public Adver
file://C:\WINDOWS\Temporary%20Internet?20Files\OLK4274\M. (@) 1 5 7 3 1/16/02

01200000000228


Subcommittees of the House Financial Services Committee and the Scnate Commerce
Committee have already held hearings.

But Lieberman's panel! is the top investigative committee of the Senate. Under Republican
leadership during the Clinton administration, then-chairman Fred D. Thompson (R-Tenn.)
headed an investigation of Bill Clinton's 1996 presidential campaign fundraising.

Levin and Lieberman said they intend to look into the close ties between Lay and President
Bush, a connection that some Democratic Party officials say they hope to take advantage of in
this year’s congressional election campaigns.

Levin said he wants to know what advice Lay, who was a large contributor to the Bush
campaign, gave to officials of the new administration as it formulated energy policy a year ago.
Enron “also had close relationships with some Democrats, it's fair to say," Lieberman
acknowledged. He said he expected the inquiry to be bipartisan and to have Thompson's support.
“We are going to work together,” Lieberman said.

Lieberman said the committee also wants to learn whether federal regulators have the authority

to adequately oversee the complex commodity trading and financial transactions that were the
foundation of Enron's rapid growth over the past three years.

Lieberman noted that much of Enron's trading in energy derivatives was exempt from regulation
by the Commodity Futures Trading Commission, and he said a focus of the inquiry would be
whether this allowed the company to hide some transactions.

Enron was an active player in lobbying for the exemption beginning in the early 1990s,
according to sources. The exclusion was initially approved by the CFTC in 1992, and in 2000

Congress endorsed it as part of the Commodity Futures Modernization Act, despite concerns of
some senior regulators.

At a joint hearing on the legislation by the Senate Banking and Agriculture committees in June
2000, then-CFTC chairman William J, Rainer spelled out his “reservations” about the exclusion
and said that "the case for it has not been made" with regard to energy derivatives,

© 2002 The Washington Post Company

01200000000021


before the large decline in Enron's stock price, which would have forced LJM2 to purchased
Enron stock at a loss of $8 per share.

2001 Kopper left Enron to help run the Fastow-related partnerships.

430/01 LJM2 reported that Fastow, and possibly others, realized more than $7 million in
management fees and $4 million in capital increases on an investment of nearly $3 million
Profits were improved by terminating a transaction early or renegotiating the terms of existing
deals, The partnership had raised $394 million and invested in power plants and Enron assets
and stock, seeking a 29 percent IRR (reduced from 48 percent) after the decline in the New
Power Co. retailer, Large cash distributions had been made to investors

6/30/01 Enron reported $33.6 billion in current liabilities and long-term debt. and
attempted to sell off assets to pay down debt.

July 2001 Enron created Marlin Water Trust II, selling $915 million in notes due July 15.
2003. Provisions would require Enron to issue stock to noteholders if it was considered in
default if its stock price fell below $34.13 for three days and its senior debt was downgraded to
below investment grade.

Late July 2001 Fastow severed his relationship with the LJM2 partnership.

20012 Enron dissolved the financing vehicle, reacquired the shares, and canceled the note
receivable from the partnership after the value of Enron’s stock and its broadband investments

hedged by the entity dropped sharply.

W3VOl Enron officials were reported to have sold 1.8 million Enron shares valued at
about $106 million, as the stock declined from $83 to $45 per share. CEO Kenneth Lay sold
429.614 shares worth $25.7 million as a result of stock options, leaving him with 2.8 million
shares. In 2000 he had sold $30.7 million; in 1999 he sold $26 million. Kenneth Rice, former
chairman and CEO of the broadband unit, sold $23.7 million, reducing his 1.5 million shares by
456.966. President Skilling sold 160,000 of his 1.9 million shares for $9.8 million. Aggregate
sales by Enron executives totaled 5,8 million shares for $449 million. In 1999, they had sold 3.4
million shares for $123.1 million. The only corporate purchaser was Fastow, who bought 10.000
shares at $36.98 each,

August 2001 Enron President and CEO Skilling left after only six months in that position,
citing personal reasons and the decline in Enron’s stock price. Kenneth Lay, chairman and
former CEO again became Enron's CEO.

8/31/01 Thomson Financial reported that Fastow’s proceeds from stock options were $4.6
million for the previous 12 months.

10/16/01 Enron reported a third-quarter loss of $618 million (compared with ycar-ago

earnings of $292 million), but did not release its Q3 balance sheet. The loss occurred despite a
59 percent increase in revenue to $47.61 billion, after accounting for a $1.01 billion charge to

02175

~ 0130000000784


Subcommittees of the House Financial Services Committee and the Senate Commerce
Committee have already held hearings.

But Lieberman's panel is the top investigative committee of the Senate. Under Republican
leadership during the Clinton administration, then-chairman Fred D. Thompson (R-Tenn.)
headed an investigation of Bill Clinton's 1996 presidential campaign fundraising.

Levin and Lieberman said they intend to look into the close ties between Lay and President
Bush, a connection that some Democratic Party officials say they hope to take advantage of in
this year's congressional election campaigns.

Levin said he wants to know what advice Lay, who was a large contributor to the Bush
campaign, gave to officials of the new administration as it formulated energy policy a year ago.
Enron “also had close relationships with some Democrats, it's fair to say," Lieberman
acknowledged. He said he expected the inquiry to be bipartisan and to have Thompson's support.
"We are going to work together,” Lieberman said.

Lieberman said the committee also wants to learn whether federal regulators have the authority
to adequately oversee the complex commodity trading and financial transactions that were the
foundation of Enron's rapid growth over the past three years,

Lieberman noted that much of Enron's trading in energy derivatives was exempt from regulation
by the Commodity Futures Trading Commission, and he said a focus of the inquiry would be
whether this allowed the company to hide some transactions.

Enron was an active player in lobbying for the exemption beginning in the early 1990s,
according to sources. The exclusion was initially approved by the CFTC in 1992, and in 2000
Congress endorsed it as part of the Commodity Futures Modernization Act, despite concerns of
some senior regulators,

At a joint hearing on the legislation by the Senate Banking and Agriculture committees in June
2000, then-CFTC chairman William J. Rainer spelled out his "reservations" about the exclusion
and said that "the case for it has not been made” with regard to energy derivatives.

© 2002 The Washington Post Company

01517

01200000000171


From: Raislerk@sullcrom.com

Sent: Tuesday, August 07, 2001 7:10 PM

To: norman.carleton@do.treas. go

Subject: FW: CFTC Presentation -. Version
che Soak oat

This is the right version. Please acknowledge receipt.

ae Original Meesage-----

From; chendrix@enron.com [mailto:chendrix#enron.com]
Sent: Tuesday, August 07, 2001 6:42 PM

To: Raislerkasullcrom.com

Subject: RE: CFTC Presentation -- Final Version

Here you go. (See attached file: efte final.ppt)

Raislerk@sullcrom.com on 08/07/2001 05:06:50 PM

To: chendrix@enron.com
cc:
Subject: RE: CFTC Presentation -- Final Version

Chris,

As I am sure Scott told you, this presentation went very well. Treasury has
asked for copies in electronic form. Can you resend this to me without the
motes imbedded so I can forward it on to them. Thanks.

Ken

--++-Original Message~~~-~~

Prom: chendrix@enron,com (mailto:chendrixsenron.com]
Sent Wednesday, August 01, 2001 3:57 PM

To: Raislerk@sullcrom.com

Subject: CFTC Presentation -- Final Version

Attached is the final version of the presentation. (See attached file:
eftc_final_presentation.ppt)

This e-mail is sent by a law firm and contains information
that may be privileged and confidential, If you are not the
intended recipient, please delete the e-mail and notify us
immediately.

This e-mail is sent by a law firm and contains information 0264
8

01300000001257


Weekly Activity Report, Federal Finance Policy Analysis, June 1 - June 4, 1999

[OUTSIDE SCOPE}

{(b)(5))

01991

01300000000599


{(b)(5))

> Comments, suggestions?

02521

01300000001130


Enron Chairman Gave Warning to Bush Officials on Company's Collapse Page 2 of 3

worried that the company might have to default on its obligations, He brought
to the secretary's attention “‘that he was having problems with his bond rating
and he was worried about its impact on the energy sector," Fleischer said.

After that conversation, Evans spoke to O'Neill ‘'and they both agreed no
action should be taken to intervene with their bond holders,” Fleischer said.

The spokesman had said Wednesday he did not know of anyone in the White
House who discussed Enron's financial situation.

Fleischer also brushed aside talk of any conflict in the Justice Department
investigation and said there was no reason to tum the probe over to a special
counsel.

Lay gave $25,000 to a leadership committee headed by then-senator and now
Attorney General John Ashcroft, according to the Center for Public Integrity

An attomey for Enron welcomed Ashcroft's inquiry, the latest in a series of
governmental probes into the company's demise, saying the investigation
would “bring light to the facts.”

“We want to get to the bottom of this too,” said Robert Bennett, a Washington
attomey representing the Houston-based company. “A lot of decent and
honorable people work at Enron and we should wait until the facts are out."

Bush ordered a separate review Thursday of pension and corporate disclosure
tules that could jeopardize workers’ savings. ‘“There has been a wave of
bankruptcies that have caused many workers to lose their pensions and that is
deeply troubling to me," Bush said.

The Justice Department is forming a national task force to look into the
company’s dealings. The group will be headed by lawyers at the department's
criminal division and include prosecutors in Houston, San Francisco, New
York and several other cities, said a Justice Department official, speaking on
condition of anonymity.

The official declined to say when the investigation began. Enron faces civil
investigations by the Labor Department and the Securitics and Exchange
Commission and subpoenas from congressional committees.

All are looking into the energy trading company’s collapse, the largest
bankruptey filing in U.S. history.

The failure hit employees and investors hard. Workers were prohibited from

selling company stock from their Enron-heavy 401(k) retirement accounts as
the company’s stock plummeted. Many lost their life's savings.

Enron executives cashed out more than $1 billion in stock when it was near its
peak.

01711

file//C:\WINDOWS\TEMPOR~1\OLK4274\ENRONC~1,HTM W/15/02
01200000000367


From: Tom McGivern

To: CARLETONN, YETTERJ, DOPOS, TooheyF
Date: ‘3/9/00 6:36pm
Subject: Financial Netting provisions of H.R. 833 - bankruptcy bill

((b)(5)]

On the Enron proposals Norman received:

[(b)(5)]

Thanks,
cc: OORSEYK, CARROR

02529

01300000001138


Enron Talking Points

{(b)(5)]

02008

013000000006 16


{(b)(5)]

Please review and let me know your thoughts.

2 02488

01300000001097


Carleton, Norman

——
Sent Focstay. Pebruary 13, 2001 5:10 PM
ent: » Febru 5 ya]
To: Huffman, Lucy any
Subject: FW: Proposed Changes to Netting Bill -- Comments

----- Original Message-----

Prom; Krimminger, Michael H. [mailto:MKrimminger@FDIC.gov)
Sent; Tuesday, February 13, 2001 4:47 PM

To: 'norman.carleton@de.treas.gov'; ‘stephanie.martingfrb.gov';
'Tom.McGivern@do.treas.gov'; 'MooneyJ@sec.gov'

Cc; DeLoose, Michael; Ivie, Stanley R.; Tishuk, Barbara Starke
Subject: Proposed Changes to Netting Bill -- Comments

{(b)(5))

‘ 02495

01300000001104


controversial off-balance sheet debt was unknown. Enron reportedly was unable to sell off
certain assets that it had hoped would raise cash, Its debt continued to trade at prices comparable
to non-investment grade debt, and it became more dependent on secured bank lending as other
sources of liquidity dried up.

On November 8, Enron restated its earnings and retroactively consolidated its past
financial performance with several previously off-balance sheet subsidiaries for 1997 through
2001, reducing net income by a total of $591 million. This reduced its 1997 earnings by about
$96 million, 1998 earnings by about $113 million, 1999 earnings by about $250 million and
2000 earnings by about $132 million. For 2001, it increased first-quarter eamings by $17 million
and second-quarter earnings by $5 million, but reduced third-quarter earnings by $17 million. It
was estimated that the consolidation also would increase its debt by about $2.59 billion. Enron
also made public its responses to SEC questions involving the partnerships. Enron fired its
Treasurer, Ben Glisan, and the General Counsel and managing director of one of its divisions,
Kristina Mordaunt, who may have been involved in a partnership.

On November 9, Enron cancelled a meeting with its creditors to apprise them of its
merger and liquidity situation. A possible merger was delayed because of concerns that a
combined Dynegy-Enron entity would receive a lower or junk credit rating. Dynegy and Enron
provided pro forma financial statements to the rating agencies and requested an expedited review
of the transaction. Enron disclosed that the controversial transactions with Mr. Fastow had
earned him $30 million.

Conclusion

Although the preceding chronology is subject to revision and embellishment as more
facts emerge, Enron definitely has suffered a decline in investor and analyst confidence, as well
as declines in its stock and debt prices and credit ratings, availability, and terms (see attached
graphs). The SEC is investigating possible violations of U.S. securities laws. It reportedly is
reviewing whether the transaction terminations should have been treated as a balance sheet item
or a loss that affected reported earnings and whether the related-party transactions were properly
disclosed. The current speculation is that Enron intentionally used the off-balance sheet
transactions to shift losses off its books to avoid an effect on its income statement. ‘The current
concern is that Enron might have to issue large amounts of stock to noteholders to repay about
$3.3 billion in notes ultimately guaranteed by Enron for certain of its related entities if certain
trigger events, such as credit downgrades, occur, and that the situation could have a destabilizing
effect on the energy and derivative markets that Enron dominates.

Attachments (graphs)

7 01990

01300000000598


{(b)(5)]

02462

01300000001071


Carleton, Norman

From: rox, berger R [efox ICFTC.gor
Font: rth , 2001 ae PM Mui
‘oO: ‘Nonnen Ce leton do trees. gov’ lexander_I li@cea.eop.gov, nazeretha@sec.gov;
blaineb@sec.gov; colbyr@sec.gov; Zwirb, Robert S.; dwall gov; Dow, De’ana H.;

diane.virz ny. rb. org; donaid.lamson@occ.treas.gov, Matthew.Eichner@do.treas.gov;
Fox, Elizabeth L. R.; eric.hieschhorn treas.gov; Viva.Hammer@do.treas.gov; °
polisei@sec: Jov; joyce.hansen@)ny .frb.org; kathryn.dick@occ.treas.gov;

: .reas.gov; lsantamorenat .treas.gov; mbrowne@idic.gov,
Peter.Nickol ido. Wweas, pwd nnn. Nowey) eas ad dombslagianotpesc.00v;

mt Gov, Mm iy Sicberge iss@do.treas.
Ce: ‘Sheila. Bair acon gon Ten Timothy. treas.gov; Martha-Ell treas.gov,
oe geblonsoGe: treas. ie ‘Teed ‘Grose 0 reas, gov, Brian.Roseboro@do. reas. 90 Ov;
ido. heas.gov; Mark. Wiedmi treas.gov
Subject: Re eas ‘aft of the Reta Swaps Report

I have contacted both Enron and Blackbird--Enron is fine with being named as
an interviewee, have not yet heard from Blackbird.

-----! ‘Original Message-----

From: Norman.Carleton@do.treas.gov [mailto:Norman.Carleton@do.treas.gov)
Sent: Wednesday, December 05, 2001 1:38 PM

To: Alexander_M. Brilla@cea.eop.gov; nazarethagsec.gov; blaineb@sec.gov;
colbyra@sec.gov; Bzwirbacftc.gov; dwall®fdic.gov; ddowscftc.gov;

diane. virzeragny.frb.org; donald. lamson@oce.treas.gov;

Matthew. Bichnergdo.treas.gov; efoxacftc.gov;
eric.hirschhorn@ots.treas.gov; Viva.Hammer@do.treas.gov;
polisej@sec.gov; joyce.hansenény.frb.org; kathryn.dick@occ. treas.gov:;
kurt .wilhelmgoce.treas.gov; lsantamorenagbpd.treas.gov;
mbrowneafdic.gov; Peter.Nickoloffedo.treas.gov;

Michael .Novey@do.treas.gov; dombalagiano®@sec.gov; mlipmp00eftrb.gov;
mlapw006frb.gov; Heidilynne.Schultheissedo.treas.gov

Cc: Sheila.Bair@do.treas.gov; Timothy.Ritsberger@do.treas.gov;
Martha.Blletta@do.treas.gov; Jose.Gabilondowo.treas.gov;

Jared .Grossédo.treas.gov; Brian. Roseboro@do.treas.gov;

Gary. Sutton@do.treas.gov; Mark. Wiedman@do,treas.gov

Subject: New Draft of the Retail Swaps Report

<<Retail Swap St -- (12-05 draft)1.doc>> <<12-08 draft
redlinel.doc>>

To the Retail Swaps Study Group;

Attached is a new draft of the retail swaps report. One of the attachments
is a clean document; the other shows changes made to the December 3 draft.

{(b)(5)}

Norman Carleton

‘ 02563

01300000001172


BW Online | December 13, 2001 | Harvey Pitt: "Violate the Law, You Will Pay”

RegisterSubscride
HM

CECEMBER 13. 2001
+ OARY BRIEFING

Page | of 4

THERE 1S NO-DISTANCE BETWEEN POLN|

NEWSMAKER QBA
Nowe besos OWA
ossst Upsew Harvey Pitt: "Violate the Law, You Will sx,
"
Pay troche
The SEC chairman talks about Enron, auditing, and his commitment to ‘Stock Looky
enforcement policies that dispel the temptation to play fast and loose
I Securities & Exchange Commission Chairman [a PtsrFrenay erin" "8r®
Harvey L. Pitt has now launched a formal 2 E-Mat This Story
investigation into the collapse of Enron Corp.,
which he calls “a tragedy” for investors. On Dec. + Find More Stories Like This
10, Pitt met in his office with BusinessWeek
Senior Washington Correspondent Mike | TODAYSHEADLINES |
McNamee to talk about how the Enron debacle
affects his proposed reforms in accounting and —_[u [#* Fabel of Discorsant

enforcement. Here, in an extended form, are
edited excerpts from that conversation which
will appear in the Dec, 24 issue of Business
Week:

Q: Enron is drawing attention in part because
of the company's strong political connections.
Are you feeling any heat from the White
House or Capitol Hill?

A: No, I don't think so, The only aspect of Enron
we're focused on is what happened to investors
and whether the proper compliance with all our

Take your career t0
the ear level

Came On, Steve = Think
Beyond te Mac

Charfe Engen, the Best Show in
Town

A Lagal Pain for Massachusetts
Hospitals?

Mas Argentina “Biten the
Cuter"?

Camage Control in Buenos Aires:

Bush’ Urinished Business in
Baghdad

securities laws and rules applied. The Probie with Pension Plans
Q: What do you make of Enron's auditors, ADL Tare Wamer’s "“Goodwir
{Arthur Andersen LLP]? Games

A: I can't comment on anything specific about
who, if anyone, is responsible. What I can
comment on is that, while our staff is doing a
complete and thorough and expeditious
investigation, we have to focus on assuring

The Economy. Halt:Spacd
Angad!

» More Headines:

file://C:\WINDOWS\Tcmporary%20Internet%20Files\OLK4274\MSOut!.htm

people that the problems of Enron won't likely reoccur, We have a whole
agenda of items that will hopefully minimize the likelihood of any similar
events,

01565

01200000000219


From: Bitsberger, Timothy

Sent: Thursday, November 01, 2001 2:44 PM

To: Carleton, Norman

Ce; Roseboro, Brian

Subject: RE: Thoughts about Retail Swaps paper (FDIC comments)

Remember Peter's comments from Monday

Slain Original Message-----

Prom: Carleton, Norman

Sent: Thursday, November 01, 2001 2:34 PM

To: Alexander M. Brill (E-mail); Don Lamson (E-mail);
*dombalagiano@sec.gov'; 'mike.brosnan@occ.treas.gov'; 'ddowScftc.gov';
Amy Mitchell (E-mail); Annette Nazareth (R-mail); Belinda Blaine
(E-mail); Bob Colby (E-mail); Bob Zwirb {E-mail}; David Wall; Diane
Virzera; Eichner, Matthew; Blizabeth Fox (E-mail); Eric Hirschhorn
(E-mail); Hammer, Viva; John Polise (E-mail); Joyce Hansen; Kathryn Dick
(E-mail); Kevin Erickson (£-mail); Kurt Wilhelm (E-mail); Lori
Sanatamorena (E-mail); Miguel Browne; Nickoloff, Peter; Novey, Michael;
Pat Parkinson (E-mail); Pat White; Schultheiss, Heidilynne

Cc: Bair, Sheila; Ellett, Martha; Gabilondo, Jose; Gross, Jared;
Roseboro, Brian; Biteberger, Timothy; Sutton, Gary

Subject; FW: Thoughts about Retail Swaps paper (FDIC comments)

+e--- Original Message-----

From: Browne, Miguel D. [mailto:MBrownesFDIC,gov]
Sent: Thureday, November 01, 2002 2:25 PM

To: 'Norman.Carletonado.treas.gov'

Cc: Wall, David; Mitchell, Amy Aulthouse
Subject: Thoughts about Retail Swaps paper

{(o)(5)]

-

02458

01300000001067


Carleton, Norman

——__— —

From: Carleton, Norman
Sent: Thursday, just 30, 2001 9:34 AM
To: Schultheiss, Heidilynne; Nickoloff, Peter
Subject: FW: Status of Retail Swap Study and the Enron Issue
-—-Onginal Message-——-

From: Mcinemey, Roberta

Sent: Wednesday, August 29, 2003 7:14 PM
To: Carleton, Norman
Subject: RE: Status of Retail Swap Study and the Enron Issue

{(b)(5)]

02414

01300000001023


Page 2 of 3

discussions with Dynergy and ic was an information-onty cali.
Subsequently, (Commerce Secretary) Doo Evans called re to say he'd
had 4 call and that Kem had told him that rsting agencies vere
looking at them azd there was real concern if the rating agencies

paced that that could effectively scupper the deal with
Dynergy,*' be aaid,

On whee he did folloving the cally

o tly Asked (Pisher| tc speak with the Enron
which he did, #0 that we could satiafy ourselves that the
Enrea affairs vere not to have a negative impact on U.S.
capital markets, ‘' O'Neill told CHBC.

On yhether he thinks echice rules were broken:
“"I thought it vas business es usual,'' be told Cwic, ~“! get

calla every ers in the vorld. Enron was the

bigse Se I was not surprised at
abi 'that 2 would get a cali saying we've got a protien over here
and you should know about it.

On whether be was he asked by Ken Lay for # government bailout «
“absolutely not,** he told CNBC. ““One of things I enjoy
about Treasury is I don't have a lot of giveaway programs so if he
wanted a giveaway from the government he sure wouldn't have called

me, E don't know if ane were inclined to make bailouta why there
would be @ Bailout for @ company that's gctten itself inta
trouble, If you want to look at recent er it filings ox
Chapter seven filings you can look st Bethlehes Steel and Sunbeam
and they don't call the government for a bailout. I ran = Portune
50 company, it never would have occurred to me to call the
governsent for # bailout if I got my company in trouble.''

On vhat President Gi W. Rush haw anked hin to de today:

ed me to one, head a committee that

sine Chac to lcci at
otber bankruptcy cases to pay special attention
to the question of whether we need to srend the rules that govern
pensicn plans and 403« plans co provide a greater deal of
aesurance to individualu who bave a stake in pensice plane and
401k plana,** he told CMM. **That ia driven by the president's
concern about the indivicusl employees. The president said to ne
we need to #ee if there ia something we need to do oo that we
deare from this. If there is a weakneso in cur rules let's fix the
wulaa.*'

““And the second comittee the president ssked re to convens
ia ome that's 2 standing committee, the president's ecceosic
committer. That includes eyself and Alan Greenspan, the head of
(the Commodities Putures Trading Commission} and Harvey Pitt of
the SBC. the president’s given us is to look at the
feren caan aad acl ¢ cases and see If we need to adjust the
discloaure rules so that shareholders and employees have all the
infareation they need to make intelligent decisions. This Ls not
about Enron, thie is about making sure the rules that govern che
way our economic systen works are worthy of the conditions that
we're dealing with these Gays to assure that individuals are nct
hurt because of a weaknese in our rul/

--Sinon Keonedy in the Washington mewsrcon (202) 624-1834, or at
skennedyeabloomberg.net /jo

Story illustration: For graph of Enron's stock price, type:
{EWE US <Bquity> GPO D <Go>,

ENE OS <Bquity> CH

ebeEEL LTTE

SSSAESS RSS SRSSSSSSAS
mo
ae

Eabeee

01/16/2002

01200000000054


Carleton, Norman

From: Carleton, Norman
Sent: Friday, December 21, 2001 9:47 AM
To: Bitsberger, Timothy, Wiedman, Mark
Ce: Schultheiss, Heiditynne; Nickoloff, Peter
‘Subject: Enron Taiking Points
Beron talon:
pores coc

Attached are draft Enron talking points for Peter Fisher.

Tracking: Recipient Delivery Road
Bitsberger, Timothy Delivered: 12/21/01 847 AM Resad: 12/21/01 11:28 AM
Wiedman, Mark Delivered: 12/21/01 9:47 AM Read: 12/2101 1:28 PM
‘Schutheiss, Heiditynne Delivered: 12/21/01 9:47 AM Resad: 12/21/01 O47 AM
Nickoloff, Peter Doliveced: 12/21/01 9:47 AM Resad: 12/21/01 10:00 AM

: 02004

01300000000612


From: Carleton, Norman
Sent: Thursday, August 30, 2001 9:33 AM
To: Bair, Sheila
Subject: RE: More on the Enron Issue
[(b)(5)]
--e@nginal Message--—--

From: Bair, Sheila

Sent: Thursday, August 20, 2001 9:26 AM

To: Carleton, Norman

Subject: RE: More on the Enron Issue

[(b)(5)]

—-~-Original Message—-—

From: Carleton, Norman

Sent: Wednesday, August 29, 2001 2:41 PM
To: Fisher, Peter; Roseboro, Brian; Bair, Shella; Nickoloff, Peter; Schulthess, Heidlynne; DeMarco, Edward; Hughes, Gerry, Grass,

Jared; Sith, Amy; Sutton, Gary; Ellett, Martha; Gabllondo, Jose; Mcinemey, Roberta; Lori Sanatamorena (E-mail);
Nowey, Michael; Echner, Matthew; Hammer, Viva
Subject: More on the Enron Issue

[(b)(4):(b)(5)}

Thoughts?
Tracking:

Recipient Delivery
Bair, Snets Delivered: 6/30/09 9:93 AM

1

Read
Read: 6/3001 1:01 Pat

02416

01300000001025


"There are aspects of [the Enron case] that remind us of the savings and loan scandal, in the
sense that a powerful institution used big money to buy influence and protect itself while
ordinary citizens ended up losing their life savings," said Fred Wertheimer, president of
Democracy 21, a Washington interest group, referring to a banking controversy in the 1980s.
Enron's ties to Republicans and the present Bush administration were especially close. Lay raised
large sums for George W. Bush's campaign.

Enron, Lay and its employees have contributed $572,350 to him over his career, far more than
any other company, according to the Center for Public Integrity in Washington.

Several top administration officials have been Enron advisers or stockholders. Enron, Lay and
other senior executives contributed $1.7 million in soft-money donations to politicians in the
2000 election cycle, two-thirds of it to Republicans, according to the Center for Responsive
Politics.

Republicans clearly are sensitive to the potential political dangers. The National Republican
Senatorial Committee recently retumed a $100,000 check collected from Enron in November,
after deciding that "it was appropriate to give it back,” spokesman Dan Allen said. The
Republican Governors Association last week retumed an Enron donation of $60,000.

What was unique about Enron, competitors and allies agree, was a brash and sometimes

counterproductive political style,

Stories of Enron's hardball style are legion. In October 1999, for example, Jeffrey K. Skilling,
then Enron's president, expressed his displeasure at Rep. Joe Barton's position on a deregulation
bill pending in the energy subcommittee Barton chairs.

The meeting grew "heated and awful,” said one person who was present, until Barton (R-Tex.), a
usually mild-mannered man who keeps a Bible on his desk, exploded. “Jeffrey Skilling, I may
not have your millions of dollars, but I am not an idiot,” one witness recalled Barton saying. The
meeting ended without Enron getting the changes it wanted. "Skilling did not gct Washington,”
the source added.

"In their lobbying, they acted like the 800-pound gorilla they were,” said Christopher Homer, a
Washington lawyer who briefly directed Enron's government relations in 1997. Lay and Skilling
declined interview requests, but Enron officials say they have no regrets about their use of
money. "It got us name recognition," company spokesman Mark Palmer said, "Given the
aggregation of our foes, we had to make sure that people knew what our argument was."

Jump-Starting Deregulation

Almost from its start in 1985 as a gas pipeline company, Enron needed help in Washington, and
it got it in a serics of actions by Congress and the Federal Energy Regulatory Commission
(FERC) that undermined the traditional monopoly of utility companies over power plants and
transmission lines.

Enron lobbied for several of the initial actions that set the stage for the era of a deregulated
wholesale electricity market.

01511

01200000000165


FW: California Hearings Continue, CPUC Decision Expected This Week Page | of
Schultheiss, Heidilynne

From: Squitieri, Ray

Sent: Tuesday, January 02, 2001 2:34 PM

To: Soares, Chris; Cetina, Jil; Greene, Michelle; Gross, Jared; Nickoloff, Peter, Paulus, Michael; Sachs, Lee; Schultheiss,
Heidilynne

Subject; FW. Califomia Hearings Continue, CPUC Decision Expected This Wee k

—--Original Message——-

From: Jone-Lin Wang [mailto:jwang@CERA.com]

Sent: Tuesday, January 02, 2001 2:31 PM

To: 'Ray.Squitieri@do.treas.gov’

Subject: FW: California Hearings Continue, CPUC Decision Expected This Wee k

woof
-----Original Message--—-
From: tssueA lert [mailto:tssucA lerta@/scientech.com]

Sent: Tuesday, January 02, 2001 7:01 AM
Subject; California Hearings Continue, CPUC Decision Expected This Week

1/15/02 01 239

01200000000595


Enron Executives Face Subpoenas

Senate Panel Also Orders Testimony of Directors
By Peter Behr and Dan Morgan

Washington Post Staff Writers

‘Thursday, January 3, 2002; Page BOL

A Senate committee announced yesterday that it is subpoenaing top executives and directors of
the bankrupt Enron Corp. to determine their roles in the Houston company’s epic collapse.

Three other congressional committees already are digging into the Enron failure, but the
subpoenas announced yesterday are believed to be the first of the congressional probes. Among
the likely recipients is Wendy Gramm, an Enron director who is the wife of Sen. Phil Gramm (R-
Tex.).

Sen. Carl M. Levin (D-Mich.), chairman of the Governmental Affairs Committee’s permanent
subcommittee on investigations, said the panel also will subpoena financial and trading records
from Enron and audit documents from its accountant, Arthur Andersen LLP.

Enron's attorney, Robert Bennett, called the subpoenas "totally unnecessary” and said "we are
fully cooperating with Congress."

Although Enron Chairman Kenneth L, Lay did not show up for two earlier congressional
hearings on Enron's bankruptcy, he has agreed to testify next month before the Senate Commerce
Committee, Bennett said.

Enron has turned over nearly three dozen boxes of documents to the House Energy and
Commerce Committee, Bennett said, "I don't question the legitimacy of an inquiry [into Enron's
failure}, but it's not a measured approach to have a half-dozen different committees doing this at
the same time," he said. "It can lead to a circus atmosphere and a lot of wasted time and effort.”
The full Governmental Affairs Committee has scheduled a hearing for Jan. 24 on Enron's use of
a large number of partnerships that kept billions of dollars of corporate debt off the company’s
books. The hearing will also examine whether federal regulators missed warning signs of the
company’s trouble.

Accounting errors involving the private partnerships caused Enron to overstate its eamings by
half a billion dollars over the past four years. Enron's disclosure of the overstatement, in
November, triggered a final plunge in the company's stock price and the company’s bankruptcy
filing Dee. 2.

Sen. Joseph I. Lieberman (D-Conn.), chairman of the full committee, said, "The focus is, how
did this corporation collapse, and what can we do to make sure that something like this never
happens again?"

Lieberman's committee joins an already crowded field of Enron inquiries. The House Energy and
Commerce Committee has sent investigators to interview Enron officials in Houston.

01516

01200000000170


CHRONOLOGY OF ENRON EVENTS

Note of Caution: The following chronology was compiled from an assortment of public
documents whose complete accuracy cannot be substantiated,

1990 Controversial CFO Andrew Fastow joined Enron,
1997 Fastow became Enron’s CFO,

1997 Enron established its Chewco employec-related entity, run by former-Managing Director
Michael Kopper, with $400 million in capital commitments. Enron and Chewco did hundreds of
millions of dollars in business.

December 1999 Fastow, with the approval of the Enron board, created and managed two
limited partnerships (“related party arrangements”), LIM Cayman LP and the larger 1JM2 Co-
Investment LP. Their purpose ostensibly was to “hedge certain merchant assets and transactions
and the fluctuating values of its growing portfolio of assets” (of more than $100 million). and to
enter into “share-settled costless collar arrangements” and “derivative instruments, including
swaps, puts, and collars, which eliminated the contingent nature of existing restricted forward
contracts.” LJM raised only $16 million, but LJM2 raised at least $200 million. Investors
included CSFB, Wachovia, GE Capital, and The Arkansas Teachers Fund. Enron reportedly had
been strapped for cash and sought to entice outside investors to strengthen its balance sheet, The
arrangements involved Enron assets, millions of shares of Enron stock contributed to the
structured finance vehicle, and notes receivable issued by partnership-related entities to Enron.
The offering document stated that Fastow would receive an annual management fee as much as 2
percent, and would be cligible for profit participation over its ten-year life, The general partner
was obligated to invest at least | percent of the aggregate capital commitments. Private
partnership documents apparently revealed the potential for huge financial rewards for Fastow,
Subsequent reports speculated that the arrangements may have been created to retain Fastow
after the exodus of executives who cashed out large profits on stock options.

1999 Enron filed a statement with the SEC that disclosed the Fastow partnership arrangements,
although it was largely overlooked by analysts as they remained exuberantly optimistic about
Enron and its phenomenal growth and earnings prospects.

1999? Enron Treasurer Jeffrey McMahon complained to Enron President Jeffrey Skilling
regarding Fastow’s conflict of interest. McMahon was reassigned.

September 2000 LJM2 invested $30 million in Raptor III, writing put options that
committed LJM2 to buy Enron stock at a set price for six months.

12/22/00 Enron successfully lobbied Congress for exemption from regulation for its
Internet trading platform by the CFTC under the CFMA.

January 2001 LJM2 requested that Enron settle the Raptor III transaction early, LJM2 received
its $30 million in capital invested plus $10.5 million in profit. This renegotiation occurred

02174

- 01300000000783


DeMarco, Edward

_—————————

From: Bair, Shela

Sent: Wednesday, December 26, 2001 6:39 AM

To: DeMarco, Edward; McCall, Neal

Subject: FW: WSJ: Enron Workers Face Losses On Pensions, Not Just 401(k)s

((b)(5)]

—-~-Original Message--—~

From: Carleton, Norman

Sent: Wednesday, Oecember 19, 2001 11:42 AM

To: Cetina, Jil; Bair, Shella; Berardi, Steve; Bitsberger, Timothy; Elciner, Matthew, Gabiondo, Jose; Gross, Jered; Hammer, Viva; Lon
Seretamorena (E-rall; Nickoloff, Peter; Novey, Michael; Pletrangeli, Fred; Roseboro, Brian; Schulthetss, Meidityrne; Whaley, Jean;

‘Subject: WSJ: Enron Workers Face Losses On Pensions, Not Just 401(k)s

December 19, 2001

Enron Workers Face Losses
On Pensions, Not Just 401(k)s

By ELLEN E. SCHULTZ
Staff Reporter of THE WALL STREET JOURNAL

Many Enron Corp. employees will suffer even greater losses to their retirement income than was
immediately apparent in the wake of the energy-trading company's sudden downfall.

It is well known that many Enron employees will take big hits in their 401(k) retirement-savings plans
because much of their investments were in company stock, What has been largely overlooked is that
the pensions of many employees also will be reduced as a result of complex, interrelated changes
involving pension and retirement-savings plans.

The decline wasn't caused by investments in the pension plan, which by law cannot invest more than
10% of its assets in the company stock. Rather, it stems from ways that companies such as Enron
have increasingly coordinated their pensions, 401(k)s and employee stock ownership plans (ESOPs)
to reduce costs for the company and shift investment decisions to employees. Enron had no
comment.

Lawmakers, reacting to the decimation of the savings of many employees in Enron's 401(k) have
begun calling for legislation that would hold savings plans to the same standards as pensions.
Employees suffered steep losses in their 401(k) plans because more than 60% of the assets were in

1

01200000001253


From: Norman Carleton

To: GREENEM!
Date: 9/1399 10:50am,
Subject: tems for today's staff menting

1. Dingell Y2K letter

2. OTC derivatives raport

3. GAO Report on LTCM (?)

4, Bankruptcy netting legislation (Enron maneuvers}
cc: NICKOLOFFP

02550

01300000001159


It supported the 1992 Energy Policy Act, which opened the utility companies’ wires to electricity
merchants such as Enron, It also worked with the Commodity Futures Trading Commission --
then chaired by Wendy Gramm — for a regulatory exemption for futures trading in energy
derivatives, which later became Enron's most lucrative business. Soon after Gramm stepped
down in 1993, she was appointed to Enron's board.

Independent sources knowledgeable about these dealings, however, said Enron was not the main
interested party. They said the lead was taken by several major oil companies, including British
Petroleum Co, and Phillips Petroleum Co., which were concerned about the effect of CFTC
regulation on their offshore trading in crude oil contracts. Wendy Gramm, an apostle of free
markets, needed little convincing, the sources said.

That same year, Lay served as chairman of the committee organizing the Republican National
Convention in Houston. Hedging its bets, Enron made a major contribution to a "street fair" in
honor of Sen. John Breaux (D-La.), a key cnergy policymaker, at the Democratic convention.
Key orders by FERC in 1996 also supported Enron's transformation into a freewheeling trader of
gas, electricity and more exotic products, such as telecommunications services and sulfur-
dioxide emissions credits.

The new rules ensured that Enron and other merchant companies could buy electricity from
independent power plants and sell it to distant customers, using transmission lines borrowed
from utility companies.

Even Enron's harshest critics credit Lay with putting new issues -- such as electricity
deregulation -- on the Washington agenda, Lay,a former Interior Department official with a PhD
in economics, became "the ambassador" for deregulation, one former employee said.

Throughout the 1990s, Enron's agenda was opposed by coal-burning utilities, especially ones in
the Southeast, which viewed the emerging wholesale electricity market as a threat to their turf.
Many of these, such as Atlanta-based Southem Co., had impressive political funding and
connections of their own.

But with the explosive growth of Enron and the GOP takeover of Congress in 1995, the
company’s soft-money donations -- unregulated and unlimited gifts to political parties and
organizations -- jumped sharply. They went from about $136,000 in the 1993-94 election cycle,
to $687,000 in 1996 and $1.7 million in 2000, according to the Center for Responsive Politics.

Frustrated by Washington

For all its connections, sources say, Enron often found Washington frustratingly slowand
unreliable.

The company placed a substantial bet on federal support for limits on the greenhouse gases
causing global warming. Enron officials hoped to exploit a new market in industry for carbon-
emissions credits, similar to the one that developed for sulphur credits after clean-air legislation
was enacted in 1990.

01512

01200000000166


This e-mail is sent by a law firm and containe information
that may be privileged and confidential. If you are not the

intended recipient, please delete the e-mail and notify us
immediately.

This e-mail is sent by a law firm and contains information
that may be privileged and confidential. If you are not the

intended recipient, please delete the e-mail and notify us
immediately.

02233

01300000000842


From: Norman Carleton

To: GENSLERG, SachsL, MCGIVERNT
Date: 6/2199 9:52am
Subject: Working Group Comments on Enron/Cadwalader Proposals -Reply

Attached are Eric Foster's comments on the Enron proposals. | sent a message about this yesterday.
cc; Dom13.DOPO7.MCCLELLANM, DOPOS.TooheyF, CARTERJ, MC...

02536

01300000001145


Carleton, Norman

From: Hammer, Viva
Sent: Monday, October 01, 2001 3:09 PM
To: Carleton, Norman
Subject: RE: Discussion with Ken Raister about Enron Product
w)
Rew Seas coc
one versin of retail swaps
on Original Message—-—
From: Carleton, Norman
Sent: Saturday, September 06, 2001 1:10 PM
To: Bair, Sheila; DeMarco, Edward; Eichner, Matthew; Bett, Merths; Fisher, Peter; Gadlondo, Jose; Gross, Jared; Hanmer, Wwa;

Hughes, Gerry; Nickolott, Peter; Novey, Michael; Raseboro, Brian; Schutheiss, Heidihnne; Smith, Amy; Sutton, Gary
‘Subject: Discussion with Ken Raisler about Enron Product

On Friday, September 7, I discussed the retail energy swap issue with Ken Raisler. He is a partner at
Sullivan & Cromwell who represents Enron. In the mid 1980s, he was the general counsel of the CFTC.

Lasked Ken if Enron opposed state regulation of retail energy derivatives if the CFTC were to grant an
exemption for this product. The first answer to this question was yes, but that answer was modified as we
further discussed the issue.

l asked Ken if he thought that there was a preemption argument that could be made because of CFTC
exclusive jurisdiction. He said he thought there was. He said Enron would not make such a legal argument
because it is regulated in some states as a utility company, but that others might make such an argument.

I told Ken that the Treasury had not come to a conclusion about the retail energy swap issue but thai we
were unlikely to support a result that would mean no federal regulation and would not allow state
governments to regulate this product if they chose to do so. He asked me what regulatory issues might be of
concem, | answered that such issues as advertising, pricing, and assurances that the company offermg the
product had the financial ability to meet its obligations might be subjects that governments would be
concemed about. Ken said he thought that this was a reasonable position.

1 asked Ken whether he thought that the CFTC could exempt retail energy swaps from the exclusive
jurisdiction provision of the CEA, thus precluding any arguments about state jurisdiction. He said he
thought that might be possible.

At the end of the conversation, Ken indicated he would talk to his client about the issues | hud raised,

{(b)(5)]

02226

01300000000835


Cc

From:
Sent:
To:

Subject:

((b)(5)]

Carleton, Norman

Saturday, September 08, 2001 1:07 PM

Bair, Sheila, DeMarco, Edward; Eichner, Matthew, Ellett, Martha; Fisher, Peter; Gabitondo,
Jose; Gross, Jared; Hammer, Viva; Hughes, Gerry; Nickoloff, Peter, Novey, Michael;
Roseboro, Brian; Schultheiss, Heidilynne; Smith, Amy; Sutton, Gary

Retail Swaps Study Group Meeting -- September 6

02277

01300000000886


BW Online | December 13, 2001 | Harvey Pitt: "Violate the Law, You Will Pay" Page 4 of 4

better for investors than being limited solely to going after the problem
after it's arisen.

We're not changing after-the-fact enforcement. But what we're trying to
do is help companies and auditors get it right, up front, My message was,
is, and will be: If you violate the law, you will pay for it, and we will be
aggressive. But if you are truly concerned about getting it right, we will
help you. And we will try to protect investors in more than one way.

Q: The other profession that has not covered itself with glory is Wall
Street's analysts.

A: Again without commenting on what specifically occurred in the Enron
situation -- I think that analysts have to know why they're recommending
a company, and have to understand its true financial position. It's one
thing if analysts are deceived by sharp operators. But we cannot have a
situation in which recommendations are made without a full
understanding of the company's posture.

The public is entitled to know either that there are no conflicts of intcrest
[between an analyst's research and banking roles], or precisely what
conflicts there are. I believe that the securities industry will come up an
effective program for dealing with that. If they don't, then we will make
sure that investors are protected.

Edited by Douglas Harbrecht

Click to bey an eprint or reprint of a BusinessWeek or BusinessWeek
Online story.

~
BACK TO TOP

Copyright 2001 . by The McGraw-Hill Companies Inc. All rights reserved.
Teems of Use | Privacy Policy ‘The MeGreas

01567

file://C:\WINDOWS\Temporary%20Intemet%20Files\OLKs ost 1/16/02

01200000000222


From: Norman Carleton

To: GENSLERG, Sachs, MCGIVERNT

Date: 6/1/99 5:36pm,

Subject: Working Group Comments on Enron/Cadwalader Proposals -Reply
[(b)(5))

ce: Dom13,DOPO07,MCCLELLANM, DOPOS.TooheyF, CARTERJ, MC...

02539

01300000001148


Nickoloff, Peter

Schultheiss, Heidilynne

Tuesday, January 02, 2001 2:23 PM

Squitierl, Ray; Sachs, Lee; Paulus, Michael; Greene, Michelle; Gross, Jared
Carleton, Norman; Nickoloff, Peter; Soares, Chris; Cetina, Jill

SF Chronicie Article on Cal Energy Situation

This was sent to me by a former Dok employee who now works for an private-sector energy
company in Houston. It's a good, comprehensive background piece. Unfortunately I don't
have it in electronic form, and the hardcopy (margin) format is a bit strange.

December 31, 2000 (SF Chronicle)

Genesia Of State's Energy Fiasco/String of bad decisions on deregulation
could end up costing consumers $40 billion

Christian Berthelsen

Next month, about 10 million Californians may begin paying as much as
30 percent more for electricity, in a maddening coda to one of the most
costly public policy mistakes ever made.

When the state's leadera started moving the energy system toward
deregulation six years ago, they envisioned a brand new day in which
utility companies’ long-standing monopoly would be broken and rates would
decline by as much as 25 percent.

Instead, when it is over, it may cost customers of the state's
investor-owned utilities $40 billion, perhaps more. In the coming year, it could
harm the world's sixth-largest economy and send a ripple effect throughout
the globe for those dependent on California's continued prosperity.

This is the story of what went wrong with deregulation, and how
planning lapses, serious policy blunders -- and warnings that came too late -- set
California's two main utilities, Pacific Gas & Electric Co. and Southern
California Edison, toward a train wreck.

Power plant construction lagged while demand expanded. Leaders
misjudged how much competition there would be to supply California with juice. and
flawed deregulation laws left utilities and their customers at the mercy
of power companies, extracting the highest price for electricity.

“There was a blind adherence to free-market ideology that couldn't
posaibly work," said Eugene Coyle, a former utility securities analyst,
economist and early opponent of deregulation. "There were poorly
thought-out specifics."

In the early 1990s, businesses were fleeing the state amid the worst
economic times since the Great Depression. Energy rates were 50 percent
higher than they were on average across the nation, because of commitments
to more expensive, environmentally friendly power and cost overruns for
nuclear power plant construction.

Large customers such as steel makers, mining concerns and cement
makers, for which electricity costs make up 25 percent of their overhead, saw that
independent power producere were offering power much more cheaply. They
began to insist on change.

The United States had deregulated long-distance telephone service,
airlines and a host of other industries, often with resulting competition
that wag a boon to consumers. Why net do the same for electricity?

So California embarked on a pioneering experiment. In 1993 and 1934,
the California Public Utilities Commission began to draft such a policy. It
allowed large users to buy power directly from independent producers and
froze customer rates at artificially high levels so utilities could
recover their investments in costly plants.

The utilities sought to have the terms codified in law, and in early
1996, a number of bills were introduced in the Legislature to do so.

> Some observers say that what happened next contributed to the overall
» plan's flaws, Months passed while the discuesion meandered and faltered,
> and at one point it even appeared that no law would be passed.

01688

01200000000344

VVVV VV VY YE


Nickoloff, Peter
—_—__—_———__

From: Carleton, Norman

Sent: Friday, January 04, 2002 5:30 PM

To: Roseboro, Brian; Bair, Sheila; Gross, Jared; Wiedman, Mark; Bitsberger, Timothy; Smith, Amy
Ce: Schultheiss, Heidilynne; Nickoloft, Peter; Ellett, Martha; Gabilondo, Jose; Sutton, Gary
Subject: FW: Draft Memo on Enron/CFMA Articles

Attached is a memo that details our first attempt to clarify what the press has been saying in regards to Enron and the
Commodity Futures Modernization Act.

| talked to the Ken Raisler, a New York lawyer, about this, He told me that Enron did not directly lobby the administration
about the CFMA but was part of an energy coalition, which Mr. Raisler represented, that did lobby on this issue. The
exempt commadity/electonic trading facilily provision in the CFMA did not directly benefit Enran since EnronOnline was not
structured as a trading facility as defined in the CFMA. Therefore, the major beneficiaries of these provisions are Enron's
competitors, such as the InterContinental Exchange and TradeSpark, which are stuctured as electonic trading facilities.
Enron did get the legal certainty it wanted that the CFTC cannot regulate EnronOnline.[(b)(5)}

Ken also told me that he had talked to then Assistant Secretary Lee Sachs about the exempt commodity issue. According
to Ken, Lee told him that the Treasury would not oppose the CFMA because of the exempt commodity issue but
encouraged the industry to reach @ compromise with the CFTC. In the end, Wall Street firms, energy firms, and the
futures industry, as well as the PWG (including the CFTC) all supported Passage of the CFMA.

_ Message-—-
From: ‘Sxhuttheiss, Heiditynne

Sent: Friday, January 04, 2002 5:10 PM
To: Carleton, Norman

Subject: Draft Memo on EnronyCFMA Articles

Attached is the draft memo on the Enron articles that asserted that the CFTC and PWG objected to the energy exclusion
provisions of the CFMA. The three news articles are downloaded as the latter pages.

©

eroncire.toe

am

01506

01200000000160


Bair, Sheila

From: Bair, Sheila

Sent: Wednesday, December 26, 2001 8:39 AM

To: DeMarco, Edward; McCall, Neal

Subject: FW: WSJ: Enron Workers Face Losses On Pensions, Not Just 401(k)s
((b)(5)]

--—-Original Message—-—
From:

Carleton, Norman

Sent: Wednesday, December 19, 2001 11:42 AM

To: Catia, Jil); Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gabllondo, Jose; Gross, Jared; Hammer, Viva; Lori
Sanatamorena (E-mail); Nickoloff, Peter; Novey, Michael; Pletrangell, Fred; Roseboro, Brian; Schukheiss, Heidilynne; Whaley, Jean;
‘Wiedman, Mark

Subject: WSJ; Enron Workers Face Losses On Pensions, Not Just 401(k)s

December 19, 2001

Money & Investing

Enron Workers Face Losses
On Pensions, Not Just 401(k)s

By ELLEN E. SCHULTZ
Staff Reporter of THE Walt STREET JOURNAL

Many Enron Corp. employees will suffer even greater losses to their retirement income than was
immediately apparent in the wake of the energy-trading company's sudden downfall.

It is well known that many Enron employees will take big hits in their 401(k) retirement-savings plans
because much of their investments were in company stock. What has been largely overlooked is that
the pensions of many employees also will be reduced as a result of complex, interrelated changes
involving pension and retirement-savings plans.

The decline wasn't caused by investments in the pension plan, which by law cannot invest more than
10% of its assets in the company stock. Rather, it stems from ways that companies such as Enron
have increasingly coordinated their pensions, 401(k)s and employee stock ownership plans (ESOPs)

to reduce costs for the company and shift investment decisions to employees. Enron had no
comment.

Lawmakers, reacting to the decimation of the savings of many employees in Enron's 401(k) have
begun calling for legislation that would hold savings plans to the same standards as pensions.
Employees suffered steep losses in their 401(k) plans because more than 60% of the assets were in

01200000000932


vuvVV YY

vvvy

VVV VV VV

Voev¥YVY vvuVY¥YYYY

v

weve

vv WY

flawed deregulation laws left utilities and their customers at the mercy
of power companies, extracting the highest price for electricity.

"There was a blind adherence to free-market ideology that couldn't
possibly work,” said Eugene Coyle, a former utility securities analyst,
economist and early opponent of deregulation. “There were poorly
thought-out specifics.*

In the early 1990s, businesses were fleeing the state amid the worst
economic times since the Great Depression. Energy rates were 50 percent
higher than they were on average across the nation, because of commitments

to more expensive, environmentally friendly power and cost overruns for
nuclear power plant construction.

Large customers such 4s steel makers, mining concerns and cement
makers,
for which electricity costa make up 25 percent of their overhead, saw that

independent power producers were offering power much more cheaply. They
began to insist on change.

The United States had deregulated long-distance telephone service,
airlines and a host of other industries, often with resulting competition
that was a boon to consumers. Why not do the same for electricity?

So California embarked on a pioneering experiment. In 1993 and 1994,
the
California Public Utilities Commission began to draft such a policy. It
allowed large users to buy power directly from independent producers and
froze customer rates at artificially high levels so utilities could
recover their investments in costly plants.

The utilities sought to have the terms codified in law, and in early
1996,

a number of bills were introduced in the Legislature to do so.

Some observers say that what happened next contributed to the overall
plan's flaws, Months passed while the discussion meandered and faltered,
and at one point it even appeared that no law would be passed.

That's when state Sen. Steve Peace took the reins and tried to make

something happen.

The San Diego legislator already had won the respect of his colleagues
for
his work on another complex piece of legislation, reform of the workers’
compensation system.

During a hurried two-week conference in August -- dubbed the "Steve
Peace

death march" for his propensity to keep negotiators at the table late into

the might == the fine points of the energy law were hashed out.
Legislators entrusted their judgment to Peace and the few colleagues

who

worked on the bill. There was an abiding sense by a number of participants

that few members of either house knew what was in the bill or even
understood it. It was passed by both houses of the Legislature unanimously

and signed into law the following month.

“People were grateful to Peace and (former Sen. Diane) Martinez for
taking
it on," said Debra Bowen, D-Los Angeles, the current chair of the Senate
energy committee. "Historically, utilities were a pretty boring topic, and

I think term limits factored into it.*

The law was to end the monopolistic contro] that utilities held over
both
power production and supply by requiring them to sell off their
qenerators. It set rates artificially high so they could recover money
from bad investments. And it gave them nearly two years ta prepare for
competition.

Moreover, residential customers would be granted an immediate 10

percent . 01235

01200000000591


Carleton, Norman

— — —_—— — ——
From: Hammond, Donaid

Sent: Thursday, February 15, 2001 10:25 AM

To; Carleton, Norman

Subject: RE; Bankruptcy Reform Mark-up Hearing

Norman,

Please keep Michael Paulus up to date on this. He can be a big help.

Don
—--Original Message-——-
From: Carleton, Norman
Sent: Thursday, February 15, 2001 10:07 AM
To: Hammond, Donald; DeMarco, Edward; Ellis, Cina; Huffman, Lucy; Mcinemey, Roberta; Constantine, Bieri; Hughes, Gerry; Stewart,
Lawranne
ca: Tishuk, Brian; Robbins, Eric; Paulus, Michael; Sutton, Gary; Huffman, Lucy; MoGivern, Tom; Nickoke, Peter; Schultneiss,

Subject: RE: Bankruptcy Reform Mark-up Hearing
Don,

{(b)(5))

Norman
---Original Message--—
From: — Hamnond, Donald
Sent: Thursday, February 15, 2001 6:26 AM
To: DeMarco, Edward; Elis, Dina; Huffman, Lucy; Carleton, Norman; Mcinemey, Roberta; Constantine, Eleni; Hughes, Gerry; ‘Stewart,

” 02504

01300000001113


Schultheiss, Heidilynne

From: Wiedman, Mark

Sent: Fuseday. | December 18, 2 18, 2001 7:52 AM
To: Roseboro, Brian; Codcion, Norman, Ncioiot Peter, Schuttheiss, Hexdilynne
Subject: FW: ENRON ADMITS IT'S REALLY ARGENTINA

ee Original Message-----

From: Jon Gross <jgross@projectgrad.org>

To: Mark Wiedman <Mark.Wiedman@do.treas.gov>; Mike Grunwald <grunwaldmr®washpost.com>;
Anu} Gupta <agupta@mbal998.hbs,edu>; Eddy Daniels <eddy.daniels@enron. com>

Sent: Mon Dec 17 23:20:54 2001

Subject: FW: ENRON ADMITS IT'S REALLY ARGENTINA

cocoa Original Message-----

4mgroas [mailto:jngross@icademy.com)

Sent: Thursday, December 13, 2001 5:48 PM

To: Robert Vincent; Catherine Markman; Jonathan Gross
Subject: FW: ENRON ADMITS IT'S REALLY ARGENTINA

Too funny, on the slight chance you haven't already received this.

ENRON ADMITS IT'S REALLY ARGENTINA
Now Massive Ineptitude, Corruption Make More Sense, Analyats Say

Houston, Texas - Collapsed due to gross mismanagement and
insurmountable debt, energy company Enron teday confessed to what many
observers had long suspected: it is actually Argentina.

Congressional leaders, who have called for an investigation into the
biggest corporate failure in U.S. history, immediately dismisaed
Enron's claim, but Argentinians weren't so sure. "The shady deals. The
crazy debt. I knew there was something familiar about those guys," said
Banco del Argentina director Ernesto Caballo.

Enron chairman and CEO Kenneth Lay, speaking through an interpreter via
phone from Buenos Aires, apologized for any confusion the subterfuge
may have caused, and noted that as a sovereign nation, the company was
immune from U.S. prosecution. Lay also insisted that he had not "fled*
to Argentina, but had returned home to the capital to visit "mi
familia."

While not directly stating it, Lay also hinted that he might in fact be
Argentinian President Fernando de la Rua. Reached in Buenos Aires, de
la Rua admitted he couldn't rule that out. "Things are pretty crazy
around here. Who can say?"

But Enron creditors, clients, and shareholders, who stand to lose
billions over their exposure to the company, weren't buying any of it.
"While they may act like it, they are not a South American country, and
Ken Lay is not the President of Argentina,” declared J.P. Morgan Chase
spokesman Alex Firtilly. “They are a malfeasant U.S. corporation that
has potentially caused us to lose $500 million. And Ken Lay is from
Missouri."

":Como?," Lay replied. "Ne hablo Ingles.”

' 01266

01200000000622


((b)(5)]

02227

01300000000836


lawsult against Andersen on behalf of Enron shareholders, said document destruction by an audit firm
is shocking.

“Auditors save everything," including all work papers for audit clients, Mr. Donovan commented.
Enron was one of Andersen's largest clients, generating $25 million a year in audit fees and $27
million of fees for consulting. Enron, a high-flying energy company which last year ranked No. 7 on
the Fortune 500 list, announced big losses last October in off-balance-sheet partnerships run by
former Chief Financial Officer Andrew Fastow. In early November, Enron acknowledged it had
overstated earnings by $569 million over a four-and-a-half year period and said investors could not
rely on its past financial statements.

The SEC launched a formal investigation into Enron's accounting on Oct. 31.

Write to Judith Burns at judith.burns@dowjones.com'

01200000000892


Carleton, Norman

— — —— —
From: Carleton, Norman

Sent: Tuesday, February 13, 2001 5:07 PM

To: ‘Stewart, Lawranne

Subject: FW: Proposed Changes to Netting Bill -- Comments

~-~-Original Message-----

Prom: Krimminger, Michael H. [mailto:MKrimminger@FDIC.gov)
Sent: Tuesday, February 13, 2001 4:47 PM
To: 'norman.carleton@do.treas.gov'; ‘stephanie.martin®irb.gov';
"Tom.McGivern@do.treas.gov'; ‘MooneyJ@sec.gov"
Ce: DeLoose, Michael; Ivie, Stanley R.; Tishuvk, Barbara Starke
Subject: Proposed Changes to Netting Bill -- Comments

{()(5)}

02454

01300000001063


Carleton, Norman

— — —
From: Bair, Sheila
Sent: Thursday, August 30, 2001 9:26 AM
To: Carleton, Norman
Subject: RE: More on the Enron Issue
{(b)(5)]
~—~Original Message--=

From: Carteton, Norman

Sent: Wednesday, August 29, 2001 2:41 PM

To: Fisher, Peter; Roseboro, Brian; Bair, Shela; Nickolotf, Peter; Schulthess, Heicilynne; DeMarco, Edward; Hughes, Gerry; Gross,

Jared; Smith, Amy; Sutton, Gary; Gilet, Marthe; Gabilondo, Jose; Mcinamey, Roberta; Lori Sanatamorena (E-mail); Novey,
Michad; Exchner, Matthew; Hammer, Viva
Subject: More on the Enron Essue

{(b)(5)]

Thoughts?

02418

01300000001027


From: Gross, Jared

Sent: Thursday, January 10, 2002 6:11 PM

To: Fisher, Peter

Subject: FW: DJ: CAPITAL VIEWS: An Interesting Day In The Enron Trenches

you're mentioned in this one

-—-Original Message--—-
From:

Carleton, Norman

‘Sent: Thursday, January 10, 2002 5:57 PM

To: Cetina, Ji; Bair, Shelia; Berard, Stewe; Btsberger, Timothy; Eichner, Matthew; Gabilondo, Jose; Gross, Jared; Hammer, Viva; Lori
Sanatamorena (E-mail); Nickolof*, Peter; Novey, Michael; Pletrangell, Fred; Rosebdoro, Brian; Schulthelss, Heidilynne; Whaley, Jean;
Wiedman, Mark

Subject: (): CAPITAL VIEWS: An Interesting Dey In The Enron Trenches

January 10, 2002

CAPITAL VIEWS: An Interesting Day In The Enron Trenches

By JOHN CONNOR

A Dow Jones Newswires Column

WASHINGTON -- Today was a big day on the Enron front, with key developments coming fresh on
the heels of Wednesday's new that the Justice Department has opened a criminal investigation of
Enron's bankruptcy.

To briefly review the bidding:

- Arthur Andersen, LLP, already taking heavy fire for its auditing of the now-bankrupt Enron Corp.
(ENE), told the Justice Department and the Securities and Exchange Commission that individuals at
the firm "disposed of a significant but undetermined amount" of documents relating to its Enron work.

Andersen said the destruction, encompassing both paper documents and e-mail, was done in recent
months by individual employees involved in auditing Enron. The number of individuals involved was
not specified.

- White House Press Secretary Ari Fleischer disclosed that Enron Chairman Kenneth Lay, a big
campaign contributor to George W. Bush, contacted two senior Bush Administration officials last fall.
The officials in question were Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans.
The contacts sound in the telling like a bid for help.

Fleischer related that O'Neill said he had been contacted by Lay last fall and that Lay brought to
O'Neill's attention “his concems about whether or not Enron would be able to meet its obligations.

And he expressed his concern about the experience that Long-Term Capital (Management) went
through...

“Secretary O'Neill then contacted (Treasury) Undersecretary (Peter) Fisher to ae’ him to evaluate
1

01200000001529


Gross, Jared

nn SO

From: Gross, Jared

Sent: Thursday, January 10, 2002 1:05 PM

To: Fisher, Peter

Subject: FW: Economist: Rites of passage -- With Enron and Argentina, credit derivatives pass an
important test

This is short but good

~-~Original Message-——-
From: Carleton, Norman
Sent: Thursday, January 10, 2002 12:33 PM
To: Cetina, Jil; Sharer, James; Corfield, Anna; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eicher, Matthew; Gadtonda, Jase;

Gross, Jared; Hammer, Viva; Lor Sanatamorena (E-mail); Nickoloff, Peter; Nowey, Michael; Pietrangeli, Fred; Roseboro, Brian;
Schulthess, Heiditynne; Whaley, Jean; Wiedman, Mark
‘Subject: Economist: Rites of passage -- With Enron and Argentina, credit denvatives pass an important test

Credit derivatives

Rites of passage

With Enron and Argentina, credit derivatives pass an important test

ARGENTINA'S debt default and the collapse of Enron, America's biggest bankruptcy, are together offering
the greatest test yet faced by dealers in the still young market for credit derivatives. These are
instruments that allow lenders to pass on to others the risk that borrowers will default-in return for a fee.
Billions of dollars of credit-default swaps, one class of such derivatives, were written on Enron and on
Argentina. Here is a chance, people who deal in credit derivatives think, to prove their products’ worth.

In the early days, just a few years ago, the joke among traders at investment banks was that the busiest
person on a credit-derivatives desk was the lawyer, In all too many cases, buyers of credit-derivative
protection found that their interpretation of a contract differed vitally from that of the firm which had sold
it. Legal wrangles ensued, harming the young product's reputation. Yet so far, to the relief of the six or so
investment banks that dominate the market, there is no sign of trouble over the settlement of credit-
default swaps written on Enron.

Argentina might be more of a problem. In November, the government announced a restructuring of its
local debt on terms more favourable to Itself. Some buyers of default protection on foreign-held debt
believe that, although the restructuring was described as voluntary, it met their contracts’ definition of a
“credit event”, meaning that they should receive the debt's full face value. One hedge fund in New York,
whose default swap expired soon after the restructuring, plans to sue J.P. Morgan Chase, one of the banks
most active in the market for credit derivatives, for rejecting their interpretation. But most owners of
credit-default swaps are now clearly entitled to their money, after Adolfo Rodriguez Saa, briefly president
of Argentina, announced in December that the country would stop paying interest on its foreign debt.

Even so, dealers and hedge funds are quarrelling over whether two particular government bonds, maturing
in 2018 and 2031, are covered by the default protection. The argument springs from the fact that these
bonds were issued as part of a debt exchange by the Argentine government last June. Some sellers of
protection fear that, because of this, the bonds may be treated less favourably than other government
debt in any future workout. Goldman Sachs and other credit-derivative dealers would prefer not to accept
these bonds-although they are reluctantly doing so. Ron Tanemura, the firm's head of credit derivatives,

1

01200000001543


Wiedman, Mark

From:
Sent:

To:
Subject:

Carleton, Norman

Friday, December 21, 2001 3:56 PM
Bitsberger. Timothy: Wiedman, Mark
Ri Enron Talking Points

Attached is a revised document based on Mark's comments

01200000000008


{(b)(5)}

Please review and let me know your thoughts.
Thanks,
Mike

2 02480

01300000001089


--—-Onginal Message-—-

From: DeMarco, Edward

Sant: — Thursday, February 15, 2001 8:22 AM
anne

To:

Cc:

FYI

Tishuk, Brian;

‘Robbies, Eric
‘Subject: FW: Bankruptcy Reform Mark-up Heanng

—-—-Oniginal Message—---
From: — Robibins, Eric

Sent: Wednesday, February 14, 2001 5:45 PM
To: DeMarco, Edwarc

Cc: Tishuk, Brian

Subject: Bankruptcy Reform Mark-up Hearing

H.R. 333, the “Bankruptcy Abuse Prevention and Consumer Protection Act 2001” was reported out of
the House Judiciary Committee on Wednesday, February 14, 2001, During the mark-up hearin;
eighteen amendments were offered with all but one amendment failing to pass. Voting occurred largely
along party lines. The only amendment that passed was a technical amendment offered by Chairman
Sensenbrenner. Only one Republican crossed party lines to vote for one of the seventeen other
amendments that failed.

Representative Bachus (R-AL) assured the committce that he was committed to working with
Representative Oxley from the Financial Services Committee on commercial bankruptcy provisions and
netting requirements,

Tracking:

Delivery

Delivered: 2/15/07 10:07 AM
Delivered: 2/1501 10:07 AM
Delivered: 2/5401 10:07 AM
Delivered: 2/1601 10:07 AM
Delivered: 2/7501 1007 AN
Delivered: 2/15/01 10:07 AM
Delivered: 215/01 10:07 AM
Dativered: 2/15/01 10:07 AM
Detivered: 2/16/01 10:07 AM
Detivered: 2/15/01 10:07 AM
Delivered: 2/18/04 10:07 AM
Delivered: 2/1501 10:07 AM

Delivers: 2/1501 10:07 AM
Delivered: 2/15/01 10:07 AM
Oebvered: 2/15/01 10:07 AM
Oebvered: 2/16/01 10:07 AM

Read

Read; 2/15/07 10:21 AM
Read: 2/15/01 12:35 PM
Read: 2/1501 10:41 AM
Read: 2/1501 10:07 AM
Read: 21501 1205 PM
Read: 2/1501 10:51 AM
Read: 2/16/01 4:54 PM
Read: 2/15/01 10:09 AM
Read: 2/15/01 12:45 PM
Read: 2/15/01 10:34 AM
Reed: 2°15/01 10:36 AM
Read: 215/01 10.07 AM

Read: 20001 11:17 AM
Read: 2595101 10:07 AM

Read: 2/15/01 10.07 AM
Read: 2/15/01 10:07 AM

02486

01300000001095


DRAFT: Nickoloff/June 9, 1999 INFORMATION

MEMORANDUM FOR SECRETARY RUBIN
DEPUTY SECRETARY SUMMERS

FROM: Lee Sachs
Deputy Assistant Secretary
(Government Financial Policy)

SUBJECT: Draft Recommendations of the Counterparty Risk Management Policy
Group

SUMMARY:

{(b)(5))

DISCUSSION:

[(b)(5)]

02511

1300000001120


Fidelity Balanced fund,

Mr Gramm played a key role in getting the Commodity Futures Modernisation Act passed in December 2000. The act,
which deregulated all financial derivatives and relaxed oversight of commodity exchanges, had been languishing In the
Senate.

Copyright: The Financial Times Limited 1995-1998

01200000001287


Special Report: California's Deregulation of Electricity

News Business Sports
Politics Travel Commentary
Entertainment Classifieds Shopping

° ries art jobs homes cars

rentals

“Special Report

3

© Teepening Crisis Raises Specter of Power Rationing

ate Hike Meeded to Rescue Electric Utilities, Davis
Srys (12/20/00)

control a Priority for Qavis, Unilities (12/20/00)

ing.to Conserve, but Only Hf_Tree ts Bright
120/00)

© Power Sales to California Heat Tempers in Northwest
(12/19/00)

© ymmit Alms to Ease Power Crisis (12/19/00)
< wor Crisis Puts Spotlight.on Middlemen (12/18/00)

State Critical as U.S, Tries to Keep Power On
(12/16/00)

© U.S. Sets Rules to Ensure Electricity Sales to State
(12/15/00)

eat to Out-of-State Power Fins Averts
BI 5412/14/00)

mpantes a Drain on Power Grid (12/12/00)
or freakin Power Crisis (12/12/00)

at of Blackouts, Some Users Conserve but
Others take Uignt (12/9/00)

© Grgphic: Power Plants’ Estimated Profits (12/9/00)
ri efore and After Deregulation (12/9/00)
Dork While It's Stil Light (12/9/00)

I & Features
Money & Investing
1 2 Marketing Work & Careers
nerctal Real Estate Small Business
Susiness Joluains Special Reports
ort she Business staff Business Home

Page | of

mor 2t, 2000 | @® Pring this stor

Deepening Crisis Raises Specter of
Power Rationing

= Electricity: Amid fears that blackouts might begin
this weekend--and possible downgrading of big utilities’
credit ratings--pressure on state to let rates rise grows
intense.

By DAN MORAINCHRIS KRAUL and MITCHELL LANDSBERG, Times Staff
Witers

California's energy crisis took an ominous turn
Wednesday when Southern California Edison
threatened to begin rationing electricity over the
Christmas weekend and a major Wall Street agency
warned that it might downgrade the credit ratings of the
state's two biggest utilities to junk bond status.

With the power emergency beginning to devolve into
a political game of chicken, the California Public
Utilities Commission was expected to begin laying the
groundwork today for an electricity rate increase that
could be approved as early as Jan, 4. How much more
consumers will be paying in the months ahead is still
unknown,

A top aide to Gov. Gray Davis said Edison warned
the administration that unless speedy action is taken, the
utility could be forced to begin rationing electricity as
soon as Friday, a step that could leave some of its 11
million customers without power for hours at a time.
Davis has said he fears that power could be cut to traffic
lights and even hospitals.

For weeks, state regulators have been warning of
rolling blackouts throughout California because of
inadequate supply. But in Edison's case, apparently the
problem is not a shortage of electricity, but of money to
buy it. Turning off the juice would save the company
the cost of purchasing electricity in the state’s haywire
wholesale market.

A spokesman for Edison would neither confirm nor
deny the company’s rationing plan. He would only say
that the governor's aide, who is involved in the effort to
solve the crisis, was wrong about the timing.

"['m only responding to the idea we'd start rationing
on Friday," Steve Conroy said. "There is no such plan."
Asked if rationing could be imposed after Friday, he
replied, "It's unclear what circumstances would dictate

01228

01200000000584



From: John Yetier

To: DOM3,DOPOS(TooheyF), DOM3.DOPO6(CARLETONN), MCGIVE...
Date: 10/00 10:18am
‘Subject: Financial Netting provisions of H.R. 833 - bankruptcy bill Reply

{())(5)]
>>> Tom McGivern 03/0900 06:36pm >>>
((b)(5)]

On the Enron proposats Norman received:

{(b)(5))

cc: DOM3.DOPO6(CARROR, DORSEY),

02525

01300000001134


From: ex.mail."MiKrimminger@FDIC.gov"

To: ‘ex.mail("Norman.Carleton”), DOM3, DOPOG(CARLETONN)
Date; 8/18/99 11:30am
Subject: RE: Enron's Bankruptcy Proposals
Norman,
[(©)(5)]
Mike
> ——Original Message-—--

> From: Norman, Carleton@do.treas.gov [SMTP:Norman,Carleton@do.treas.gov)
> Sent: Wednesday, September 15, 1999 11:23 AM

>To; Frank.Toohey@do.treas.gov, Michelle. Greene@do.treas.gov;

> Tom, McGiverngiido.treas.gov; Peter.Nickolofi@do.treas.gov;

> Lee.Sachs@do 1reas.gov; Lawranne, Stewart@do.treas.gov;

> John Yetter@do.treas gov; iralando@trb.gov; Krimminger, Michac! H.

> Subject: Enron's Bankruptcy Proposals

>

> Date: 09/15/1999 11:18 am (Wednesday)
> From: Norman Carleton

> To: SachsL, MCGIVERNT, GREENEMI, STEWARTLAW, NICKOLOFFP, YETTERJ,

> EX MAIL“irelando@frb.gov", EX. MAIL “mkrimminger@fdic gov",
> DOPOS.T

> Subject: Enron's Bankruptcy Proposals

>

{(b)(5)}

02520

01300000001129


SEC Speech: Advancing Investors’ Interests (R. Herdman) Page 5 of 12

The Pre-clearance Process Is Not Utopia

Despite my enthusiasm for the pre-clearance process, | realize it ts not
utopia, As I mentioned earlier, you must work in real time. You need an
answer and we must protect investors. Furthermore, as the recent report
by the GAO on our procedures for dealing with registrant matters points
out, our pre-clearance conclusions often are not publicized.

So, we are going to try something new-something that I have advocated to
my predecessors for at least the last 10 years. And that is that after we
address issues that reasonably would apply to more than a minimal number
of other registrants, we will refer them to the EITF for their consideration.

We will make those decisions based on our judgment, which also will be
informed by the frequency of similar questions and consideration of the
overall environment (for example, accounting for troubled debt
restructurings in today’s economy).

Of course, there are pros and cons to this approach. Let me share a couple
of hypothetical outcomes:

« Example one. We agree with you but the EITF, after it has devoted
more time and resources, does not. Okay, we have thick skin and will
typically accept the EITF's answer. We aren't pushovers, but when
one deals with emerging issues on a real time basis there is a risk
that with more resources, deliberation and time, one might reach a
different conclusion.

e Example two, We don't agree with you, Let's say that you have a
good case—good facts and analysis of GAAP—but we are concerned
that it would be a precedent that might be subject to a decline in the
quality of financial reporting through inappropriate analogy in the
future. Well, the EITF's process is terrific at creating fences,
qualifications, and the like and, once they do, we would accept the
EITF's answer assuming, as we expect, that it would adequately
protect investors.

I strongly believe that it can work. And I believe the November 2001 EITF
meeting gave a flavor, or preview, of how it will work.

For example, as discussed in that meeting, we asked that the EITF address
the effect on consolidation accounting of surrendering voting rights.
Recently, we have had to answer several questions in this area and are
hopeful that the EITF can build a model that results in consistent, high
quality, transparent financial reporting.

In another example, the FASB staff decided to make a staff announcement
on a derivatives question that we had dealt with on a specific registrant
basis. Our analysis revealed a diversity in practice. We talked the matter
over with the FASB staff and they decided to make a staff announcement
that we think will resolve the inconsistency.

Registrants’ and Auditors’ Responsibilities

file://C:\WINDOWS\Temporary%20Internet%20Files\OLK4274\SEC%20Speect 6) 1 5 5 6
01200000000210


CORRECTION

Wednesday, December 26, 2001; Page A02

A Dee, 25 article incorrectly reported the action taken by the Senate Banking Committee, chaired
by Phil Gramm (R-Tex.}, on a bill that exempted much of Enron Corp.'s trading activities from
federal regulation. The legislation was approved by the Senate Agriculture Committee.

© 2001 The Washington Post Company

01515

01200000000169


From: Pater Nickoloff

To: Carfetonn

Date: 6/11/99 4:49pm
Subject: The week's (non-jevents
{(b)(5)]

Hope you had @ nice vacalionreunion, Talk to you on Monday.

02510

01300000001119


Carleton, Norman

From: Carleton, Norman

Sent: Thursday, January 10, 2002 1:20 PM

To: Gab#ondo, Jose

Ce: Schultheiss, Heidilynne; Nickoloff, Peter

Subject: FW: Enron Chairman Gave Waring to Bush Officials on Company's Collapse.htm
((b)(5))

Norman

----- Original Message-----

From: Nickoloff, Peter

Sent: Thursday, January 10, 2002 1:16 PM

Tor Carleton, Norman; Schultheiss, Heidilynne

Subject: Enron Chairman Gave Warning to Bueh Officiale on Company's
Collapse.htm

Tracking: Recipront Delivery Read
Gabliondo, Jose Delivered; 1/10/02 1:20 PM Read: 1/10/02 2:55 PM
Schulineiss, Heicilynne Delivered: 1/1002 1:20 PM Read: 1/10/02 2:20 PM
Nickoloff, Peter Delivered; 1/10/02 1:20 PM Read: 1/10/02 1:29 PM

1 01993

01300000000601


Nickoloff, Peter

From: ‘Wiedman, Mark

Sent: Friday, January 11, 2002 10:30 AM

To: Carleton, Norman; Bitsberger, Timothy; Schultheiss, Heidilynne; Nickoloff, Peter
Subject: RE: enron meeting -- 12:007

((b)(5)]

Thanks .

-----Original Message-----

From: Carleton, Norman <Norman.Carletonedo,treas.gov>

To: Wiedman, Mark <Mark.Wiedman@do.treas.gov>

cC: Schultheiss, Heidilynne <Heidilynne.Schultheissedo.treas.gov>
Sent: Fri Jan 11 09:82:30 2002

Subject: RE: enron meeting -- 12:00?

((b)(5)}

----- Original Message----

From: Wiedman, Mark

Sent: Priday, January 11, 2002 9:10 AM

Ta: Carleton, Norman; Schultheiss, Heidilynne

Ce: Nickoloff, Peter; Bitsberger, Timothy; Stokes, Veronica
Subject: enron meeting -- 12:007

Tim would like to go over the Enron paper you folks put together at 12. Can you make
that?

31

01748

01200000000404


Thanks,
Mike

; 02492

01300000001101


The exemption, tucked into broader legislation that established the legality of unregulated
derivatives trading by banks, was not supported by a Clinton administration working group,
largely because of opposition from the CFTC. Since the departure of Wendy Gramm, some in
the agency had lobbied for tighter control over the exploding energy derivatives market. The
legislation passed through the Senate Banking Committee, then chaired by Phil Gramm, who has
received $97,350 from Enron employees and its political action committee since 1989. A Gramm
spokesman said the senator does not recall talking to his wife, an Enron director, about the
energy provision and played "no role” in negotiating it, Wendy Gramm did not return phone calls
seeking comment,

Enron was a primary player, with Koch Industries Inc., a large, privately held oil and gas
company based in Wichita, in pushing for the exemption, a source said, But the company's main
effort was focused on the House Agriculture Committee, where the legislation originated. Its
chairman and ranking Democrat, Texas Reps. Larry Combest (R) and Charles W. Stenholm (D),

respectively, were among the top recipients of Enron campaign donations in the House since
1989.

The CFTC objected strenuously to the initial draft marked up by the committee, but the Texas
congressmen helped work out a compromise between Enron and the agency. The compromise
was then offered by Rep. Jerry Moran (R-Kan.), the home-state congressman of Koch Industries
and a recipient of campaign donations from Enron and Koch in the last election cycle. Moran did
not return a phone call seeking a comment.

Early this year, Lay seemed to be at the height of his political power, getting a private mecting
with Vice President Cheney to discuss the administration's energy policy proposals and weighing
in on key nominations to FERC.

Curtis Hebert Jr., FERC’s chairman at the time, has reported that Lay called him and implied that
Enron would urge the newly installed Bush administration to keep him in the job -- if he changed

his views to support Enron's position for faster electricity deregulation. Lay contended that
Hebert called him to ask for support.

Hebert was not reappointed. He was replaced by Texas lawyer Pat Wood III, a strong advocate
of deregulation who had the backing of Lay and Enron.

Ironically, since Enron's fall, both FERC and Congress seem to be moving in the direction of the
deregulated markets Lay and Enron lobbyists had pushed for.

© 2001 The Washington Post Company

01200000000036


Carleton, Norman
From: Eliett, Martha

Sent: Wednesday, August 29, 2001 11:59 AM
To: Carleton, Norman
Ce: Gabilondo, Jose; Sutton, Gary
Subject: RE: Status of Retail Swap Study and the Enron Issue
[(b)(5)]
----Onginal Message——

From: Carleton, Norman

Sent: Wednesday, August 29, 2001 11:15 AM

To: Fisher, Peter; Roseboro, Brian; Bair, Shela; Nickoloff, Peter; Schutheiss, Hekitynne; DeMarco, Edward; Hughes, Gerry; Gross,

Jared; Smith, Amy; Sutton, Gary; Eilett, Martha; Gabilondo, Jose; Mcinemey, Roberta; Lori Sanatamorena (E-mail)
Subject: ‘Status of Retail Swap Study and the Enron Issue

[(b)(5)]

02424

: 01300000001033


{(b)(5))

Please review and let me know your thoughts.

Thanks,
Mike

Tracking;

Recipient

‘Sutton, Gary

Elis, Dina

Nickolo#, Peter
Schuneiss, Heiditynne
Mcinemey, Roberts
Paulus, Michael

Delivery
Datvared: 2/12/01 5:08 PM
Delivered: 2/13/01 5:05 PM
Delivered: 213401 005 PIA
Delivered: 291201 5:05 PM
Delivered: 2/201 $:05 PM
Detvered; 2/13/01 5:06 PM

Read

Read: 2/12/01 5:06 PM
Read: 213/01 6:39 PM
Read: 2301 5:21 PM
Reac: 29301 S06 PM
Read: 293/01 816 PM
Read: 2/14/01 8:11 AM

02457

01300000001066


Campaign Gifts, Lobbying Built Enron's Power In
Washington

By Dan Morgan and Juliet Eilperin
Washington Post Staff Writers
Tuesday, December 25, 2001; Page AO1

During the administration of the first President George Bush, a new party fundraiser named
Kenneth L, Lay was invited to spend the night at the White House. The sleepover was an early
coup for the chairman of Enron Corp, and a harbinger of things to come.

Over the following decade, Lay and Enron poured millions of dollars into U.S. politics,
cultivating unequaled access and using the entree to lobby Congress, the White House and
regulatory agencies for action that was critical to the energy company's spectacular growth.

Now, with Enron's sudden bankruptcy, public attention has turned not only to the financial
practices that brought the company down, but to what its far-flung political operations say about
the country's campaign finance system.

Some Democrats in Congress are spoiling for an opportunity to use Lay and Enron to embarrass
the Republican Party, which received most of the company's largess over the years, They want to
look into such things as Enron's relationship with Phil Gramm (R-Tex.), ranking minority
member on the Senate Banking Committee and chairman of the committee at a time when his
wife, Wendy L. Gramm, was serving on Enron's board. Last year, Gramm's committee approved
legislation that included a key provision exempting parts of Enron's massive energy trading
operation from federal oversight.

"L think the Enron story is going to turn out to be an enormous political story," said Rep. Henry
A. Waxman (D-Calif.), ranking minority member on the House Energy and Commerce
Committee.

The ties of Lay to the White House and GOP leaders, he added, were so multilayered that

Republicans are likely to be reluctant to pursue them. But he made clear that he intends to do so
and expects the Democratic-controlled Senate to follow suit.

Enron also cultivated relationships with Democrats, however. Lay played golf in Vail, Colo.,
with President Bill Clinton, and Enron gave hundreds of thousands of dollars to Democratic
campaign committees and Democrats in the House and Senate, including Sen. Charles E.
Schumer (N.Y.) and Rep. Martin Frost (Tex.), the ranking minority member on the House Rules
Committee.

A Routine Cost for Some

Advocates of campaign finance reform say the Enron case vividly illustrates the tics between
politics and big money, though it's unclear that the company's political operations were radically
different from others for whom political contributions have become a routine cost of doing
business.

01200000000032


‘Schuttheiss, Heidilynne

From: Squitieri, Ray
Sent: an December 21, 2000 2:13 PM
To: Cetina, Jal; Greene, Michelle; Gross, Jared: Nickoloff, Peter, Paulus, Michael, Sachs, Lee

Schultheiss, Heidilynne
Soares, Chris
LA times 12/21 on power crisis developments

Ce:

This is OK, but better is today's WS, article, page 2.

01227

01200000000583


wv

{(b)(5)]

01982

01300000000590


From: Norman Carleton

To: EX. MAIL.,"iretando@frb.gov", EX. MAIL "dwall@ifdic.go..
Date: 6/3/99 11:57am
Subject: Fwd: comments Forwarded

Attached are the FRBNY's Eric Foster's comments on the Enron/Cadwallader bankruptcy proposal.

02547

01300000001 156


In 1997, Andrew Fastow became Enron’s CFO. At least as early as 1997, Enron was
establishing “related party arrangements” or “employce-related entities.” One such arrangement
was the “Chewco” entity run by Michael Kopper, former Managing Director of Enron North
America.

In December 1999, Andrew Fastow, with the approval of the Enron board, created and
managed two limited partnerships (related party arrangements), LJM Cayman LP and the larger
LJM2 Co-Investment LP, possibly with Kopper, Their purpose ostensibly was to “hedge certain
merchant assets and transactions and the fluctuating values of its growing portfolio of assets” (of
more than $100 million), and to enter into “share-settled costless collar arrangements” and
“derivative instruments, including swaps, puts, and collars, which climinated the contingent
nature of existing restricted forward contracts.” LJM raised only $16 million, but LJM2 raised at
least $200 million. Investors included CSFB, Wachovia, GE Capital, and The Arkansas
Teachers Fund,

Enron reportedly had been strapped for cash and sought to entice outside investors to
strengthen its balance sheet. The related party arrangements reportedly involved Enron assets,
millions of shares of Enron stock contributed to the structured finance vehicle, and notes
receivable issued by partnership-related entities to Enron. The LJM2 offering document stated
that Mr. Fastow would receive an annual management fee as much as 2 percent, and would be
eligible for profit participation over its ten-year life. The general partner was obligated to invest
at least | percent of the aggregate capital commitments. Subsequent reports speculated that the
arrangements may have been created to retain Mr. Fastow after the exodus of executives who
cashed out large profits on stock options.

In 1999, Enron filed a statement with the SEC that disclosed the Fastow partnership
arrangements, although it was largely overlooked by analysts as they remained exuberantly
optimistic about Enron and its phenomenal growth and earnings prospects. Around this time,
Enron Treasurer Jeffrey McMahon complained to Enron President Jeffrey Skilling regarding
what he perceived to be Mr, Fastow’s conflict of interest. Mr. McMahon was reassigned as head
of the industrial markets group.

In January 2000, Enron remained a favorite company of market analysts. It was named
"The Most Innovative Company in America" for the fifth consecutive year and was ranked
number 24 among the "100 Best Companies to Work for in America" in Fortune surveys.
However, in June 2000, The Economist challenged Enron to refute allegations of arrogance,
aggressiveness, opacity, and borderline legality. Enron's reply was viewed as nonresponsive,

In September 2000, LJM2 invested $30 million in the “Raptor III” investment, which
involved LJM2 writing put options that committed LJM2 to buy Enron stock at a set price for six
months. However, in January 2001, LJM2 requested that Enron settle the Raptor III transaction
carly. LJM2 received its $30 million in capital invested plus $10.5 million in profit. This
renegotiation occurred before the large decline in Enron's stock price, which would have forced
LJM2 to purchase Enron stock at a loss of $8 per share.

; 01985

01300000000593


long-term debt by one notch to Baa2 from Baal, still two levels above junk bond status, citing
the write-downs, equity charges, and partnership investments. It stated that it may downgrade
Enron’s commercial paper P-2 rating as well, making it more difficulV/expensive for Enron to
borrow short-term cash. Royal Dutch/Shell reportedly was interested in purchasing Enron, and
had approached it earlicr in August. The SEC transferred its inquiry to its Washington D.C.
headquarters.

On October 30, there were rumors that GE Capital, Berkshire Hathaway or Royal Dutch
Petroleum might buy Enron, Its stock increased 25 percent, rebounding from a nine-year low.

On October 31, the SEC began formally investigating the Fastow partnerships. Large
energy traders were reported as willing to do business with Enron, but at shorter maturities and
using less complex structures. Trading on EnronOnline was reportedly strong. However, few
firms would accept Enron as a guarantor of credit derivatives, some counterparties in its core
energy markets refused to transact, and two members of the InterContinental Exchange refused
Enron’s credit.

On November 1, Enron received a $1 billion loan from J.P. Morgan Chase and Salomon
Smith Bamey, using natural gas pipelines (Norther Natural Gas and Transwestern Pipeline) as
collateral. Proceeds from this secured loan were to be used for debt payments and to supplement
cash reserves, and it could borrow an additional $200 million from other banks. This was
perceived as a desperate attempt to preserve its creditworthiness. It reportedly was unable to
issue commercial paper (at least at lower rates), and two energy companies (Exelon and
Northeast Utilities) restricted business with Enron. Its stock declined 16 percent, and its notes
had declined substantially as well.

On November 5, Fitch downgraded Enron’s senior unsecured debt rating from BBB+ to
BBB-, one notch above junk status, citing its liquidity difficulties, erosion of investor
confidence, and substantial diminution of its global investments financed with aggressive off-
balance sheet vehicles. Fitch also lowered Enron’s subordinated debt from BBB to BB, its
preferred stock from BBB- to B, and its commercial paper from F3 to F2, It also lowered the
senior unsecured debt ratings of Enron's pipeline subsidiaries, Norther Natural Gas and
Transwestem Pipeline, from A- to BBB-, whose assets were pledged the previous week to help
Enron secure an additional $1 billion bank facility. All of the Fitch ratings remained at “Rating
Watch Negative” status.

On November 6, Fitch wamed that it might downgrade Enron's credit rating to junk
status. Also, former Enron president Skilling reportedly testified before the SEC in Washington,
D.C. pursuant to a subpoena.

On November 7, Enron stock sank to a new low of $7 per share before rebounding on
reports that it was having discussions with Dynegy Inc. regarding at least a $1.5 to 2 billion cash
infusion, and possibly a full merger. A merger would involve the sale of Enron to Dynegy for
about $8 billion in a stock swap (about $10 per share), with a cash infusion of $1.5 billion
initially and $1 billion later provided by ChevronTexaco, which owns 27 percent of Dynegy.
Dyncgy would assume Enron’s $12.8 billion on-balance sheet debt; the disposition of its

° 01989

01300000000597


prominent anong then - in support of its view that the states ahould retain
leeway in deciding the pace and scope of energy deregulation,

fo tar this year, ite political action committess have outapent ll other
energy companies, including Barca and big cil corpanies like Exxon Mobil
(neen/quote), in mupporting mesbers of Cangreas, according to the 0.8.
Public Interest Research Growp, Southern strongly opposes efforts to
Gininish the power of local regulators to supervise electricity pricing,
production and transsission.

‘We have leng felt that Enron's visioe of open markets does sot work with
electricity,* said Dwight Evans, executive vice president of the Southern
Company. “f'think our credibility hax been enhanced by recent events,"

he, Evang waid thet the Federal Energy Regulatory Coenissice under Mr. Bush
had tried to "design eystens that seet what Enron shoutd
slow the comission, Mr. Evans argued, or risk a cvesh bewe of instability
and volatile prices.

Sone states have halted the introduction of open warkets for electricity.
Nevada, Ckiahona and New Mexico are auchg thoge that have put off

deregulation, waile California and a few other states that once promoted
unfettered competition are debating ways to reimpowe regulatory control,

Enron's amsiducan efforts to keep its energy trading free of government
interterence could be another casualty of its collapse,

inte the hundveds of billicns of

Aa the value of energy contracts soar!
dot) tricity and natural

2 iit Coe betnt up be. half all

cau
transactions passed through Enron's Cxading cheration, by some egtimates «©
Eaton sereubled to bold off Congress and regulatora.

But some regulatory experts now say that Enron's collapse ie reviniscent of
the failure of Long-Term Capital mnagenent - Long-Term Capital was the hedge
fund based in Greenwich, Coan it operated withaut direct federal
oversight and, eone acl “theestened world markets when ite elaborate
portfolio of derivativer troubled in late 1598,

With its exemption from scrutiny in hand, Enron revealed velatively lirele
about its trading perefolic, leaving analyats guessing how it had ade ite
profits. Enron's secrecy was one factor that caused investor confidence to
Plummet in recent weeks, after the company revealed sone unorthcdax
financial arrangenents that benefited top executives

{Earon vas getting very heavily into Gerivatives: and along wich Wall, Street
banks, they went to bat to keep us away,* sald Michael Greene: wero was
director of trading and markets at the Conmodities Putures Trading
Cecaiseion : until Septesber 199%. “This should be as scary for regulators and
Congress ax Leng Term Capital was.*

Representative Markey agreed that Congress should demand mare overgight of
energy trading. We eaid regulators ahculd begin vequiring transparency from
companies like Enon, while exumining the adequacy of their capital and ¢!
stabilicy of thei¥ trading fortfolia, much ax banking and securities
regulators do for companies in their donsin,

wie'll de it new," he aid, ‘or we'll do it when we get the next shock."

01/16/2002

Page 3 of 3

01200000000044


Enron Chairman Gave Waring to Bush Officials on Company's Collapse

The spokesman had said Wednesday he did not know of anyone in the White House who
discussed Enron's financial situation.

Fleischer also brushed aside talk of any conflict in the Justice Department investigation and
said there was no reason to turn the probe over to a special counsel.

Lay gave $25,000 to a leadership committee headed by then-senator and now Attorney
General John Ashcroft, according to the Center for Public Integrity.

An attorney for Enron welcomed Ashcroft’s inquiry, the latest in a series of governmental
probes into the company's demise, saying the investigation would ““bring light to the facts.”

‘*We want to get to the bottom of this too,” said Robert Bennett, a Washington attorney
representing the Houston-based company. **A lot of decent and honorable people work at
Enron and we should wait until the facts are out."

Bush ordered a separate review Thursday of pension and corporate disclosure rules that could
jeopardize workers' savings. ‘There has been a wave of bankruptcics that have caused many
workers to lose their pensions and that is deeply troubling to me," Bush said.

The Justice Department is forming 2 national task force to look into the company’s dealings.
The group will be headed by lawyers at the department's criminal division and include
prosecutors in Houston, San Francisco, New York and several other cities, said a Justice
Department official, speaking on condition of anonymity.

The official declined to say when the investigation began. Enron faces civil investigations by
the Labor Department and the Securities and Exchange Commission and subpoenas from
congressional committees.

All are looking into the energy trading company’s collapse, the largest bankruptcy filing in
U.S. history.

The failure hit employees and investors hard. Workers were prohibited from selling company
stock from their Enron-heavy 401(k) retirement accounts as the company’s stock plummeted.
Many lost their life's savings.

Enron executives cashed out more than $1 billion in stock when it was near its peak.

Former Enron chief executive Jeffrey Skilling, who left the helm nearly two months before the
company’s swift descent, welcomes the investigation, said spokeswoman Judy Leon. Skilling
has said he had no idea, despite Enron's falling stock values, that the company was on the
brink of failure.

Formed in 1985, Enron had 20,000 employees and was once the world's top buyer and seller
of natural gas and the largest electricity marketer in the United States, It also marketed coal,
pulp, paper, plastics, metals and fiber-optic bandwidth.

One likely focus of the Justice Department investigation is possible fraud based on Enron's
heavy reliance on off-balance-sheet partnerships which took on Enron debt. The partnerships
masked Enron's financial problems and left its credit ratings healthy so it could obtain the cash
and credit crucial to running its trading business.

The Houston-based company went bankrupt after its credit collapsed and its main rival,

Page 2 of 3

01995

files//CAWINDOWS\Temporary%20Internet%20Files\OLK3031\Enron%20Chairman%20Gave%20Warning... 1/17/02

01300000000603


From:
To:
Date:
Subject:

((b)(5)}

Tom McGivern

GENSLERG, SachsL, CARLETONN

6/3/99 3:48pm

Working Group Comments on Enron/Cadwalader Proposals -Reply -Reply

DOPOS.TooheyF, CARTERJ, SHELTONA

02509

01300000001118


Carleton, Norman

From: Carleton, Norman

Sent: Wednesday, August 29, 2001 11:15 AM

To: Fisher, Peter, Roseboro, Brian; Bair, Sheila; Nickoloff, Peter, Schultheiss, Heid
DeMarco, Edward: Hughes, Gerry, Gross, Jared; Smith, mea Sutton, Gary; Ellett, Martha;
Gabilondo, Jose; McInerney, Roberta; ‘Lori Sanatamorena (E-mail)’

Subject: Status of Retail Swap Study and the Enron Issue

{(b)(5)]

Any thoughts or recommendations? | will send around a separate note discussing the Enron issue in more detail,

Tracking: Recipient Delivery Read

Fisher, Pater Delivered: 6/20/01 11:15 AM Read: &/2a/01 2:17 Pi
Roseborn, Brian Delivered: 8/2001 14:15 AM

Bar, Shela Delivered: 8/2001 11:15 AM Read: #2901 1:02 PM
Nickolo#, Peter Delivered: 8/2901 11:15 AM Read: &/2901 11:37 AM
‘Schutheiss, Heidityrne Deliversc: 8/2901 17.15 AM Read #2001 11-15 AM
DeMarco, Eoward Delivered: 8/2901 11:15 AM Reac: #2901 11-27 AM
Hughes, Gerry Deliverec: B2W01 19:15 AM Read: 9/4/01 11:29 AM
Gross, Jared Delivered: 8/29/01 11:15 AM Read: 8/2901 11:41 AM
‘Smith, Amy Delivered: 8/20/01 11:15 AM Read: 829101 14:25 AM
Sutton, Gary Debvered: 8/29/01 11:15 AM Read: &/29/01 11:15 AM

02427

01300000001036


vv

vv

vv

VVV VY VV

vuvvvV

Vv¥VV VY OY OV

v

Riverside and San Bernardino counties, where air conditioning is a must.
And for all the talk of competition, there was a serious flaw that made

the market singularly uncompetitive.

In order to encourage generators to create as much power as possible,
deregulation guaranteed the highest price for wholesale electricity.
Through a practice known as the “market clearing price," the last bidders
== who are invariably the most expensive -- set the price everyone would
receive.

In other words, if the firat generator bids $30 for a certain amount of

megawatts but the last bids $100, those two bidders and everyone in
between receive $100, As the wholesale price of electricity skyrocketed to

$1,500 per megawatt hour this month from $30 before the storm, the high
cost has been compounded by the fact that everyone receives that amount.
Further, the Law had encouraged utilities to sell their generators and
existing electricity supply without guaranteeing access to affordable
power.
Rather than arranging to buy power on long-term contracts that could
have
saved money, they were put in the position of having to buy their power on

a market where profit waa the ultimate goal, and they and their consumers
had te pay the price.

Perhaps in the biggest misjudgment, policymakers neglected the huge
amount
of money it takes to run power companies and attract customers. Thus, they

overestimated how much competition would flourish in the market.

Running power companies is so costly -- $500 million to bulld a new
plant

that only a handful of companies bought into the market. And once they
were here, the marketing cost of signing up new customers was
astronomical,

Indeed, since choice has become available to California, less than

1 percent of residential customers has changed electricity providers.
The
same goes for just 15 percent to 20 percent of industrial customers -- the

class that advocated deregulation in the first place.

At the end of the day, this experiment in deregulation has come at a
staggering cost: $40 billion. That includes the $23 billion already paid
by customers when rates were frozen at artificially high levels, and the
$7.5 billion in bonds financing consumers" own rate reduction.

Now a new tab is running -- whatever share of the $11 billion in debt
that
state utility regulators decide customers should pay.

The state's leaders are now casting around desperately for solutions to

put Humpty Dumpty back together again.
The FERC is encouraging the utilities to enter long-term contracts with

suppliers, and market clearing pricing is under review. The state's
utilities commission will decide Jan. 4 how much of s rate increase to
grant to PG&E and Edison, And # dozen or so power plants are under
construction.

Meanwhile, consumer advocates are backing a state ballot measure that
would not only re-regulate utilities but essentially make energy supply a
government function, And they are challenging the utilities’ efforts to
pass on thelr debts te consumers, noting they have also reaped windfall
profits from selling electricity.

For example, in the quarter covering the summer months when power costs

first went haywire, PGSE's profits amounted to $225 million, a 22 percent

; 01237

01200000000593


[(6)(5)]

Please review and let me know your thoughts.
Thanks,
Mike

Tracking: Recipient Detivery Read
Hughes, Geery Delivered: 2/13/01 5:08 PM Read: 293001 5:11 PM

: 02498

~ 01300000001107


{(b)(5)]

02065

01300000000673


((b)(5)}

Please review and let me know your thoughts.

Thanks,
Mike
Tracking: Recipient Delivery Read

‘Hutiman, Lucy Delivered: 2/1/01 5:10 PM Read: 2/13/01 547 PM

2 02496

01300000001105


Carleton, Norman

—— _—$—$ $$ — $3 $$

From: Huffman, Lucy

Sent: Wedn |. February 14, 2001 5:24 PM

To: Carleton, Norman

Subject: RE: Proposed Changes to Netting Bill -- Comments

Thanks for forwarding. I've read the proposals and Krimminger's commenta, and, as you
know, unencumbered by more than a little experience in this area, would like to ask you
the following questions. (see between dotted lines under Krimminger's comments)

ae--- Original Message-----

Prom: Carleton, Norman

Sent: Tuesday, February 13, 2001 5:10 PM

To: Huffman, Lucy

Subject: FW: Proposed Changes to Netting Bill -- Comments

--+e8 Original Message---~~

From: Krimminger, Michael #. [mailto:MKrieminger@FDIC.gov)
Sent: Tuesday, February 13, 2001 PM

To: 'norman.carleton@do.treas.gov'; tephanie.martinefrb.gov';
“Tom.McGivern@do.treas.gov'; 'MooneyJ@sec.gov'

Cc: DeLoose, Michael; Ivie, Stanley R.; Tishuk, Barbara Starke
Subject: Proposed Changes to Netting Bill -- Comments

{((b)(5)]

02490

01300000001099


Cc: Tishuk, Brian; Robie, Eric
‘Subject: RE: Bankruptcy Reform Mark-up Hearing

Es,
(5)
Don
-Ongral Message
From: DeMarco, Edward
‘Sent: ‘Thursday, February 15, 2001 8:22 AM

To: Heenan, Conaiéy Me, Dinas tnelinen, tuys Carleton, Norman; McInerney, Roberta; Constantine, Blert; Hughes, Gerry; Stewart,

Ce: Tishuk, Brian; aabiire, Etc
Subject: FW: Bankruptcy Reform Mark-up Meaning

FYI

~-—Original Message----

From: Rabbins, Eric

Sent: Wednesday, February 14, 2001 5:45 PM
To: DeMarco, Edward

Ce: Tishuk, Brian

Subject: Bankruptcy Reform Mark-up Hearing
((b)(5)]

02505

01300000001114


Carleton, Norman

From:
Sent:
To:

Subject:

((b)(5)]

Thoughts?
Tracking:

Carleton, Norman

Wednesday, August 29, 2001 2:41 PM
Fisher, Peter, Roseboro, Brian; Bair, Sheila; Nickoloff, Peter, Schultheiss, Heidilynne;

DeMarco, Edward; Hughes, Gerry; Gross, Jared; Smith,
Gabilondo, Jose; Mcinerney, Roberta; Lori Sanatamorena

Matthew; Hammer, Viva
More on the Enron Issue

Recipient
Fisher, Peter
Rosebero, Brian
Bair, Sheila
Nickolott, Peter

DeMarco, Edward
Hughes, Gerry
‘Grves, Jared
‘Smith, Amy

‘Sutton, Gary

Ebett, Martha
Gabilondo, Jose
Mcinamey, Roberta
‘Lon Sanatemorena (E-mail
Nawey, Michael
Eichrer, Matthew
Hammer, Viva

Delivery
Delivernd: 8/2601 2:41 PM
Delivered: 8/2901 241 PM
Delivered: 829001 241 PM
Delivered: 8/2901 241 PM
Detivered: 8/2001 241 PM
Delivered: 8/2901 2:41 PM
Delivered: 6/2907 241 PM
Delivered; 6/28/01 2:41 PM
Dotivered: 6/28/01 2:41 PM
Delivered: 6/20/01 2:41 PM
Dalvered: 8/29/01 2:41 PM
Delivered: 8/2001 2:41 PM
Dolrvered: 8/2801 2:41 PM

Delivered: 8/2901 2:41 PM
Delivered. @/2901 241 PI
Delivered: (29001 241 PM

, Sutton, Gary; Ellett, Martha;
(E-mail); Novey, Michael; Eichner,

Read
React: 30101 B44 AM

Read: a/2901 620 PM
Read: 8/2901 242 PM
Read; 2901 241 PM
Read: 8/29/01 3:43 PIA
Reed: 9401 11.28 AM
Read: 6/29/01 3:11 PM
Read: 6/25/01 2:41 PM
Read; 8/28/01 3:31 PM
Read: 8/25/01 2:45 PM
Read. @2901 2:47 PM
Read: #2501 644 PM

Read: 8/3001 12:58 AM
Read: #2901 11507 Pl
Road: A201 3:16 PM

02421

01300000001030


CNN.com - Justice picks prosecutor to head Enron investigation - January 11, 2002 Page 2 of 3

Rubin is now a senior official at Citigroup, which had a financial exposure to Enron,

According to two Bush administration officials, Fisher said he did not think intervening was appropriate and
Rubin said he believed “that was a reasonable position” and did not press the issue, the officials said.

One of the officials said the call “is further evidence that Enron officials and others lobbied for administration
action, intervention, but that nothing was done because officials did not believe it was the right thing to do,”

In addition, Enron Chairman Kenneth Lay called Federal Reserve Chairman Alan Greenspan on October 26,
said a Fed spokesman, who added Greenspan did not do anything in response to the call because "it would not
have been appropriate."

Justice Department officials told CNN that Attomey General John Ashcroft -- who has recused himself from
the Justice Department's criminal investigation -- met last year with Lay on February 22 at the annual meeting
of the Business Council in Washington. (Full story)

“The attorney general recalls one event where he spoke to a group of CEOs and was invited on behalf of the
group by Ken Lay, who was serving as the group's vice chairman,” a justice official said.

Congressional investigations

On Capitol Hill, lawmakers pledged to get to the bottom of what happened at Enron. Eight committees or
subcommittees were preparing for separate hearings into Enron in coming weeks.

A Senate investigative subcommittee issued $1 subpoenas Friday to executives and the board of directors of
Enron and Arthur Andersen, Enron's accounting firm. (Full story)

"What is evident already is that the company appears to have deliberately misled investors and its employees
and customers about its financial strength. That in and of itself is very troubling,” said Sen. Susan Collins, R-
Maine, a ranking member of the subcommittee.

Collins said, "So far, | have seen no evidence of improper influence with members of the administration, but I
am sure that question will be fully explored in these hearings.”

The Republican-controlled House Energy and Commerce Committee also said it wants top Arthur Andersen
executives fo turn over everything in their personal records relating to their accounting work for Enron.

‘The request came after the firm disclosed many documents related to Enron audits had been destroyed.

"We're going to do anything we can do to try to piece this puzzle together," said Ken Johnson, a spokesman
for committee chairman Rep, Billy Tauzin, R-Louisiana.

"That dog won't hunt"

Top White House officials, meanwhile, urged what one called “context and perspective” in media coverage of
the developments.

"There are some legitimate questions and some questions we view more as political,” the senior official said.

“But remember this: There is not one allegation of wrongdoing by anyone in the federal government and it is

this administration that decided to aggressively investigate the company and the related issues," *= said.
hitp://cnn.law.printthis.clickability.com/pt/printThis?clickMap=printThis&fbeY &url=http,.. O1/1 8/2002

01200000001251


Enron

{(b(5)]

01997

01300000000605


From: Frank Toohey

To; DOPOB.CARLETONN, DOPO6.MCGIVERNT
Date: 8/17/99 9:30am
Subject: Bankruptcy

[(b)(5)]

02522

01300000001131


Enron Chairman Gave Waming to Bush Officials on Company's Collapse Page 1 of 3

www mytiines. com:

The New Hork Simes

on ree wee

January 10, 2002

Enron Chairman Gave Warning to Bush

Officials on Company's Collapse Natural de-icer means
u'll have to shovel

By THE ASSOCIATED PRESS less this winter

Filed at 12:57 p.m. ET Carry 20 GB of data in
shirt pocket

WASHINGTON (AP) -- Enron (news/quote) Chairman Kenneth L. Lay

reached out to two of President Bush's Cabinet officers when the energy

floor lamp that

| i
company was collapsing, the White House disclosed Thursday as the Justice pads suns ne.

Department opened a criminal investigation of Enron's bankruptcy.

. a . os Easily change from TV
Bush, who received significant campaign contributions from Lay and other to VCR to DVD to
Enron executives, said he himself has never discussed Enron's financial Video Games with the

problems with its embattled corporate chairman. The president said he last saw touch of @ button
Lay in Texas at spring fund-raiser for former first lady Barbara Bush's literacy
foundation. Digital camera,
webcam and

Lay also was among a group of some 20 business leaders who came to the amoorsder.l in he

White House early in the Bush administration to discuss the state of the size of a pen
economy, Bush said. t's time to put all of
your photos onto your
Many Enron employees lost their life savings when the company filed for Jcomputer
bankruptcy Dec. 2,
[Time zone to time zone
* What anybody's going to find out is that this administration will fully jever set your watch
investigate issucs such as the Enron bankruptcy, to make sure we can learn gain

from the past and make sure workers are protected,” Bush said.

But Lay did scck the ear of other top-level administration officials last fall. mee

According to White House press secretary Ari Fleischer, Lay telephoned
Treasury Secretary Paul O'Neill amid Enron's collapse ‘‘to advise him about
his concem about the obligations of Enron and whether they would be able to
meet those obligations."

Lay also told O'Neill that Enron *“was heading to bankruptcy," Fleischer said.

O'Neill received calls from Lay on Oct. 28 and Nov. 8, said Treasury
spokeswoman Michele Davis. It was on Oct. 16 that Enron made its stunning
disclosure of a $638 million third-quarter loss.

Ina separate phone call to Commerce Secretary Don Evans, Lay similarly
01523

file:/(C:\WINDOWS\Temporary%20Internet%20F iles\OLK4274\Enron%20Chairman%20Ga..2 1/1 6/02

01200000000177


Schultheiss, vests
sent! Leena nag 020) reas. gov

Subject: See sists Energy Fiasco

LERNER EERE EERE EERE EE Eee Ee Ee eee Eee bees eee e eee

HL: FYI.

CNEL ERNE EEE EEE EER EEE EERE EEE ER EEE ERPS EE EE EbOE ee Ebene

Forward Header

Subject: FW: SF Gate: Genesis Of State's Energy Fiasco/String of bad
Author: “Manicke; Robert” <SMTP:Manicke.Robert@EPEnergy.com> at OPC

Date: 01/02/2001 10:23 AM

> -=seOriginal Message- -

> Cooper, Sean

> Tuesday, January 02, 2001 5:55 AM

EPME Ald
SF Gate: Genesis Of State's Energy Fiasco/String of bad
decisions on deregulation cowld end up costing consumers $40 billion

Excellent summary of events leading to the current situation in
California.

This article was sent to you by someone who found it on SF Gate.
The original article can be found on SFGate.com here:
http://www, sfigate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/12/

vuvuVYY YY

31/MN167927.0TL

December 31, 2000 (SF Chronicle}

Genesis Of State's Energy Fiasco/String of bad decisions on deregulation
could end up costing consumers $40 billion

Christian Herthelsen

Next month, about 10 million Californians may begin paying as much as
30
percent more for electricity, in 4 maddening coda to one of the most
costly public policy mistakes ever made.

When the state's leaders started moving the energy system toward
deregulation six years ago, they envisioned « brand new day in which
utility companies' long-standing monopoly would be broken and rates would
decline by as much as 25 percent.

Instead, when it is over, it may cost customers of the state's
anvestor-
owned utilities $40 billion, perhaps more. In the coming year, it could
harm the world's sixth-Largest economy and send a ripple effect throughout

VV¥VVY VY VY YY V¥ VY VV

> the globe for those dependent on California's continued prosperity.

» This is the story of what went wrong with deregulation, and how

> planning

> lapses, serious policy blunders -- and warnings that came too late -- set
> California's two main utilities, Pacific Gas & Electric Co, and Southern
> California Edison, toward a train wreck.

> Power plant construction lagged while demand expanded, Leaders

> misjudged

> how much competition there would be to supply California with juice. And

1

01234

01200000000590


BW Online | December 13, 2001 | Harvey Pitt: "Violate the Law, You Will Pay"

First, we want to supplement our existing periodic disclosure system with
a [more] current disclosure system. Second, we want to ensure the ability
of companies to make affirmative disclosures about unquestionably
material events, as well as trend information. We believe modern
technology will enable us to use that as an overlay on periodic reports, so
that nobody will have to give up anything that they already have. Third,
we believe that financial reports need to be put in plain English so that
investors can look at a financial statement and tell readily what a
company’s financial status is. Again, the more detailed financial
statements would also be available. But our goal is to create a system of
financial reports that nonexperts can read, digest, and understand.

We are going to take steps to strengthen the role of audit committees. We
believe that it is appropriate for audit committees affirmatively to review
with management, and also with outside auditors, the three, four, or five
critical accounting principles that have the greatest impact on the

company's financial posture. It's not now a duty.

We also think that there's a need for a comprehensive and transparent
system of professional self-regulation by the audit profession --
something that heads of the five major accounting firms and the AICPA 3
{American Institute of Certified Public Accountants] endorsed last week. :

We think it’s better for investors if we can prevent these problems before
they arise. We'll never be able to prevent all of them. But those that we
can't prevent, we will have to handle them after the fact forcefully and

vigorously.

Q: You want to build a new model of financial reporting -- but this
looks like a case where the auditors didn't get the GAAP [generally

accepted accounting principles] right.

A; [can't comment on whether GAAP was correct or not [in Enron's
case]. There was a restatement, and restatements are taken when the

Page 2 of 4

original accounting was wrong or mistaken, But the demise we have seen *
is attributable to much more than any $500 million or so restatement. This | > _

was like a run on the bank.

Q: Do you plan any steps for guidance or clarification for auditors

for this fiscal year?

A: We put out a release for guidance on the use of pro forma [earnings
statements]. It talked about what happens when companies deviate from
GAAP and ways in which the deviation can create a false or misleading

at www.sec.gow/pdt/33-8040_pdf] that will alert companies, audit

impression. We expect to put out a release [issued Dec. 12 and available
Golf

committees, and outside auditors to a number of the approaches that
should be taken at yearend to make certain that the proper accounting

principles have been selected -- and to make certain that there has been
full and fair disclosure of how they were applied. With respect to other
issues [such as related-party transactions], I'm reasonably confident we're

going to be studying the situation.

file://C:\WINDOWS\Temporary%20Internet%20Files\OLK4274\MSOut!.htm

1/16/02

01200000000220


From:
To:
Date:
Subject:

[(b)(5)]

Norman Carleton
MCGIVERNT, DOPOS.TooheyF
11/8/98 10:08am

Bankruptey Bill

02551

01300000001 160


Enron Executives Face Subpoenas

Senate Panel Also Orders Testimony of Directors
By Peter Behr and Dan Morgan

Washington Post Staff Writers

‘Thursday, January 3, 2002; Page BO)

A Senate committee announced yesterday that it is subpoenaing top executives and directors of
the bankrupt Enron Corp. to determine their roles in the Houston company’s epic collapse,

Three other congressional committees already are digging into the Enron failure, but the
subpoenas announced yesterday are believed to be the first of the congressional probes. Among
the likely recipients is Wendy Gramm, an Enron director who is the wife of Sen. Phil Gramm (R-
Tex.).

Sen, Carl M. Levin (D-Mich.), chairman of the Governmental Affairs Committee's permanent
subcommittee on investigations, said the panel also will subpoena financial and trading records
from Enron and audit documents from its accountant, Arthur Andersen LLP.

Enron's attorney, Robert Bennett, called the subpoenas "totally unnecessary” and said “we are
fully cooperating with Congress.”

Although Enron Chairman Kenneth L. Lay did not show up for two earlier congressional
hearings on Enron's bankruptcy. he has agreed to testify next month before the Senate Commerce
Committee, Bennett said.

Enron has tured over nearly three dozen boxes of documents to the House Energy and
Commerce Committee, Bennett said. "I don't question the legitimacy of an inquiry [into Enron's
failure}, but it's not a measured approach to have a half-dozen different committees doing this at
the same time," he said. "It can lead to a circus atmosphere and a lot of wasted time and effort."
The full Governmental Affairs Committee has scheduled a hearing for Jan. 24 on Enron's use of
a large number of partnerships that kept billions of dollars of corporate debt off the company's
books. The hearing will also examine whether federal regulators missed warning signs of the
company's trouble.

Accounting errors involving the private partnerships caused Enron to overstate its earings by
half a billion dollars over the past four years. Enron's disclosure of the overstatement, in
November, triggered a final plunge in the company's stock price and the company's bankruptcy
filing Dec. 2.

Sen. Joseph |. Lieberman (D-Conn,), chairman of the full committee, said, "The focus is, how
did this corporation collapse, and what can we do to make sure that something like this never
happens again?"

Lieberman's committee joins an already crowded field of Enron inquiries. The House Energy and
Commerce Committee has sent investigators to interview Enron officials in Houston.

01200000000038


Nickoloff, Peter

From: Nickoloff, Peter

Sent: Thursday, January 10,2002 1:16 PM

To: Carleton, Norman, Schultheiss, Heidilynne

Subject: Enron Chairman Gave Warning to Bush Officials on Company's Collapse. htm
Ervon Crasrman Gave

Wiarneng io

® 01709

01200000000365


The exemption, tucked into broader legislation that established the legality of unregulated
derivatives trading by banks, was not supported by a Clinton administration working group.
largely because of opposition from the CFTC. Since the departure of Wendy Gramm, some in
the agency had lobbied for tighter control over the exploding energy derivatives market. The
legislation passed through the Senate Banking Committee, then chaired by Phil Gramm, who has
received $97,350 from Enron employces and its political action committee since 1989. A Gramm
spokesman said the senator docs not recall talking to his wife, an Enron director, about the
energy provision and played “no role" in negotiating it. Wendy Gramm did not return phone calls
seeking comment.

Enron was a primary player, with Koch Industries Inc., a large, privately held oi! and gas
company based in Wichita, in pushing for the exemption, a source said. But the company's main
effort was focused on the House Agriculture Committee, where the legislation originated. Its
chairman and ranking Democrat, Texas Reps. Larry Combest (R} and Charles W. Stenholm (D),
respectively, were among the top recipients of Enron campaign donations in the House since
1989.

The CFTC objected strenuously to the initial draft marked up by the committee, but the Texas
congressmen helped work out a compromise between Enron and the agency. The compromise
was then offered by Rep. Jerry Moran (R-Kan.), the home-state congressman of Koch Industries
and a recipient of campaign donations from Enron and Koch in the last election cycle, Moran did
not return a phone call seeking a comment.

Early this year, Lay seemed to be at the height of his political power, getting a private meeting
with Vice President Cheney to discuss the administration's energy policy proposals and weighing
in on key nominations to FERC,

Curtis Hebert Jr., FERC's chairman at the time, has reported that Lay called him and implied that
Enron would urge the newly installed Bush administration to keep him in the job -- if he changed
his views to support Enron's position for faster electricity deregulation. Lay contended that
Hebert called him to ask for support.

Hebert was not reappointed. He was replaced by Texas lawyer Pat Wood III, a strong advocate
of deregulation who had the backing of Lay and Enron.

Ironically, since Enron's fall, both FERC and Congress seem to be moving in the direction of the
deregulated markets Lay and Enron lobbyists had pushed for.

© 2001 The Washington Post Company

01200000000018


BW Online | December 13, 2001 | Harvey Pitt: "Violate the Law, You Will Pay" Page 3 of 4

Q: Last year, your predecessor [former SEC Chairman Arthur Levitt
Jr.] fought unsuccessfully to separate the Big Five's auditing from
consulting in the name of auditor independence. Enron paid
Andersen $25 million for its audit, but also $27 million for consulting.
Does that raise independence questions?

A: Independence is very important to the audit function. But the problems
that exist are really not a function of independence questions. They go to
the integrity and structure of internal control systems and the audit
process itself, Is the audit done professionally and competently?
Independence is kind of off to the side.

In 1933, Congress made a decision to have auditors be in the private
sector and allow them to charge fees for their audit work. And once
you've done that, anyone who wants to be cynical would say, with or
without consulting work, that firms dependent on audit fees might not
perform as professionally as might be desired. But we know that’s not so.
To a firm like Arthur Andersen, as significant as the dollars are, they
don't make a significant ripple in their overall financial structure-whether
it's $27 million or $25 million.

Q: Obviously Enron did not turn itself in-so this will not be a test case
of your Seaboard doctrine [giving credit to companies that cooperate
with SEC investigations}.

A: It does not make sense for me to comment on any aspect of what will
or will not happen with Enron. I will say that the release we put out on the
benefits of cooperation pointed out that even if a company cooperated
completely and superbly, there were cases in which a company might
well receive no credit for cooperation. We also referred to the fact that
getting a pass was expected to be a rare occurrence.

Q: You came into office as part of a Republican Administration,
which many people think is inclined to favor corporate interests.
Your first speech promised the accountants a friendlier SEC, and
you've offered lighter sanctions to companies that cooperate. Do
investors have any reason to feel less secure because of the directions
you're taking?

A: If the question is vigorous enforcement in cases of financial fraud, we
are at Icast as committed to vigorous enforcement as has ever been the
case. Indeed, the new director of enforcement was the deputy director
under Mr, Levitt, and I appointed him as director. So if I were
uninterested in a vigorous approach, I would have found someone else to
appoint.

We are now seeing the Enron situation. It is a tragedy. I grieve for the
investors who have lost their life savings, the employees. But Enron
occurred in a system in which all of the emphasis was on after-the-fact
enforcement.

After-the-fact enforcement is absolutely critical. If people do not believe

there is a sanction for misconduct, they will be encouraged to cut corners.
But it stands to reason that preventing a problem before it arises has to be

file://C:\WINDOWS\Temporary%20Intemet%20Files\OLK4274\MSC 0 1 5 6 6 1/16/02

01200000000221


Nickoloff, Peter

From: Roseboro, Brian
Sent; Tuesday, January 15, 2002 7:25 AM
To: Nickoloff, Peter; Kmaimgre (E-mail)
Subject: FW: financial mkts working group
FYI

-——-Onginal Message—-—
From: Carida, Richard
Sent: Monday, Jarusary 14, 2002 7:27 PM
To: Carida, Richard; Warshawsky, Mark; Smetters, Kent; Worth, John; Huffman, Lucy; Wiedman, Mark; Roseboro, Brian, Myers, Julie
Ce: Flanagan, Rosemary; Fisher, Peter
Subject: RE: financial mkts working group group

wsouiren

[Clarida, Richard] One more before | go home - this from the perspective of the big five

01572

01200000000227


(65)

Any thoughts or recommendations? | will send around a separate note discussing the Enron issue In more detail.

Tracking: Recipient Delivery Read
Schulthelss, Hekdlynne Delivered: 6/29/01 12:00 PM Read: 6/20/04 1501 PIA
Nickalotf, Peter Detvered: 6/2001 12:00 PM Read: 72801 2:00 PMA

2 02423

01300000001032


The 7th Annual Repo & Securities Lending Conference

The Bond
a Market
| Association

Register
For This
Event

Complete
Schedule
of Events

Conference
Videotapes

Regional
Events

Sponsorship
Opportunities

Past
Events

GO RESEARCH = POUIC Y/ADVOCACY MEA = EVENTS «= PUBLICATIONS «LINKS =ADOUT
[x] Conferences

The 7th Annual
Repo & Securities Lending Conference

December 6, 2001
The Roosevelt Hotel, New York, NY

Exhibit and Sponsorship Opportunities Are Available

Pre-Conference Workshop

December 5, 2001

The Association Conference Center, New York, NY
Overview of Standard Funding Documentation

1:00 - 5:30 p.m.
This pre-conference workshop is intended to provide funding
market professionals with a straightforward and substantive review
of the most significant aspects of the Master Repurchase
Agreement, the Master Securities Loan Agreement, the Global
Master Repurchase Agreement and the Cross-Product Master
Agreement, In addition to discussing significant aspects of these
agreements, panelists will also update workshop participants on the
impact of the most recent revisions of certain of the standard
agreements, The workshop, consisting of four one-hour sessions,
will also allow for extensive interaction with experienced
professionals in the repo and securities lending markets.
Master Repurchase Agreement

1:00 - 2:00 p.m.
Carolyn Monroe-Koatz, Vice President, Assistant General
Counsel, J.P. Morgan Chase & Co.
Master Securities Loan Agreement

2:10 - 3:10 p.m.
Steven Kessler, Vice President, Associate Counsel, Goldman,
Sachs & Co,
Global Master Repurchase Agreement

3:20 - 4:20 p.m.
Habib Motani, Partner, Clifford Chance Rogers & Wells
Netting Documentation

4:30 - 5:30 p.m.
Scott Kimmel, Vice President, Lchman Brothers Inc.

Confirmed Exhibitors

Dealogic ICVADP

Decision Software Quant Trading Inc.
Garban

Program

02557

file://C:\WINDOWS\Temporary%20Intemet%20Files\OLK 303 1 repo. htm

Page | of 6

Vis/02

01300000001 166


Campaign Gifts, Lobbying Built Enron's Power In
Washington

By Dan Morgan and Juliet Eilperin
Washington Post Staff Writers
Tuesday, December 25, 2001; Page AO]

During the administration of the first President George Bush, a new party fundraiser named
Kenneth L. Lay was invited to spend the night at the White House. The sleepover was an carly
coup for the chairman of Enron Corp. and a harbinger of things to come.

Over the following decade, Lay and Enron poured millions of dollars into U.S. politics,
cultivating unequaled access and using the entree to lobby Congress, the White House and
regulatory agencies for action that was critical to the energy company's spectacular growth.

Now, with Enron's sudden bankruptcy, public attention has turned not only to the financial
practices that brought the company down, but to what its far-flung political operations say about
the country's campaign finance system,

Some Democrats in Congress are spoiling for an opportunity to use Lay and Enron to embarrass
the Republican Party, which received most of the company’s largess over the years, They want to
look into such things as Enron's relationship with Phil Gramm (R-Tex.), ranking minority
member on the Senate Banking Committee and chairman of the committee at a time when his
wife, Wendy L. Gramm, was serving on Enron's board. Last year, Gramm's committee approved
legislation that included a key provision exempting parts of Enron's massive energy trading
operation from federal oversight.

"I think the Enron story is going to turn out to be an cnormous political story,” said Rep. Henry
A. Waxman (D-Calif), ranking minority member on the House Energy and Commerce
Committee.

The ties of Lay to the White House and GOP leaders, he added, were so multilayered that
Republicans are likely to be reluctant to pursue them. But he made clear that he intends to do so
and expects the Democratic-controlled Senate to follow suit.

Enron also cultivated relationships with Democrats, however. Lay played golf in Vail, Colo.,
with President Bill Clinton, and Enron gave hundreds of thousands of dollars to Democratic
campaign committees and Democrats in the House and Senate, including Sen. Charles E.

Schumer (N.Y.) and Rep. Martin Frost (Tex.}, the ranking minority member on the House Rules
Committee.

A Routine Cost for Some

Advocates of campaign finance reform say the Enron case vividly illustrates the ties between
politics and big money, though it's unclear that the company's political operations were radically
different from others for whom political contributions have become a routine cost of doing
business.

01200000000014


The 7th Annual Repo & Securities Lending Conference Page 2 of 6

8:00 - 8:30 a.m

8:30 - 9:00 a.m

Welcome

9:00 - 10:15 a.m.

Moderator

Panelists

10:15-10;30 a.m.

10:30-11:30 a.m.

Moderator

Panelists

Breakfast
Featured Speaker

Dino Kos

Executive Vice President

Federal Reserve Bank of New York

Joseph Blauvelt, Managing Director, J.P. Morgan Chase & Co.

Head of Funding Desk Roundtable

The far-reaching impact of September 11 affected the financial markets, and in
particular created special challenges for the funding desks of financial institution
global heads of funding desks from major institutions will address the impact of
September 11 on the funding markets. In addition to discussing how the funding
markets dealt with such challenges, panelists will also discuss what lessons were
learned. In addition, the panelists will reflect upon any potential longer-term effe
the funding markets may experience.

Paul Saltzman

Executive Vice President

General Counsel, The Bond Market Association

Joseph Blauvelt

Managing Director

J.P. Morgan Chase & Co.

John Kruger

Director

Salomon Smith Bamey

Paul Scheufele

Managing Director

Credit Suisse First Boston

Gerald Tamburro

Managing Director

UBS Warburg

Break

Legal & Regulatory Update

A thorough review of the latest legal and regulatory devclopments in the funding
markets. Subjects to be addressed include (i) changes in banking regulation, incl
a review of the proposed Basel Accord (ii) emergency regulatory responses to th
events of September 11, (iii) changes to the Investment Company Act, (iv) bankr
reform, and (v) pending regulatory reform.

Ranada Fergerson

Managing Director

Bear, Stearns & Co. Inc.

Sibyl Peyer

Vice President

Assistant General Counsel

Goldman, Sachs & Co.

Robert Cook 02558

Partner

Cleary, Gottlieb, Steen & Hamilton

file//C\WINDOWS\Temporary%20Intemet'¢20Files\OLK303 1 \repo.htm 1/15/02

01300000001 167


Special Report: California's Deregulation of Electricity

Business Sports
Travel Commentary
Classifieds Shooping
webs homes cars

ny lett

Page 6 of

straighten out its unraveling market.

The governor's proposals also called for an
investigation by the Federal Energy Regulatory
Commission of the implications of regional price caps
and bilateral contracts, and an answer as to why
Western electricity prices are higher than in the rest of
the nation. The group asked President-elect George W.
Bush to form a team to work with the governors on the
issue.

Davis already has said he intends to earmark $1
billion in next year's budget for energy conservation
efforts. The initiative could include tax credits for
people to buy energy-efficient appliances.

The governor collected $464,000 in campaign
donations from energy producers, marketers and utilities
between the time he took office in January 1999 and last
June. Unions representing electrical workers, including
many who work for utilities, gave him $113,500 during
his first 18 months in office.

Davis won't report any donations from the second
half of 2000 until early next year.

Utilities themselves have accounted for $239,263 of
that amount. Edison accounted for $105,000. PG&E
reported giving his campaign $72,500, and Sempra, the
parent company of SDG&E, has given him $56,763.

Enron, the Houston-based firm that is among those
that have profited during California's energy crisis. has
given Davis' campaign $42,000.

The utilities also have a large stable of lobbyists.
PG&E is among the clients of Davis’ 1998 campaign
finance chairman, Darius Anderson.

Morain reported from Sacramento, Kraul and
Landsberg from Los Angeles. Also contributing to this
story were Times staff writers Nancy Vogel in
Sacramento, Julie Cart in Denver and Stuart Silverstein
and researcher Vicki Gallay in Los Angeles.

Copyright 2000 Los Angeles Times

01233

01200000000589


SEC Public Statement: How to Prevent Future Enrons (H. Pitt) Page 2 of 3

issued long after the quarter or year has ended. This creates the potential
for a financial “perfect storm.” Information investors receive can be stale on
arrival and mandated financial statements are often arcane and
impenetrable.

To reassure investors and restore their confidence, the public and private
sectors must partner to produce a sensible and workable approach that
includes, in addition to our existing after-the-fact enforcement actions:

« Asystem of “current” disclosure. Investors need current information,
not just periodic disclosures, along with clear requirements for public
companies to make affirmative disclosures of, and to provide updates
to, unquestionably material information in real time.

Public company disclosure of significant current "trend" and
“evaluative” data, Providing current trend and evaluative data, as well
as historical information, would enable investors to assess @
company's financial posture as it evolves and changes. It would also
preclude “wooden” approaches to disclosure, and encourage
evaluative disclosures that begin where line-item and Generally
Accepted Accounting Principles disclosures end. This information,
upon which corporate executives and bankers already base critical
decisions, can be presented without confusing or misleading
investors, prejudicing legitimate corporate interests, or exposing
companies to unfair assertions of liability.

« Financial statements that are clear end informative. Investors and
employees concerned with preserving and increasing their retirement
funds deserve comprehensive financial reports they can easily
interpret and understand.

« Conscientious identification and assessment by public companies and
thelr auditors of critical accounting principles. Public companies and
their advisers should identify the three, four or five most critical
accounting principles upon which a company's financial status
depends, and which involve the most complex, subjective or
ambiguous decisions or assessments. Investors should be told,
concisely and clearly, how these principles are applied, as well as
information about the range of possible effects in differing
applications of these principles.

© Private-sector standard setting that responds expeditiously, concisely
and clearly to current and immediate needs. A lengthy agenda that
achieves its goals too slowly, or not at all, like good intentions, paves
@ road to the wrong locale.

« An environment that encourages public companies and auditors to
seek our guidance in advance. The SEC must be, and must appear to
be, @ constructive resource and hospitable sounding board for difficult
and complex accounting issues before mistakes are made. We will
always need, and utilize, after-the-fact enforcement, and we can, and
will, improve our review of financial reports. But by now it is painfully
clear that preventing problems is infinitely superior, and far less
damaging, than acting after investor funds, retirement accounts or

——_ 01570

filev/C:\AWINDOWS\Temporary%20Internet%20Files\OLK4274\SEC%2Uruuii sovsrmeneene - 16/02
01200000000225


Enron

{(o)(5)]

02011

01300000000619


Special Report: California's Deregulation of Electricity

Times Subscription Services Sabscrine. Change of Actress,
. Stops, Suspend Oolluoty, Coklege Drcoust, Gift Subscriptions, Matt
sgscnpaions. FAQ

Print fdition Advertisements Sew this weeks ads

Find a horng, Caf, reotal, job. pet. menchandise, auction, oat,

Page 2 of

initiation of a rationing plan at this time."

The prospect of utility blackouts has been discussed
privately with state officials during several meetings,
including one Tuesday. Davis met for several hours
with legislative leaders and top executives of Pacific
Gas & Electric and Edison. Among those attending was
former Secretary of State Warren Christopher, a
member of Edison's board of directors.

Christopher gave what one participant described as a
lecture to Davis about the nature of leadership, and the
need for the governor to take control of the situation.

"My sense is that they [Edison officials] are quite
serious,” said the participant, "There is no question that
what Edison said will come to pass. If there is no [state]
action, you only can buy what you can buy."

The Public Utilities Commission, which will meet in
San Francisco, does not have the authority to
immediately grant requests by Edison and PG&E, which
have asked for rate increases of between 10% and 17%.

However, Davis’ aide, requesting anonymity, said the
commission intends to act quickly on a series of
requirements leading up to a rate increase, which could
be granted at its Jan. 4 meeting or later in the month.

Although Davis has not said what he would do if
Edison makes good on its threat of blackouts, a
California governor has extraordinary emergency
power.

The state could use its own purchasing power to buy
electricity for use in California. In the extreme--a step
that no official will discuss-Davis could direct the
National Guard and California Highway Patrol to seize
power plants within the state's borders and order that
they supply electricity.

While those measures remain in the hypothetical
realm, most discussion on Wednesday swirled around
the inevitability of bigger bills for utility customers.

As the rate increase began to take on the buzz of
inevitability, a coalition of consumer groups launched a
withering attack on Davis for what they perceived to be
his role as an advocate for the utilities,

"This falls into a new, lower level of sellout than I've
ever seen... in Sacramento," said Harry Snyder, a top
official in the West Coast branch of Consumers Union,
the advocacy group that publishes Consumer Reports
magazine. He said he was particularly outraged that
Davis had been negotiating with the utilities over the
possibility of a rate hike without including any
representatives of the state's ratepayers.

"It's been easy to salve the problem,” Snyder said.
"You get a bunch of people in a room, and the person
who's paying the bills isn't in the room. Then it's easy.”

Davis said he had no choice but to negotiate one-on-
one with the utilities. Because the utilities sued the PUC
recently for blocking rate relief, the talks are being held

01229

01200000000585


Nickoloff, Peter

LS

From: Nickoloff, Peter

Sent: Tuesday, December 11, 2001 5:37 PM
To: Schultheiss, Heidiynne

Subject: Enron hearing

Two subcommittees of the House Financial Services Committee are holding a hearing on Enron tomorrow moming (12/12)
at 10:00 in room 2128 Rayburn. The press release is copied below. | was going to go, but | want to be around here to
take care of the Tax appendix and the transmittal letter, and to get the report into final clearance. Just letting you know
about the hearing in case you were interested and wanted to go.

PN

a CURRENCY Committee on
Financial Services

Michael G. Oxley, Chairman

For Immediate Release: Contact: Peggy Peterson at 226-0471
‘Tuesday, December 11, 2001

Two Financial Services Subcommittees
To Begin Enron Investigation Wednesday

On the heels of Enron's bankruptcy filing, the House Financial Services Subcommittee on
Capital Markets, Insurance and Government Sponsored Enterprises and the Subcommittee on
Oversight and Investigations will hold a hearing at 10 a.m. Wednesday, December 12, in Room
2128 of the Rayburn House Office Building.

Entitled “The Enron Collapse: Impact on Investors and Financial Markets,” the hearing will
begin the Committee's investigation into one of the largest company collapses in history. Among
the subjects to be investigated are the impact on commodity markets, the reasons behind Enron’s
overstated earnings, mishandling of the employee 401 (k) plan, potential securities fraud, and
accounting irregularities.

Scheduled to testify are:
Panel
* Robert K. Herdman, Chief Accountant, Securities and Exchange Commission

Panel Il

01703

01200000000359


{(b)(5)]

02000

01300000000608


{((b)(5)]

02006

01300000000614


Enron Chairman Gave Warning to Bush Officials on Company's Collapse Page 3 of 3

Former Enron chief executive Jeffrey Skilling, who left the helm nearly two
months before the company’s swift descent, welcomes the investigation, said
spokeswoman Judy Leon. Skilling has said he had no idea, despite Enron's
falling stock values, that the company was on the brink of failure.

Formed in 1985, Enron had 20,000 employees and was once the world's top
buyer and seller of natural gas and the largest electricity marketer in the United
States, It also marketed coal, pulp, paper, plastics, metals and fiber-optic
bandwidth.

One likely focus of the Justice Department investigation is possible fraud
based on Enron's heavy reliance on off-balance-sheet partnerships which took
on Enron debt. The partnerships masked Enron's financial problems and left its
credit ratings healthy so it could obtain the cash and credit crucial to running
its trading business.

The Houston-based company went bankrupt after its credit collapsed and its
main rival, Dynegy Inc. (news/quote), backed out of an $8.4 billion buyout
plan late last year.

Just a year ago, stock of Enron, the nation's largest buyer and seller of natural
gas, traded at $85 per share. Today it is less than $1.

Lay has close ties to Bush and his father, the former president. Lay was a top
contributor to the younger Bush's 2000 presidential campaign.

The company played a key role earlier this year when a White House task
force met with business executives and other interests to fashion a national
energy policy. The task force was headed by Vice President Dick Cheney.

A

On the Net:
http://www.enron.com

http://usdoj.gov

Copyright 2002 The Associated Press | Privacy Information

01525

file://C:\WINDOWS\Temporary%20Internet%20Files\OLK4274\Enron%20Chairman%20Ga..2 1/16/02

01200000000179


Dorgan noted that Lay, Enron's chairman and chief executive, has agreed to testify at a
future hearing. Dorgan also said the committee will invite Skilling, Enron's former chief
executive, and Andrew Fastow, Enron's former chief financial officer, to testify at the
same hearing.

"Was this just bad luck, incompetence and greed, or were there some criminal or illegal
actions, as has been suggested by the accounting firm that reviewed Enron's books?”
Dorgan said.

01519

01200000000173


Wiedman, Mark

From: eton, Norman

Sent: Fido January 04, 2002 5:30 PM

To: oseboro, Brian; Bair, Sheila; Gross, ores. Wiedman, Mark; Brsberger, Hero Smith, Amy
Ce: Schattroes Heidilynne: Nickoloff, Pel ter, Ellett, Martha: Gabilondo, Jose: Sutton, Gary
Subject: FW: Draft Memo on Enron'CFMA peek

Attached is a memo that details our first attempt to clarify what the press has been saying in regards to Enron and the
Commodity Futures Modernization Act.

| talked to the Ken Raisier, a New York lawyer, about this. He told me that Enron did not directly lobby the administration
about the CFMA but was part of an energy coalition, which Mr. Raisier represented, that did I on this issue. The
exempt commodity/electonic trading facility provision in the CFMA did not directly toiecty Deneft Enron since EnronOnline was not
pbmsortes asa trading facility as defined in the CFMA. Therefore, the major beneficiaries of these provisions are Enron's

petitors, such as the InterContinental Exchange and TradeSpark, which are stuctured as electonic trading facilities.
Soren did get the legal certainty it wanted that the CFTC cannot Teaquiate EnronOnline. [(b)(5)]

Ken also told me that he had talked to then Assistant Lee Sachs about the exempt commodity issue. According
to Ken, Lee told him that the ° Treasury would not o} the CFMA because of the exempt common issue but

encouraged the industry to reach a compromise with the CFTC. In the end, Wall Street try reaches firms, and the
futures industry, as well as the PWG (including the CFTC) all supported passage of the C

—-~Original Message—-.
From: Schulthess, Heine
Sent: Friday, January 04, 2002 5:10 PM
To: Carleton, Norman
Subject: Draft Memo on Eneory'CFMA Articles

Attached is the draft memo on the Enron articles that asserted that the CFTC and PWG objected to the energy exclusion
provisions of the CFMA. The three news articles are downloaded as the latter pages.

erected

01200000000028


—_—__ _ —____ — ——_—.

From: Careton, Norman

Sent; Tuesday, February 13, 2001 5:05 PM

To: Sutton, Si Elis, Dina; Nickoloff, Peter; Schuitheiss, Heidilynne; McInemey, Roberta
3 ‘aulus, Mi

Subject: FW: Proposed Changes to Netting Bill ~- Comments

ecsee Original Message -----

Prom: Krimminger, Michael H. [mailto:MKrimminger@FDIC.gov)
Sent: Tuesday, February 13, 2001 4:47 PM

To: ‘norman.carletonédo.tri -gov'; 'stephanie.martingfrb.gov';
+ 'MooneyJGsec.gov'

Michael; Ivie, Stanley R.; Tishuk, Barbara starke
Subject: Proposed Changes to Netting Bill -- Comments

[(6)(5)]

02456

01300000001065


Campaign Gifts, Lobbying Built Enron's Power In
Washington

By Dan Morgan and Julict Eilperin
Washington Post Staff Writers
Tuesday, December 25, 2001; Page AO]

During the administration of the first President George Bush, a new party fundraiser named
Kenneth L. Lay was invited to spend the night at the White House. The sleepover was an early
coup for the chairman of Enron Corp. and a harbinger of things to come.

Over the following decade, Lay and Enron poured millions of dollars into U.S. politics,
cultivating unequaled access and using the entree to lobby Congress, the White House and
regulatory agencies for action that was critical to the energy company's spectacular growth.

Now, with Enron's sudden bankruptcy, public attention has turned not only to the financial
practices that brought the company down, but to what its far-flung political operations say about
the country's campaign finance system.

Some Democrats in Congress are spoiling for an opportunity to use Lay and Enron to embarrass
the Republican Party, which received most of the company’s largess over the years. They want to
look into such things as Enron's relationship with Phil Gramm (R-Tex.), ranking minority
member on the Senate Banking Committee and chairman of the committee at a time when his
wife, Wendy L. Gramm, was serving on Enron's board. Last year, Gramm's committee approved
legislation that included a key provision exempting parts of Enron's massive energy trading
operation from federal oversight.

"I think the Enron story is going to turn out to be an enormous political story,” said Rep. Henry
A. Waxman (D-Calif), ranking minority member on the House Energy and Commerce
Committee,

The ties of Lay to the White House and GOP leaders, he added, were so multilayered that
Republicans are likely to be reluctant to pursue them, But he made clear that he intends to do so
and expects the Democratic-controlled Senate to follow suit.

Enron also cultivated relationships with Democrats, however. Lay played golf in Vail, Colo.,
with President Bill Clinton, and Enron gave hundreds of thousands of dollars to Democratic
campaign committees and Democrats in the House and Senate, including Sen. Charles E.
Schumer (N.Y.) and Rep, Martin Frost (Tex.), the ranking minority member on the House Rules
Committee.

A Routine Cost for Some

Advocates of campaign finance reform say the Enron case vividly illustrates the ties between
politics and big money, though it's unclear that the company’s political operations were radically
different from others for whom political contributions have become a routine cost of doing
business.

01510

01200000000164


—_—— —__—
From: Carleton, Norman
Sent: Hnaday February 15, 2001 11:19 AM
‘0: 5
Subject: Reform Mark-up Hearing
woe-Qriginal Message----
From: ‘Carleton, Norman
Sent: ‘Thursday, Feoruary 15, 2001 10:07 AM
To: Hammond, Derald; DeMarco, Edward; Ells, Dina; Huffman, Lucy; McInerney, Roberta; Canstantine, Eleni; Hughes, Gerry; Stewart,
Lawranne
Ce: Tishuk, Ban; Robbins, Eric; Paulus, Michael; Sutton, Gary; Huffman, Lucy; MoGivem, Tom; Nickolof, Peter; Schuitheiss,
Meicihynne; dare
Subject: RE; Bankruptcy Reform Mark-up Hearing
Don,
[(b}(5))
Norman
nal Message--~
From: Rammond, Donald
Sent: ‘Thursday, February 15, 2001 8:26 AM
To: DeMarco, Edward; Ets, Dina; Huffman, Lucy; Carleton, Norman; Mclnemey, Roberta; Constantine, Eleni; Hughes, Gerry; Stewart,
Lawranne
Cc Tishuk, Brian; Robbins, Enc
Subject: RE: Bankruptcy Reform Mark-up Hearing
Ed,

02502

01300000001111


Enron Corp. Stock Chart Page | of 1

~~ &

See also

INVESTOR RELATIONS

You are here: >>enron.com >> Investor Relations

Stock Chart

Annum Reports,
Earnings Releases

Security: ENE (Common Stock) Press Releases
Click for historical price lookup $

rungs
Stock Prices & Charts
Price; 1.01 (5-Dec-2001 Market Close) \
Time Frame Frequency Compare To ‘—_
[1 year i [Daily [Nove cj Re =|
ONE Deity —
9
7s
i)
“ss
30
ib}
o
Volume = BigCharts.com
200
Fo tar for Hay an ul Rug Sep Oct Nov Dre 02
sommecmsncsasad

Copyright © 1994-2001 MarketWatch.com Inc. User agreement apples.
Historical and current end-of-day data provided by Interactive Data Conp,

Intraday data is at least 20-minutes delayed
Intraday data provided by S&P Comstock and subject to terms of use.

disuiseali RR. pina 1997-2001 Enron. All nights reserved.

02556

file://C:\WINDOWS\Temporary%20Internet%20Files\OLK303 1\Enron%20Corp.%20Stock%20Chart.html 1/15/02

01300000001165


The exemption, tucked into broader legislation that established the legality of unregulated
derivatives trading by banks, was not supported by a Clinton administration working group,
largely because of opposition from the CFTC. Since the departure of Wendy Gramm, some in
the agency had lobbied for tighter control over the exploding energy derivatives market. The
legislation passed through the Senate Banking Committee, then chaired by Phil Gramm, who has
received $97,350 from Enron employees and its political action committee since 1989. A Gramm
spokesman said the senator does not recall talking to his wife, an Enron director, about the
energy provision and played "no role" in negotiating it. Wendy Gramm did not return phone calls
seeking comment.

Enron was a primary player, with Koch Industries Inc., a large, privately held oil and gas
company based in Wichita, in pushing for the exemption, a source said. But the company's main
effort was focused on the House Agriculture Committee, where the legislation originated. Its
chairman and ranking Democrat, Texas Reps. Larry Combest (R) and Charles W. Stenholm (D),
respectively, were among the top recipients of Enron campaign donations in the House since
1989.

The CFTC objected strenuously to the initial draft marked up by the committee, but the Texas
congressmen helped work out a compromise between Enron and the agency, The compromise
was then offered by Rep. Jerry Moran (R-Kan.), the home-state congressman of Koch Industries
and a recipient of campaign donations from Enron and Koch in the last election cycle. Moran did
not retum a phone call seeking a comment.

Early this year, Lay seemed to be at the height of his political power, getting a private meeting
with Vice President Cheney to discuss the administration's energy policy proposals and weighing
in on key nominations to FERC.

Curtis Hebert Jr., FERC's chairman at the time, has reported that Lay called him and implied that
Enron would urge the newly installed Bush administration to keep him in the job -- if he changed
his views to support Enron's position for faster electricity deregulation. Lay contended that
Hebert called him to ask for support.

Hebert was not reappointed. He was replaced by Texas lawyer Pat Wood III, a strong advocate
of deregulation who had the backing of Lay and Enron.

Ironically, since Enron's fall, both FERC and Congress seem to be moving in the direction of the
deregulated markets Lay and Enron lobbyists had pushed for.

© 2001 The Washington Post Company

01514

01200000000168


{(b)(5)]

Please review and let me know your thoughts.
Thanks,
Mike

02494

01300000001103


SEC Public Statement: How to Prevent Future Enrons (H. Pitt) Page 1 of 3

us .
a Securties & | [X [x] Home | Previous Page
Exchange r
Commission
[xl U.S. Securities and Exchange Commission

)
Public Statement by SEC

Chairman:

How to Prevent Future
Enrons

by

Chairman Harvey L. Pitt
“Op-Ed” for the Wal/ Street Journal

December 11, 2001

These remarks reflect solely the personal
views of Mr. Pitt, and do not necessarily
reflect the views of the Commission, the
individual members of the Commission, or
its Staff.

The Securities and Exchange Commission is investigating Enron's meltdown
and its tragic consequences, Until all the facts are known, there is nothing
that can or should be said about who may be responsible for this terrible
failure. The public can be confident, however, that we will deal with any
wrongdoing and wrongdoers swiftly and completely, to ensure full
protection of investor interests.

Even before the Enron situation, we were working to improve and
modernize our disclosure system -- to make disclosures more meaningful,
and intelligible, to average investors. Our immediate concern in the wake of
this tragedy should be to understand how to prevent more events like this.
Of course, those with intent and creativity can override any system of
checks or restraints. Believing that we can create a foolproof system Is both
illusory and dangerous. But investors are entitled to the best regulatory
system possible, and we can achieve more than we presently do if we focus
attention on finding solutions instead of scapegoats.

Our current reporting and financial disclosure systern has needed
improvement and modernization for quite some time. Disclosures to
investors are now required only quarterly or annually, and even then are

file://C:\WINDOWS\Temporary%20Intemet%20Files\OLK4274\SEC% 0 1 5 6 9 16/02

01200000000224


[(b)(5)]

Norm, feel free to call me to discuss further any of these comments.

02538

01300000001147


Carleton, Norman __

— ———————_————
From: Gabilondo, Jose
Sent: Wednescay, December 05, 2001 5:47 PM
To: Carleton, Norman
Subject: Enron Corp. Stock Chart
Norman:

This should work. | dragged this icon on to my shortcut screen, so that | just need to hit without separately
accessing the Intemet. Also, below is the agenda for the repo conference. Let me know if you're interested in any topic in
particular that | should focus on.

José

Ereon Comp. S908 raeeren
Cat tert

02555

01300000001164


Hughes, Gerry

From: Hughes, Gerry
Sent: Wednesday, January 09, 2002 1:27 PM
To: Schultheiss, Heidilynne
Subject: RE:
Thanks.
~=-Original Messagess=
From: Schurheiss, Heidilynne
Sent: Wednesday, January 09, 2002 1:26 PM

To: Hughes, Gerry
Subject:

Thanks for the info. This FT article is interesting too:

COMPANIES & FINANCE INTERNATIONAL: Appointment may be probed
Firarcial Tienes; Jan 7, 2002
By NANCY DUNNE

Republican Texas Senator Phil Gramm and his wife, Wendy, former chairman of the Commodity Futures Trading
Commission, have both been strong proponents of deregulation.

Before leaving her CFTC office in 1992, Mrs Gramm kick-started a rule-making process at the behest of various
energy companies and Wall Street banks, which exempted energy swaps from government oversight.

But it was not instituted until after she left the post and her subsequent appointment to a seat on Enron's board a few
months later is expected to come under scrutiny from one or more of the Senate commitiees investigating Enron's
downfall.

At the time of the CFTC rule-making, Enron was a strong financial backer of Mrs Gramm's husband. Between 1996
and 2002, the company’s employees, officials and political action committees contributed Dollars 233,000 to the
senator's campaign war chest, according to the Center for Responsive Politics.

This included Dollars 22,000 given during the current Congress, although the senator is not running for re-election.

William Albrecht, who became acting CFTC chairman after Mrs Gramm’s departure, says it was he who ultimately
instituted the rule. Now an economics professor in lowa, Mr Albrecht said the Commission had been directed by
Congress to exempt certain energy derivatives from regulation.

“Everyone was on board for this," he said. “We had dozens of meetings. If Enron is trading derivatives with Dynegy,
they Gon't need us in there watching it.”

Deregulation, however, had its opponents, and they flourished for a while during the Clinton years, Former
Congressman Glen English was chairman of the subcommittee with jurisdiction over the CFTC. He saw no difference
between derivatives and futures traded on regulated exchanges.

“Regulation is not just for the traders but for the impact (of not having regulation) on the economy," he said. "It was
the responsibility of the CFTC to deal with derivatives.”

Brooksiey Bom, ex-president Bill Clinton's first appointee as CFTC chairwoman, was opposed to deregulation, But
her ideas were anathema to the Republican Congress of the time, which threatened to fold the agency into the
Securities and Exchange Commission, according to a former CFTC official.

In 1993, Mrs Gramrn was offered a position on the Enron board, She became a member of the company’s audit
committee, Mrs Gramm declined to retur the FT’'s calls but it is common for retiring regulators to move over to

1

01200000001284


CNN.com - Justice picks prosecutor to head Enron investigation - January 11, 2002 Page | of 3

CINN GE PRINTTHIS
EINN.com. vowseve vy eliokability

Justice picks prosecutor to head Enron investigation

(CNN) — The Justice Department named a career federal prosecutor
specializing in fraud and other white-collar crimes to lead the investigation into the collapse of Enron
Corporation as the White House revealed more attempts by Enron executives to seek help for the failing
company from the Bush administration.

Joshua Hochberg -- chief of the fraud section of the department's criminal division -- was named Friday to
head what is expected to be a massive probe stretching coast to coast.

Enron filed for Chapter 11 bankruptcy protection last month, the largest such case in U.S, history.

Besides the Justice Department, the Labor Department, Congress and the Securities and Exchange
Commission are also investigating the overnight collapse of the Houston-based energy giant.

Enron markets electricity and natural gas, delivers energy and other physical commodities, and provides
financial and risk management services to customers around the world.

Lawyers for Enron Corp. confirmed Friday that UBS AG has won the bidding war for the energy firm's
wholesale operations,

The value of the UBS offer was unknown. Salomon Smith Barney, a unit of Citigroup, also was in contention
for the unit, and BP PLC had expressed interest in buying some of the assets. (Full story)

Greenspan, Rubin and Ashcroft

Enron Corp.'s president called a top Treasury Department official several times late last year as the company
was negotiating with bankers for a credit extension it needed to avoid bankruptcy, admmistration officials said
Friday.

Undersecretary for Domestic Finance Peter Fisher interpreted the calls as a request for the administration to
intervene and help, but he declined to do so, administration sources said.

A Treasury spokeswoman said that in one phone call Enron President Lawrence Whalley urged Fisher to “call
Enron's banks."

CNN leamed that former Clinton administration Treasury Secretary Robert Rubin also called Fisher late last
year to ask if Fisher could place a call urging bond rating agencies to see whether there was a way to avoid an
immediate downgrading of Enron's ratings

http://nn.law.printthis.clickability.com/ptprintThis?clickMap=printThis&fb=Y &url=http... 01/18/2002

01200000001250


December 18, 2001

Senator Eyes End To Enron-Type Special-Purpose
Entities

Dow Jones Newswires

WASHINGTON - U.S. Senate Commerce Committee Chairman Fritz Hollings, D-S.C.,
pledged Tuesday to introduce legislation to eliminate the sorts of financial accounting
that led to the financial collapse of Enron Corp. (ENE).

At a committee hearing on the Enron debacle, Hollings called for legislation to eliminate
the use of special-purpose entities, which are partnerships or trusts through which
companies keep their debt off the books and, in Enron's case, overstate earnings.

Hollings said such off-the-balance-sheet transactions should end in order to protect
investors. Hollings also was highly critical of the amount of insider stock selling by top
Enron officials. He noted that Enron Chairman Kenneth Lay and former Chief Executive
Jeffrey Skilling each sold shares in recent months for more than $60 million, while
members of Enron's board sold shares worth more than $160 million.

“The selling of Enron was prolific," Hollings said, calling the insider selling "a screaming
red flag.”

If Enron officials felt the stock was undervalued, as they publicly attested, "why were
they cashing in?” Hollings said.

Hollings also said there was plenty of blame for the "shenanigans" associated with
Enron's collapse, which he likened to a "cancer." He cited Enron's role in persuading the
Commodity Futures Trading Commission against the Clinton administration's call for
regulation of energy derivatives, and subsequent congressional action to exempt from

regulation the highly complex energy derivatives Enron's special-purpose entities
engaged in.

“We are all guilty for letting it happen,” Hollings said of Enron's collapse.

Sen. Byron Dorgan, D-N.D., chairman of the committee's consumer affairs panel,
described Tuesday's hearings as the first of several that will delve into the roles in
Enron's financial collapse played by: Enron officials; Arthur Andersen, Enron's outside
auditor; Wall Street analysts, and regulators.

"This is about an energy company that morphed into a trading company involved in
hedge funds and derivatives. It took on substantial risks, created secret off-the-books

partnerships and, in effect, cooked the books under the nose of their accountants and
investors,” Dorgan said.

01200000000022


{(b)(5)]

02513

0130000001122


CNN.com - Justice picks prosecutor to head Enron investigation - January 11, 2002 Page 3 of 3

White House press secretary Ari Fleischer said no single person or office at the White House has been
designated to serve as a repository of information about administration contacts with Enron,

And, he said, if Democrats in Congress try to make a political issue of the Enron bankruptcy, "That dog won't
hunt."

Sen. Russ Feingold, D-Wisconsin, issued a news release Friday urging the Bush administration to “take every
step possible to remove the appearance of a conflict in all aspects of this case,” including the appointment ofa
special counsel “if evidence of impropriety by any high-ranking official anses.”

He also urged "insulating" the investigators and prosecutors involved in the case, and "immediate and
complete disclosure .., of all communications between high-ranking administration officials and Enron

executives."

Senior officials told CNN this week's disclosures were part of a White House-directed effort to check for all
such contacts.

"It is just common sense," one top White House aide said. "We are going to get asked, so people are being
asked to check and double check.”

Find this article at:
Ditpwaw.cnn.com/2002/LAWAI1/1 ttenrorvingex. heen!

T Check tne box to inciude the list of finks referenced in the article.

‘A RESOURCE FOR SMALL LAW FIRMS

hutp://enn. law printthis.clickability.com/pUprintThis?clickMap=printThis&fo=Y Surl=hutp... 01/18/2002

01200000001252


December 18, 2001

Senator Eyes End To Enron-Type Special-Purpose
Entities
Dow Jones Newswires

WASHINGTON -- U.S. Senate Commerce Committee Chairman Fritz Hollings, D-S.C.,
pledged Tuesday to introduce legislation to eliminate the sorts of financial accounting
that led to the financial collapse of Enron Corp. (ENE).

At a committee hearing on the Enron debacle, Hollings called for legislation to eliminate
the use of special-purpose entities, which are partnerships or trusts through which
companies keep their debt off the books and, in Enron's case, overstate earnings.

Hollings said such off-the-balance-sheet transactions should end in order to protect
investors. Hollings also was highly critical of the amount of insider stock selling by top
Enron officials. He noted that Enron Chairman Kenneth Lay and former Chief Executive
Jeffrey Skilling each sold shares in recent months for more than $60 million, while
members of Enron's board sold shares worth more than $160 million.

“The selling of Enron was prolific," Hollings said, calling the insider selling "a screaming
red flag.”

If Enron officials felt the stock was undervalued, as they publicly attested, “why were
they cashing in?" Hollings said.

Hollings also said there was plenty of blame for the "shenanigans" associated with
Enron's collapse, which he likened to a "cancer." He cited Enron’s role in persuading the
Commodity Futures Trading Commission against the Clinton administration's call for
regulation of energy derivatives, and subsequent congressional action to exempt from
regulation the highly complex energy derivatives Enron's special-purpose entities
engaged in,

“We are alll guilty for letting it happen,” Hollings said of Enron's collapse.

Sen. Byron Dorgan, D-N.D., chairman of the committee's consumer affairs panel,
described Tuesday's hearings as the first of several that will delve into the roles in
Enron's financial collapse played by: Enron officials; Arthur Andersen, Enron's outside
auditor; Wall Street analysts, and regulators.

"This is about an energy company that morphed into a trading company involved in
hedge funds and derivatives. It took on substantial risks, created secret off-the-books

partnerships and, in effect, cooked the books under the nose of their accountants and
investors," Dorgan said.

01518

01200000000172


CEA EXEMPTIONS

{(b)(5))

01200000000011


Enron Chairman Gave Warning to Bush Officials on Company's Collapse

www aytimes.com

January 10, 2002

Enron Chairman Gave Warning to Bush Officials on
Company's Collapse

By THE ASSOCIATED PRESS
Filed at 12:57 p.m. ET

WASHINGTON (AP) -- Enron (news/quote) Chairman Kenneth L. Lay reached out to two of
President Bush's Cabinet officers when the energy company was collapsing, the White House
disclosed Thursday as the Justice Department opened a criminal investigation of Enron's
bankruptcy.

Bush, who received significant campaign contributions from Lay and other Enron executives,
said he himself has never discussed Enron's financial problems with its embattled corporate
chairman. The president said he last saw Lay in Texas at spring fund-raiser for former first
lady Barbara Bush's literacy foundation.

Lay also was among a group of some 20 business leaders who came to the White House carly
in the Bush administration to discuss the state of the economy, Bush said.

Many Enron employees lost their life savings when the company filed for bankruptcy Dec, 2.

What anybody's going to find out is that this administration will fully investigate issues such
as the Enron bankruptcy, to make sure we can leam from the past and make sure workers are
protected," Bush said.

But Lay did seek the ear of other top-level administration officials last fall.

According to White House press secretary Ari Fleischer, Lay telephoned Treasury Secretary
Paul O'Neill amid Enron's collapse ‘to advise him about his concem about the obligations of
Enron and whether they would be able to meet those obligations.”

Lay also told O'Neill that Enron ‘was heading to bankruptcy,” Fleischer said.

O'Neill received calls from Lay on Oct, 28 and Nov, 8, said Treasury spokeswoman Michele
Davis. It was on Oct. 16 that Enron made its stunning disclosure of a $638 million third-
quarter loss,

In a separate phone call to Commerce Secretary Don Evans, Lay similarly worried that the
company might have to default on its obligations. He brought to the secretary's attention "that
he was having problems with his bond rating and he was worried about its impact on the
energy sector," Fleischer said.

After that conversation, Evans spoke to O'Neill ‘and they both agreed no action should be
taken to intervene with their bond holders,” Fleischer said.

Page 1 of 3

Advertisoment

TecxuoScour

How to make your car
invisible to radar and
laser

Natural de-icer means:
you'll have to shovel
less this winter

Carry 20 GB of data in
lyour shirt pocket

A floor lamp that
spreads sunshine all

touch of @ button

Digital camera,
webcam and
jcamecorder ail in the

size of a pen

it's time to pul all of
lyour photos onto your

01994

file://C:\WINDOWS\Temporary%20Internet%20Files\OLK303 1 \Enron%20Chairman%20Gave%20Warning... 1/17/02

01300000000602


[(b)(5)]

02152

01300000000761


Recipient Deilvery Read

Nicolo”, Peter Delivered: 8/30/01 9:33 AM Read; 6/30/01 9:38 AM
Scrultheiss, Heidilyrne Detivered: 8/30/01 9:33 AM Read; 8/3001 9:33 AM

2 02417

01300000001026


((b)(5)]

01983

01300000000591


SEC Speech: Advancing Investors' Interests (R. Herdman) Page 11 of 12

file://C\WINDOWS\Temporary%20Intemet%20F iles\OLK4274\SEC%20Speech”

urge each of you to read it, think about what it says, and apply it in each of
your upcoming audits. And make sure your staff reads it, too.

Lastly, I want to comment on the Cautionary Advice release the SEC issued
two days ago regarding the use of so-called "pro forma” financial
information in earnings press releases. The tough economic times seem to
have accelerated the trend toward companies releasing quarterly earnings
on a basis other than GAAP, And, there were concerns that under certain
circumstances pro forma information can mislead investors. So, the staff
recommended, and the Commission agreed, that action should be taken
before the next deluge of quarterly reporting.

The release makes several points:

e First, the antifraud provisions of the federal securities laws apply to a
company issuing “pro forma" financial information. This is so even
though quarterly earnings press releases are not required to be filed
with the SEC,

« Second, departures from GAAP in these releases raise particular
concerns if there isn't clear disclosure of the basis of the presentation.

* Third, statements about a company's results that are literally true
may be misleading if they omit material information.

* Fourth, if done properly and with appropriate disclosure, pro forma
financial information can serve useful purposes. The earnings press
release guidelines jointly developed by the Financial Executives
International and the National Investor Relations Institute specify a
plain English disclosure of how the announced results deviate from
GAAP, as well as the amounts of those deviations.

If the SEC staff finds instances where these types of disclosures would
mislead investors, I am sure we will recommend appropriate enforcement
action.

So, in a nutshell, be careful about making a non-GAAP presentation. If you
decide to do so, get it right the first time! And if you don’t get it right...well,
I think you get the picture.

Confidence in our System of Financial Reporting

Finally, no speech by the Chief Accountant this year should conclude
without some remarks about the events of the last few weeks. The stunning
collapse of a Fortune 10 company in such a short period of time gives
pause to all of us who care about financial reporting-and about its
customers-the investors. As has been widely publicized, the SEC is
investigating the Enron matter. So, neither I nor any other staff member is
allowed to comment on any of the specifics.

However, here is what I can say: Not only is the collapse of Enron in and of
itself stunning, but it comes on top of several other widely publicized
problems and restatements. One has to conclude that there is a threat to
the confidence in our system of financial reporting and our capital markets.

01562

01200000000216


CORRECTION

Wednesday, December 26, 2001; Page A02

A Dee. 25 article incorrectly reported the action taken by the Senate Banking Committee, chaired
by Phil Gramm (R-Tex.), on a bill that exempted much of Enron Corp.'s trading activities from
federal regulation. The legislation was approved by the Senate Agriculture Committee.

© 2001 The Washington Post Company

01200000000037


SEC Speech: Advancing Investors’ Interests (R. Herdman) Page 9 of 12

« Whether investors would be better served if disclosures were
simplified so that financial statements were more easily understood.

e Whether investors would be better served if our accounting model
were updated to include disclosure about, or accounting for,
intangibles.

Example of Such an Initiative

Let me give you an example of how an initiative for modernizing financial
reporting and disclosure might work.

Seven or eight years ago, the SEC worked with Ray Groves to flesh out
ideas he had to simplify financial statement disclosures and MD&A so that
reasonably informed investors would find them time-efficient to use. Mr.
Groves found that the volume of disclosure in MD&A had increased
exponentially, and in the complex world in which we live, that has
continued to be the case.

Working together with the SEC staff led to a proposal for abbreviated
financial information, which would consist of “condensed financial
statements” and abbreviated footnotes, and would be sent to shareholders
with annual meeting proxy statements. Full disclosure would be maintained
in Form 10-K. This proposal was not unlike the FEI and Deloitte & Touche
initiatives in the early to mid-1980's that advocated a summary annual
report.

Unfortunately, there was not much support for this initiative. (I know the
feeling). Some in the business community saw it as being only additive,
and others did not like it as they saw it as somehow jeopardizing GAAP, or
depriving ordinary investors of the full product. Legal advisors were
concerned that the approach might lead to more liability.

But now, with new technologies, investors might be able to start with
summarized financial statements and footnotes and, if they want, hyperlink
to the more detailed underlying information. The power of technology and
the Internet has proven to enable assimilation of as much or as |ittle
information on a topic as the user wants.

Analysts still would get all the details they get today, but companies would
be responsible for doing their own simplification, which would be available
to all investors simultaneously.

Next Steps

This project is in its infancy and a lot of hard work lies ahead. The next step
for the staff likely would be to put together, for consideration by the
Commission, a thought leadership piece to sort out the issues and gather
public input, which likely would be in the form of a concept release.
Naturally, part of that process would include getting our arms around what
has been done (for example, the efforts by the FASB and AICPA to explore
a new business reporting model) and the various projects currently
underway, such as IASB's project on reporting financial performance. These

file://C:\WINDOWS\Temporary%20Internet%20Files\OLK4274\SEC%20Speect 1@) 1 5 60
01200000000214


Bitsberger, Timothy

From: Bitsberger, Timothy
Sent: Tuesday, December 18, 2001 5:22 PM
To: Carleton, Norman
‘Subject: RE: DJ: Senators Aim To Prevent Future Enron-Type 401(k) Problems
{(b)(5)]
-=-Onginal Message—---
From: Carteton, Nowra
Sent: ‘Tuesday, December 18, 2001 5:20 PM
To: Cetina, 3m; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gabilonda, Jose; Gross, Jared; Hammer, Viva; Lori
Pree sern cma; Nickoloff, Peter; Novey, Michael; Pletrangeli, Fred; Raseboro, Brian; Schulthess, Hekli@ynne; Whaley,

Subject: 0); Senators Aim To Prevent Future Enron Type 401(k) Problems
December 18, 2001

Senators Aim To Prevent Future Enron-Type 401(k)
Problems

Dow Jones Newswires

WASHINGTON -- Two Senate Democrats unveiled legislation Tuesday that would limit the
amount of company stock employees can hold as part of their 401(k) retirement plans.

The legislation is a response to the financial collapse of Enron Corp. (ENE), whose employees
lost millions because they had concentrated their 401(k) plan holdings in company stock.

The legislation was announced by senators Barbara Boxer of California and Jon Corzine of New
Jersey.

Boxer described the legislation during a Senate Commerce Committee panel hearing Tuesday
featuring testimony from a handful of Enron employees who lost hundreds of thousands of dollars
because their 401(k) plans were primarily invested in Enron stock.

Enron entered into bankruptcy protection Dec. 2 after questionable accounting practices led to a
historic crash in the company's equity value. Shares that sold a year ago for more than $80 are
today worth less than a dollar.

Enron's shares had slid to the $20s in October, when the company's 401(k) plan administrator
"locked down" the program, keeping employees from divesting their Enron holdings.

Witnesses at Tuesday's hearing described how the bulk of the remaining equity crash occurred
during the monthiong lockdown, causing them to lose more money than they would have had their
accounts been unfrozen and they'd been able to sell their holdings.

Sen. Ron Wyden, D-Ore., likened the events to the sinking of the Titanic. Enron "locked the
1

01200000001358


SEC Speech: Advancing Investors’ Interests (R. Herdman) Page 2 of 12

help lead it through a period of innovative change as it strives to advance
investors’ interests.

Before I move on, let me remind you that the views I express here today
are my own, and do not necessarily reflect the views of the Commission,
the Commissioners, or other members of the Commission's staff, That
disclaimer applies to all members of the staff who are speaking at this
conference.

I have now been on the job for a couple of months and that time has
provided me the opportunity to check and refine the perceptions and
observations I developed during the last 17 years since leaving the SEC.
One thing that has remained constant is the opportunity to work closely
with incredibly talented people on the staff who are dedicated to protecting
investors,

I began my career as 2 professional accountant 32 years ago this month.
And while I spent almost all of that time with one firm, there were two
hiatuses that were enormously instructive. In addition to my 2 years as a
PAF, I spent two years as a corporate controller of a public company. I have
worked with countless professionals — on various "sides of the desk” — and
I have deep respect for your efforts to produce credible financial reporting.
I know that it Is in your Interest to do so for a variety of reasons, just as I
know that the outcome is in the public's interest.

Mission

Let me start by discussing how I intend to carry out the mission of the
Office of the Chief Accountant.

There is no question that the unique power of the SEC enables it to have a
profound influence on accounting and financial disclosure. I am firmly
convinced that proactive use of that power can lead to great things.
However, we must be judicious in its use.

I believe that the Office of the Chief Accountant should work with the
leaders of the accounting profession-as they coordinate the profession's
activities and give it direction. The SEC has a unique position out on the
front line by virtue of its legislative authority, regulatory review and
enforcement activities.

And, I believe that the intelligence gained from those activities should be
very valuable to domestic and international standard setters, including their
implementation groups like the EITF, as they set their agendas.

Through its oversight role, the SEC has the ability to interact with the
various standard setters, which may be especially important if they start

heading in divergent directions. This coordination is particularly important
as we work towards global convergence of accounting standards.

1 also recognize that the SEC must be careful how it weighs in, to provide
guidance In a respectful manner and to not dictate the way at every turn or

the outcome. To do otherwise undermines the significant contributions of all
involved. Now that you have a sense of my modus operandi, let's talk more

file://C:\WINDOWS\Temporary%20Intemct%20Files\OLK4274\SEC%20Speect 6] 1 5 5 3
01200000000207


{(b)(5)}

ISSUE AND DISCUSSION

{(b)(5)]

01200000000030


Page 3 of 3

BI ROLES
MI VOICES

F<g0S3308

vO» (BN } Jan/2i/2002 0:35 GNT

00710

01/16/2002

01200000000055


oss, Jared

From: Schulthess, Heidilynne

Sent: Tuesday, January 02, 2001 2:23 PM

To: Squitieri, Ray; Sachs, Lee; Paulus, Michael, Greene, Michelle: Gross, Jared
Ce: Carleton, Norman; Nickoloff, Peter; Soares, Chris; Cetina, Jill

Subject: SF Chronicle Article on Cal Energy Situation

This was sent to me by a former DoE employee who now works for an private-sector energy
company in Houston, It's a good, comprehensive background piece. Unfortunately I don't
have it in electronic form, and the hardcopy (margin) format is a bit strange.

'
'
‘
‘
‘
‘
‘
‘
‘

‘
:
‘
‘
‘
‘
'
'
'

could end up costing consumers $40 billion
Christian Berthelsen

Next month, about 10 million Californians may begin paying as much as
30 percent more for electricity, in a maddening coda to one of the most
costly public policy mistakes ever made.

When the state's leaders started moving the energy system toward
deregulation six years ago, they envisioned a brand new day in which
utility companies’ long-standing monopoly would be broken and rates would
decline by as much as 25 percent.

Instead, when it is over, it may cost customers of the state's
investor-owned utilities $40 billion, perhaps more. In the coming year, it could
harm the world's #ixth-largest economy and send a ripple effect throughout
the globe for those dependent on California's continued prosperity.

This is the story of what went wrong with deregulation, and how
planning lapses, serious policy blunders -- and warnings that came too late -- set
California's two main utilities, Pacific Gas & Blectric Co. and Southern
California Edigon, toward a train wreck.

Power plant construction lagged while demand expanded. Leaders
misjudged how much competition there would be to supply California with juice. And
flawed deregulation laws left utilities and their customers at the mercy
of power companies, extracting the highest price for electricity.

“There was a blind adherence to free-market ideology that couldn't
possibly work," said Eugene Coyle, a former utility securities analyst,
economist and early opponent of deregulation. "There were poorly
thought-out specifics."

In the early 1990s, businesses were fleeing the state amid the worst
economic times since the Great Depression. Energy rates were 50 percent
higher than they were on average across the nation, because of commitments
to more expensive, environmentally friendly power and cost overruns for
nuclear power plant construction.

Large customers auch as steel makers, mining concerns and cement
makers, for which electricity costa make up 25 percent of their overhead, saw that
independent power producers were offering power much more cheaply, They
began to insist on change.

The United States had deregulated long-distance telephone service,
airlines and a host of other industries, often with resulting competition
that was a boon to consumers. Why not do the same for electricity?

So California embarked on a pioneering experiment, In 1993 and 1994,
the California Public Utilities Commission began to draft such a policy. It
allowed large users to buy power directly from independent producers and
froze customer rates at artificially high levels so utilities could
recover their investments in costly plante.

The utilities sought to have the terms codified in law, and in early

vv YY YY

1

01200000001589


Carleton, Norman

Carleton, Norman

Wednesday, September 05, 2001 2:19 PM
Hammer, Viva

RE; More on the Enron Issue

From: Hammer, Viva
Sent: ), September 05, 2001 2:19 PM

is the Swaps study group still on tomorrow?

----Original Message---—

From: — Cerieton, Norman

Sent: Wednesday, August 29, 2001 2:41 PM

To: Posher, Peter; Rasaboro, Brian; Bair, Sheila; Nickolot?, Peter; Schulthelss, Meicllynne; DeMarco, E¢ward; Hughes, Gerry; Gross,
Jared; Smith, Amy; Sutton, Gary; Eliett, Martha; Gabllonda, Jose; McInemey, Raberta; Lon Sanatamorena (E-mail);
Novey, Michael; Eicher, Matthew; Hanmer, Vive

Subject; More on the Enron Issue

[(b)(5); (b)(4)]

Thoughts?

Tracking: Recipient Delivery Read
Hammer, Viva Delivered: 95/01 2:19 PM Read: 6/01 2:25 PM

1 02470

01300000001079


Nickoloff, Peter

From: Carleton, Norman
Sent: Thursday, January 10, 2002 1:20 PM
To: Gabilondo, Jose
Ce: Schultheiss, Heidilynne; Nickoloff, Peter
Subject: FW: Enron Chairman Gave Warning to Bush Officials on Company's Collapse.htm
Error Chaser Gave
Warning to. {(6)(5)] The attached article may be
relevant.
Norman

----- Original Message-----~

From: Nickoloff, Peter

Sent: Thureday, January 10, 2002 1:16 PM

To: Carleton, Norman; Schultheiss, Heidilynne

Subject: Enron Chairman Gave Warning to Bush Officials on Company's
Collapse.htm

“ 01522

01200000000176


[(b)(5)]

02/7

01300000001073


"There are aspects of [the Enron case] that remind us of the savings and loan scandal, in the
sense that a powerful institution used big money to buy influence and protect itself while
ordinary citizens ended up losing their life savings,” said Fred Wertheimer, president of
Democracy 21, a Washington interest group, referring to a banking controversy in the 1980s.
Enron's ties to Republicans and the present Bush administration were especially close. Lay raised
large sums for George W. Bush's campaign.

Enron, Lay and its employees have contributed $572,350 to him over his career, far more than
any other company, according to the Center for Public Integrity in Washington.

Several top administration officials have been Enron advisers or stockholders. Enron, Lay and
other senior executives contributed $1.7 million in soft-money donations to politicians in the
2000 election cycle, two-thirds of it to Republicans, according to the Center for Responsive
Politics.

Republicans clearly are sensitive to the potential political dangers. The National Republican
Senatorial Committee recently returned a $100,000 check collected from Enron in November,
after deciding that "it was appropriate to give it back,” spokesman Dan Allen said. The
Republican Governors Association last week returned an Enron donation of $60,000.

What was unique about Enron, competitors and allies agree, was a brash and sometimes
counterproductive political style.

Stories of Enron's hardball style are legion, In October 1999, for example, Jeffrey K. Skilling,
then Enron's president, expressed his displeasure at Rep. Joe Barton's position on a deregulation
bill pending in the energy subcommittee Barton chairs.

The meeting grew "heated and awful," said one person who was present, until Barton (R-Tex.), a
usually mild-mannered man who keeps a Bible on his desk, exploded. "Jeffrey Skilling, I may
not have your millions of dollars, but | am not an idiot," one witness recalled Barton saying. The
meeting ended without Enron getting the changes it wanted. "Skilling did not get Washington,”
the source added.

“In their lobbying, they acted like the 800-pound gorilla they were,” said Christopher Homer, a
Washington lawyer who briefly directed Enron's government relations in 1997. Lay and Skilling
declined interview requests, but Enron officials say they have no regrets about their use of
money. "It got us name recognition,” company spokesman Mark Palmer said. "Given the
aggregation of our foes, we had to make sure that people knew what our argument was,”

* .
Jump-Starting Deregulation

Almost from its start in 1985 as a gas pipeline company, Enron needed help in Washington, and
it got it in @ series of actions by Congress and the Federal Energy Regulatory Commission

(FERC) that undermined the traditional monopoly of utility companies over power plants and
transmission lines.

Enron lobbied for several of the initial actions that set the stage for the era of a deregulated
wholesale electricity market.

et

01200000000033


Hughes, Gerry

From: Schultheiss, Heidilynne
Sent: Wednesday, January 09, 2002 1:26 PM
To: Hughes, Gerry

Thanks for the info. This FT article is interesting too:

COMPANIES & FINANCE INTERNATIONAL: Appointment may be probed
Financial Times; Jan 7, 2002
By NANCY DUNNE

Republican Texas Senator Phil Gramm and his wite, Wendy, former chairman of the Commodity Futures Trading
Commission, have both been strong proponents of deregulation.

Before leaving her CFTC office in 1992, Mrs Gramm kick-started a rule-making process at the behest of various energy
companies and Wall Street banks, which exempted energy swaps from government oversight.

But it was not instituted until after she left the post and her subsequent appointment to a seat on Enron's board a few
months later is expected to come under scrutiny from one or more of the Senate committees investigating Enron's
downfall,

At the time of the CFTC rule-making, Enron was a strong financial backer of Mrs Gramm's husband. Between 1996 and
2002, the company’s employees, officials and political action committees contributed Dollars 233,000 to the senator's
campaign war chest, according to the Center for Responsive Politics.

This included Dollars 22,000 given during the current Congress, although the senator is not running for re-election,

William Albrecht, who became acting CFTC chairman after Mrs Gramm's departure, says it was he who ultimately
instituted the rule. Now an economics professor in lowa, Mr Albrecht said the Commission had been directed by
Congress to exempt certain energy derivatives from regulation.

"Everyone was on board for this,” he said. "We had dozens of meetings. If Enron is trading derivatives with Dynegy, they
don't need us in there watching it.”

Deregulation, however, had its opponents, and they flourished for a while during the Clinton years. Former Congressman
Glen English was chairman of the subcommittee with jurisdiction over the CFTC, He saw no difference between
Gerivatives and fulures traded on regulated exchanges.

“Regulation is not just for the traders but for the impact (of not having regulation) on the economy,” he said. “It was the
responsibility of the CFTC to deal with derivatives."

Brooksley Born, ex-president Bill Clinton's first appointee as CFTC chairwoman, was opposed to deregulation, But her
ideas were anathema to the Republican Congress of the time, which threatened to fold the agency into the Securities and
Exchange Commission, according to a former CFTC official.

in 1993, Mrs Gramm was offered a position on the Enron board. She became a member of the company’s audit
committee. Mrs Gramm declined to return the FT's calls but it is common for retiring regulators to move over to industries
they oversaw.

She was paid Dollars 22,000 a year for the first three years. Her annual salary grew to Dollars 50,000. Between 1993 and
2001, she earned Dollars 346,000 plus Dollars 176,000 for attendance fees, according to a recent report from Public
Citizen, a liberal advocacy group.

She also received stocks and dividends worth between Dollars 915,317 and Dollars 1.85m over the period. Mr Gramm's
tax returns last year listed his wife with assets of Dollars 250,001-Dollars 500,000 in an Enron Deferred Compensation

01200000001286


VVVVVY VY VV

estimated $11 billion by the end of 2000 -- as they borrowed to pay for
power while being barred from passing that cost on to consumers.

Suddenly, the glow of deregulation had lost its luster,

It immediately became clear that California's failure to build power
plants as its rapidly growing economy pushed demand upward was a serious
problem. Increasingly, the state’s growing technology economy depended on
electricity, and new heme construction concentrated in hot areas like
Riverside and San Bernardino counties, where air conditioning is a must.

And for all the talk of competition, there was a serious flaw that made
the market singularly uncompetitive.

In order to encourage generators to create as much power as possible,
deregulation guaranteed the highest price for wholesale electricity.
Through a practice known as the "market clearing price," the last bidders
-- who are invariably the most expensive -- set the price everyone would
receive. In other words, if the first generator bids $30 for a certain amount of
megawatts but the last bids $100, those two bidders and everyone in
between receive $100. As the wholesale price of electricity skyrocketed to
$1,500 per megawatt hour thie month from $30 before the storm, the high
cost has been compounded by the fact that everyone receives that amount.

Further, the law had encouraged utilities to sell their generators and
existing electricity supply without guaranteeing access to affordable

re

Rather than arranging to buy power on long-term contracts that could
have saved money, they were put in the position of having to buy their power on
a market where profit was the ultimate goal, and they and their consumers
had to pay the price.

Perhaps in the biggest misjudgment, policymakers neglected the huge
amount of money it takes to run power companies and attract customers. Thus, they
overestimated how much competition would flourish in the market.

Running power companies is so costly -- $500 million to build a new
plant -- that only a handful of companies bought into the market. And once they
were here, the marketing cost of signing up new customers was
astronomica

Indeed, since choice has become available to California, less than

1 percent of residential customers has changed electricity providers.

The same goes for just 15 percent to 20 percent of industrial customers -- the
clase that advocated deregulation in the first place.

At the end of the day, this experiment in deregulation has come at a
staggering cost: $40 billion, That includes the $23 billion already paid
by customere when rates were frozen at artificially high levels, and the
$7.8 billion in bonds financing consumers! own rate reduction.

Now a new tab ig running -- whatever share of the $11 billion in debt
that state utility regulators decide customers should pay.

The state's leaders are now casting around desperately for solutions to
put Humpty Dumpty back together again.

The FERC is encouraging the utilities to enter long-term contracts with
suppliers, and market clearing pricing is under review. The state's
utilities commission will decide Jan. 4 how much of a rate increase to
grant to PG&E and Edison. And a dozen or so power plants are under
construction.

Meanwhile, consumer advocates are backing a state ballot measure that
would not only re-regulate utilities but essentially make energy supply a
government function. And they are challenging the utilities' efforts to
Pass on their debts to consumers, noting they have also reaped windfall
profits from selling electricity.

For example, in the quarter covering the summer months when power costs
first went haywire, PG&E's profits amounted to $225 million, a 22 percent
increase over the same period in the previous year.

In the short term, the state considering ways to encourage energy
conservation the same way it did with water. And the question now being
asked is whether a commodity as central to the well-being of the economy
should ever have been placed almost entirely under the control of free
enterprise

“There's a discussion on how much we want to rely on market forces
alone when it comes to electricity," Bowen said. "Do we want to subject
ourselves to times when rates are really low and really high?"

01200000000346

3


The 7th Annual Repo & Securities Lending Conference

11:30-12:30
p.m.

12:30-1:45 p.m,
Introduction

Speaker

1:45 - 3:00 p.m.

file://C:\WINDOWS\Temporary%20Internet%20Files\OLK 303 | \repo.htm

Kim Olson
Assistant Vice President

Federal Reserve Bank of New York

Page 3 of 6

CONCURRENT SESSIONS: Global Funding Markets

Two break-out panels will address funding market issues in Europe and Asia,

respectively.
Current Issues in European Asian Funding Matters
Funding Markets
Funding markets in Asia

This panel of repo market
experts, active in the European

continue to play a significant
role in the global financial

funding markets, will discuss markets. This panel of repo and
major developments affecting securities lending professionals
continental Europe and United —_active in the Asian funding
Kingdom. The key matters that markets will provide a review of
will be addressed include: (i) the the most significant aspects of
new Basel Capital Accord these markets, and also provide
implications for the European an update on latest
repo markets; (ii) the on-going developments.
integration process of European .

clearing and security settlement Panclists Tom Brady
systems; (iii) the possible impact Managing Director
of proposals to change the Merrill Lynch, inc.
European regulatory Mark Steffensen
gnvronment for eae Vice President

jing Systems (ATS); (iv) the

proposed European Directive on Morgan Stanley &
Financial Collateral e
Arrangements; and (v) the
possible consequences of the
application of the proposed
Investment Services Directive
(ISD) on the European fixed
income markets,

Lunch

Micah Green

President

The Bond Market Association

The Honorable William S, Cohen

Former Secretary of Defense and U.S. Senator
Collateral Management Issues in the Funding Markets

The tragic events of September 11 have further highlighted the need for effective
management of collateral to ensure liquidity during times of market stress, This p
will focus on what collateral management issues the events of September 11 rais
well as provide an update on the latest developments in collateral management.
Subjects to be discussed include: (i) regulatory issues with regards to effective
collateral management in times of market stress, (ii) changes to the Federal Rese
Payment Systems Risk Policy, (iii) the expansion of GSCC's GCF product (and

02559

01300000001168

1/15/02


Tom McGivern

‘CARLETONN, SHELTONA, CARTERJ, NICKOLOFFP, DOPOS.To...
6/16/99 3:54pm

‘Subject; ‘Conference Call with Cadwalader/Enron -Reply -Reply -Reply

The conference call with Enron/Cadwalader will be Friday morning at 10-30. They will initiate the call, so if we could
be in one room here at Treasury that would make it slightly easier for them. rne@send bea? Affairs conference
rooms are booked, so maybe we should aim for someone's office. Norman?

1 contact the other agancies to give tham the time of the call and get the phone numbers to Cadwalader.

They plan to send us some additional explanatory material (probably what they're using to market this on the Hill,
etc.). I will send that around as soon as il arfives. They would Bike to have a discussion and to find out # the
agencies are opposed or supportive of their proposals. | committed only to listaning, but said there Bkely would be
some questions.

>>> Norman Carleton 06/16/99 03:12pm >>>
‘There's 2 steering group meeting tomorrow morning, so maybe Friday is better,

02516

01300000001125


Enron/Cadwalader Bankruptcy Proposal

Question: Do you support the Enron/Cadwalader proposal to modify the financial
contract netting provisions in the Bankruptcy bill?

Answer:

. We do not support the major provisions in the Enron/Cadwalader proposal because they
undo a difficult balancing of competing objectives that the Working Group worked hard
over two years to achieve.

. Specifically, we do not support the expansion of the definition of forward contract
merchant to any entity that at any time has had a forward contract with the debtor, We
believe that this is too broad.

. Also, we do not support the expansion of the definition of swap contract to cover
virtually any transaction documented as a swap. That is too broad.

. We believe that the close-out netting provisions before Congress are useful improvements
in current law. They help ensure that markets can continuc to operate efficiently in the
event of bankruptcy, However, provisions that go way beyond the goal of protecting

financial markets should only be considered in the context of explicit consideration of
modifying the automatic stay in the Code.

Carleton/Federal Finance Policy Analysis/June 16, 1999
01992

01300000000600


DRAFT
January 4, 2002

TO: Norman Carleton

Director

Office of Federal Finance Policy Analysis
FROM: Heidilynne Schultheiss

Financial Economist

Office of Federal Finance Policy Analysis

SUBJECT: Dow Jones Newswires and Washington Post Articles on Enron and the
Commodity Futures Modernization Act of 2000

BACKGROUND
[(b)(5)]

01507

01200000000161


WSJ.com -- From the Archives Page 2 of 4

Calne leureat companies provide boilerplate” that contains "little or no meaningful
Online Investing information,” the Big Five said.
Dalolontounal Big Five firms suggested firms provide more details on off-balance
Personal Tech sheet transactions, including guarantees, commitments, lease and debt
RealEstateJournal arrangements, and any standby agreements that could reduce the
StartupJournal company’s credit rating, eamings, cash flow or stock price.
WSJ Books

Companies ought to describe off-balance sheet arrangements they
The Print Journal: have, the purpose of the deals and why they aren't accounted for on the
Subscribe company’s books, the Big Five firms said. They also suggested

Customer Service companies provide a table that clearly summarizes "contractual cash
obligations” such as long-term debt and lease obligations, and other
commercial commitments, such as guarantees and standby letters of

More Dow Jones Sites: .
credit.

Barron's Online

Publications Library Energy-trading companies, weather-trading companies and any firms
Reprints that trade commodity contracts over-the-counter, rather than on an
SmartMoney exchange, should provide more information on fair valuation of those
Dow Jones & Co. contracts, the Big Five firms added. They recommend firms provide
more details on derivatives trading, including whether their "fair value"
Corrections price is based on quoted prices, external data or internal models.

Privacy Policy Related-party transactions are a third area targeted for improvement.
Although SEC rules require disclosure of related-party transactions,
Big Five firms said companies should provide morc information on
entities that don't fall under that definition but are able to negotiate
deals on terms not available to independent third parties. The
accounting firms said regulators and shareholders need to understand
the purpose of these transactions, their effect on the company’s
financial statements and any "special risks or contingencies” they
might create.

The letter was signed by Arthur Andersen LLP, which audited Enron,
and by Deloitte and Touche LLP, Emst & Young LLP, KPMG LLP,
PricewaterhouseCooopers LLP, and the American Institute of Certified
Public Accountants.

In a prepared statement, SEC chief accountant Robert Herdman said
the agency's staff will consider the petition "on an expedited basis and
expects to make recommendations for consideration by the
commission.”

Regardless of what the SEC does, Mr. Herdman said public companies

would do well to consider improvements to corporate annual reports,
particularly in the three areas outlined in the accounting industry's

petition,
"This represents a shot across the bow to corporate America,” said
former SEC chief accountant Lynn Turner, now director of the Center
files!/C:'\WINDOWS\Temporary%20Internet20Files\OLK4274\ (@) 1 5 74 1/16/02
01200000000229


Carleton, Norman

Huffman, Lucy
Wedi , February 14, 2001 5:24 PM
Carleton,

. Norman
RE: Proposed Changes to Netting Bal - Comments

Thanks for forwarding. I've read the proposals and Krimminger's comments, and, as you
know, unencumbered by more than a little experience in this area, would like to ask you
the following questions. (see between dotted lines under Krimminger's comments)

-----Original Message---~-~

From: Carleton, Norman

Sent: Tuesday, Pebruary 13, 2001 5:10 PM

To: Huffman, Lucy

Subject: FW: Proposed Changes to Netting Bill -- Comments

coreet Original Message-----

From; Krimminger, Michael H. [mailto:MKrimminger@FDIC,gov)
Sent: Tuesday, February 13, 2002 4:47 PM

To: 'norman.carleton@do.treas.gov'; "stephanie.martingfrb.gov'’;
‘Tom.McGivernédo.treas.gov'; 'MooneyJ@sec.gov'

Cc: DeLooge, Michael; Ivie, Stanley R.; Tishuk, Barbara Starke
Subject: Proposed Changes to Netting Bill -- Comments

{(b)(5)]

‘ 02487

01300000001096


The 7th Annual Repo & Securities Lending Conference

Moderator

Panelists

3:00-3:15 p.m.

3:15-5:00 p.m.

Host

Contestants

Lifelines

5:00 p.m.

Page 4 of 6

obstacles to its growth), (iv) the effect of the dwindling supply of Treasury debt
SOMA portfolio and margining efforts, (v) Repo Tracking/Ginnie Mae Conversi
and (vi) Continuous Linked Settlement (CLS).

Omer Oztan

The Bond Market Association

Kevin Caffrey

Principal

Morgan Stanley & Co.

Jeff Ingber

Managing Director

General Counsel

Government Securities Clearing Corporation

Brian Reilly

Managing Director

BNP Paribas

Break

Ask the Trader!

This game show-style panel promises to be an entertaining and highly substantiv
examination of market practices in the repo and securities lending markets.
Experienced front-office funding professionals will be the contests, answering
questions a repo and securities lending trader commonly must answer in order to
complete a transaction, The professionals will also call upon legal, tax and accou
professionals active in the funding markets to help them answer these questions.
Contestants will also participate in a "bonus round”, consisting of questions from
audience!

Larry Brandman

Vice President

Goldman, Sachs & Co.

Jeff Kidwell

Principal

Morgan Stanley & Co.

Others to be Announced

Patricia Brigantic

Director and Counsel

Salomon Smith Bamey/Citigroup

James Johnson

Partner

Deloitte & Touche, LLP

Lucey Farr

Associate

Davis, Polk & Wardwell

Cocktails

Registration Information

Registration Fees:

file://C:\WINDOWS\Temporary%20Intemet%20Files\OLK303 1 \repo.htm

02560

01300000001169

1/15/02


From: Peter Nickoloff

To: carletonn
Date: 6/21/99 1:51pm
‘Subject: Weekly

Attached is the draft weekly for June 14-18, | didnt include bullets on the CFTC surveillance meeting or on the
Engon conference call,

02517

01300000001 126


Enron Chairman Gave Warning to Bush Officials on Company’s Collapse Page 3 of 3
Dynegy Inc. (news/quote), backed out of an $8.4 billion buyout plan late last year.

Just a year ago, stock of Enron, the nation's largest buyer and seller of natural gas, traded at
$85 per share. Today it is less than $1.

Lay has close ties to Bush and his father, the former president. Lay was a top contributor to the
younger Bush's 2000 presidential campaign.

‘The company played a key role earlier this year when a White House task force met with

business executives and other interests to fashion a national energy policy. The task force was
headed by Vice President Dick Cheney.

A,

On the Net:
http://www.enron.com

http://usdoj.gov

Copyright 2002 The Associates Press | Prteacy Information

01996

file://C:\WINDOWS\Temporary%20Internet%20F iles\OLK 303 1\Enron%20Chairman%20Gave%20Waming... 1/17/02

01300000000604


Carleton, Norman

From: Carleton, Norman
Sent: Thursday, August 30, 2001 9°33 AM
To: Bair, Sheila
‘Subject: RE: More on the Enron Issue
{(b)(5))

----Oniginal Message---—-

From: Bair, Shela

Sent: Thursday, August 30. 2001 9:26 AM

To: Carleton, Nerman

Subject: RE: More on the Enron Issue

((6)(5)]

--~-Orignal Message--—-

From: — Carleton, Norman

Sent: — Wednesday, August 29, 2001 2:41 FM

To: Fisher, Peter; Roseboro, Brian; Bair, Sheila; NickolotT, Peter; Schultheiss, Heidlynne; DeMarco, Edwerd; Hughes, Gerry, Grass,
Jared; Smith, Amy; Sutton, Gary; Elett, Martha; Gabilondo, Jose, McInemey, Roberta; Lori Sanatamorena (E-mail);
Novey, Michael; Eichner, Matthew; Hammer, Viva

‘Subject: More on the Enron Issue

{(©)(5); (b)(4)]

02230

01300000000839


((b)(5)]

ISSUE AND DISCUSSION

- [(bX5))

02156

01300000000765


SEC Speech: Advancing Investors’ Interests (R. Herdman) Page 1 of 12

Home | Previous Page

Speech by SEC Staff:
Advancing Investors’ Interests

Remarks by
Robert K. Herdman

Chief Accountant
U.S. Securities and Exchange Commission

American Institute of Certified Public Accountants’
Twenty-Ninth Annual National Conference on Current SEC Developments
Washington, D.C.

December 6, 2001

The Securities and Exchange Commission, as a matter of policy,
disclaims responsibility for any private publication or statement by any of
its employees. The views expressed herein are those of Mr. Herdman
and do not necessarily reflect the views of the Commission, the
Commissioners, or other members of the Commission's staff.

Introduction

Jim and Amy, thank you for the kind introduction. I am pleased to be back
at this podium.

Some of you may be old enough to remember that I spoke at this
conference 3 times in the early 1980s. Twice I spoke as a Professional
Accounting Fellow in the Chief Accountant's Office and another time as a
member of a panel discussing a rule-making proposal I helped draft as a
member of the staff. That proposal, which would have required disclosure
of interim segment information, was considered “revolutionary” at the time.
Ultimately, it crashed and burned, unfortunately, around the time of the
conference. Now, of course, similar requirements are embedded in FASB
Statement 131, issued in 1997.

I guess you could sum it up this way, Basically, every 20 years, I speak at
this conference, and then 15 years later the profession adopts my
proposals! I guess the point of my story is, if you're not planning to be
Practicing accounting in 15 years, this is probably a good time to go return
phone calls!

Given my past experience, I never expected to speak at this conference
again, let alone as Chief Accountant-and I am sure that none of you
expected it either. It is a great honor and privilege and it is an excellent
opportunity both to embrace the strength of the SEC as an agency and to

files//C:\WINDOWS\Temporary%20Intemet%20Files\OLK4274\SEC %20Speech® @) 1 5 5 2
01200000000206


From: Tom McGivern

To: GENSLERG, SachsL, CARLETONN
Date: 5/2799 12:05pm
Subject: ‘Working Group Comments on Enron/Cadwalader Proposals

I plan to send these along as | receive them,
5/27/29 phone conversation with Mike Kremminger, FOIG
[(b)(5)]

4. Definition of forward contract merchant
[(b)(5)]

2. Exceptions to operation of the automatic stay

{(b)(5)]

3. Amendments to the definition of swap agreement

{(b)(5)]

cc: SHELTONA, CARTERJ, WOLINN, MCINERNEYR, Domt 3.D0PO7...

02508

01300000001117


WSJ.com -- From the Archives Page 3 of 4

for Quality Financial Reporting at Colorado State University. Ms.
Turner praised efforts to improve corporate reporting, but said
suggestions from the Big Five firms won't solve two basic problems --
companies that rely heavily on off-balance-sheet transactions and
accountants unwilling to blow the whistle on corporate "eamings
management.”

Michael Young, a partner at the New York law firm of Willki Farr &
Gallagher who specializes in accounting, predicts the SEC will
embrace the Big Five's plea for tougher standards and better disclosure,
especially in light of Enron's collapse.

Enron, once a high-flying energy trading company, went bankrupt late
in 2001 after announcing it overstated net income by $586 million over
almost five years, Its restatement reflected adjustments in off-balance-
sheet "special purpose entities" and partnerships tied to former Chief
Financial Officer Andrew Fastow. The Houston firm faces numerous
lawsuits and is under investigation by Congress, the SEC and the

Justice Department.

Enron's restatement comes on the heels of restatements by Sunbeam
Corp. and Waste Management Inc., both Andersen clients, as well as
Cendant Corp. and MicroStrategy Inc.

"The accountants are saying the real culprit is the inadequacy of some
of the rules," said Mr. Young. "If the rules aren't good enough, then all
the accounting industry can do is take it on the chin."

Mr. Young acknowledged that improving disclosure in 2001 annual
reports, which must be filed by March 31, is an ambitious timetable,
but said it appears that Big Five accounting firms are prepared to tackle
the task.

"Corporate executives are being dragged kicking and screaming into a
world of improved disclosure. Whether they will embrace the Big
Five's request for enhanced standards, particularly on this aggressive
timetable, is anybody's guess," Mr. Young added.

Write to Judith Burns at judi
CE ets EQ mis FBroemer ror ORITING

Ww cant beat the

REserer:
tree bieas

Return to top of page

file://C:\WINDOWS\Temporary%20Intemet%20Files\OLK4274 0 1 57 5 1/16/02
01200000000230


From: exmail"ELEVIN:

To: ex.mail{*tom megivem"),0OM3.DOPO6({CARLETONN,MCGIV..,
Date: Q17/98 12:37pm

Subject: Enron Bankruptcy Amendments

Dear Tom:

{(b)(5))]

Sincerely,

Eten

' nl
t |

|NOTE: The information in this email Is confidential and may be |
Pegally privileged, If you are not the intandad recipient, you |
[rust not read, use or disseminate the information. Although this |
lemail and any attachments are believed to be free of any virus or |
lother defect that might affect any computer system into which it |

lis received anc opened, it is the responsibility of the recipient |

|to ensure that it is virus free and no responsibility is accepted |

|by Cadwalader, Wickersham & Taft for any loss or damage arising in|
Jany way from its use. I

— |

cc: 8x.maii("norman.carieton”,"jkeeler@enron.org treas...

02523

01300000001132


The 7th Annual Repo & Securities Lending Conference Page 5 of 6

Member: $895 (additional registrants from the same firm are $695 each)
Non-member: $1,095 (additional registrants from the same firm are $895 cach)
Pre-Conference Workshop: $195

Refund Policy:The Association will issue refunds, cach subject to a $75 service
charge, on cancellations received in writing on or before Friday, November 30,
2001. No refunds will be issued on cancellations after this date. Substitutes are
welcome at any time.

Hotel Reservations: For your convenience, a limited number of guest rooms have
been reserved at the Roosevelt Hotel, 45 East 45th Street, New York City, For hotel
reservations, please call the Roosevelt Hotel at 888,833,3969, Be certain to mention
you are attending The Bond Market Association's conference.

For further information, please call Mary Garcia at (212) 440-9429,
Registration Form

[ Member (first registrant): $895
T Additional registrants from same firm: $695

[TM Nonmember (first registrant): $1,095
[ Additional registrants from same firm: $895
IT Regulators and Non-profit Associations: $395

Pre-Conference Workshop: $195

Individual

Registration:

Your Name |

Name for Badge =|

Title |

Company I

Address [

. | State | Zip

City co

Phone a Fax 61
filev/CAWINDOWS\Temporary%20Internet%20Files\OLK 303 l\repo.htm 1/15/02

01300000001170


Schultheiss, Heidilynne

— —__——
From: Carleton, Norman

Sent: Thursday, September 13, 2001 3:36 PM

To: Roseboro, Brian; Bair, Sheila, Malvey, Paul; Huther, Jeff, Pietrangeli, Fred; Schultheiss,

Heidilynne; Nickoloff, Peter, Gross, Jared; Sharer, James; Cetina, Jill, Corfield, Anna: Byrne,
Kathleen. Dulaney, Tim
Subject: Enron resumes market-making activity

Linda Robertson of Enron asked me to distribute the following press release.

Press Release

ENRON RESUMES MARKET-MAKING ACTIVITY IN NORTH AMERICAN NATURAL GAS AND

FOR IMMEDIATE RELEASE: Wednesday, September 12, 2001

HOUSTON - Enron announced today it will resume its market-making activity in North American
natural gas and power. Enron will buy and sell natural gas and power by phone and over its online
transaction platform EnronOnline until noon CDT.

“We see no reason for North American natural gas and power markets to become unstable in the
aftermath of yesterday's tragedies," said Greg Whalley, Enron president and chief operating officer.
“These are domestic commodities, and the physical infrastructure is secure and operating

Enron's markets outside of North America will operate according to their normal schedule.

Enron is one of the world's leading energy, commodities and services companies. The company
markets electricity and natural gas, delivers energy and other physical commodities, and provides

financial and risk management services to customers around the world. Enron's Internet address is
www enron com <hitp www enron com> The stock is traded under the ticker symbol “ENE.”

01259

01200000000615


((b)(5)]

02066

01300000000674


Bair, Sheila

From: Bair, Sheila

Sent: Thursday, January 10, 2002 4:54 PM

To: Carleton, Norman

Subject: RE: DJ: Arthur Andersen Says It Destroyed Documents Related to Enron Account

very interesting. Norm, these clips are helpful.

<=~-Origiial Message---—

From: Carleton, Norman

Sent: Thursday, January 10, 2002 4:50 PM

To: Cotina, Jit; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eicyner, Matthew; Gabilonco, Jose; Gross, Jared; Hammer, View; Lori
Sanatemorena (E-mail); Nickoloff, Peter; Novey, Michael; Pietrangeli, Fred; Roseboro, Brian; Schutheiss, Heidilynne; Whaley,
Jean; Wiedman, Mark

Subject: 0): Arthur Andersen Says It Destroyed Documents Related to Enron Account

January 10, 2002
Major Business News

Arthur Andersen Says It Destroyed
Documents Related to Enron Account

By JupiTH BURNS
Dow Jones Newswires

WASHINGTON -- Arthur Andersen LLP, already under fire for its audits of Enron Corp., said it
has destroyed documents sought by federal law enforcement officials investigating the Enron
debacle.

In a statement issued Thursday, Andersen said it notified the U.S. Justice Department and the
Securities and Exchange Commission that individuals at the firm "disposed of a significant but
undetermined amount" of documents relating to its work for Enron. The Houston energy company
declared bankruptcy in December after announcing it had overstated four-and-a-half years worth
of earnings.

The document destruction includes paper documents and e-mail correspondence.

Andersen said it has instructed employees to retain all existing documents “until further notice."
In addition, the Chicago-based Big Five accounting firm said it has asked former Sen. John
Danforth (R., Mo.) to conduct "an immediate and comprehensive review" of the firm's policies on
document handling and recommend improvements.

Andersen said destruction of Enron documents occurred "in recent months" by individual
employees involved in auditing the energy company.

i

01200000000889


Dorgan noted that Lay, Enron's chairman and chief executive, has agreed to testify at a
future hearing. Dorgan also said the committee will invite Skilling, Enron's former chief
executive, and Andrew Fastow, Enron's former chief financial officer, to testify at the
same hearing.

“Was this just bad luck, incompetence and greed, or were there some criminal or illegal

actions, as has been suggested by the accounting firm that reviewed Enron's books?”
Dorgan said.

01200000000041


says that there is a grey area, but that Goldman will fall into line with market consensus, once there is
one.

Disputes are thus still breaking out in the market. But dealers in credit derivatives have lately been keen
to make their products more reliable. When lawyers were called in by buyers and sellers of protection on
Railtrack, the owner of Britain's rail network that was forced into administration last year, they quickly
brought in the industry trade body, the International Swaps and Derivatives Association, to sort things
out.

At issue was whether Railtrack’s convertible bonds were covered by default protection, The association
opined, in favour of protection buyers, that they were. It did much last year to improve Its rules on
contracts for credit derivatives. Its new “modified restructuring” rule clarifies the issue, keenly debated
over the past two years, of whether debt restructuring, as opposed to actual default or bankruptcy, should
count as a credit event. The trade body has also offered guidelines for what should happen to default
swaps on companies that demerge or spin off units.

With these improvements, growth in the market for credit derivatives is likely to continue apace. It has
almost doubled each year since 1998, to a total of nearly $700 billion in value, according to the Bank for
International Settlements. Credit protection has particular appeal at a time of high corporate default rates.

Commercial banks are continuing to shed corporate-credit risk using default swaps. But new entrants-
insurance companies and fund managers-are coming into the market to assume risk, as sellers of
protection, Last year, investors seeking attractive yields were eager to gain exposure to corporate credit
through "synthetic" collateralised debt obligations (CDOs), structured-finance vehicles made up using
credit-default swaps. Investors may not be quite so gung-ho in future. Enron, for example, was one of the
credits contained in many synthetic CDOs, and its collapse will have led to losses for investors. In the
world of credit derivatives, caveat emptor still applies.

01200000001544


Enron Talking Points

((b)(5)]

01999

01300000000607


It supported the 1992 Energy Policy Act, which opened the utility companies’ wires to electricity
merchants such as Enron. It also worked with the Commodity Futures Trading Commission --
then chaired by Wendy Gramm -- for a regulatory exemption for futures trading in energy
derivatives, which later became Enron’s most lucrative business. Soon after Gramm stepped
down in 1993, she was appointed to Enron's board.

Independent sources knowledgeable about these dealings, however, said Enron was not the main
interested party. They said the lead was taken by several major oil companies, including British
Petroleum Co. and Phillips Petroleum Co., which were concerned about the effect of CFTC
regulation on their offshore trading in crude oil contracts. Wendy Gramm, an apostle of free
markets, needed little convincing, the sources said,

That same year, Lay served as chairman of the committee organizing the Republican National
Convention in Houston, Hedging its bets, Enron made a major contribution to a “street fair" in
honor of Sen. John Breaux (D-La,), a key energy policymaker, at the Democratic convention.
Key orders by FERC in 1996 also supported Enron's transformation into a freewheeling trader of
gas, electricity and more exotic products, such as telecommunications services and sulfur-
dioxide emissions credits.

The new rules ensured that Enron and other merchant companies could buy electricity from
independent power plants and sell it to distant customers, using transmission lines borrowed
from utility companies.

Even Enron's harshest critics credit Lay with putting new issues -- such as electricity
deregulation -- on the Washington agenda. Lay,a former Interior Department official with a PhD
in economics, became "the ambassador" for deregulation, one former employee said.

Throughout the 1990s, Enron's agenda was opposed by coal-burning utilities, especially ones in
the Southeast, which viewed the emerging wholesale electricity market as a threat to their turf.
Many of these, such as Atlanta-based Southern Co., had impressive political funding and
connections of their own,

But with the explosive growth of Enron and the GOP takeover of Congress in 1995, the
company’s soft-moncy donations — unregulated and unlimited gifts to political parties and
organizations -- jumped sharply. They went from about $136,000 in the 1993-94 election cycle,
to $687,000 in 1996 and $1.7 million in 2000, according to the Center for Responsive Politics.

Frustrated by Washington

For all its connections, sources say, Enron often found Washington frustratingly slowand
unreliable,

The company placed a substantial bet on federal support for limits on the greenhouse gases
causing global warming. Enron officials hoped to exploit a new market in industry for carbon-
emissions credits, similar to the one that developed for sulphur credits after clean-air legislation
was enacted in 1990,

01200000000016


write off impaired assets at its Azurix Corp. water services unit and several investment losses,
The charge consisted of $287 million in asset impairments recorded by Azurix, $180 million
from restructuring broadband services, and $544 million related to certain investments. About
half of the $544 million charge was attributed to The New Power Co, unit, a provider of
electricity and natural gas to households and small businesses; the other half to bankrupt
Northpoint Communications and other technology investments, and the early termination of a
structured finance arrangement, Excluding the charge, Enron would have met market
expectations, Investors questioned Enron's ability to expand from its successful core wholesale
energy business and its level of transparency. Moody's reviewed Enron for downgrade. Its
debt-to-capital ratio increased to 50 from 46 percent, and it hoped to sell some assets to reduce it.
Enron did not disclose its large reduction in equity in its earnings release, but instead waited.

10/17/01 Conflict-of-interest questions were raised regarding limited partnerships run by
CFO Fastow. The charge related to the carly termination of certain structured finance
arrangements was quantified as $35 million. Enron held a conference call with securities
analysts and investors in which it disclosed that its shareholder equity contracted by $1.2 billion
to $9.5 billion as a result of Enron’s repurchase of 55 million shares from Fastow (Enron had an
average 913 million shares outstanding in Q3) at a lower price and the cancellation of the
partnership note. Enron characterized the reduction as a “result of Enron's termination of
previously recorded contractual obligations to deliver Enron shares in future periods.” An
analyst explained that Enron had promised that a certain amount of Enron's shares would be
worth $1 billion, and when they plummeted and fell below that value. Enron bought them back.
One analyst conjectured that Enron had treated the shares as a buyback, but had never issued
them. The SEC sent a letter to Enron beginning an “informal inquiry.”

10/22/01 Enron confirmed that it had received a request for information from the Texas
regional office of the SEC regarding its controversial partnerships with Fastow. Analysts
speculated that its Enforcement division was investigating possible violations of securities laws.
The SEC reportedly was reviewing whether the transaction terminations should have been
treated as a balance sheet item or a loss that affected reported earnings (accounting rules specify
that a company’s transaction in its own shares cannot produce profits or losses, whatever the
effect on cash flow); and whether the related-party transactions were properly disclosed under
Rule S-K, where a company must report transactions that exceed $60,000 with “any director or
executive officer” (although FAS Statement 57 issued a broader definition involving a “material”
piece of business between the company and a member of its management). Enron's stock price
fell 20 percent and it was the most actively traded NYSE stock with 36 million shares traded.
Concerns about Enron's credit rating emerged, Enron stated that it had properly disclosed
transactions, was cooperating with the SEC, and was confident it would not default. A class-
action suit was filed in U.S. District Court in Houston alleging misrepresentation and failure to
disclose and write down investments, It alleged that Enron insiders sold $73 million of their
holdings during parts of 2000 and 2001.

10/23/01 Worries arose that Enron might have to issue large amounts of stock in the next
20 months to noteholders to repay about $3.3 billion in notes ultimately guaranteed by Enron for
certain entities like the Marlin Water and Osprey ventures if certain trigger events occurred.
Marlin owes almost $1 billion in debt and has no assets other than a one-third stake in Azurix, a

02176

“1300000000785


Enron's stock at one point, and the stock has dropped to about 50 cents a share from a peak of $90
last year.

But Enron's situation reveals that employees’ retirement benefits are exposed to company stock in
more than their 401(k) plans.

Employees share some of the responsibility for this overexposure. That's because to some extent
employees could have limited their retirement-related holdings of Enron, if they had taken the right
steps at the right time, though many didn't because the stock was long a highflier.

One of these is Kenneth Parrish, an electrician at Portland General Electric, an Enron subsidiary,
who essentially has lost additional benefits related to his pension from Jan. 1, 1999. That was when
the pension plan for unionized employees, including Mr. Parrish, was changed. The pension benefit
they already had earned was frozen; instead of continuing to add to the pension, the company gave a
cash contribution of 5% of employees’ pay to their 401(k) plan, where they could put it into a variety
of investments, including Enron stock.

Unfortunately, Mr. Parrish and many others elected to put the pension-related contribution into Enron
stock, along with his own 401(k) savings. “It seemed like such a good investment,” says Mr. Parrish,
who is 43 years old. Moreover, the company's matching contribution to his 401(k) was in Enron stock
that couldn't be sold till the employee turned 50. As a result, the value of his savings plan, including
the pension amounts, fell from about $200,000 to a couple of thousand dollars.

Mr. Parrish, a single father of two daughters, who are 16 and 17, now isn't sure what he will do. "I got
doubly slammed,” he says. "Not only did | lose all my retirement savings, | lost the pension savings,
too." He is selling his house and planning to buy a trailer. "This ruined me,” he says.

Meanwhile, salaried workers at Enron had a different kind of pension arrangement that exposed
them to fluctuations in Enron stock. The company coordinated their pension plan and their employee
stock ownership plan, so that the value of their ESOP accounts permanently erased benefits in their
pensions.

That is because Enron had a “floor-offset" arrangement, which has been used by many companies,
including Hewlett-Packard Co. and Airborne Inc. These arrangements are intended to provide
participants with the "better of the two plans, the savings plan (either an ESOP or a profit-sharing
plan) and the pension.

In a simple floor-offset arrangement, if an employee leaves the company and his ESOP account is
worth, say, $60,000, the company figures out how much this would be worth if it were converted to an
annual pension in retirement. In this case, the ESOP's equivalent value might be $6,000 a year in
retirement. If the employee has already earned a pension worth $50,000 a year in retirement, the
employee wouldn't get $56,000 a year -- the combination of the two -- but just $50,000. (The $6,000
annual ESOP value Is subtracted from the pension, so the person ends up with an annual pension of
$44,000, plus the $6,000 a year from his ESOP account of $60,000.)

If the ESOP performed really well, and was worth, say, $70,000 a year if converted to a pension, the
employee would simply keep the ESOP, and not get the pension. If the ESOP didn't perform well, the
pension would serve as the “floor benefit. In other words, even if the ESOP fell to zero, the
employee would still have his full pension of $50,000 a year.

But it didn't work this way at Enron, even though the ESOP accounts have become virtually
worthless because of the decline in Enron's stock. In an unusual arrangement, Enron calculated the

z

01200000001254


From: Tom McGivem

To: CARLETONN, YETTERJ, DOPOS.TocheyF

Date: WNDD 6:38

‘Subject: Financial Netting provisions of H.R. 833 - bankruptcy bil
{(o)(5)]

On the Enron proposals Norman received:

{(b)(5)]

Thanks.
ce: DORSEYK, CARROR

02526

0130000001135


workers in the boiler room" as the Enron ship sank, Wyden said.

Boxer said Enron may have violated a tax-law provision she authored in 1997 addressing
diversification of 401(k) retirement funds.

The law prohibited companies from requiring employees to purchase company stock as part of
401(k) plan participation.

Boxer acknowledged that Enron workers willingly concentrated their investments in Enron's
previously high-flying stock, but suggested that, through the plan lock-down, employees in effect
were forced to buy the company’s stock because they couldn't sell their holdings

Boxer called for the Internal Revenue Service to redirect the tax breaks Enron Corp. (ENE)
obtained for its contributions to employee retirement accounts to partially reimburse employees
who lost their retirement savings through the company's 401(k) program.

The legislation Boxer sponsored with Corzine would limit employee 401(k) investments in
company stock to 20%, and it would limit to 90 days the period of time an employer can require its
workers to hold a matching stock contribution before divesting it.

Further, the bill would reduce to 50% the tax deduction an employer can take for its matching
stock contributions. Cash contributions would retain the 100% tax break, Boxer said.

Also, the bill would lower to 35 year of age, with at least five years of company service, the trigger
allowing employees to diversify their investments in employee stock ownership plans.

“By Bryan Lee, Dow Jones Newswires; 202-862-6647;
Bryan. Leefdowjones.com

01200000001359


Carleton, Norman

From: Hammer, Viva

Sent: Wed) , September 05, 2001 2:19 PM
To: Carleton, Norman

Subject: RE: More on the Enron Issue

is the swaps study group still on tomorrow?

~---Onginal Message—--
From: Carleton, Norman
Sent: Wednesday, August 29, 2001 2:41 PM
To: Fisher, Peter; Rosebaro, Brian; Bair, Shela; Nickoloff, Peter; Schuithelss, Heidiynne; DeMarco, Edward; Hughes, Gerry; Gross,

Jarec; Senith, Amy; Sutton, Gary; Bilett, Martha; Gabvondo, Jose; Melnerney, Roberta; Lari Sanatamarena (E-mafl); Novey,
Michael; Eichner, Matthew; Hammer, Viva
Subject: More on the Enron Issue

{(b)(5)]

Thoughts?

02471

01300000001080


From: Norman Carleton

To: Sachsl, PaulusM, DOPOS.LEVINEM, DOPOS, TooheyF, MCG...
Date: 7/24/00 10:40am
Subject: Financial Contract Netling and the CEA

The Bond Market Association tells me that the House Banking Committee is planning to mark up on Thursday a
financial contract netting bill as well as the Commodity Futures Modemization Act. [()(5)]

ce; GREENEMI, GrossJa, YETTERJ, Schultheissh, NICKOLOF...

02552

01300000001161


Gross, Jared

From: Gross, Jared

Sent: Thursday, January 10, 2002 6:11 PM

To: Fisher, Peter

Subject: FW: DJ: CAPITAL VIEWS: An interesting Day In The Enron Trenches

you're mentioned in this one

---Original Message--—-

From: ‘Carteton, Norman

Sent: Thursday, January 10, 2002 5:57 PM

To: ‘Cetina, Jl; Bair, Shelia; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gatilonda, Jose; Gross, Jered; Hammer, Vive; Lori
Sanatamorena (E-mail); Nickoloff, Peter; Navey, Michael; Pietrangeli, Fred; Roseboro, Brian; Schulthess, Heidilynne; Whaley, Jean;
Weedman, Mark

Subject: DJ: CAPITAL VIEWS: An Interesting Day In The Enron Trenches

January 10, 2002

CAPITAL VIEWS: An Interesting Day In The Enron Trenches

By JOHN CONNOR

A Dow Jones Newswires Column

WASHINGTON -- Today was a big day on the Enron front, with key developments coming fresh on
the heels of Wednesday's new that the Justice Department has opened a criminal investigation of
Enron's bankruptcy.

To briefly review the bidding:

- Arthur Andersen, LLP, already taking heavy fire for its auditing of the now-bankrupt Enron Corp
(ENE), told the Justice Department and the Securities and Exchange Commission that individuals at
the firm “disposed of a significant but undetermined amount" of documents relating to its Enron work.

Andersen said the destruction, encompassing both paper documents and e-mail, was done in recent
months by individual employees involved in auditing Enron. The number of individuals involved was
not specified.

- White House Press Secretary Ari Fleischer disclosed that Enron Chairman Kenneth Lay, a big
campaign contributor to George W. Bush, contacted two senior Bush Administration officials last fall.
The officials in question were Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans.
The contacts sound in the telling like a bid for help.

Fleischer related that O'Neill said he had been contacted by Lay last fall and that Lay brought to
O'Neill's attention “his concerns about whether or not Enron would be able to meet its obligations.
And he expressed his concern about the experience that Long-Term Capital (Management) went

through...

01200000001539


Carleton, Norman

— ——$$———_—_—_— $$ $$

Robert. Elsa: Arb og

Monday. Norge 2001 10:46 AM
lorman. \@do.treas

Re: Enron Update gov

No problem, I can have you added to our general distribution list. This
would mean that you would receive our morning and afternoon recaps anda
special reports on a variety of global markets. Alternatively, I can just
remember to add you te any future Enron reports that we produce. They may
be few and far between.

Bob Elsasser

Government Securiti

robert .e1 sermny.frb.,org
212,720.12

Norman .Carletonsdo

.treas.gov To: Robert .Blsassereny.frb.org
ce:

12/20/2001 02:53 Subject: Enron Update

PM

tT have also been following Enron developments, which bear heavily on the
retail swaps report. I would appreciate being put on the distribution list
for any further work you send here on that subject. Thanks.

Norman Carleton

02580

01300000001189


{(©)(5)]

CONCLUSION
{(b)(5)]

[(6)(5)]

01509

01200000000163


{(b)(5))

Please review and let me know your thoughts.

Thanks,
Mike
Tracking: Recipient Detvery Read
Sutton, Gary Delivered: 2114/01 2:36 PM Read: 2/1401 2:34 PM

02473

01300000001082


borrow short-term cash. Royal Dutch/Shell reportedly was interested in purchasing Enron, and
had approached it earlier in August, The SEC transferred its inquiry to its Washington D.C.
headquarters.

10/30/01 There were rumors that GE Capital, Berkshire Hathaway or Royal Dutch
Petroleum might buy Enron. Its stock increased 25 percent, rebounding from a nine-year low,

02178

: 01300000000787


Carleton, Norman

From: Carleton, Norman
Sent: Wednesday, just 29, 2001 12:00 PM
To: Schultneiss, lilynne; Nickoloff, Peter
Subject: FW: Status of Retail Swap Study and the Enron Issue
‘Ongnal Message----
From: Efett, Martha
Sent: Wednesday, August 29, 2001 11:59 AM
To: Carleton, Norman
Cc: Gnlonda, Jose; Sutton, Gary
Subject: RE: Status of Reta’ Swep Study and the Enron Issue
{(b)(5)}
_ Message
From: (Carteton, Norman
Sent: Wednesday, August 23, 2001 11:15 AM
To: Fisher, Peter; Raseboro, Brian; Bair, Shela; Nickaloff, Peter; Schultheiss, Heidilynne; DeMarco, Edward; Hughes, Gerry; Gross,

Jared; Smith, Amy; Sutton, Gary; Ellett, Marthe; Gabilando, Jose; Mcinemey, Raberta; Lorl Sanatamorena (E-mall)
Subject: Status of Retail Swap Study and the Enron tssue

[(b)(5)}

02422

01300000001031


"There are aspects of [the Enron case] that remind us of the savings and loan scandal, in the
sense that a powerful institution used big money to buy influence and protect itself while
ordinary citizens ended up losing their life savings," said Fred Wertheimer, president of
Democracy 21, a Washington interest group, referring to a banking controversy in the 1980s.
Enron's ties to Republicans and the present Bush administration were especially close. Lay raised
large sums for George W. Bush's campaign.

Enron, Lay and its employees have contributed $572,350 to him over his career, far more than
any other company, according to the Center for Public Integrity in Washington.

Several top administration officials have been Enron advisers or stockholders. Enron, Lay and
other senior executives contributed $1.7 million in soft-money donations to politicians in the
2000 election cycle, two-thirds of it to Republicans, according to the Center for Responsive
Politics.

Republicans clearly are sensitive to the potential political dangers. The National Republican
Senatorial Committee recently returned a $100,000 check collected from Enron in November,
after deciding that "it was appropriate to give it back," spokesman Dan Allen said, The
Republican Governors Association last week returned an Enron donation of $60,000.

What was unique about Enron, competitors and allies agree, was a brash and sometimes
counterproductive political style.

Stories of Enron's hardball style are legion. In October 1999, for example, Jeffrey K. Skilling,
then Enron's president, expressed his displeasure at Rep. Joe Barton's position on a deregulation
bill pending in the energy subcommittee Barton chairs.

The meeting grew "heated and awful," said one person who was present, until Barton (R-Tex.), a
usually mild-mannered man who keeps a Bible on his desk, exploded. "Jeffrey Skilling, |] may
not have your millions of dollars, but I am not an idiot,” one witness recalled Barton saying, The
meeting ended without Enron getting the changes it wanted. "Skilling did not get Washington,"
the source added,

"In their lobbying, they acted like the 800-pound gorilla they were,” said Christopher Horner, a
Washington lawyer who briefly directed Enron's government relations in 1997, Lay and Skilling
declined interview requests, but Enron officials say they have no regrets about their use of
money. "It got us name recognition," company spokesman Mark Palmer said. "Given the
aggregation of our foes, we had to make sure that people knew what our argument was.”

Jump-Starting Deregulation

Almost from its start in 1985 as a gas pipeline company, Enron needed help in Washington, and
it got it in a series of actions by Congress and the Federal Energy Regulatory Commission
(FERC) that undermined the traditional monopoly of utility companies over power plants and
transmission lines.

Enron lobbied for several of the initial actions that set the stage for the era of a deregulated
wholesale electricity market.

01200000000015


Retail Swaps

[(b)(5)]

02461

01300000001070


° Well, there were other headlines that say this is going to dog
him for
the rest of -- I mean, are you concerned about that?

MR. FLEISCHER: This dog won't hunt. That's a reference to the
politics of
ait.

Q Ari, you may have answered this question already, but did the
President ever hold any Enron stock, or is it among his personal stock
holdings?

MR. PLEISCHER: It's all publicly disclosed, so take a leok. I don't
know
off the top of my head.

; 00713

01200000000058


Carleton, Norman

— —_——— — —— —

From: Schultheiss, Heidilynne

Sent: Wednesday, November 28, 2001 5:28 PM
To: Carleton, Norman
Subject: FY! - Status/Summary of Projects

Welcome back. It was fairly quiet while you were gone.

((b)(5)]

02579

01300000001188


SCIENTECH's IssueAlert Page 3 of

January, but that 15 to 20 suppliers have demanded payment up front before selling natural gas to the utility in

February. Due to its current debt situation, PG&E claims that it cannot make any payments up front and thus may not
be able to buy natural gas to serve its customers,

These issues have formed the landscape across which negotiations still rage on in California, Much pressure is now
being placed on the CPUC to formulate an end-all solution to the state's problems, one that can appease all the
dissenting stakeholders. Yet, much like FERC's order which was criticized for not going far enough, the CPUC is
particularly challenged to make decisions that can once and for all solve the state's structural problems. As Enron's
Kenneth Lay said a few months ago, the CPUC must avoid “putting band-aids on California's hemorrhaging wounds”
and instead complete a successful reconstructive surgery.

An archive list of previous IssueAlerts is available at
www.consultRCLcom

Find out more about SCIENTECH'S most popular competitive tools, including the Telecommunications and
E-Commerce InfoGrids at: www.consultRCl.com

SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let us know if we can help you with
in-depth analyses or any other SCIENTECH information products. If you would like to refer a colleague to
receive our free, daily IssueAlerts, please reply to this email and include their full name and email address or
register directly on our site.

If you no longer wish to receive this daily email, send a message to IssueAlert, and include the word "delete"
in the subject line

SCIENTECH’s (ssucAlertsTM!are compiled based on the independent analysis of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAler
are not intended to predict financial performance of companies discussed. or to be the basis for investment decisions of any kind. SCIENTECH's sole purpose
in publishing its issuedlerts is to offer an independent perspective regarding the key evants occurring in the energy industry, based on its lomgwnding
reputation as an expert on energy issues.

Copyright 2000, SCIENTECH, Inc. Al rights reserved.

01242

01200000000598


From: Carleton, Norman

Sent: Tuesday, August 07, 2001 8:39 PM

To: ‘Raislerk@sulicrom.com’

Subject: RE: CFTC Presentation — Final Version
Ken,

Thanks. I received it this evening.
Norman

ne Original Measage~~~~~-

From; Raislerk@sullcrom.com (mailto: Raislerk@sullcrom.com]
Sent: Tuesday August 07, 2001 7:10 PM

To: norman.carleton@do,treas.gov

Subject: FW: CFTC Presentation -- Final Version

This is the right version. Please acknowledge receipt.

----- Original Message~~---~

Prom: chendrix@enron.com [mailto:chendrixgenron.com]
Sent: Tuesday, August 07, 2001 6:42 PM

To: Raislerk@aullcrom.com

Subject; RE: CFTC Presentation -- Pinal Version

Here you go. {See attached file: cftc_final,ppt)

Raislerk@sullcrom.com on 08/07/2001 05:06:50 PM

To: chendrix@enron.com
ec:
Subject: RE: CFTC Presentation -- Final Version

Chris,

As I am sure Scott told you, this presentation went very well. Treasury has
asked for copies in electronic form. Can you resend this to me without the
notes imbedded so I can forward it on to them. Thanks.

Ken

econ Original Message-----

Prom: chendrix@enron.com [mailto:chendrix#enron.com)
Sent: Wednesday, August 01, 2002 3:57 PM

To: Raislerk#sullcrom.com

Subject: CFTC Presentation -- Pinal Version

Attached is the final version of the presentation. (See attached filer
efte_final presentation.ppt}

‘ 02232

01300000000841


DRAFT
January 4, 2002

TO: Norman Carleton

Director

Office of Federal Finance Policy Analysis
FROM: Heidilynne Schultheiss

Financial Economist

Office of Federal Finance Policy Analysis

SUBJECT; — Dow Jones Newswires and Washington Post Articles on Enron and the
Commodity Futures Modernization Act of 2000

BACKGROUND
{(b)(5)]

01200000000029


Dorgan noted that Lay, Enron's chairman and chief executive, has agreed to testify at a
future hearing. Dorgan also said the committee will invite Skilling, Enron's former chief
executive, and Andrew Fastow, Enron's former chief financial officer, to testify at the
same hearing.

"Was this just bad luck, incompetence and greed, or were there some criminal or illegal

actions, as has been suggested by the accounting firm that reviewed Enron's books?”
Dorgan said.

01200000000023


((b){5)]

Is! DISCU!

((b)(5)]

01200000000012


Bair, Sheila

From: Bair, Sheila
Sent: Wednesday, December 26, 2001 8:23 AM
To: Carleton, Norman
Ce: Roseboro, Brian
Subject; RE: DJ: Senator Eyes End To Enron-Type Special-Purpose Entities
((b)(5)]
Sheila
Original Message--—-
From: Carleton, Norman
Sent: Tuesday, December 18, 2001 11:07 AM
To: Catina, JIE; Bair, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gabilondo, Jose; Gross, Hemmer, Viva; Lori

Jared;
Sanatamorena (E-mail); Nickoloff, Peter; Navey, Michael; Pietrangeli, Fred; Roseboro, Brian; Schukhetss, Heiditynne; Whaley,
Jean; Wiedman, Mark
‘Subject: 02: Senator Eyes End To Erron-Type Special-Purpose Enthies

{(b)(5)]

December 18, 2001

Senator Eyes End To Enron-Type Special-Purpose Entities

Dow Jones Newswires

WASHINGTON -- U.S. Senate Commerce Committee Chairman Fritz Hollings, D-S.C., pledged
Tuesday to introduce legislation to eliminate the sorts of financial accounting that led to the
financial collapse of Enron Corp. (ENE).

At a committee hearing on the Enron debacle, Hollings called for legislation to eliminate the use
of special-purpose entities, which are partnerships or trusts through which companies keep their
debt off the books and, in Enron's case, overstate earnings.

Hollings said such off-the-balance-sheet transactions should end in order to protect investors.
Hollings also was highly critical of the amount of insider stock selling by top Enron officials. He
noted that Enron Chairman Kenneth Lay and former Chief Executive Jeffrey Skilling each sold
shares in recent months for more than $60 million, while members of Enron's board sold shares
worth more than $160 million.

“The selling of Enron was prolific," Hollings said, calling the insider selling "a screaming red flag."

If Enron officials felt the stock was undervalued, as they publicly attested, “why were they cashing
in?" Hollings said.

Hollings also said there was plenty of blame for the “shenanigans” associated with Enron's
1

01200000000936


3/9/2000 draft letter to bankruptcy conferees

The Honorable Orrin G. Hatch
Chairman

Committee on the Judiciary
United States Senate
Washington, D.C, 20510

The Honorable Patrick J. Leahy
Committee on the Judiciary

United States Senate

Washington, D.C, 20510

Dear Chairman Hatch and Senator Leahy:

((0)(5)]

02527

'
01300000001136


Special Report: California's Deregulation of Electricity

Page 5 of

the 34th of the year, The California Independent System
Operator, which is charged with keeping energy flowing
through the state, was forced to declare the emergency
in large part due to congestion on the main electricity
transmission path that brings power from Southern
California plants to Northern California.

Anticipating just such a problem, Cal-ISO on
Tuesday had asked the U.S. Department of Energy to
use its emergency authority and force power generators
across the West to sell any surplus electricity to
California.

The request, which was quickly granted, helped
bring the state enough electricity Wednesday to serve
between 300,000 and 400,000 homes.

Most of the extra supplies came from small power
plants within California that had not been running at full
capacity because their federally mandated contracts did
not allow them to recover the full cost of the natural gas
used to generate the electricity, The U.S. Energy
Department's emergency order allows those power plant
owners to get a price high enough to cover their gas
prices, which have jumped tremendously in the fast
several months.

U.S. Energy Secretary Richardson said Wednesday
that he was extending his order by a week. Speaking to
the Western governors in Denver, he proposed
regional electricity price cap. The governors rejected the
idea, offering a five-point plan of their own to stave off
what many called an impending energy crisis in a region
that holds cight of the nation’s 10 fastest growing states.

The tone of the five hours of meetings among
governors, utilities officials and federal regulators was
far from neighborly toward California, whose absent
officials were scolded for not having done enough to
solve their own problems. Some governors wondered
aloud why their constituents should have to pay for a
neighboring state's inaction.

"In Colorado, we've been building the power plants
to serve our energy needs," said Gov. Bill Owens. "It's
tough, no one wants one in their backyard. It takes
political will. Gov. Davis is a new governor but you
can't brag on the one hand that California is No. 3 or
No. 4 in the world as an economic force and on the
other can't supply your own energy needs, I don't want
Coloradans to pay higher rates because someone clse
can't build plants and transmission stations. It's going to
take political will to build the gencrating capacity.”

Some also questioned whether California was
operating its power stations at full capacity and whether
the state's citizens were being asked to conserve energy
as much as their smaller, less affluent neighbors in the
interior West.

In its five-point action plan, the group said California
must take prompt steps to conserve energy and

01232

01200000000588


SEC Speech: Advancing Investors’ Interests (R. Herdman) Page 8 of 12

Office of the Chief Accountant in dealing with registrant matters. One of the
criticisms was the communication of our views through speeches. A
suggestion that arose as part of that report was that our speeches be
codified If we were going to expect registrants to follow them.

Our accounting literature is now so voluminous that it literally fills rooms.
Can you imagine adding 250 or so speech topics to this volume? Suffice it
to say, we have considered the suggestion and decided that it is not
realistic.

With that said, I recognize that a speech posted to the website offers a
quick and effective means of communication about how the staff concluded
on a particular fact pattern, which can be helpful for many of you to know.
However, such speeches can cause confusion as well.

First, the speeches are hard to keep track of—even in today’s Internet age.
Second, many of the speeches are old and out of date and an effective
means for updating them does not exist. Most deal with specific questions
that sometimes are analogized to inappropriately. And sometimes they can
bump up against ingrained practice and raise questions about an adequate
notice and comment process. Too much emphasis on these speeches can
undermine GAAP and our private sector standard-setting activities.

So, we are doing something different this year and the PAFs will fill you in
on the details, including telling you what we are doing with the old
speeches that have been on our website. We'll stick to rulemaking by
rulemaking

And, to go back to the subject of the volume of accounting literature, I
think that the FASB's consideration of a project on codification and
simplification of GAAP affords an excellent opportunity to balance
operationality and conceptuality.

Point 3—Modernizing Financial Reporting and Disclosure

Now let's turn to point 3-working together to modernize financial reporting
and disclosure.

Our existing system of financial reporting and disclosure was developed
back in the 1930s and is showing its age. During the last 70 years,
technology has advanced to a point where computers and the Internet are
@ part of our everyday lives. But relatively few changes have been made to
the Commission's rules regarding what financial information is disseminated
and how it is communicated. As a result, it seems like no better time exists
than now to consider modernizing the system. So, we will take a fresh look,
one that Is no-holds barred in terms of being open to new ideas. Let me
give you a flavor for some of the issues:

« Whether investors would be better served, in this era of instant
communications, by supplementing our existing periodic disclosure
with a new concept of current disclosure.

« Whether investors would be better served if public companies were
encouraged to disclose trend information more broadly.

file://C:\WINDOWS\Temporary%20Interet%20Files\OLK4274\SEC%20Speec! 0 1 5 5 9
01200000000213


subsidiary that owns British water utility Wessex. Enron Treasurer Ben Glisan stated that assets
could be sold to pay off the noteholders, raising at least $2.2 billion, including $1.55 billion in
proceeds from the sale of the Portland General Electric utility. In a worst-case scenario, it could
issue as much as $1 billion in stock (there are currently 850 million shares outstanding), although
Enron's share price had declined 75 percent from its high. An analyst estimated that Enron
could have close to $9 billion in off-balance sheet debt, and had been trying unsuccessfully to
sell $6 billion in illiquid foreign assets for years.

10/24/01 Enron reported it had $3.35 billion in bank lines of credit, of which $1.75 billion
would expire in May 2002 if not renewed. However, analysts still seemed to be mesmerized by
Enron. Goldman Sachs downgraded Enron from its “U.S. Select List” of a few dozen stocks to
its “Recommended List” of 200 stocks. Only Prudential downgraded Enron to a “sell” rating.
Of 17 analysts, 10 still maintained a “strong buy” rating. Critics charged that analysts had
compromised their objectivity, especially since Enron has retained many Wall Street firms for its
offerings and paid a substantial amount of investment banking fees.

10/25/01 Fastow took a “leave of absence” from Enron, and McMahon was named CFO.
Concerns arose regarding a destabilizing effect on the energy trading market. since Enron trades
approximately 25 percent of U.S. OTC electricity and natural gas contracts, particularly through
its popular EnronOnline Internet trading platform. Enron’s creditworthiness was questioned.
Enron’s stock price declined again and it was the most actively trade NYSE stock at nearly 76
million shares, included some large blocks of 800,000 shares or more reportedly sold by
institutional investors. Share prices for other energy trading companies declined as well. Some
analysts issued sell recommendations for Enron.

10/26/01 Enron drew down $3 billion of its $3.35 billion bank credit lines to redeem $1.85
billion of outstanding commercial paper that it had problems rolling over, and to provide it with
acash cushion. Citigroup and J.P. Morgan Chase reportedly each extended at least $400 million.
Enron reportedly was negotiating an additional $1 to $2 billion credit line, although the banks
were insisting on stricter covenants and terms. Fitch placed Enron on review for a possible
downgrade, and S&P changed its credit outlook to negative from stable. Enron’s bonds.
although still investment grade, traded at a 770 bp spread to Treasurys. in the same range as junk
bonds, with yields rising above 10 percent, and liquidity was described as poor. The cost of a
default swap rose to 10 from 8 percent of the size of the credit insured. Enron sued Microsoft
over its failed broadband services arrangement. Critics noted that Enron would receive $254
million in the current House stimulus package.

10/28/01 Enron held a special Sunday board meeting to consider investor confidence and
liquidity,

10/29/01 European energy firms were reportedly reluctant to trade with Enron, one of
Europe's biggest power and gas traders. Some counterparties avoided Enron, and liquidity was
reduced. Its stock hit a five-ycar low. Moody's downgraded Enron's senior unsecured long-
term debt by one notch to Baa? from Baal, still two levels above junk bond status, citing the
write-downs, equity charges, and partnership investments. [1 stated that it may downgrade
Enron‘s commercial paper P-2 rating as well, making it more difficult/expensive for Enron to

02177

01300000000786


It supported the 1992 Energy Policy Act, which opened the utility companies’ wires to electricity
merchants such as Enron. It also worked with the Commodity Futures Trading Commission --
then chaired by Wendy Gramm -- for a regulatory exemption for futures trading in energy
derivatives, which later became Enron's most lucrative business. Soon after Gramm stepped
down in 1993, she was appointed to Enron's board.

Independent sources knowledgeable about these dealings, however, said Enron was not the main
interested party. They said the lead was taken by several major oil companies, including British
Petroleum Co. and Phillips Petroleum Co,, which were concerned about the effect of CFTC
regulation on their offshore trading in crude oil contracts. Wendy Gramm, an apostle of free
markets, needed little convincing, the sources said.

‘That same year, Lay served as chairman of the committee organizing the Republican National
Convention in Houston. Hedging its bets, Enron made a major contribution to a "street fair" in
honor of Sen. John Breaux (D-La.), a key cnergy policymaker, at the Democratic convention,
Key orders by FERC in 1996 also supported Enron's transformation into a freewheeling trader of
gas, electricity and more exotic products, such as telecommunications services and sulfur-
dioxide emissions credits.

‘The new rules ensured that Enron and other merchant companies could buy electricity from
independent power plants and sell it to distant customers, using transmission lines borrowed
from utility companies.

Even Enron's harshest critics credit Lay with putting new issues -- such as electricity
deregulation -- on the Washington agenda. Lay.a former Interior Department official with a PhD
in economics, became "the ambassador" for deregulation, one former employee said.

Throughout the 1990s, Enron's agenda was opposed by coal-burning utilities, especially ones in
the Southeast, which viewed the emerging wholesale clectricity market as a threat to their turf.
Many of these, such as Atlanta-based Southern Co., had impressive political funding and
connections of their own.

But with the explosive growth of Enron and the GOP takeover of Congress in 1995, the
company's soft-money donations -- unregulated and unlimited gifts to political parties and
organizations -- jumped sharply. They went from about $136,000 in the 1993-94 election cycle,
to $687,000 in 1996 and $1.7 million in 2000, according to the Center for Responsive Politics.

Frustrated by Washington

For all its connections, sources say, Enron often found Washington frustratingly slowand
unreliable.

The company placed a substantial bet on federal support for limits on the greenhouse gases
causing global warming. Enron officials hoped to exploit a new market in industry for carbon-
emissions credits, similar to the one that developed for sulphur credits after clean-air legislation
was enacted in 1990,

01200000000034


industries they oversaw,

She was paid Dollars 22,000 a year for the first three years. Her annual salary grew to Dollars 50,000, Between 1993
and 2001, she earned Dollars 346,000 plus Dollars 176,000 for attendance fees, according to a recent report from
Public Citizen, a liberal advocacy group.

She also received stocks and dividends worth between Dollars 915,317 and Dollars 1.85m over the period. Mr
Gramm’s tax returns last year listed his wife with assets of Dollars 250,001-Dollars 500,000 in an Enron Deferred
Compensation Fidelity Balanced fund.

Mr Gramm played a key role in getting the Commodity Futures Modernisation Act passed in December 2000, The act,
which deregulated all financial derivatives and relaxed oversight of commodity exchanges, had been languishing in
the Senate.

Copyright: The Financial Times Limited 1995-1998

Tracking: Recipient Read
‘Schuttheiss, Heidiynre Read: 01/06/2002 1:27 PM

01200000001285


Carleton, Norman

From: Hammer, Viva
Sent: Monday, October 01, 2001 3:09 PM
To: Carleton, Norman
Subject: RE; Discussion with Ken Raisler about Enron Product
Reta! Swaps doe
one versin of retail swaps
~---Original Message
From: Carleton, Norman
Sent: Saturday, September 08, 2001 1:10 PM
To: Bair, Sheila; DeMarco, Edward; Gichner, Matthew; Ellett, Martha; Fisher, Peter; Gabilondo, Jose; Grass, Jared; Hamener, Viva;

Hughes, Gerry; Nickoloff, Peter; Navey, Michael; Rosebora, Bran; Schulthelss, Heidtynne; Smith, Amy; Sutton, Gary
Subject: Discussion with Ken Raisier about Enron Product

On Friday, September 7, I discussed the retail energy swap issue with Ken Raisler. He is a partner at
Sullivan & Cromwell who represents Enron. In the mid 1980s, he was the general counsel of the CFTC.

I asked Ken if Enron opposed state regulation of retail energy derivatives if the CFTC were to grant an
exemption for this product. The first answer to this question was yes, but that answer was modified as we
further discussed the issue.

1 asked Ken if he thought that there was a preemption argument that could be made because of CFTC
exclusive jurisdiction, He said he thought there was, He said Enron would not make such a legal argument
because it is regulated in some states as a utility company, but that others might make such an argument,

I told Ken that the Treasury had not come to a conclusion about the retail energy swap issue but that we
were unlikely to support a result that would mean no federal regulation and would not allow state
governments to regulate this product if they chose to do so, He asked me what regulatory issues might be of
concem. | answered that such issues as advertising, pricing, and assurances that the company offering the
product had the financial ability to meet its obligations might be subjects that governments would be
concemed about. Ken said he thought that this was a reasonable position,

I asked Ken whether he thought that the CFTC could exempt retail energy swaps from the exclusive
jurisdiction provision of the CEA, thus precluding any arguments about state jurisdiction. He said he
thought that might be possible.

At the end of the conversation, Ken indicated he would talk to his client about the issues I had raised.

[(b)(5)]

02460

01300000001069


CORRECTION

Wednesday, December 26, 2001; Page AO2

A Dec, 25 article incorrectly reported the action taken by the Senate Banking Committee, chaired
by Phil Gramm (R-Tex.), on a bill that exempted much of Enron Corp.'s trading activities from
federal regulation. The legislation was approved by the Senate Agriculture Committee.

© 2001 The Washington Post Company

01200000000019


DeMarco, Edward

From: Carleton, Norman
Sent: Wednesday, December 19, 2001 3:43 PM
To: Wiedman, Mark; Bair, Sheila; Bieger, Peter; Bitsberger, Timothy; DeMarco, Edward; Dorsey,

Karen; Ellett, Martha; Ellis, Dina; Gabaondo, Jose; Gross, Jared; Huffman, Lucy; Hughes,
Gerry; McGivern, Tom; McInerney, Roberta; Nickoloff, Peter; Roseboro, Brian; Salladin, Anne;
Schulthelss, Heidilynne; Smith, Amy; Sutton, Gary; Tishuk, Brian
Subject; Converat cation with Frank Hampton and ABI Website: House Leaders Continue to Push Netting
rovisi

According to Frank Hampton of TBMA, Dick Armey is also pushing the netting legislation. However,
Sensenbrenner hopes to acheive a compromise on the larger bankruptcy legislation by February and is opposed
to passing the netting legislation separately. In the Senate, Grassley is also opposed to a separate netting bill
and is reportedly avoiding a meeting with Greenspan to discuss this.

Norman Carleton

ABI Website news:

December 19, 2001

House Leaders Continue to Push Netting Provisions

House leaders are trying to nudge forward legislation that seeks to prevent systemic financial crises by allowing
creditors to “net out” their derivatives losses with major counter parties that have filed for bankruptcy, The
American Banker reported. It is still unclear, however, whether even they will be successful in overcoming the
political obstacles that have stalled it for more than a year - especially considering that Congress is expected to
adjourn for the year as early as this week. Majority Whip Tom DeLay (R-Texas) “believes that it's important to
get the netting provisions done, either within the context of bankruptcy reform or elsewhere,” a spokesman said.

Such highly technical bills rarely attract the attention of top House or Senate leaders, but the recent collapse of
Enron Inc. has given the netting legislation newfound relevance. Federal Reserve Board Chairman Alan
Greenspan and Treasury Secretary Paul O'Neill say markets are at risk until a law is enacted that allows
contracts to be quickly and easily netted out without the approval of slow-moving bankruptcy courts. Holding it
up, however, is House Judiciary Committee Chairman James Sensenbrenner (R-Wis.), who heads the House-
Senate bankruptcy legislation conference committee. The netting legislation is a part of the bankruptcy reform
legislation. Sensenbrenner and some Senate Judiciary Committee members, including bill sponsor Charles
Grassley (R-lowa), oppose passing the netting authority separately because they still hope that the relatively
uncontroversial provisions will propel the bankruptcy package.

Though industry sources said they have received commitments from House leaders that netting will be enacted
by year-end or soon thereafter, they are not expected to force a vote without the support of Sensenbrenner.

Even after a meeting last week with Greenspan, Sensenbrenner maintained that he was “going to try to keep it in
the bankruptcy package,” his spokesman said.

01200000001256


From: Carleton, Norman

Sent: Friday, December 21, 2001 9:47 AM
To: Bitsberger, Timothy; Wiedman, Mark
Ce: . Heidilynne; Nickoloff, Peter
Subject: Enron Tatking Points

‘Ever ating
pervade

ttac dar drat Enron points or tr is r.

Tracking: oming poe Delivery
fs mgr tot hee
idan ak ir
oR iss idiinn ira
ickolo tr ic

aage?

02007

tT
01300000000615


that may be privileged and confidential. If you are not the
intended recipient, please delete the e-mail and notify us

immediately.

, 02649

01300000001258


Subcommittees of the House Financial Services Committee and the Senate Commerce
Committee have already held hearings.

But Lieberman's panel is the top investigative committee of the Senate. Under Republican
leadership during the Clinton administration, then-chairman Fred D. Thompson (R-Tenn.)
headed an investigation of Bill Clinton's 1996 presidential campaign fundraising.

Levin and Lieberman said they intend to look into the close ties between Lay and President
Bush, a connection that some Democratic Party officials say they hope to take advantage of in
this year’s congressional election campaigns.

Levin said he wants to know what advice Lay, who was a large contributor to the Bush
campaign, gave to officials of the new administration as it formulated energy policy a year ago.
Enron "also had close relationships with some Democrats, it's fair to say." Lieberman
acknowledged. He said he expected the inquiry to be bipartisan and to have Thompson's support.
"We are going to work together,” Lieberman said.

Lieberman said the committee also wants to learn whether federal regulators have the authority
to adequately oversee the complex commodity trading and financial transactions that were the
foundation of Enron's rapid growth over the past three years.

Lieberman noted that much of Enron's trading in energy derivatives was exempt from regulation
by the Commodity Futures Trading Commission, and he said a focus of the inquiry would be
whether this allowed the company to hide some transactions.

Enron was an active player in lobbying for the exemption beginning in the early 1990s,
according to sources, The exclusion was initially approved by the CFTC in 1992, and in 2000
Congress endorsed it as part of the Commodity Futures Modernization Act, despite concems of
some senior regulators.

Ata joint hearing on the legislation by the Senate Banking and Agriculture committees in June
2000, then-CFTC chairman William J. Rainer spelled out his “reservations” about the exclusion
and said that "the case for it has not been made" with regard to energy derivatives,

© 2002 The Washington Post Company

01200000000039


Enron's 2000 year-end financial statements were released, and cryptically described
transactions with the Fastow partnerships, including the transfer from Enron of assets valued at
$1.2 billion, including $150 million in notes payable, 3.7 million restricted Enron shares, and a
call option to buy as many as 18 million Enron common shares in March 2003. Enron also
transferred to the partnerships other assets valued at $309 million, including a $50 million note
and “an investment that indirectly held warrants convertible into common stock of an Enron
equity method investee.” In retum, Enron received economic interests in the entities, $309
million in notes receivable, and $1.2 billion in notes receivable as a “special distribution.” It also
mentioned a series of purchases by Enron of “share-settled options from the entities” on shares
of Enron’s common stock.

In April 2001, LJM2 reported that Mr. Fastow, and possibly others, had realized more
than $7 million in management fees and $4 million in capital increases on an investment of
nearly $3 million. Profits had been improved by the early termination or renegotiation of
transactions. The partnership had raised $394 million and invested in power plants and Enron
asscts and stock, seeking a 29 percent IRR (reduced ftom its previous 48 percent target) after the
decline in the New Power Co, retailer, Large cash distributions had been made to investors. In
late July 2001, Mr. Fastow severed his relationship with the LJM2 partnership. Enron dissolved
the Fastow financing vehicles, reacquired the Enron shares, and canceled the note receivable
from the partnership after the value of Enron's stock and its broadband investments dropped
sharply.

In July 2001, Enron officials were reported to have sold 1.8 million Enron shares valued
at about $106 million, as the stock declined from $83 to $45 per share. CEO Kenneth Lay sold
429,614 shares worth $25.7 million as a result of stock options, leaving him with 2.8 million
shares, In 2000 he had sold $30.7 million; in 1999 he sold $26 million. Kenneth Rice, former
chairman and CEO of the broadband unit, sold $23.7 million, reducing his 1.5 million shares by
456,966. President Skilling sold 160,000 of his 1.9 million shares for $9.8 million. Aggregate
sales by Enron executives totaled 5.8 million shares for $449 million. In 1999, they had sold 3.4
million shares for $123.1 million. The only corporate purchaser was Fastow, who bought 10,000
shares at $36.98 each.

In August 2001, Enron President and CEO Skilling left after only six months in that
position, citing personal reasons and the decline in Enron’s stock price, Kenneth Lay, chairman
and former CEO, again became Enron’s CEO, Thomson Financial reported that Mr. Fastow’s
proceeds from stock options were $4.6 million for the previous 12 months.

Current Enron Turmoil

On October 16, 2001, Enron reported a third quarter loss of $618 million (compared with
year-ago earnings of $292 million), but did not release its balance sheet. The loss occurred
despite 2 59 percent increase in revenue to $47.61 billion, after accounting for a $1.01 billion
charge to write off impaired assets at its Azurix Corp. water services unit and several investment
losses. The charge consisted of $287 million in asset impairments recorded by Azurix, $180
million from restructuring broadband services, and $544 million related to certain investments.
About half of the $544 million charge was attributed to The New Power Co, unit, a provider of

° 01986

01300000000594


Carleton, Norman

—— _—
From: McGivern, Tom

Sent: Tuesday, February 20, 2001 9:16 PM

To: Carleton, Norman

Subject: RE: Briefing on Technical Changes

Sorry about missing today's meeting; when was it scheduled, because I don't think I knew
about it. I give you a call tomorrow morning about the latest offer.

<---- Original Message---~--

From: Carleton, Norman

Sent; Tuesday, February 20, 2001 4:00 PM
To: MeGivern, Tom

Subject; RE: Briefing on Technical Changes

I think anyone who wants to attend should just go to the meeting. I don’t expect hordes.

Incidentally, you missed the meeting today with Wall Street folks. When you have a
minute, I'd like to discuss with you some of what they said, including the latest offer,
modified at the meeting, on the Enron proposal on swaps.

Thanks.
Norman

ores Original Message-----

From: McGivern, Tom

Sent: Tuesday, February 20, 2001 2:20 PM
To: Carleton, Norman

Subject: RE: Briefing on Technical Changes

Should we discuss who should attend, or should everyone who wants to go over?

core- Original Message----~

From: Krimminger, Michael H. [(mailto:MKrimminger@PDIC.gov)

Sent: Tuesday, February 20, 2001 1:09 PM

To; 'Stephanie.Martinefrb.gov'; 'norman.carleton@do.treas.gov';
‘jearley@efte.gov'; ‘nancy.michaleskigocc.treas.gov'; 'MooneyJ@eec.gov';
‘Joyce. Hansengny.frb.org'; 'Michael .Nelson@ny.frb.org’;

‘Tom. McGivernado.treas.gov'

Subject: Briefing on Technical Changes

Please inform other attendees in your agencies that the meeting will be at
1730 Pennsylvania Avenue in the 6th floor conference room. We will have
someone there to meet you when you arrive around 10 a.m.

Thanks,

Mike Krimminger

; 02507

01300000001116


{(b)(5))

02009

01300000000617


((b)(5)]

From: DeMarco, Edward

Sent: Thursday, Fedruary 15, 2001 8:22 AM

To: Hamemone, Donald; Bilis, Dina; Huffman, Lucy; Carleton, Norman; McInemey, Roberta; Constantine, Eleni; Hughes, Gerry; Stewart,
Lawranne

ca Tishuk, Brian; Robbins, Eric

Subject: FW: Bankruptcy Reform Mark-up Hearing

FYI

~-=Original Message—-——
From: Robbins, Eric
Sent: Wednesday, February 14, 2001 5:45 PM
To: Demarco, Edward
Cc: Tisnuk, Brian
‘Subject: Bankruptcy Reform Mark-up Hearng

((o(5)]

Tracking: Recipient Delivery Read
Hutiman, Lucy Delivered: 2/14/01 11:19 AM Read; 2/15/07 11:20 AM

2 02503

01300000001112


Carleton, Norman

From: Huffman, Lucy
Sent: Thursday, February 15, 2001 12:18 PM
To: Carleton, Norman
Subject: RE: Bankruptcy Reform Mark-up Hearing
[(©)(5)]

Original Message——-

From: Carleton, Nornan

Sent: ‘Thursday, February 15, 2002 11:19 AM

To: Huffman,

LEY
Subject: Pvt: Bankruptcy Reform Mark-up Hearing

Original Message-~--

From: Carteton, Norman

Sent ‘Thursday, February 15, 2001 10:07 AM

To: Hammond, Donald; DeMarco, Edward; Efis, Dina; Huffman, Lucy; McInerney, Roberta; Constantine, Eleni; Hughes, Gerry; Stewart,
a manne

Ce: Tishuk, Brian; Robbins, Eric; Paulus, Michael; Sutton, Gary; Huffman, Lucy; McGivern, Tom; Nickoloff, Peter; Schulthess,

Heidlynne; Gross, Jared
Subject: RE: Bankruptcy Reform Mark-up Hearing

((b)(5)]

02500

01300000001109


Nickoloff, Peter

From: Nickoloff, Peter

Sent: Thursday, December 13, 2001 2:44 PM
To: Eichner, Matthew
Subject: RE: WSJ on Enron
Thanks
co Original Message--"
From: Bchrer, Matthew
Sent: ‘Thursday, December 13, 2001 2:35 PM
To: ‘Schulthess, Heicilynne; Nickoloff, Peter; Carieton, Norman

Subject: WS) on Enron
Here's today's article in electronic form...

‘<< File: wsj.paf >>

Tracking: Recipient Read
Eictner, Matthew Read: 12/1301 244 PM

, 01714

01200000000370


ESOP "offsets" based on the price of the stock from 1996 to 2000, when it was trading between
$37.75 and $43.44. It then used the locked-in value of the ESOP accounts to permanently offset the
value of pensions that employees had earned between January 1987 and January 1995.

In other words, Enron has reduced the amount of the pension by subtracting the former — and far
higher — value of the ESOP, even though the ESOP today has virtually no value and thus can't make
up for the difference.

Employees might have been all right if Enron stock had continued to rise, because gains in the
accounts could eventually have made up for the permanent offset. (The increases would have
depended completely on stock appreciation, because the company stopped contributing to the ESOP
in 1995.)

“It was as if someone assumed the stock would never drop," says Stephen Bruce, a pension lawyer
in Washington, D.C. "It was a bad deal if the stock dropped," he says, because this precluded
employees from ever making up for the permanent offset.

Employees will still receive their pensions -- albeit at the reduced values. How much employees lost
depends on the size of the pension they had earned, and the value of their ESOP accounts from
1996 to 2000.

Employees did have some opportunity to protect themselves from the subsequent exposure to Enron
stock in their ESOP. One time each year from 1996 to 2000, employees could transfer one-fifth of the
value of their ESOP accounts into a 401(k) or an Individual Retirement Account and diversify out of
company stock.

Separately, Sens. Barbara Boxer (D., Calif.) and Jon Corzine (D., N.J.) said Tuesday they will
propose limits on the amount of company stock employees can hold as part of their 401(k) retirement
plans.

The proposed legislation would limit employee 401(k) investments in company stock to 20%, and it
would limit to 90 days the period of time an employer can require its workers to hold a matching stock
contribution before divesting themselves of it.

~ Bryan Lee contributed to this article.

01200000001255


From: Tom McGivern

To: CARLETONN
Date: 3/17/00 2:46pm
Subject: Financial Netting provisions of H.R. 833 - bankruptcy bill -Reply -Reply

Norman, do you have commentsiedits?

>>> John Yettor 03/10/00 10:16am >>>

[(0)(5)]

>>> Tom McGivem 03/08/00 06:36pm >>>
{(b)(5)}

‘Thanks.

ce: DOPOS.TooheyF, YETTER

02524

'
01300000001133


> POWER DEREGULATION CHRONOLOGY ~~

-April 1994; California Public UtilitiesCommission indicates it favors deregulation.
-October 1995: Framework of deregulation laid out in memorandums between large users,
energy providers and utilities. --

January 1996: Bille introduced in legislature to codify

deregulation plan. --

-August 1996: The "Steve Peace death march" hashes out fine pointe of law, It passes both
houses unanimously. --

-Sept. 23, 1996: Gov. Pete Wilson signs the deregulation bill. --

“April 1, 1998: After a four-month delay, deregulation begins.

-June 2000: San Diego has satisfied conditions for deregulation, and the rate cap there is
lifted. Shortages drive prices up 300 percent in some cases. ~~

-September 2000: The utilities begin to warn of billions in mounting debt and seek an end
to the rate cap that has prevented them from passing costs on to customers. --

-November, December 2000: More shortages put energy system in state of perpetual crisis,
despite fall being a s ion of traditional low demand; state regulators consider
utilities! requests for rate increases. A decigion is expected Jan. 4.

> ccecee PLAYERS IN THE DEREGULATION DRAMA -~

-Steve Peace:

> Took control of the legislative process while a state senator and drove
> deregulation into law. --

-D.J. Smith:

> Lobbyist for large, industrial electricity customers and an early
advocate of deregulation. --

-Diane Martinez:

> As state senator, helped with the deregulation legislation. --

-Greg Conlan:

> Sympathetic to industrial consumers with high bills while serving on
the California Public Utilities Commission. --

-Pete Wilson:

> Saw deregulation as an answer to California's then-ailing economy.
-Kenneth Lay:

> Noted in 1997, as chief executive of Enron Corp. in Houston, that
little competition had emerged. “It's like California announced a party but
nobody's showing up," he said. --

-Gordon Smith:

> As chief executive of PG&E, supported deregulation, at one point noting
there had been a "ceiling on our profits" under the old system.

> ®-mail Christian Berthelsen at cbherthelsengsfchronicle.com.

> Copyright 2000 SF Chronicle

‘ 01691

01200000000347


Carleton, Norman

From: Gabllondo, Jose
Sent: Wednesday, December 05, 2001 5:57 PM
To: Carleton, Norman
Subject: RE: Enron collage
Norman
{(0)(5)]
José
en Original Message—--

From: Carleton, Norman

‘Sent: Wedhesday, December 05, 2001 2:58 PM

To: Gabilondo, Jose

Subject: RE: Enron collage

Thanks,

From: Gabfonda, Jose

Sent: Wechescay, December 05, 2001 2:56 PM
To: Carleton, Norman

Subject: Enron collage

Norman:

Here -- for what they're worth -- are the best of my Enron resources. Here's the link fo a daily price chart
of Enron's common stock, which is easier to drag on to your screen and to open (rather than saving): << File:
energysquib.doc >>
This is @ tiny note that | wrote sbout Enron market structure << File: article2.htm >> . These are two (now dated)
market intelli pleces about Enron: << File: article.htm >> << File: ar2000,pdf >> Here's the 2000 annual
report - << File: Pwr_mkters_110201.ppt >> and here's a list of the top 20
power marketers prepared by an energy consulting group - . Hope thet you like the Paul Klee format.

José

02554

01300000001163


Any thoughts or recommendations? | will sand around a separate note discussing the Enron issue in more detail,

Tracking: Racipient Delivery Read
Schultheiss, Heidlynne Oabvered: 8/3001 9:34 AM Read: 8/90/01 9:34 aM
Nickalott, Peter Delivered: 9001 9:34 AM Read: 839001 9:38 AM

2 02415

01300000001024


[(b){5)]

02064

01300000000672


Enron Executives Face Subpoenas

Senate Panel Also Orders Testimony of Directors
By Peter Behr and Dan Morgan

Washington Post Staff Writers

Thursday, January 3, 2002; Puge E01

A Senate committee announced yesterday that it is subpoenaing top executives and directors of
the bankrupt Enron Corp. to determine their roles in the Houston company’s epic collapse.

Three other congressional committees already are digging into the Enron failure, but the
subpoenas announced yesterday are believed to be the first of the congressional probes. Among
the likely recipients is Wendy Gramm, an Enron director who is the wife of Sen. Phil Gramm (R-
Tex).

Sen, Carl M. Levin (D-Mich.), chairman of the Governmental Affairs Committee's permanent

subcommittee on investigations, said the panel also will subpoena financial and trading records
from Enron and audit documents from its accountant, Arthur Andersen LLP.

Enron's attorney, Robert Bennett, called the subpoenas “totally unnecessary" and said "we are
fully cooperating with Congress."

Although Enron Chairman Kenneth L. Lay did not show up for two earlier congressional

hearings on Enron's bankruptcy, he has agreed to testify next month before the Senate Commerce
Committee, Bennett said.

Enron has turned over nearly three dozen boxes of documents to the House Energy and
Commerce Committee, Bennett said. "I don't question the legitimacy of an inquiry [into Enron's
failure), but it's not a measured approach to have a half-dozen different committees doing this at
the same time,” he said, "It can lead to a circus atmosphere and a lot of wasted time and effort.”
The full Governmental Affairs Committee has scheduled a hearing for Jan. 24 on Enron's use of
a large number of partnerships that kept billions of dollars of corporate debt off the company's
books. The hearing will also examine whether federal regulators missed warning signs of the
company's trouble,

Accounting errors involving the private partnerships caused Enron to overstate its earnings by
half a billion dollars over the past four years. Enron's disclosure of the overstatement, in

November, triggered a final plunge in the company’s stock price and the company's bankruptcy
filing Dec. 2.

Sen. Joseph I. Lieberman (D-Conn.), chairman of the full committee, said, "The focus is, how
did this corporation collapse, and what can we do to make sure that something like this never
happens again?"

Lieberman's committee joins an already crowded field of Enron inquiries, The House Energy and
Commerce Committee has sent investigators to interview Enron officials in Houston.

01200000000020


Enron Chairman Gave Warning to Bush Officials on Company's Collapse Page 3 of 3

Former Enron chief executive Jeffrey Skilling, who left the helm nearly two
months before the company’s swift descent, welcomes the investigation, said
spokeswoman Judy Leon. Skilling has said he had no idea, despite Enron's
falling stock values, that the company was on the brink of failure.

Formed in 1985, Enron had 20,000 cmployces and was once the world's top
buyer and seller of natural gas and the largest electricity marketer in the United
States, It also marketed coal, pulp, paper, plastics, metals and fiber-optic
bandwidth.

One likely focus of the Justice Department investigation is possible fraud
based on Enron's heavy reliance on off-balance-sheet partnerships which took
on Enron debt. The partnerships masked Enron's financial problems and left its
credit ratings healthy so it could obtain the cash and credit crucial to running
its trading business.

The Houston-based company went bankrupt after its credit collapsed and its
main rival, Dynegy Inc. (news/quote), backed out of an $8.4 billion buyout
plan late last year.

Just a year ago, stock of Enron, the nation’s largest buyer and seller of natural
gas, traded at $85 per share. Today it is less than $1.

Lay has close ties to Bush and his father, the former president. Lay was a top
contributor to the younger Bush's 2000 presidential campaign.

The company played a key role earlier this year when a White House task

force met with business executives and other interests to fashion a national
energy policy. The task force was headed by Vice President Dick Cheney.

On the Net:
http://www.enron.com

http://usdoj.gov

Copyright 2002 The Astocisted Press | Privacy Information

file://C:\WINDOWS\TEMPOR~1\OLK4274\ENRONC~1.HTM ie) 1 7 1 2 W502
01200000000368


Carleton, Norman

From: Carleton, Norman

Sent: Friday, December 21, 2001 3:56 PM
To: Biatsberger, Timothy; Wiedman, Mark
Subject: Revised Enron Talking Points

(teron name 20

Attached is a revised document based on Mark's comments.

Tracking: Recipient Delivery
Bitsberger, Timothy Delivered: 12/21/01 2:56 PM
Wiedman, Mark Detvered: 12/2101 256 PM

Read
Read: 12/31/01 &:09 AM
Read: 12/2101 4:05 PM

02010

01300000000618


Nickoloff, Peter

ee

From: Stokes, Veronica

Sent: Friday, January 11, 2002 11:42 AM

To: Wiedman, Mark; Carleton, Norman; Schultheiss, Heidilynne
Ce: Nickoloff, Peter; Bitsberger, Timothy

Subject: RE: enron meeting -- 12:00?

This meeting is now at 12:15,

—~Ongin Message——

From: Wiedman, Mark

Sent: Friday, Jarwary 11, 2002 9:20 AM

To: Carleton, Norman; Schutthetss, Heictlyrne

Ce: Nickoloff, Peter; Bitsberger, Timothy; Stokes, Verormca

Subject: erron meeting -- 12:007
Tim would like to go over the Enron paper you folks pul together at 12, Can you make that?

° 01749

01200000000405


Carleton, Norman

—_ — —_——
From: McInerney, Roberta
Sent: Wedi , August 29, 2001 7:14 PM
To: Carleton, Norman
Subject: RE: Status of Retail Swap Study and the Enron Issue
[(b)(5)]
Original Message==~

From: Carleton, Norman

Sent: Wednesday, August 29, 2001 11:15 AM

Tor Fisher, Peter; Roseboro, Brian; Bair, Shela; Nickoloff, Peter; Schutthatss, Heidiynne; DeMarco, Edward; Hughes, Gerry; Gross,

‘Jared; Smith, Any; Sutton, Gary; Bilett, Martha; Gabiondo, Jose; McInerney, Roberta; Lori Sanatamorena {€-mai)
‘Subject: ‘Status of Retail Swap Study and the Enron Issue

{(b)(5))

Any thoughts or recommendations? | will send around a seperate note discussing the Enron issue in more detail.

02419

01300000001028


From: Norman Carleton

To: GENSLERG, Sachs
Date: 6/18/99 4:52pm
Subject: Conference Cal with Enron anc Cadwalader — Netting Legislation

This morming, Tom McGivern, John Yetter, and | participated in a conference call with Enron and the Cadwalader
Jaw firm concerning their financial contract netting proposals. Also participating in the call were staff from the Federal
Reserve Board, FRBNY, FDIC, and CFTC,

((b)(5)]

if you want a more detailed explanation, please let us know,
cc: MCGIVERNT, YETTERJ, NICKOLOFFP, DOPOS.TooheyF, SHE...

02548

01300000001157


Sincerely,

Lawrence H. Summers

cc: The Honorable George W. Gekas
The Honorable Jerrold Nadler

02533

01300000001142


[(b)(5)]

02155

01300000000764


{(b)(5)}

02063

~ 01300000000671


SCIENTECH's IssucAlert Page | of

Miss last week? Catch up on the latest in the energy industry at: www.consultRC!_com

Reach thousands of utility analysts and decision makers every day. Your company can schedule a
sponsorship of IssueAlert by contacting Nancy Spring via e-mail or calling (505)244-7613. Advertising
opportunities are also available on our website.

Access a complete Website of electric and converging industry issues and analysis at
www.consultRCl.com

i}

IssueA/ert for January 2, 2001

California Hearings Continue,
CPUC Decision Expected This Week

by Will McNamara
Director, Electric Industry Analysis

Hearings aimed at giving consumer advocates and utility officials in California the chance to air their views ona
looming electricity rate increase are expected to continue through today, setting the stage for a decision by regulators
that very well may not please everyone. Officials from Southem California Edison (SCE) and Pacific Gas & Electric
(PG&E) have asked the California Public Utilities Commission (CPUC) to grant immediate rate hikes of as much as 30
percent to help offset rising wholesale power prices, The CPUC board is expected to announce on Jan. 4 how much of
rate hike it will allow, and under what terms.

Analysis: Despite the lull of the holiday week just now completed, the spotlight continues to grow more intense over
California's energy market, both throughout the energy industry and across the mainstream media. As we wait with
anticipation to hear what the CPUC will decide, let's recap some of the issues that will no doubt continue to cause great
dissension among the primary players in California.

‘As has been well documented, PG&E and SCE are in a massive amount of debt duc to uncollected costs they have
accrued related to the purchase of power on the wholesale market. Due to rate freezes still in place, both utilities have
been unable to charge customers for the dramatic increase in the price of wholesale power, which has placed them both
on the brink of bankruptcy.

From several conversations with my contacts in California, here's my understanding of where the negotiations currently
stand. The CPUC already has agreed in theory to a rate increase, but the sticking point is the specific amount of that
increase. Reportedly, the CPUC and Gov, Gray Davis proposed a 15-percent rate hike to the two utilities. In sharp
contrast, PG&E maintains that it needs to increase rates by as much as 40 percent, and SCE says that it wants an
increase of 30 percent (or 76 percent over two years). In fact, PG&E already began notifying customers last week that i
wants to boost their electric bills by that specific amount. Both utilities continuc to argue that even if their proposed
rate increases are accepted, they still may not be enough to cover wholesale costs, which are projected to rise through
2003 (see my IssueAlert from Dec. 29). In addition, PG&E and SCE also claim that their financial solvency still will

01240

01200000000596


SEC Speech: Advancing Investors’ Interests (R. Herdman) Page 4 of 12

Pre-clearing accounting Issues is not a new idea. The steff originally asked
registrants to pre-clear novel or unusual accounting issues in footnote 4 of

SAB 57. Ironically, that footnote appears in a staff accounting bulletin of
which I was a principal author. I believed in it then and I continue to
believe in it today!

Of course, other vehicles for obtaining guidance are available, such as the
EITF, but that takes time since it only meets every other month and
registrants and their auditors must deal in “real-time.”

Our Part

We understand that registrants have to deal with issues on a real-time
basis in order to Issue their financial statements on a timely basis and to
get deals done. Auditors also must deal with issues on a real-time basis to
complete their reviews and audits, And we understand that talking to the
staff takes time. So here is what we are going to do to enhance our ability
to work with you.

First of all, we are revising our process for dealing with registrants. The
PAFs will describe the changes in more detail later. However, I will pull a
little rank and share a few highlights.

e We will have early involvement of one of my deputies or me,

¢ We will get back to you promptly—let you know who Is on the issue—
and ask "top of the mind" questions from reading your submission.

e We will tell you whether we think resolution of your issue could be
expedited through a face-to-face meeting.

I don't know what has happened over the years, but | have been back for 2
months and only recently have I had a couple of requests to meet face to
face with a registrant on an accounting issue that arose in the review and
comment or pre-clearance process. | hope It's not something | said!
Seriously, I want you all to know we welcome the opportunity to meet and
discuss issues freely.

The process of writing back and forth can be important to “getting all of the
facts," but it has diminishing returns. A face-to-face meeting can accelerate
the understanding and resolution of your accounting issues.

When you come in, we may not always agree with you. But I promise two
things:

« One, we understand that GAAP is subject to interpretation and that
legitimate differences of opinion can exist. We will not insist on our
personal preferences provided investors are adequately protected by
your approach and it has a legitimate basis under GAAP,

« Two, while you won't always like what we say, we hope you will
conclude that we listened to you with respect and that your views

01555

file://C:\WINDOWS\Temporary%20Internet20Files\OLK4274\SEC%20Speec

01200000000209


Retail Swaps

{(b)(5)]

0246?

01300000001072


SEC Speech; Advancing Investors’ Interests (R. Herdman) Page 10 of 12

efforts of the private sector standard setters, the profession, and the SEC
will need to be coordinated.

I do not know how this project will ultimately turn out. But I do know that
we will not throw out the current system, and we will be very sensitive to
costs and benefits. We think there is much to be gained from harnessing
better use of technology in terms of both delivery and design. And by doing
so, investors win!

New Special Advisor

Now, as with many new ideas, this may be simpler to envision than to
implement, and forming the project details, getting input, conceptualizing,
and getting more input will be a prodigious task.

To help us move forward with this massive and crucial undertaking, I am
pleased to announce that Robert Bayless has agreed to join the Office of
the Chief Accountant as my Special Advisor to work on these tasks.

You all know Robert as a tireless, brilliant and eloquent member of the SEC
staff for many years. Robert and I both look forward to working with you on
this initiative.

You will be hearing much more about these ideas in upcoming months, and
hopefully by the time of this conference next year, the staff will be up here
with others, talking about concrete steps in our initiative to modernize
financial reporting and disclosure.

Accounting and Auditing—and Regulating—in a Tough Economy

Now it's time to turn to the here and now. No speech by the Chief
Accountant of the SEC at this time of year, in a year such as this one,
would be complete without some comments about the issues raised by the
economy. The year 2001 has been a terrible one for our economy. We've
just learned from the experts in such matters that our country has been in
a recession since March. And, of course, the economic consequences of the
terrible atrocities of September 11th have been particularly severe for
certain industries. When the topic is negative news, it's especially important
to apply the myriad of applicable accounting and disclosure requirements,
including MD&A, that others from the SEC staff will be reminding you about
over the next two days.

Tough economic conditions also exacerbate the challenges faced by
auditors. The need for due professional care and skepticism are never
higher. And it has been a long time since our last recession, so many of you
have not recently thought through these types of issues. Or perhaps when
this last occurred some of you were in positions in your firm where more
senior people had the responsibilities to make tough calls on issues such as
going concern modifications of your reports. If so, now it's your turn!

To help you get it right the first time, the Professional Issues Task Force of
the AICPA's SEC Practice Section, the profession's self-regulatory body,

recently issued Practice Alert 2001-2, "Audit Considerations in Times of
Economic Uncertainty.” I won't repeat what the Practice Alert says; I do

files’/C:\WINDOWS\Temporary%20Internet%20Files\OLK4274\SEC%20Speech"% .¢) 1 5 6 1
01200000000215


‘

January 10, 2002

TO: Norman Carleton
Director
Office of Federal Finance Policy Analysis
FROM: Heidilynne Schultheiss
Financial Economist
Office of Federal Finance Policy Analysis
SUBJECT: Dow Jones Newswires and Washington Post Articles on Enron and the
Commodity Futures Modernization Act of 2000
BACKGROUND .

{(b)(5)]

02154

01300000000763


From:
To:
Date:
Subject:

{(b)(5))

cc:

Norman Carleton

GENSLERG, SachsL, MOGIVERNT

5/27/99 4:32pm

Working Group Comments on Enron/Cadwalader Proposals -Reply

Dam13.D0P07.MCCLELLANM, DOPOS.ToohayF, CARTERJ, MC...

02540

01300000001149


Carleton, Norman

— —— ——

From: Gabilondo, Jose

Sent: Wed 1 May 16, 2001 2:32 PM
To: Carleton,
Subject: RE: New Version ‘of Retail Swap Study Federal Register Release
[(o)(5)]
José
oo-Original —

From: Norman

Sent: Wesnesday, May 16, 2001 13:48 AM

Tor Pacius, Michael; Nickaicff, Petor; Schulthelss, Heicihrne; Novey, Michael; Hammer, Viva; Eichner, Matthew; Sutton, Gary; Blett,

Martha; Gabfiondo, Jase; DeMarco, Edward
‘Subject: New Version of Retal Swap Study Federal Register Release
{(b)(5)]
It we are to keep to our plan to hand this out to the Steering Group tomorrow morning, | will need comments in a few
hours. Thanks.
<< File: retal swaps rediine.wpd >>

<< File: retail swap study release (10).wpd >>

; 02699

01300000001308


biggest trader of energy in the world. So I was sat surprised at
all that 1 would get « call saying we've got 9 problem aver here
and you should know about it.*!

On whether he wae be asked by Ken Lay for a governsent bailout:
“Absolutely not,'' he told CNIC. “"One of things I enjoy
about Treagury ie t don*t have a lot of giveaway programs #0 if be
wented a giveaway from the goversment he sure wouldn't have called
we. I don't know if cne were inclined to make bailouts why there

would be » bailout Cor a company that’s ‘ten itself into
trouble. If you want to lock at recent er 11 tilings or
Chapter seven filings you can look at Bethlehem Steel and Sunbean
and they don't call the governpent for a bailout. 1 ran a fortune
$0 company, it never would Dave occurred to me to call the
government for 4 bailowt if I got sy company in trouble.'*

Om what President George W. Bua haw asked hin to do today:

“"The president tasked me to one, head a committee that
includes Dea Evans and (Labor secretary) Elaine Chao ta look at
the Enron case and other bankruptcy cases to pay special attention
Eo the queation of whether we need to avend the rules that gavers
Pensien ‘plana and 401k plans to provide a greater deal of
eesurence to individuals who have a stake in pension plane and
400k plens.'* he told CMW. “"That is driven by the presideot
concern about the individual eeployees, The president said to me
we need to see if there ig aorathing we need to do 20 tl
Learn from thin. If there is 9 veakness in our rules let!
rulea

ded the second committee the president asked ae to convene
is one that's a standing committee, the president's economic
committee. Thst includes myself and Alan Greenspan, the head of
ithe Commodities Putures Treding Cormission) and Harvey Dict of
che SEC. The ci the president's given us ia ta look at the
Baran case and other cases and see if we peed to adjust the
disclewure rules so that shareholders and exployews have all the
inforration they need to make intelligent decisions. This is not
sbout Enron, this ig about making aure the rules that govern the
way cur economic system Works are worthy of the conditions that
we'rw dealing with these days to assure that individuals are not
burt because of a wenkness in cur Yul

~-Simon Kennedy in the Washington newsroom (202) 624-1634, or at
seennedydabloonberg.net jo

Story {2lustratics; Por graph cf Enron's stack price, type)
(sxe Us <quity> GPO D <dd>)

ERE US «Equity» CW

mT TRE

SEC
mt scr
mr LAW
WI RCC
Mr CNG
WE FIW

oy

Bt us

we TK

Rr MY

Rr MASD
st OIL
mt PIE
BE NRG
BE Gas
Sr ERK
Nr
NE ONG
I LAW
WT RULES
NT VOICES

Weaonaaod

J Sen/az/2002 0:35 GMT

01/16/2002

Page 2 of 2

01200000000026


pasa on their debts to consumers, noting they have also reaped windfall
profits from selling electricity.

For example, in the quarter covering the summer months when power costs
firet went haywire, PG&E's profits amounted to $225 million, a 22 percent
increase over the same period in the previous year.

In the short term, the state is considering ways to encourage energy
conservation the same way it did with water. And the question now being
asked is whether a commodity as central to the well-being of the economy
should ever have been placed almost entirely under the control of free
enterprise.

"There's a discussion on how much we want to rely on market forces
alone when it comes to electricity," Bowen said. "Do we want to subject
ourselves to times when rates are really low and really high?"

vvuvvuVvY YY

> POWER DEREGULATION CHRONOLOGY ~~

-April 1994; California Public UrilitiesCommiasion indicates it favors deregulation.
-October 1995: Framework of deregulation laid out in memorandums between large users,
energy providers and utilities. --

-January 1996: Bills introduced in legislature to codify

deregulation plan. --

-hugust 1996: The "Steve Peace death march" hashes out fine points of law. It passes both
houses unanimously. --

“Sept. 23, 1996: Gov. Pete Wilson signs the deregulation bill. --

-April 1, 1998; After a four-month delay, deregulation begins. --

June 2000: San Diego has satisfied conditions for deregulation, and the rate cap there is
lifted. Shortages drive prices up 300 percent in some cases. --

September 2000: The utilities begin to warn of billions in mounting debt and seek an end
to the rate cap that has prevented them from passing costs on to customers. -~

-November, December 2000: More shortages put energy syatem in state of perpetual crisis,
despite fall being a season of traditional low demand; state regulators consider
utilities’ requests for rate increases. A decision is expected Jan. 4.

Boren eee PLAYERS IN THE DEREGULATION DRAMA --

“Steve Peace:

> Took control of the legislative process while a state senator and drove
» deregulation into law. --

-D,J. Smith:

> Lobbyist for large, industrial electricity customers and an early
advocate of deregulation. --

-Diane Martinez:

> As state senator, helped with the deregulation legislation. --

-Greg Conlan:

> Sympathetic to industrial consumers with high bills while serving on
the California Public Utilities Commission. --

-Pete Wilson:

> Saw deregulation as an answer to California's then-ailing economy. --
-Kenneth Lay:

> Noted in 1997, as chief executive of Enron Corp. in Houston, that
little competition had emerged. "It's like California announced a party but
nobody's showing up," he said. --

Gordon Smith:

> As chief executive of PG&E, supported deregulation, at one point noting
there had been a “ceiling on our profits" under the old system.

> E-mail Christian Berthelsen at cberthelsen@sfchronicle.com,

nee e nnn n nn nn nw eww eee ee anew wn ww wees nnn nnn n een nn nnn nn nest eenenenceee

» Copyright 2000 SF Chronicle

01200000001592


Recipient

Elet!, Martha
Gabliondo, Jose

Mcinerney, Roberta

"Lon Sanatamorena (E-maay

Delivery

Detvered: 6/29/01 11:15 AM
Delivered: 8/2001 11:15 AM
Delivered: 6/2401 11:15 AM

Read: 8/2901 11:23 AM
Reed: 6/28/01 12:09 PM
Read: 6/28/01 6:05 PM

02428

01300000001037


Nickoloff, Peter

i

From: Eichner, Matthew

Sent: Thursday, December 13, 2001 2:45 PM
To: Nickoloff, Peter

Subject: RE; WSJ on Enron

Sure. Having subscribed to the WS, online, 'm happy to send a pef or hyperlink of an article any time you wish. Just let
me know.

——-Original Message--—~

From: NickololT, Peter

Sent: Thursday, December 13, 2001 2:44 PM
To: Eicher, Matthew

‘Subject: RE: WS) on Enron

Thanks

From: Eiciner, Matthew

Sent: Thursday, December 13, 2001 2:35 PM

To: Schulthelss, Heid?ynne; Nickoloff, Peter; Caricton, Norman:
Subject: WS} on Enran

Here's today’s article in electronic form...

<< File: wsj.pdf >>

‘ 01715

01200000000371


[(b)(5)]

CONCLUSION

{(b)(5)}

{(b)(5)]

01200000000031


Lay joined the Union of Concerned Scientists and environmental groups in calling for curbs on
carbon in the atmosphere. The Clinton administration was supportive, but this year the Bush
administration reneged on a campaign pledge to impose limits on greenhouse gas emissions from
coal-burning power plants.

A multimillion-dollar lobbying campaign in Congress to secure legislation requiring states to
institute retail electricity deregulation fared even worse.

Enron hired former New York representative Bill Paxon, a leading conservative, to run
Americans for Affordable Electricity, which commissioned studies and recruited business
support for deregulation. But the legislation never made it out of a congressional subcommittee.
At the same time, Enron was growing restive over the slow pace of deregulation in the wholesale
electricity market, the core of its business. Large parts of the country, especially the Southeast,
were still monopolized by regulated utilities that limited the opportunity for trading gas,
electricity and energy derivatives,

Political Pragmatism

Enron's political pragmatism was demonstrated in the 1998 New York Senate election, when it
dropped its support of the Republican incumbent, Alfonse M. D'Amato, after Democrat Schumer
endorsed Enron's goal of wholesale deregulation, sources said. Lay reciprocated by hosting
several fundraisers for Schumer, and Enron's political action committee contributed $7,500 to the
Schumer campaign.

The company's lobbying team expanded along with its political spending. It outgrew the two-
person operation that existed in 1989 and began to reflect Enron's interest in everything from
pipeline safety and derivatives trading to Overseas Private Investment Corp. loan guarantees. By
last year, its lobbying expenses exceeded $2 million a year and covered a raft of big-name
consultants, such as former Montana governor Mare F. Racicot, the new Republican National
Committee chairman, and former top aides to House Majority Leader Richard K. Armey (R-
Tex.) and House Majority Whip Tom DeLay (R-Tex.)

The hazards of Enron's efforts to connect with both parties were evident last year, when shortly
before the November election, the company picked a Clinton administration Treasury official,
Linda Robertson, to run its Washington office.

A perturbed DeLay, whose campaign and related funds had received more than $100,000 from
Enron and Lay, briefly "excommunicated" Enron, a House source said. Robertson was not
invited to a series of mectings of electricity lobbyists held in DeLay’s office last July, though an
Enron official did finally attend the sessions.

Enron had more success when Congress overwhelmingly approved legislation last year
containing a provision precluding the Commodity Futures Trading Commission (CFTC) from
regulating Enron's trading in energy derivatives. These instruments are traded largely between
electricity dealers and big wholesale consumers, which use them to hedge against price swings
that could adversely affect their businesses.

01513

01200000000167


Enron Chairman Gave Warming to Bush Officials on Company's Collapse

eww mytinnes.com

January 10, 2002

Enron Chairman Gave Warning to Bush
Officials on Company's Collapse

By THE ASSOCIATED PRESS
Filed at 12:57 p.m, ET

WASHINGTON (AP) -- Enron (news/quote) Chairman Kenneth L. Lay
reached out to two of President Bush's Cabinct officers when the energy
company was collapsing, the White House disclosed Thursday as the Justice
Department opened a criminal investigation of Enron's bankruptcy.

Bush, who received significant campaign contributions from Lay and other
Enron executives, said he himself has never discussed Enron's financial
problems with its embattled corporate chairman. The president said he last saw
Lay in Texas at spring fund-raiser for former first lady Barbara Bush's literacy
foundation.

Lay also was among a group of some 20 business leaders who came to the
White House carly in the Bush administration to discuss the state of the
economy, Bush said.

Many Enron employees lost their life savings when the company filed for
bankruptcy Dec. 2.

“What anybody's going to find out is that this administration will fully
investigate issues such as the Enron bankruptcy, to make sure we can learn
from the past and make sure workers are protected," Bush said.

But Lay did seek the car of other top-level administration officials last fall.
According to White House press secretary Ani Fleischer, Lay telephoned
Treasury Secretary Paul O'Neill amid Enron's collapse “to advise him about
his concern about the obligations of Enron and whether they would be able to
meet those obligations.”

Lay also told O'Neill that Enron "was heading to bankruptcy,” Fleischer said.
O'Neill received calls from Lay on Oct. 28 and Nov. 8, said Treasury

spokeswoman Michele Davis. It was on Oct. 16 that Enron made its stunning
disclosure of a $638 million third-quarter loss.

In a separate phone call to Commerce Secretary Don Evans, Lay similarly

file://C:\AWINDOWS\TEMPOR~1I\OLK4274\ENRONC~1.HTM

01710

01200000000366

Page 1 of 3

Natural de-icer means
you'll have to shovel
less this winter

Carry 20 GB of data in
your shirt pocket

A floor lamp that
spreads sunshine all
ra room

Easily change from TV
VCR to DVD to
ideo Games with the
of a button

Digital camera,
bcam and

camcorder alll im the

size of a pen

it’s time to put all of
your photos onto your
computer

Time zone to time zone
never set your watch

1/15/02


Carleton, Norman

{(b)(5)]

—
Browne, Miguel D. [MBrowne@FDIC. gov]
arian November Bt , 2007 2:25 tt
‘Norman. Carleton@do.treas.gov"

Wall, David; Mitchell, Amy Aufthouse
Thoughts about Retail Swaps paper

02459

01300000001068


Page 2 of 3

Washingtoe must denand more disclosure from energy traders, holding them at
least to the standards of Wall Street firvs.

“Enran im the sequela to Californias, it's all part of the one-year story
line," said Kepresestative Edward J. Markey, Derocrat of Maweachueetts, who
focabas op eneray requlacory issues in the House. "We can't leave energy
products in the regulatory @hadowe, [t hurts both investors and consurers.*

Creer influential officiale are im no rush to curn back the leek an
deregulation,

[Me have had a surber of falee starts, and it would be crasy not ta take a

the Lessons we can learn," gaid Nora Brownell, ane of President
bch! appointees this year to the Federal fnersy Regulatory Ccenissica.
ZEAE we Should nck leap to the conclusion that competitive markets do nat
work."

The Buen administration, along with gone Denserate - including Mr. Bingssan
and Williom Massey, a Dewocrat on the energy com: ten - continae to favor
plans advanced by Enron that weeld pry open regional electricity markets.

tie have to look cavefully at the causes of consequences of Enron's
collapse." Mr. Wisguean waid, “But T don't cee anything in this that would
kewp ux from moving abesd vith open transmission access and these types of
things.*

‘The durability of such views ig a gign cf how effective Enron was during the
last decade in keeping Washington at bay as the corpany pushed to

restructure the electricity industry and limit government oversight of new
energy markets,

Enron and ite employees were the largeat cantributors to President Bush's
campaigns over the years, and Snrca gave more money to politicians in the
last election cyele than’ did any ether energy conpany. Since 159:
cwlovess and ite chaireas, Keanetts L; tay. have donated nearly
to Mr. usb. In the 2600 election see

federal political camewigne, mart of it

ite.
2 millica
+ Mare than $1 million was donated to
to Republicans.

Mc. Lay alec had powerful friends. He recruited Weedy L. Gramm, the tap
conecdities requistor in the adwinistration of President Bush's father and
the vite of Senator Phil Grane, Republican of Texas. to serve on Enron's
board in i893." The appolntasnt cane juat five weeks efter Ma. Gramm helped
Bush through a ruling at the Comredity Potures Trading Comission

exerpted many energy contracts fron regulation.

Last yeer, as Congress and the Clinton adsiniatration debated whether to
exercise more overaight of the financiel instruments used by Enron and other
companies to trade wseray contracts, Mr. Lay courted Linda ficbertsca. a

if Treasury official who wan the department's liaison with Congres

Ma. Robertean twice accepted paid tripe to calk with company executives
while she was still esployed at the Treasury, her financial disclowure
shows, The measure that became law, the Commodity Futures Modernization Act
sf 2000, specifically exempted e trading from the regulatory scrutiny
applied to brokers of mcmey, securities and commodities.

wa. Eobertron, who becane the head of Entun's Washington office. did not
return a phone call seeking comment

Last spring, vhen the Bash adwinistration drafted a new national energy
policy, ME. Lay had a 30-minute meeting with Vice President Dick Cheney to
discuss the report. The policy blueprint endoraed breaking up sccopoly

control of electricity tranamiueion networks. an Enron goal that was spelled
out in a nevorandun ME. Lay discussed during his meeting with Mr. Cheney.

fnron ales had an unusual opportunity to influence Mx, Bush's choices for
the Federal Bnersy Regulatory Commission, which oversees the markets in
which Enron operates. Mr. Lay get Mr. Bush's personnel adviser, Clay
ehneon, to discuss nominees. when Mr. Bush picked people to fill two vacant
Republican slots on the five-mesber comission, both had the backing of
Kazen a6 well as other companies.

Enron did sat always get its way in Washington. It filed to win regulatory
exeeptions tor sone tutures t# it wanted to trade, for exseple.
with Enron now discredited, ita Loageine nemeses Like the Southern Ciapenty

hope to turn the regulatory agenda in a direction that favors their
interests.

The Faucher Company has lang been Enron!s wain challenger for influence tn
Washington. The company has nurtured a loose coalition of Soutbesst
laweakera - the Senate winority leader, Trent Lott of Mississippi, sast

01/16/2002

01200000000043


has no assets other than a one-third stake in Azurix, a subsidiary that owns British water utility
Wessex. Enron Treasurer Ben Glisan stated that assets could be sold to pay off the noteholders,
raising at least $2.2 billion, including $1.55 billion in proceeds from the sale of the Portland
General Electric utility. In a worst-case scenario, it could issue as much as $1 billion in stock
(there are currently $50 million shares outstanding), although Enron's share price had declined
75 percent from its high, An analyst estimated that Enron could have close to $9 billion in off-
balance sheet debt, and had been trying unsuccessfully to sell $6 billion in illiquid foreign assets
for years,

On October 24, Enron reported it had $3.35 billion in bank lines of credit, of which $1.75
billion would expire in May 2002 if not renewed, However, analysts still seemed to be
mesmerized by Enron. Goldman Sachs downgraded Enron from its “U.S. Select List” of a few
dozen stocks to its “Recommended List” of 200 stocks. Only Prudential downgraded Enron to a
“sell” rating. Of 17 analysts, 10 still maintained a “strong buy” rating. Critics charged that
analysts had compromised their objectivity, especially since Enron has retained many Wall
Street firms for its offerings and paid a substantial amount of investment banking fees.

On October 25, Mr, Fastow took a “leave of absence” from Enron, and Mr. McMahon
was named CFO. Concems arose regarding a potential destabilizing effect on the energy trading
market, since Enron trades approximately 25 percent of U.S. OTC electricity and natural gas
contracts, particularly through its popular EnronOnline Intemet trading platform. The notional
value of its derivatives portfolio was estimated at $21 billion, and there were fears that utilities
and commercial and investments banks could be affected as well. J.P. Morgan Chase was
mentioned, as it advises Enron on asset sales, provides credit to Enron, has the largest derivative
operation of any bank, is a counterparty to Enron in some transactions, and has a large
commodity trading business. Enron's creditworthiness was questioned. Enron’s stock price
declined again and it was the most actively trade NYSE stock at nearly 76 million shares,
included some large blocks of 800,000 shares or more reportedly sold by institutional investors.
Share prices for other energy trading companies declined as well. Additional analysts issued sell
recommendations for Enron.

On October 26, Enron drew down $3 billion of its $3.35 billion bank credit lines to
redeem $1.85 billion of outstanding commercial paper that it was unable to roll over, and to
provide it with a cash cushion. Citigroup and J.P. Morgan Chase reportedly cach extended at
least $400 million. Enron reportedly was negotiating an additional $1 to $2 billion credit linc,
although the banks were insisting on stricter covenants and terms. Fitch placed Enron on review
for a possible downgrade, and S&P changed its credit outlook to negative from stable. Enron’s
bonds, although still investment grade, traded at a 770 bp spread to Treasurys, in the same range
as junk bonds, with yields rising above 10 percent, and liquidity was described as poor. The cost
of a default swap rose to 10 from 8 percent of the size of the credit insured. Enron sued
Microsoft over its failed broadband services arrangement. Critics noted that Enron would
receive $254 million in tax benefits in the current House stimulus package.

On October 29, European energy firms reportedly were reluctant to trade with Enron, one
of Europe’s biggest power and gas traders. Some counterparties avoided Enron, and liquidity
was reduced. Its stock hit a five-year low. Moody’s downgraded Enron's senior unsecured

° 01988

01300000000596


collapse, which he likened to a “cancer.” He cited Enron's role in persuading the Commodity
Futures Trading Commission against the Clinton administration's call for regulation of energy
derivatives, and subsequent congressional action to exempt from regulation the highly complex
energy derivatives Enron's special-purpose entities engaged in.

“We are all guilty for letting it happen," Hollings said of Enron's collapse.

Sen. Byron Dorgan, D-N.D., chairman of the committee's consumer affairs panel, described
Tuesday's hearings as the first of several that will delve into the roles in Enron's financial collapse
played by: Enron officials; Arthur Andersen, Enron's outside auditor; Wall Street analysts, and
regulators,

“This is about an energy company that morphed into a trading company involved in hedge funds
and derivatives. It took on substantial risks, created secret off-the-books partnerships and, in
effect, cooked the books under the nose of their accountants and investors,” Dorgan said.

Dorgan noted that Lay, Enron's chairman and chief executive, has agreed to testify at a future
hearing. Dorgan also said the committee will invite Skilling, Enron's former chief executive, and
Andrew Fastow, Enron's former chief financial officer, to testify at the same hearing.

“Was this just bad luck, incompetence and greed, or were there some criminal or illegal actions,
as has been suggested by the accounting firm that reviewed Enron's books?" Dorgan said.

01200000000937


Wiedman, Mark

Sone Me er 07, 2002 10:21 AM

To: Wiecnre Mak ‘ :

Subject: SECRETARY ON ENRON

MR. RUSSERT: Enron, the biggest in our nation’s history-people at the top were able to trade out

their stock and bring home some money. People at the bottom were not able to do that because of some of the
regulations imposed upon them. As secretary of Treasury, will you investigate Enron?

SEC’Y O'NEILL: You know, I think what we've been doing and what we'll do going forward is look and see if
there are regulatory actions or rules that could be put in place that would avoid this kind of situation. I think the
dust hasn't cleared yet on this case and it’s not clear whether the company fulfilled all of its obligations under
the existing rules. If they did, it suggests that we need rule change. If, on the contrary, it turns out that they
didn’t fully comply with all the rules, we have a different issue on our hands.

MR. RUSSERT: That's criminal behavior.
SEC’Y O°NEILL: Well, I don’t know. You're jumping to a conclusion. I wouldn't do that,
MR. RUSSERT: If they don’t comply with the rules.

SEC’Y O°NEILL: I would tell you from my own experience, again, having run a Fortune 50 corporation, that
thought the rules were very clear on what's required for reporting. And I think we'll see fairly soon from the
work that being done by the SEC and others whether or not the corporation fully complied with its reporting
responsibilities.

MR. RUSSERT: Are you going to look into some of the offshore investments?

SEC’Y O°NEILL: Well, I think we need to look at their compliance with rules, and to the extent that takes us to
that issue, yes.

MR. RUSSERT: Do you believe the Treasury Department should look at this aggressively because of the
political considerations that some are suggesting?

SEC’Y O'NEILL: I think we need to be constantly looking at the rules and the schemes that exist for the way
private enterprise operates. With this in mind, investors and the general public need to be able to rely on the
truthfulness and completeness of what enterprises report. It’s a critical aspect of why our economy has done so
much better than the rest of the world. It’s because capital believes, people who invest believe, that they can rely
on information that’s provided to them and the U.S. economy. It’s a principle we need to protect and cherish
and extend because it is so important to the fundamental operation of our kind of economy.

MR. RUSSERT: Do you think that Enron is a big story, a serious story?
SEC’Y O'NEILL: Well, it's obviously a big and serious story when millions of people are economically
impacted by the meltdown of a major corporation. Of course, it’s a very important story and it’s something that

we need to pay attention to. But we need to pay attention to, again, whether or not all the facts have been
dutifully reported and people were given the information required under law to make intelligent decisions.

01200000000027


Sincerely,

Lawrence H. Summers

cc: The Honorable Charles E. Grassley
The Honorable Robert Torricelli

02528

'
01300000001137


Nickoloff, Peter

From: Roseboro, Brian
Sent: Tuesday, January 15, 2002 7:18 AM
To: Nickoloff, Peter; Kmalmgre (E-mail)
Subject: FW: financial mkts working group
FYI

Original Message-—--
From: Clarida, Richarc
Sent: Monday, January 14, 2002 6:40 PM
To: Glands, Richard; Warshawsky, Mark; Smetters, Kent; Worth, Johny Huffman, Lucy; Wiedman, Mark; Roseboro, Brian; Myers, Julie
ce Flanagan, Rosemary; Fesher, Peter
Subject: RE: financial mkts working group group

SEC Speech
Atrancry lewestors [Clarida, Richard] | found this speech by SEC chief accountant very useful

01551

01200000000205


[(b)(5)]

‘ 02278

01300000000887


Enron's stock at one point, and the stock has dropped to about 50 cents a share from a peak of $90
last year.

But Enron's situation reveals that employees' retirement benefits are exposed to company stock in
more than their 401(k) plans.

Employees share some of the responsibility for this overexposure. That's because to some extent
employees could have limited their retirement-related holdings of Enron, if they had taken the right
steps at the right time, though many didn't because the stock was long a highflier.

One of these is Kenneth Parrish, an electrician at Portland General Electric, an Enron subsidiary,
who essentially has lost additional benefits related to his pension from Jan, 1, 1999. That was when
the pension plan for unionized employees, including Mr. Parrish, was changed. The pension benefit
they already had earned was frozen; instead of continuing to add to the pension, the company gave a
cash contribution of 5% of employees' pay to their 401(k) plan, where they could put it into a variety of
investments, including Enron stock.

Unfortunately, Mr. Parrish and many others elected to put the pension-related contribution into Enron
stock, along with his own 401(k) savings. "It seemed like such a good investment,” says Mr. Parrish,
who is 43 years old. Moreover, the company's matching contribution to his 401(k) was in Enron stock
that couldn't be sold till the employee turned 50. As a result, the value of his savings plan, including
the pension amounts, fell from about $200,000 to a couple of thousand dollars.

Mr. Parrish, a single father of two daughters, who are 16 and 17, now isn’t sure what he will do. “! got
doubly slammed,” he says. “Not only did | lose all my retirement savings, | lost the pension savings,
too." He is selling his house and planning to buy a trailer. "This ruined me,” he says.

Meanwhile, salaried workers at Enron had a different kind of pension arrangement that exposed
them to fluctuations in Enron stock. The company coordinated their pension plan and their employee
stock ownership pian, so that the value of their ESOP accounts permanently erased benefits in their
pensions.

That is because Enron had a “floor-offset” arrangement, which has been used by many companies,
including Hewlett-Packard Co. and Airborne Inc. These arrangements are intended to provide
participants with the “better of" the two plans, the savings plan (either an ESOP or a profit-sharing
plan) and the pension.

In a simple floor-offset arrangement, if an employee leaves the company and his ESOP account is
worth, say, $60,000, the company figures out how much this would be worth if it were converted to an
annual pension in retirement. In this case, the ESOP’s equivalent value might be $6,000 a year in
retirement. If the employee has already earned a pension worth $50,000 a year in retirement, the
employee wouldn't get $56,000 a year -- the combination of the two -- but just $50,000. (The $6,000
annual ESOP value is subtracted from the pension, so the person ends up with an annual pension of
$44,000, plus the $6,000 a year from his ESOP account of $60,000.)

If the ESOP performed really well, and was worth, say, $70,000 a year if converted to a pension, the
employee would simply keep the ESOP, and not get the pension. If the ESOP didn't perform well, the
pension would serve as the "floor" benefit. In other words, even if the ESOP fell to zero, the employee
would still have his full pension of $50,000 a year.

But it didn't work this way at Enron, even though the ESOP accounts have become virtually worthless
because of the decline in Enron's stock. In an unusual arrangement, Enron calculated the ESOP

2

01200000000933


vvvvV VY

VVVV VV VY VV

v¥

vvvVuvVYY

WV¥V¥ VY

vvvV¥V YY

rate cut.

The system took effect April 1, 1998, and, at first, things seemed to
work
well. Saon, though, there were warning signs.

It turned out the residential rate cut was actually golng to be
financed
with $7.5 billion in bonds that customers had to pay off. So the reduction

in real terms was closer to only 3 percent, not 10 percent.

Then in early 1999, the California Energy Commission, which tracks the
state's supply and demand, was warning of coming supply shortfalls.

Demand was skyrocketing, the agency pointed out in a Senate energy
committee hearing, and no new significant generation had been built in a
decade. Without more power, California was going to run out. But
construction of new power plants takes at least two years fram start to
finish, and the state was already running behind in accommodating the
growth.

Back in the early 1990s, however, the energy commission had painted 4
far
different picture. At that time, California had an oversupply of power,
perhaps as much as 30 percent more than it needed.

There wag so much that when the utilities commission set up an auction
for
the construction of new facilities in the early 1990s, Edison and San
Diego Gas and Electric Co, appealed to the Federal Energy Regulatory
Commission to halt the auction, arguing there was already tao much
generation in California. The FERC obliged.

“Lf anybody had told us in 1996, or even in 1998, that we would
experience
[such) load increases, we would have said, "You're crazy,’ “ said D.d.
Smith, a lobbyist for the California Large Energy Consumers Association
and one of the top advocates of deregulation. "Nobody had ever seen load
go up like that in a mature situation."

Still, production figures from Edison Electric Institute, which provide

a
crude indicator of demand, show consumption grew by 4 percent in 1996, 3.4

percent in 1997, nearly 5 percent in 1999, and a whopping 10 percent this
year.

And surrounding states, including Arizona, Nevada, Oregon and
Washington,

began to experience the same demand growth. Since California imported as
much as 25 percent of its power from those states, the amount available
was auddenly reduced by a3 much as half.

But considering the long time it takes to build plants, in part because

of
public opposition, the warnings were too little, too late, In fact, the
situation remained far off the radar screen of consumers, since most were
still insulated from price spikes by a rate freeze.

Then this summer, things started to spiral out of control.

San Diego was the first region to meet the conditions necessary for
full
derequlation, and as hot summer months added to demand, customers’ bills
suddenly tripled.

The debt load of PGSE and Edison began to balloon -- to what will be an

estimated $11 billion by the end of 2000 -- as they borrowed to pay for
power while being barred from passing that cost on to consumers,

Suddenly, the glow of deregulation had lost its luster.

It immediately became clear that California's failure to build power
plants as its rapidly growing economy pushed demand upward was a serious
problem. Increasingly, the state's growing technology economy Gepended on
electricity, and new home construction concentrated in hot areas like

3
01200000000592


Carleton, Norman

Sent wesresdgy Say) February 14, 2001 2:21 PM
To: Carleton, Norman any ss :
Subject: RE: Proposed Changes to Netting Bill - Comments

Has the CFTC put out a draft yet?

Original Message--
From: Carleton, Norman
Sent: Tuesday, Pebruary 13, 2001 5:05 PM

To: Sutton, Gary; Ellis, Dina; Nickoloff, Peter; Schultheiss,
Heidilynne; McInerney, Roberta

Cc: Paulus, Michael

Subject: FW: Proposed Changes to Netting Bill -- Comments

--Original Message-----

From: Krimminger, Michael H. [mailto:MKrimminger@FDIC.gov]

Seni Tuesday, February 13, 2001 4:47 PM

To; 'norman.carletonédo.treas.gov’'; ‘stephanie.martingf£rb.gov';
‘Tom.McGivernéde.treas.gov'; 'MooneyJ@sec.gov'

Cc: DeLoose, Michael; Ivie, Stanley R.; Tishuk, Barbara Starke
Subject: Proposed Changes to Netting Bill -- Comments

{(b)(5)}

02493

01300000001102


From: Torn MeGivern

To: SHELTONA, CARTERJ

Date: 6/18/99 5:32pm

Subject: bankruptcy legislation -Forwarded -Reply
{(b)(5)}

>>> Norman Carleton 06/15/99 04:48pm >>>
Alison,

{(b)(5)}

cc: NICKOLOFFP, Dom13,DOPO7.HUFFMANL, CARLETONN, DOPOS...

02514

01300000001123


vvV¥ VV

vv

v

v

vvvvVvY vu oY

vwvvy

vv

VV VV VV

vv

increase over the same period in the previous year.

In the short term, the state is considering ways to encourage energy
conservation the same way it did with water. And the question now being
asked is whether a commodity as central tc the well-being of the economy
should ever have been placed almost entirely under the control of free
enterprise.

“There's a discussion on how much we want to rely on market forces
alone
when it comes te electricity," Bowen said. "Do we want to subject
ourselves to times when rates are really low and really high?"

POWER DEREGULATION CHRONOLOGY -- April 1994: California Public
Utilities
Commission indicates it favors deregulation. -- October 1995: Framework of

deregulation laid out in memorandums between large users, energy providers

and utilities. -- January 1996: Bills introduced in legislature to codify
deregulation plan. -- August 1996: The "Steve Peace death march" hashes
out fine points of law. It passes both houses unanimously. == Sept. 23,
1996: Gov. Pete Wilson signa the deregulation bill. =~ April 1, 1998:
After a four-month delay, deregulation begins. -- June 2000: San Diego has

satisfied conditions for deregulation, and the rate cap there is lifted.
Shortages drive prices up 300 percent in some cases, -- September 2000:
The utilities begin to warn of billions in mounting debt and seek an end
to the rate cap that has prevented them from passing costs on to
customers. -- November, December 2000: More shortages put energy system in

state of perpetual crisis, despite fail being a season of traditional low
demand; state regulators consider utilities* requests for rate increases.
A decision is expected Jan. 4.

Soe PLAYERS IN THE DEREGULATION DRAMA -- Steve Peace:
Took control of the legislative procesa while a state senator and drove

Geregulation into law. -- D,J, Smith:

Lobbyist for large, industriel electricity customers and an early
advocate
of deregulation. -- Diane Martinez:

As state senator, helped with the deregulation Legislation, -- Greg
Conlan:

Sympathetic to industriel consumers with high bills while serving on
the
California Public Utilities Commission. -- Pete Wilson:

Saw deregulation as an answer to California's then-ailing economy. --
Kennoth Lay:

Noted in 1997, as chief executive of Enron Corp, Ln Houston, that
little
competition had emerged. "It's like California announced a party but
nebody’s showing up," he said, -- Gordon Smith:

As chief executive of PGSE, supported deregulation, at one point noting

there had been a "ceiling on our profits” under the old system.
E-mail Christian Berthelsen at cberthelsen@sfchronicle.com.

Copyright 2000 SF Chronicle

01200000000594

01238


[(b)(5)]

te

02512

1300000001121


Carleton, Norman

From: Krimminger, Michael H. [MKrimminger@FDIC.gov}

Sent: Tuesday, February 13, 2001 4:47 PM

To: ‘norman, carteti lo. reas. gov’, "stephanie. martin@rb.gov’; Tom.McGivern@uo.treas.gov';
‘MooneyJ@sec.gov'

Ce: DeLoose, !; tvie, Stanley R.; Tishuk, Barbara Starke

Subject: Proposed Changes to Netting Bill --

[(b)(5)}

02479

01300000001088


From: Tom McGivern

To: GENSLERG, Sachsl, CARLETONN
Date: 5/27/99 12:05pm
Subject: Working Group Comments on Enron/Cadwalader Proposals

I plan to send these along as | receive them.

[(b)(5)]

ce; SHELTONA, CARTERJ, WOLINN, MCINERNEYR, Dom?3.D0P07...

02543

01300000001152


[(b)(5)]

CONCLUSION

[(b)(5)}

Attachments

{(b)(5))

01200000000013


¢ Joseph F. Berardino, Chief Executive Officer, Arthur Andersen LLP
* Charles L. Hill, Director of Research, Thomson Financial/First Call
¢ Richard Trumka, Secretary-Treasurer, AFL-CIO

Hee

Tracking: Recipient Read
Schultnaiss, Meidilynne Read: 12/12/01 9:57 AM

10

01704

01200000000360


Wiedman, Mark

Sent Frgay, January 11, 2002 6:06 PM
To: ‘Mike Alen :
Subject: RE: If you..

[OUTSIDE SCOPE; (b)(6)]

January 11, 2002
PRESS GAGGLE
BY
ARI PLEISCHER

Aboard Air Force One
En route Conshohocken, Pennsylvania

“9 Ari, is there any one point person who is going to serve as a
clearing
house for the administration on the congressional Enron investigations?

MR. PLEISCHER: I'm not sure what you mean by that. You know, the
white
House always operates pretty collegially and whoever --

.°] I mean, is somebody coordinating the response -- you're going to
be

getting a lot of questions from a lot of different committees and --

MR. FLEISCHER: Whoever would be most relevant. Some of it will be
Office

of Legislative Affairs, some of it will be the Counsel's Office, whatever
as

most relevant and direct to the questions.

Q Office of Legislative Affairs or the Counsel's Office?

MR. FLEISCHER: Whoever is most relevant to any of the questions.

2 That's interesting, I mean -~

MR. PLEISCHER: The usual people. For example --

Q The indication we got yesterday was that it would mot be -- it
wot go far enough for Mr. Gonzales to get involved.

MR. FLEISCHER: I'm stating the obvious. You've seen Counsel
Addington's

response to letters that were received from Mr. Waxman. So, again, that's
the

Counsel's Office. That's the Vice President Counsel Office, in that cage,
because it was relevant to that inquiry. So whoever is most relevant to

: 00711

01200000000056


> 1996, a number of bills were introduced in the Legislature to do so.

>> Some observers say that what happened next contributed to the overall
> plan's flaws. Months passed while the discussion meandered and faltered,
> and at one point it even appeared that no law would be passed.

> That's when state Sen. Steve Peace took the reins and tried to make

> something happen.

> The San Diego legiglator already had won the respect of his colleagues
> for his work on another complex piece of legislation, reform of the workers’
> compensation system.

> During a hurried two-week conference in August -- dubbed the "Steve

>» Peace death march” for his propensity to keep negotiators at the table late into
> the night -- the fine points of the energy law were hashed out.

> Legislators entrusted their judgment to Peace and the few colleagues

» who worked on the bill. There was an abiding sense by a number of participants
> that few members of either house knew what was in the bill or even

> understood it. It was passed by both houses of the Legislature unanimously
>» and aigned into law the following month.

> "People were grateful to Peace and (former Sen. Diane) Martinez for

> taking it on," said Debra Bowen, D-Los Angeles, the current chair of the Senate
> energy committe "Historically, utilities were a pretty boring topic, and
> I think term limits factored into it."

> The law was to end the monopolistic control that utilities held over

> both power production and supply by requiring them to sell off their

> generators. It set rates artificially high so they could recover money

> from bad investments. And it gave them nearly two years to prepare for

> competition.

> Moreover, residential customers would be granted an immediate 10

>» percent rate cut.

> The system took effect April 1, 1996, and, at first, things seemed to

> work well. Soon, though, there were warning signe.

> It turned out the residential rate cut was actually going to be

> financed with $7.5 billion in bonds that customers had to pay off. So the reduction
>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

>

in real terms wag closer to only 3 percent, not 10 percent.

Then in early 1999, the California Energy Commission, which tracks the
state's supply and demand, was warning of coming supply shortfalls.

Demand was skyrocketing, the agency pointed out in a Senate energy
committee hearing, and no new significant generation had been built in a
decade. Without more power, California was going to run out, But
construction of new power plants takes at least two years from start to
finish, and the state was already running behind in accommodating the
growth.

Back in the early 1990s, however, the energy commission had painted a
far different picture. At that time, California had an oversupply of power,
perhaps as much as 30 percent more than it needed.

There was so much that when the utilities commission set up an auction
for the construction of new facilities in the early 19908, Edison and san
Diego Gas and Electric Co. appealed to the Federal Energy Regulatory
Commission to halt the auction, arguing there was already too much
generation in California. The FERC obliged.

"If anybody had told us in 1996, or even in 1998, that we would
experience (such) load incre: 6, we would have said, ‘You're crazy,' * said D.J.
Smith, 4 lobbyist for the California Large Energy Consumers Association
and one of the top advocates of deregulation. "Nobody had ever seen load
go up like that in a mature situation.*

Still, production figures from Edison Electric Institute, which provide
a crude indicator of demand, show consumption grew by 4 percent in 1996, 3.4
percent in 1997, nearly 5 percent in 1999, and a whopping 10 percent this
year.

And surrounding states, including Arizona, Nevada, Oregon and
Washington, began to experience the same demand growth. Since California imported as
much as 25 percent of ite power from those states, the amount available
was suddenly reduced by as much as half.

01200000001590


Michael Donovan, a Philadelphia attorney with Donovan Searles, LLC, which has filed a class-
action lawsuit against Andersen on behalf of Enron shareholders, sald document destruction by
an audit firm is shocking.

“Auditors save everything,” including all work papers for audit clients, Mr. Donovan commented.

Enron was one of Andersen's largest clients, generating $25 million a year in audit fees and $27
million of fees for consulting. Enron, a high-flying energy company which last year ranked No. 7 on
the Fortune 500 list, announced big losses last October in off-balance-sheet partnerships run by
former Chief Financial Officer Andrew Fastow. In early November, Enron acknowledged it had
overstated earings by $569 million over a four-and-a-half year period and said investors could
not rely on its past financial statements.

The SEC launched a formal investigation into Enron's accounting on Oct. 31.

Write to Judith Burns at judith.burns@dowjones.com’

01200000000890


From: Tom McGivern

To: DOM3,DOPOS(TooheyF), DOM3. DOPOG(CARTERJ, NICKOLOFF...
Date: 6/17/99 10:28am
Subject: Conference Call with Cadwalader/Enron -Reply -Reply -Reply -Reply -Reply

Enron has asked to change the time to 10:00 a.m., and the Fed and FDIC are okay with that.

>>> Norman Carleton 06/16/99 03:56pm >>>
We can do it in my office,

02515

01300000001124


Nickoloff, Peter

From: Wiedman, Mark

Sent: Friday, January 11, 2002 9:10 AM

To: Carleton, Norman; Schultheiss, Heidilynne

Ce: Nickoloff, Peter; Bitsberger, Timothy; Stokes, Veronica
Subject: enron meeting -- 12.007

Tim would like to go over the Enron paper you folks put together at 12, Can you make that?

01747

01200000000403


Nickoloff, Peter

From: Carteton, Norman

Sent: Saturday, December 29, 2001 11:27 AM

To: Schultheiss, Heidilynne; Nickoloff, Peter

Subject; FW: DJ: Senator Eyes End To Enron-Type Special-Purpose Entities
----Original Message--—

From: Bair, Sheta

Sent: Wednesday December 26, 2001 6:23 AM

To: Carleton, Norman

Cc: Roseboro, Brian

Subject: RE: DJ: Senator Eyes End To Enron-Type Specal-Purpose Entities

((b)(5)]

December 18, 2001

Senator Eyes End To Enron-Type Special-Purpose Entities

Dow Jones Newswires

WASHINGTON -- U.S. Senate Commerce Committee Chairman Fritz Hollings, D-S.C., pledged
Tuesday to introduce legislation to eliminate the sorts of financial accounting that led to the
financial collapse of Enron Corp. (ENE).

At a committee hearing on the Enron debacle, Hollings called for legislation to eliminate the use
of special-purpose entities, which are partnerships or trusts through which companies keep their
debt off the books and, in Enron's case, overstate earnings.

Hollings said such off-the-balance-sheet transactions should end in order to protect investors.
Hollings also was highly critical of the amount of insider stock selling by top Enron officials. He
noted that Enron Chairman Kenneth Lay and former Chief Executive Jeffrey Skilling each sold
shares in recent months for more than $60 million, while members of Enron's board sold shares
worth more than $160 million.

287

01499

01200000000153