concluded the problem was isolated to Enron, according to
Fleischer. Lay told Evans that he was “having problems with his
bond rating and was worried about ita impact on the energy
sector," Fleischer said. Evans spoke with O'Neill and the two
agreed no action should be taken *to intervene* with Enron's
bondholders, according to Fleischer. At presstime, CNN reported
that Attorney General Aschroft had recused himself from playing
any role in the Justice Department's investigation.

Responding to what he said was a "wave of bankruptcies," Bush
today ordered O'Neill, Evans and Labor Secretary Chao to convene
4 working group to investigate rules and regulations governing
pensions. The group will “come up with recommendations" on how to
“reform the system to make sure that people are not exposed to
losing their life savings as a result of bankruptcy," Bush said.
And in a move he said was a direct result of the Enron collapse,
Bush said O'Neill, the SEC, the Federal Reserve and the Commodity
Putures Trading Commission would analyze corporate disclosure
rules in order to protect stockholders in the future. - by Keith
Koffler

BUDGET
Spratt Urges Bush To Convene Ancther Budget Summit

House Budget ranking member John Spratt, D-8.C., today offered
& gloomy economic budget forecast for FY03, and called for the
administration to convene a budget summit to put the nation on a
sound fiscal course. "We need to come together and try to settle
our differences around the same table," he said. Spratt said a
model for the talks could be the 1997 negotiations under former
President Clinton that led to 4 series of budget surpluses. "If
we could have another negotiation like that, I think it could be
useful,” said Spratt, who also pointed to the 1990 budget deal,
when President Bush's father reluctantly agreed to raise taxes -
alienating conservatives and, some argue, triggering Bush's
defeat to Clinton in 1992. “He can take a page from his father's
experience," said Spratt, “and hope it doesn't cost him what it
cost his dad. But his dad did the right thing.” The White House
today responded coolly to Spratt's suggestion. White House Press
Secretary Ari Fleischer eaid consideration of the budget by its
relevant congressional committees is "the best process."

Spratt also tried to explain why once rosy budget surplus
forecasts have gone south over the course of one year. Spratt
estimated FY02 will produce a deficit of $179 billion when Social
Security and Medicare funds are excluded, and said the $1.3
trillion tax cut passed last year was the predominant factor.
House Republican Conference Chairman J.C. Watts of Oklahoma this
afternoon countered with a statement defending the GOP tax cut.
"Both the House and Senate Budget committees have concluded the
current budget situation is a result of the war on terroriem and
the recession - not tax relief," Watts said. "If it wasn't for
the Republican-led initiative to give Americans more of their
money back, we'd probably be deeper in recession than we are
today."

Spratt said Congress was sure to extend expiring tax
provisions and address the alternative minimum tax, adding
hundreds of billiona to the tab. And, he noted, last year's tax
bill is set to expire in the 10th year, something a future
Congress would not be likely to allow. Purther spending on
defense and homeland security will only add to the problem,
leading to on-budget deficits in the short term - and possibly in
the out years if economic assumptions change. "We've got a
problem,* he said. But Spratt declined to say that elements of
the tax cut should be repealed, saying the administration should
come up with solutions. "We think that they have the first move,"
he said.

Meanwhile, inapired by signals that the White House will
continue to push for an economic stimulus package, buginess

: 01043

01200000001715



Nickoloff, Peter

From: Schultheiss, Heidilynne

Sent: Monday, October 29, 2001 3:52 PM

To: Carleton, Norman; Nickoloff, Peter

Subject: House “stimulus* package showering $254 million on Enron

Enron is mentioned in the third paragraph -- | highlighted the text in red ...
October 27, 2001

How to Lose a War
By FRANK RICH
Welcome back to Sept, 10,

The "America Strikes Back" optimism that surged after Sept. 11 has now been stricken by the multitude of ways
we're losing the war at home. The F.B.1. has proved more effective in waging turf battles against Rudy Giuliani
than waging war on terrorism. Of the more than 900 suspects arrested, exactly zero have been criminally
charged in the World Trade Center attack (though one has died of natural causes, we're told, in a New Jersey jail
cell). The Bush team didn't fully recognize that a second attack on America had begun until more than a week
after the first casualty. The most highly trumpeted breakthrough in the hunt for anthrax terrorists - Tom Ridge's
announcement that "the site where the letters were mailed” had been found in New Jersey - proved a dead end.
And now the president is posing with elementary-school children again.

Given that this is the administration that was touted as being run with C.E.O. clockwork, perhaps it should be
added to the growing list of Things That Have Changed Forever since Sept. 11. But let's not be so hasty. Not
everything changes that fast - least of all Washington. The White House's home-front failures are not sudden,
unpredictable products of wartime confusion but direct products of an cthos that has been in place since Jan. 20,

This is an administration that will Ict its special interests - particularly its high-rolling campaign contributors
and its noisiest theocrats of the right - have veto power over public safety, public health and economic prudence
in war, it tums out, no less than in peacetime, When anthrax struck, the administration's first impulse was not to
secure as much Cipro as speedily as possible to protect Americans, but to protect the right of pharmaceutical
companies to profiteer. The White House's faith in tax cuts as a panacea for all national ills has led to such
absurdities as this week's House "stimulus" package showering $254 million on Enron, the recling Houston
energy company (now under S.E.C. investigation) that has served as a Bush campaign cash machine.

Airport security, which has been enhanced by at best cosmetic tweaks since Sept. 11, is also held hostage by
campaign cash: As Salon has reported, ServiceMaster, a supplier of the low-wage employees who ineptly man
the gates, is another G.O.P. donor. Not that Republicans stand alone in putting fat cats first. In a display of
bipartisanship, Democrats - lobbied by Linda Hall Daschle, the Senate majority leader's wife - joined the
administration in handing the airlines a $15 billion bailout that enforces no reduction in the salaries of the
industry's C.E.O.'s even as they lay off tens of thousands of their employees.

To see how the religious right has exerted its own distortions on homeland security, you also have to consider an
administration pattem that goes back to its creation - and one that explains the recent trials of poor Tom Ridge.

Mr. Ridge is by all accounts a capable leader - a successful governor of a large state (Pennsylvania) who won
the Bronze Star for heroism in Vietnam. A close friend of George W. Bush, he should have been in the
administration from the get-go, and was widely rumored to be 2 candidate for various jobs, including the vice
presidency. But after being pilloried by the right because he supports abortion rights, he got zilch. Instead of Mr.

° 01289

01200000000644


this aftermoon to a feed mill in Aurora, Mo., and Tuesday to New
Orleans. Senate Agriculture Chairman Harkin, who appeared with
Bush in Moline, had urged the president to make time "to meet
with farmers, rural leaders and others" who are interested in the
new farm bill, Harkin’s letter appeared to be part of a

Democratic campaign to point out that Bush officials meet with
agribusiness rather than farmers. Harkin later said that Bush has
agreed to meet with him later this month to discuss the farm

bill.

es

POLITICS
Clinton Seeking Changes To Proposed Federal Compensation Plan
Survivors of the Sept. LI terrorist attacks and relatives of
those who died are joining Sen. Hillary Rodham Clinton, D-N.Y.,
in seeking changes to the proposed federal compensation plan, the
Associated Press reported. The Sept. 11 Victims Compensation Fund
was created as part of a $15 billion airline relief package
established by Congress. It allows families to apply for federal
money to cover lost wages, pain and suffering, as long as they
agree not to sue airlines and other entities. Clinton Sunday met
with families and announced several proposed changes to
eligibility guidelines, including eliminating a requirement that
the injured seeking compensation must have received medical
treatment by noon on Sept, 12. Families of those killed in the
attacks receive an immediate payment of $50,000, and those
injured get $25,000 when their applications are processed. The
minimum award for the families of deceased is $250,000, before
deductions. The average award is expected to be about $1.65
million. Clinton said the 24-hour rule should be removed because
many victims could not get to 2 hospital until later. The Justice
Department's deadline for written comments on the legislation is
Jan. 22.

=

POLITICS
Most State Election Officials Oppose Reform Under Consideration
A majority of state election officials oppose election reform
standards under consideration in Congress but do support
improvements in voting technology and machinery, according to a
survey released today by the nonpartisan Election Reform
Information Project. "They are enthusiastic at the prospect of
federal funding for clections, but nervous about what ‘strings’
might be attached,” Project director Doug Chapin said. More than
70 percent of top state election officials said they opposed
federal standards for recruitment and training, Election Day
operations and procedures, recount procedures and ballot designs,
while 58 percent also said they opposed federal standards for how
votes are counted. But 69 percent said they did support
technology improvements, and said funding was the biggest
obstacle to improving elections, However, slim majorities of
local officials voiced support for better training and for
procedures for counting votes and contested elections. The House
passed an election reform bill in December, The Senate has yet to
approve a bill although a bipartisan group of key senators did
unveil a bill late last year. The survey, conducted by Princeton

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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 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 attomey, Robert Bennett, called the subpoenas "totally unnecessary" and said "Wwe are
fully cooperating with Congress.”

Although Enron Chairman Kenneth L. Lay did not show up for two carlicr 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 warming 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.

01202

01200000000558


Power Corporation, benefited directly from an official

policy of suppressing

protest leadere
from arbitrary to
violations and ,

altogether."

in other
governor of
contract to

Minister of Public

influence peddling.

Bush was

In 1995, the
to

a pipeline from
resources
McKinley

deal that was

was as if he

the GATS 2000
track record to
is certainly well
negotiator. As

employer

parts of the world.

dissent through misuse cf law, harassment of anti-Enron
and environmental activists, and police practices ranging
brutal. The company did not speak out about human rights

when questioned about them, chose to dismiss them

Enron's influence peddling has had far reaching consequences
countries as well. In 1989, George W. Bush intervened, as
Texas, urging the Argentine government to grant Enron the
build a pipeline from Argentina to Chile. The Argentine
Works told reporters Bush's intervention amounted to
Nevertheless, Enron was awarded the contract shortly after
publicly seen socializing with then president of Argentina.
Clinton Administration threatened to cut off development aid
Mozambique if it did not sign a deal for Enron to construct
Mozambique to South Africa. Declared Mozambique's natural
minister, John Kachamila: "Their diplomats, especially Mike
(deputy chief of the U.S. Embassy), pressured me to signa
not good for Mozambique. He was not a neutral diplomat. It
was working for Bnron.*

It remains to be seen what further role Enron will play in
negotiations which will likely go on into 2003. Given its
date in pressing for deregulation and privatization, Enron
placed to be Washington's number one behind-the-scenes

an agent of GATS, Enron can hardly be counted on as 4 model
when it comes to taking over service delivery in various

As Jeffrey Skilling, until recently Enron's longtime

president, put it at

by 50 to 60

works."

industry conference in 1997: "You must cut costs ruthlessly

percent. Depopulate. Get rid of people. They gum up the

01200000001027


commercial and induetrial users, And, Enron ‘Wholesale
Services’

currently delivers more than two times the natural gas and
electrical power

volumes as does its nearest energy marketing competitor.

Today, trade-in-services is the fastest growing sector of
the global

economy. In order to globally market its energy and related
services,

Enron needs favorable GATS rules to promote the deregulation
of services

in other countries and provide conditions for the
privatization of public

services (so it can buy up more subsidiaries). The existing
GATS rules

already contain mechanisms, such as the ‘domestic
regulation’ provisions,

which provide built-in instruments to compel governments to
eliminate

regulations governing services and set conditions for the
privatization of

publicly delivered services. The current GATS 2000
negotiations taking

place at the WTO are designed to not only strengthen these
tools but also

to expand the scope of the rules to include all public
services, ranging

from healthcare and education to energy, water and
transportation

services. In short, if the proposed GATS rules are adopted,
they will

radically restructure the role of government regarding
public access to

essential social services worldwide, to the detriment of
democracy itself.

Enron is now poised to become a prime example of how
transnational

corporations not only influence, but actually determine,
global trade rules

at through the WTO, especially the GATS. As a key member of
the U.S.

Coalition of Service Industries (UCSI), Enron has positioned
itself to play a

major role in the GATS 2000 negotiations. It is well known
that the USCI,

which is composed of most of the largest for-profit service
corporations in

the U.S., has played a powerful role in shaping the agenda
for the GATS

negotiations, In 1999, Enron was also a top sponsor of the
World Services

Congress in Atlanta, where the big business agenda for GATS
2000 was

congolidated. In addition, Enron is an active member on the
Board of the

01200000001022


Joint Report
on Retail Swaps

As Required by
Section 105(c) of the
Commodity Futures Modernization Act of 2000

December 2001

01856

01200000000512


EnronOnline - Press Room Page 1 of |

aren — Enron Launches EnronCredit.comTM, the First Real Time

frvon Prewt Room
qnson investor Ralotions Credit Department for Corporations
veh FOR IMMEDIATE RELEASE: Wednesday, February 23, 2000
_
Legal & Privacy LONDON: Enron today launched EnronCrediLcomTM, the first global online credit Gepartment to

credit prices and enable business-to-business customers to hadge credit exposure instantly via t
EnronCredit.com helps businesses evaluate the credit quailty of their customers in real ime and
March 8, 2000, will allow them to transact in bankruptcy swaps via Enron’s global internet-based
system, EnronOniineTM.

"As E-commerce increases the number of transactions, the range of counterparties and the vola
markets, corporations need sophisticated credit risk management tools to evaluate and manage
real time,” said John Sheriff, President and COO of Enron Europe,

"EnronCredit.comTM allows companies to focus on their core business activities and leaves the €
management of credit risk to us. Our strong position in the marketplace as a leader in both E-co
risk management as well as our thorough understanding of a number of industries quality Enron
provide innovative 828 credit risk menagement solutions, " Sherriff added.

EnronCredit.comTM helps medium to lange corporations across ail industries mitgate credit risk d
to their commercial contracts on a real time basis. In order to use the full scope of the services 0
wedsite, users will first need to register for a user name and password.

Editors Notes
EnronCredit.com can be found www.enroncred&.com
EnronCredit.comTM is a trademark of Enron Europe Limited.

Enron is one of the world’s leading electricity, natural gas and communications companies. The
which owns approximately $34 billion in energy and communications assets, produces electncity
gas, develops, constructs and operstes energy facilities worldwide, delivers physical commoditia
financial and risk management services to customers around the world, and is developing an int
network platform to facilitate online business. Enron's Internet address is www.enron.com and th
traded under the ticker symbol, "ENE".

@® Back totop

01396

http:/www.cnrononline.com/docs/marketing/PressRoom/M71 13/ 12/4/01

01200000000752


Nickoloff, Peter

From: Schultheiss, Heidilynne

Sent: Monday, October 29, 2001 4:05 PM
To: Carleton, Norman; Nickoloff, Peter
Subject: NYT Abstract: Enron Reports $1 Billion In Charges And a Loss

FREE ABSTRACT PREMIUM ARCHIVE __

October 17, 2001, Wednesday Enron Reports $1 Billion In Charges And a Less By KENNETH N. GILPIN Source: The New
York Times Section: Business/Pinancial Desk 619 words Abstract Enron Corp posts third-quarter loss because of more than $1
billion in one-time charges for various businesses; net loss was $618 million in contrast to net income of $292 million year earlier;

revenue rose 59 percent, to $47.6 billion, from $30 billion last year (M) Lead Paragraph The Enron Corporation, the nation's
leading wholesale electricity marketer and natural gas trader, posted a third-quarter Joss yesterday because of more than $1 billion in

‘one-time charges for various businesses. The company reported a net loss of $6... Purchase Full Text of Article

° 01298

01200000000653


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offended by Enron's move, refused the offer and feared for
his job. Again,

on May 26th, Ken Lay met with actor Arnold Schwartzenegger,
LA Mayor

Richard Riordan, and former junk bond dealer and fraud
convict, Michael

Milken, to drum up support for Enron's deregulation solution
to what then

appeared to be America's looming energy crisis.

Meanwhile, Enron was able to reap huge profits from the
California energy

crisis. When sudden energy shortages translated into massive
cost

increases, major suppliers of commercial and industrial
energy like Enron

were able to cash-in big time. In the last quarter of 2000,
Enron raked in

$377 million in profits, largely due to the California
energy crisis. The

market should be even more deregulated, argue Enron
officials, to allow

‘demand’ and ‘supply' forces to resolve the ongoing energy
crisis. A cartel

of corporations, including Enron, are now being investigated
by California

state officials for holding back the supply of power through
plant

shutdowns in order to spike prices and profits. In addition,
the Los

Angeles Times has reported that the CEOs of energy
corporations tock

advantage of the California crisis to pocket unusually high
options

transactiona themselves. Enron's Ken Lay, for example, is
reported to

have netted $123 million in 2000, which is three times
higher than his 1999

take and ten times higher than what his 1998 figures.

In effect, Enron's strategy on the GATS negotiations is to
develop new

trade rules to consolidate internationally what it has
accomplished on

energy deregulation in the U.S. To pry open new markets for
energy and

related services in other countries, Enron's plan is to
ensure that GATS

rulea are established through the WTO that can be used to
accelerate the

deregulation, and where necessary the privatization, of
these services.

Once again, Enron has equipped iteelf for this mission. The
current U.S.

Trade Representative, Robert Zoellick, who is responsible
for U.S. input

01200000001025


© Six times the losses suffered from Hurricane Andrew.

© Approximately twice the amount of funding Congress recently approved for the
losses from 9/1],

* Approximately the amount of the economic stimulus package President Bush has
requested for the entire country.

* The losses from failures of savings and loans institutions, such as Lincoln Savings
and Loan and Silverado, which together aggregated approximately four to five
billion dollars, pale by comparison.

As a result of the problems arising from the restatement of the Enron financial
statements, statements audited by an accounting firm that was paid a $1 million per week,
twenty-one thousand employees at Enron are wondering if they will keep their jobs, what
they can afford for Christmas and in some cases, what will they do with their retirement
nest egg wiped out

A Profession In Crisis

As Paul Volcker, the former Chairman of the Federal Reserve said shortly before
Thanksgiving in New York, we are a profession in crisis. We are like a ship without sails
in a stormy sea. We are sorely lacking a captain who can bring us about, raise the sails
once again and get us moving in the right direction. We need to be in search of solutions,
not excuses. Instead of always responding as we have in the past that most audits are ok,
or that we can’t achieve zero defects, we need for once to embrace the notion that the
public expects us to at least pursue a goal of zero defects as an end, albeit a goal that may
prove elusive.

And as a college professor I ask you, how do you think investors perceive our profession?
What grade do you think your neighbors, your family and friends, that have their moncy
invested in the markets, are gong to grade the profession? Are we even deserving today
of an average grade of “C"? Have we passed or failed the test of public opinion?

More Than Words - A Call For Action

1 often tell my students, the purpose of learning about history and current events, is to
gleam the lessons they teach us. Then | ask the students to take that knowledge and use it
in a positive manner to change the future. So it is, that our profession also needs to study
the financial disasters we have just discussed, just as the airline industry and regulators
do when an air disaster occurs. We need to study what has gone wrong and use what we
learn in a positive, yet focused and very determined effort, Most of all, we need to make
the necessary changes that will ensure that, unlike the movie “Groundhog Day,” we do
avoid tomorrow, what has happened to us today.

01313

01200000000669


.

‘The essence of the above-referenced regulations is that government employees may
not use their public offices for private gain, and government employees must act
impartially and not give preferential treatment to any private organization or
individual, Even though Mr. Hébert asked Mr. Lay for his support, there is simply no
evidence that he used his public office to obtain that support or that he offered to
give preferential treatment to Enron. To the contrary, Mr. Hébert refused to change
his position on access even though that refusal might have cost him Mr. Lay’s
support.

In addition, as stated previously, FERC's regulations explicitly encourage parties
regulated by FERC to submit suggestions, comments, or proposals concerning
substantial prospective regulatory policy issues as a means of advising FERC of
potential significant issues and problems. Thus, discussion of important policy issues
such as access to the electrical transmission grid by representatives of companies
like Enron is specifically encouraged as a matter of policy under FERC’s regulations.
The only restraint imposed by FERC's regulations is that FERC decisionmakers may
not have ex parte discussions relevant to the merits of contested on-the-record
proceedings pending before FERC with parties to those proceedings. Here, both
Mr. Lay and Mr. Hébert specifically said that while Enron had some matters before
the FERC, they did not talk about those matters. This was confirmed by our
interviews with the other individuals who were present when the conversation took
place. Thus, the FERC rules on ex parte communications were not violated.

Conclusion

On the basis of information obtained in the interviews and a review of the statutes
and regulations previously discussed, we found no evidence that applicable federal
criminal statutes or ethics regulations were violated. There is no evidence that the
Chairman attempted to use his public office for private gain, acted other than
impartially, or offered preferential treatment to Mr, Lay and Enron. Likewise, there is
no evidence that Mr. Lay offered a thing of value to Mr. Hébert, the FERC Chairman,
as that term has been interpreted by the courts on similar issues.

As arranged with your office, unless you announce its contents earlier, we plan no
further distribution of this letter until 30 days after the date of the letter. At that time,
we will send copies of the letter to interested congressional committees and the
Chairman of FERC, We will also make copies available to others on request.

01115

01200000001787


12

Appendix 3
The Taxation of Over-the-Counter Derivatives
in the Hands of Retail Customers’

The following discussion considers the tax issues that may arise if over-the-counter
derivatives are made available to persons other than eligible contract participants. Throughout
the discussion, the distinction between hedging activities undertaken by retail customers pursuing
a trade or business and those undertaken in other contexts is a critical determinant of the
applicable tax treatment.

Investment Versus Hedging Activities

Retail customers may enter over-the-counter (“OTC”) derivatives contracts for purposes
of cither investment or hedging.” Where the motivation is the opportunity for gain, the
transaction may be characterized as investment, and there are essentially no tax issues peculiar to
OTC derivatives. Current law addresses the taxation of investment contracts of all kinds in the
hands of natural persons, corporations, and pass-through entities such as partnerships, Although
a realization-based system favors certain investment products over others, there is no reason to
believe that the current system poses any differential obstacles to retail customers entering OTC
derivatives contracts for purposes of investment,”

Tax Hedges

Current law recognizes the economic importance of business hedges by offering a regime
under which taxpayers may reasonably match the timing of gain or loss from an existing
exposure with the timing of loss or gain from the hedge. This ability to match timing for tax
purposes is critical as, in the absence of special hedging mules, there will often be a mismatch
between the timing of the tax consequences of the hedge and the timing of the tax consequences

‘ This appendix was prepared by Treasury Department staff and does not reflect the views of the Board of
Governors of the Federal Reserve System, the Commodity Futures Trading Commission, or the Securites
and Exchange Commission.

2 As used in this appendix, the term “retail customers” refers to individuals and business that are not
eligible contract participants as defined im the Commodity Exchange Act, “investment” includes
speculation, and “hedging” is used in its colloquial sense, regardless of whether there is a hedging
transaction for tax purposes.

} A realization-based system imposes tax on the gains from most investment contracts at the time of a
“realization” event, typically a sale. For example, tax is assessed on the gains from a stock investment only
after the shares have been sold, In contrast, 2 mark-to-market system imposes tax at regular intervals even
ifno realization event has occurred. Such systems involve measuring the fair market value of a position at
the close of the tax period and calculating tax based on any gain or loss during that period. Only certain
instruments and specific classes of taxpayers must mark to market under current law. In addition, if a
taxpayer eliminates substantially all of the opportunity for gain and risk of loss from an appreciated
financial position, tax on the appreciation may be tmggered as if the position had been sold,

01873

01200000000529


lobbyists have decided to keep the Tax Relief Coalition operating
this year, The TRC was founded initially to push for Passage of
Bush's 2001 tax cut and later threw its weight behind making
those cuts permanent and enacting an economic stimulus plan. A
source close to the group said the organization in 2002 would
focus on protecting the tax cuts scheduled to take effect in
upcoming years, supporting a renewed administration push fer an
economic stimulus bill and making permanent the tax cute enacted
last year. "We can't fight this like the Korean War, where they
get to come south but we can't go north," the TRC source said.
"In order to protect the tax cuts [enacted last year], we have to
fight for permanence." Sources said the management committee for
the TRC, which includes over 1,000 business groups, will meet
today to ratify the decision to stay in business. The National
Association of Wholesaler-Distributors, the U.S, Chamber of
Commerce and the National Association of Manufacturers are among
the leaders of the TRC. - by Geoff Barle and Charlie Mitchell

PINANCE
Bankers, Realtors Square Off On Real Estate Brokerage

The American Bankers Association is calling on ite members to
respond to the National Association of Realtors, which has
launched a vigorous campaign to stamp out a pivotal federal
rulemaking supported by banks. The rule, pending before the
Treasury Department and the Federal Reserve, would allow
financial holding companies and national bank subsidiaries to
engage in real estate brokerage activities - an action that NAR
President Martin Edwards has said would mean "the market will
soon be dominated by a smattering of large banking conglomerates
whose primary goal is to cross-sell various financial products,
not to put people in homes and commercial properties." He added
that the end result "will be fewer choices for consumers, higher
fees and less competitive loans." The NAR turned up the heat last
year, enlisting House and Senate lawmakers to introduce
bipartisan bills to preclude any such federal action. The group
also blanketed Capitol Hill and the White House with protest
letters. And in December, House Energy and Commerce Chairman
Tauzin fired a letter off to the Fed and Treasury, asking whether
they had fully considered the implications of the proposal -
including whether banks" real estate brokerage transactions would
become subject to federal privacy rules.

But the ABA is returning fire. "As an industry, most bankers
haven't exactly been banging their shoes on the table over real
estate brokerage powers," said ABA President Jim Smith in a memo
Wednesday to his member company CEOs. *Some of you have written
your members of Congress and have encouraged your employees to
write. Many haven't. Predicting the future is a tricky business."
Smith continued: "The banker who knows what's going to happen
down the road ie the lucky fellow who always buys low and sells
high, has never made a loan that wasn't repaid, and always wins
the Superbowl pools. The rest of us have to hedge our bets. And
we're running out of time to do that." Should the NAR succeed in
passing legislation to block national banks from offering real
estate brokerage and property management services, “that option
will be closed - permanently - meaning one less way to remain
competitive," Smith added.

A form letter supplied by the ABA urges legialators to oppose
the NAR-backed bills. The letter says: "The NAR is telling
Congress that lending and real estate brokerage don't mix. That's
pretty ironic, because many real estate broki rages already
provide one-stop shopping, including mortgage lending and
insurance. It seems to me that the only purpose of these bills is
to protect NAR members from the kind of healthy, vigorous
competition that consumers deserve. In one fell swoop, [the
pending bills} would limit the choices available to consumers,
protect one industry over another, and discriminate against banke

3

01044

01200000001716


\ ¢
\ Kenneth L
BAwes) U- anne

Chief Executive Officer
Uy September 14, 2000 Enron Corp,
% P.O. Box 1188
HMoustom, TX 77251-1188
(713) 853-6773
‘The Honorable J. Dennis Hastert Fex (713) 858-5313
Speaker Aoyderron.com
United States House of Representatives
H-232, Capitol

Washington, DC 20515
Dear Mr, Speaker:

Tam writing to urge enactment of H.R. 4541, the Commodity Futures Modernization Act of 2000. This
important legislation provides critical legal certainty for a range of transactions that are a central part of Enron’s risk
Mmanagement and commodity trading businesses, Enron is the largest trader of natural gas and electricity in the US
and we actively trade other commodities. To facilitate our commodity trading business, we have developed
EnronOnline, the world’s largest business-to-business marketplace with over $140 billion in trades since November
1999.

‘We appreciate the fine work of the House Agriculture, Commerce, and Banking Committees and applaud the
leadership of their Chairmen and Ranking Members. With respect to the language most critical to Earon, we urge
adoption of the Commerce Committee version of H.R. 4541. Specifically, Section 9 of HR. 4541 enhances legal
Certainty for transactions in certain commodities by providing that:

* Except for the application of the Commodity Exchange Act's antifraud and antimanipulation
provisions, bilateral transactions in commodities (except agricultural commodities) between
sophisticated market participants would not otherwise be subject to the Commodity Exchange Act.

* Except with respect to the Commodity Exchange Act's antifraud and antimanipulation provisions and
in certain circumstances the requirement to disseminate trading data, the CEA would not otherwise
apply to transactions in commodities (other than agricultural commodities) on Electronic Trading
Facilities that are limited to sophisticated market participants.

These two important provisions eliminate legal uncertainty over certain transactions and reduce the
regulatory burden placed on sophisticated market participants. ‘The provisions recognize that sophisticated parties do
not require the protections of the CEA and, more importantly, climinate the risk that transactions between eligible
contract participants could subsequently be determined by a court of law to be unenforceable for failure to comply
with the CEA. Also, the retief with respect to electronic trading facilities recognizes the natural evolution in the
marketplace from the telephone to the Internet. Providing legal certainty for use of electronic trading facilities
¢liminates the risk that these electronic platforms would be determined to be operating illegally as “exchanges”
unregulated by the CFTC.

Prompt adoption of H.R. 4541 with the language included above will assure that Enron can continue to
grow our businesses and provide innovative service to our customers without the risk and cost of legal uncertainty
that now exists.

| appreciate your attention to this important matter and would be pleased to respond to any questions that
you might have.

Sincerely,

puso

Natural gas. Electricity. Endless possibilities.
01200000001434


t Week > Enron > UPDATE: EnronOnline Still Trading > November 30, 2001

Insurance & Techrology
iternsfWeek

TT Pro Ogwnicade
Network Computing

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©2001 CMP Media LLC

down completely, said Peter Fusaro,
president of the energy consulting firm
Global Change Associates,

The bigger question is how long Enron
can finance its trading operation, Fusaro
said a bankruptcy filing might make it
easier for Enron to raise the cash it needs
to fund trading operations, but that won't
restore trader confidence in the company

Since Enron is a party to every trade on
its site, either as buyer or seller, it's vital
that trading partners have confidence in
Enron's ability to stand behind the deals it
makes. Analysts say that confidence is
lacking, and an infusion of cash won't be
enough to restore it.

- +20

Page 2 of 2

01419

http://www.internetweek.com/story/INW2001 1130S0007

12/4/01
01200000000775


science to purely financial con-
Wects to erative effect during the
19905. Like the Dest of thave banks,
Enron woukd take money as on
intermediary and provider ol iquic-
ty. rather than retaining energy
price rak on its books,

Unlike banks, however, Enron
remained unreguated offer the
emerging energy derivatives indus
fry succensfuily fought off attempts
by the Commodity Futures Troding
Commision to extend itt powers to
the market in the early 19705 The
firm remained crswerable only to
\ts shareholders and debthokders for
its copitat structure and nist mon-
ogement, ond to ther proses the
Secunties & Exchange Commision
ond the rating agencies for the
accuracy of the Imited information
‘that it chase to efsclose,

This was clways disconcerting for
‘onatysts. Alter at, they were recam-
Mending the company to rvestors
plecively becouse it wos he pre-
eminent financial wizard of its sec-
tor in terms of the Interaction
between physical assets ond cash:
flow; the management of complex
contact portiolios and asset vakath
@y. one the shaping of risk and
leverage "© extract the maximum
value fram capital

Itwas on open secrat in te Cor
porate worlg that eccounting stan
dards ond company reporting
‘ocross the rik management indus-
ties hod Not kept poce with mew
techniques in off-bolence sheet
financing. fmoncis! engineering
‘ond contract technology. In the
energy lrading sector, in particulier.
the values of unrecised gains ane
losses that might be included in o
company’s OcCoUnts were Gapen-
dent upon mary assumptions. The
potentiot for G gap between finan

cio! fealty ond company reporting
wer growing In cn industry-wide
frend that leveraged the impor:
tance of a company's chit fnan-
clot officer, and of corporate cred-
ibity in generat,

Meanwhile, through the 19905
Enron repeatecty hit ifs earnings tor
gels ond then set itsell tough mew
@0a15 In. manner Mal made it the
daring of Woll Steet's equity ano-
lyst. Enron's specol skis in com
modity market develooment ond
price rk management seemed to
offer the fern an embarassrent of
fichas in teers of investment appr
tunities in the US and around the
word from the mict 1970: as power
ond other feguioted utility markets
in Te UK, US ond ebewhere fol
lowed the some path toward
Deregulation.

While Enron retained shategic
Ownership of some physical assets.
yeh os power plants and pipelines
in the US ener? industry and
broad. the compony beleved Ps
tueure iey in spearheading ceregu-
jation and trading in energy and
omer commodity markets around
the world, white ako developing
hignnargin risk management
services

Occesionaly. Eron odritted to
stumbling 9 its Nome teritory of
enemy Contract risk manogament,
Notably in the cave of the Block
@piode, This deol lett Eon don
gerouly exposed to tating gos
prices in the UK offer it signed a
mative 'toke-or-pay" gas contact
in 1993 with companies operating
the J-Block Qos field in the UC Noxth
Sea. Efron fincty hod to reach o
settlement with its suppliers in 1997
The episode cast the company
some $537 mifon after tax in 1997,
nd jad ta serious quastions being

Daly 1985; Enoon Sorted by merger of Houston Neteral Gus and
InerNorh, an Ouaha, Neteuska basal sutaral gas pipeline
company. Company werks its way theoug) the Wberalisation of the
‘uanural gas market in the US to beveme an open-access transporter
of pas,

1948; Exroe begins cnaszuction af perwer plane in UK.

1989: Boros isenches its Gasiank % allow producers and
‘wholesalers 1 buy firme funure gas mupplies and t0 hedge their
‘romural gas price risk.

Sane 19%: Baron North America begins to trade electricity.

December 1996: Dubbed Power Project, of which Exrus is a
feincipal wakeboldes, begins constuction of a liquefied aataral pas
power plant.

Jane 1997: Enron eecords & change of $450 milton to being Yo
close the peublenss utalattying the J-Block commeact, which bad
‘cornmimed & to oanare gas prices that were cut af line with the
marker

Atmguie 19971 Eneon says it es so fs first weather derivative
‘ooteaet I's he firs of many anennpns to bud rik managersent
markets outdde the energy muskets to exploit Exrus's peresived
‘comamodity risk miniayerrent! infcilectual capital and expereae In
(he next tees years Earun invents sigrificare capseal and
‘muragemert time in tying te develng traded nuk

smusrhons in bandwidth (feat trade, Deseriber 1969), pulp aad popes,
plasics, cnal, and ix moving inte exinting meals rick management
arbors,

‘September 1997; Enron Energy Services is formed vo proside
menRy ourscunting services 19 connmmercial and ather comuenes

December 1998: Enron buys the UK's Wessex Water and creates &
“Wobal water company’ that it ealls Azurix, Earon works 1 extend
‘ts cleority wholesale marketing influence from the UK's power
market into Europe.

May 1999: Phase | of the teublesorme Dabbal Power Project
begins ‘coermmercial opernsien’

November 1999: ExromOnlise is launched as a glabal coremmodity
lreding she ond Eneoe is positioned as a “sew eoorcmy’ compare

May D000: Earos acquives MG ple, a Landoe-based! metals track,
Wo enncad its cxmmetodity srarkes capmbibtien

August 200%: Ereon's stock reaches high-water mack at around $00)
pee shave

Savenry 2001: Enron's stock silt at $80, und executives costiaue
to talk wp the shaves to anatysts, saying in late January that $126 &
share migttt prowe a resumable target proce, Tarowgh the early
spring the price of shares is the company Exits, byt te shore price to
(CAMINgS Fito Continacs to indicae that inveoes think Briron will
grow prods much faster than any of &s exergy machet ceenpetitoes.

ERisk.com —

01425

01200000000781


Paul
From: Farrell, Paula
Sent: Monday, January 14, 2002 5:58 PM
To: Atkins, Preston Jr
Ce: Revesz, Paul; Oster, Karen
Subject: FW: National Journal's CongressDaily - Monday, January 14, 2002

Original Message-—~-

From: Knack, Elizabeth

Sent: Monday, January 14, 2002 3:44 PM

To: Ellis, Dina; Farrell, Paula; Hart, Susan; O'Brien, Michael

Subject: FW: National Journal's CongressDaily - Monday, January 14, 2002

Original Message--—-

From: cp-del@nationaljournal.com [mailto:¢p-del@nationaljournal,com)

Sent: Monday, January 14, 2002 6:31 PM

Subject: National Journal's CongressDaily - Monday, January 14, 2002

National Journal's CongressDaily
Issue date: January 14, 2002

Sse

TRADE
U.S. Loses In WTO Ruling On Foreign Sales Corporations

A World Trade Organization appellate panel today affirmed an
earlier ruling against U.S. laws granting tax breaks for business
income earned from overseas operations, The ruling in the foreign
sales corporations case, reported to be the largest the United
States has ever lost before the WTO, delighted European
officials, who called for the United States to quickly bring
itself into compliance with WTO rules while the European Union
holds off on imposing penalties, which could reach $4 billion a
year, But U.S. trade officials signaled their disappointment and
congressional panels now must decide what course of action to
take in response. “We are disappointed with the outcome," said
Trade Representative Zoellick. "The United States respects its
WTO obligations, which serve America’s interests, and we intend
to continue to seek to cooperate with the European Union in order
to manage and resolve this dispute.” Zoellick continued: “This ts
an especially sensitive dispute that, at its core, raises
questions of a level playing field with regard to tax policy. We
will be consulting closely with Congress and affected U.S.
interests regarding next steps.” Senate Finance ranking member
Charles Grassley, R-lowa, in a statement today, said: "The [trade
negotiating authority] bill pessed by the Finance Committee
includes a provision that calls for the next round of the World
Trade Organization to comprehensively address these international
tax issues, So today’s ruling is yet another reason why the

01072

01200000001744


ime WALL STREES JUUKNAL TLESDAY whdrawal and then reinvesting the dif.

The Greens sold some of the stock they
recesved 43 bunuses, But Dell wouldn't let
emplowees sea shares ihe company cur
Irthuted lo their retirement accounts until
they had been ut the company far fire
years. “I (ried so hard to sell.” Me, Green
sayy. “We went around and around.”

The company changed is policy last
sar to alliw all Dell empowers to sell the
shares in thear 401/K? plan and shift the
proceeds into alternatives available
thrawgh the plan. By thea. though, Dell
shares had plummeted. erasing $201,000
from the Greens” 491k! accounts, “That's
35 much as we paid for our house,” Mr,
Green says. Both left Dell earlier this year
for other jobs.

SEC filings show that Nell executives,
though subject tp the saree resinctions oa
their regular 491¢k) accounts, can partic
pale in a supplementary retirement-sav-
ings plan that allows them unmedeately to
reinvest the company's contribution in a
varily of options, Executives have serzed
thar, ust 3° of the supplemen-
tary reterement plan was envested in Dell
stock at the end of last year, according to
the company’s latest 11K filing, compared
with about #7 of Dell's 401ik) plan.

Deli spokesman T.R. Reid declines to
corament on the Greens circumstances.
He says that any employees who lose so
much money om company contributions
could de 0 only because they had made a
oundie ancl! mat polat. And prowling Dell
shares to the employee retirement-savings
plan, he says. “certainly peomdes Incen-
tive to not unily think but act like a share-
holder

‘The company ended the five-year tock-
down rule, Mr, Reid says, because t was

value. And be says Dell executives don't
have to hold company stock in their supple-
mentary plum because they “receive a sig
nificant portion of their compensation in
Dell stuck." and thas they already “have
the broader interests of the company and
shareholders squarely in their sixhts.~
SHC filings show that Dell executives
Donetheless have means Wo protect them:
selves from exposure to the companys
stock, Michael Dell. chairman and chief
executive of the computer cumpany he
founded, transierred a total of 4.1 mulliea
shares, worth $199.2 nullion, into so-called
exchange funds in several Lramsactions be
ween September 19% and May M0. (The
shares accounted for about 1.4% af Mr.
Dell's total company beddings ag the time.
Offered by financial firms to the
wealthy. exchange funds are, in essence.
musual funds that allow holders of large
chunks af 3 single stock w pool their as
Sels, giving them a stake in a diversified,
leserisky basket of securities and. in
some cases, prrstponing tax leadilities, Alto
eether. the value of Mr. Del's bedyed
shares would have fallen in market value
by G85. or S73 malizan. by earlier thes
thonth had he taken ne preceutiens. (The
return on the diversified exehamee fund
sae

nie tule was Lied. em-
pinyees Wie Me. Groen vould get out of
Lherr Def 11k) Beadings only ox with-

icawing money from their accounts, pay
jie meome tax and a 17 penalty an tie

ference,

Or, says Ovil spokesman Mike Maber.
they could have elected “to take thear com>
Persation and not pit it in Uhewr wrk),
amd invest ot in some other stock By do-
ing so, hiemever, they wrekd hare forgone
ie cumpxny's matchang congribution aki
gether. Ur, Maher dectines to comment on
Ur, Dell's transactions. He notes that bie
executives. regular employees who re-
curve upliows are free to sell their shares,
“We're all playing by the same mules.” he
says.

Off the Radar Screen

The hedging maneuvers executives can
‘employ to protect their company holdings
fall largely off the radar screens of rezula-
tors and sharehokders. While the SEC gen-
erally requires that Key executives report
nese iransactions, experts say (he rules
are largely ignored. “We really are only
able to uncover several a month at mest.
hoch leads me to believe that the insiders
are mot filing these as often as they
Should.” says Lon Gerber, director of re-
search 31 Thomson Finaaczal/Lancer Ana-
Iytics, which combs SEC filimet to track
insider trading trends,

Mr. Dweck, bead of the Goldman Sacks
Givision that manages singie-stock invest
Ments for wealthy investors, says his
group's clients disclose their transactions
when required, And Qwest Chairman
Philip Anschi@ recently discised tbat
last May, be entered into a “forward-sale
agTeement” with a brokerage firm. lock-
ing in aS many as 10 million Qwest shares
at close to their thee-current price.
Qwest's share price has since Callen 49%;
{he value of Dir. Asschuis's shares covered
in agreement would Plunged to
Sit million from 994 million. (Those
shares amounted to about 3.2% of Mr. Ans-
‘chutz's total halding of 30) miltion shares,
oF 15% of Quest's shares outstanding. both
Giceetly and through a company he com
tents.

A forward-sale agreement wasn't avail-
able to Joseph
stringing and repairing cable
for 23 years, first for Bell South Corp. and
then in the Salt Lake City area for U S
‘West, which was acquired by Qwest last

year,

A few months ago. he was hooking for-
ward to early retirement next summer.
Bus now, be says, hel Rave to keep wark-
img. The $200,000 in assets be had .in his
Wi20K) in early May has shrunk to roughly
50.00). Part of that loss is attributable to
the retirement pkzn’s rules. which don't
allow most workers tn shaft oat of company:
contributed Qwest shares until age 85. Mr.
Daugherty, who concedes he's a risk-
taker. blames himself for the rest; He vol-
untarily sank the remainder of his 40i¢k!
SAVINKS into Quest stork.

Qwest won t comment on the finances
‘of either Mr. Daugherty or Mr, Anschutz,
But Steve Hammack, a Quest spokesman,
Says US West establishes the poeey of
ontribwing company stock, He notes that
starting Jan. t. 2001. the company heyan
allowing managers to diversify company
stuck contributions they receive this vear
intu other investments available through
ibe plan. The restrictions on umion mem:
bers. he says, are covered by the compa
y's collective bargaining agreement.

NOVEMBER 27, 2001 Page 2 of 2

“The fact is. Mr. Hammack responds
inan email. “the majority of pmpunies in
the U.S. that match emplovee contribu-
tiuns do 30 in their num company stuck. A
good number also restrict enpkiyees from
diversifying out of the company match.”

Ertsa, the federal law governing pen-
aioe plans, provides employees with lillie
‘egal traction to comptain about ther
forced 4011k) holdings, Employer coatriba-
Hons tO retirement-savings plans aren't
generally subject tp fiduciary rules. (as
for employee contributions. employers are
Supposed to choose ~prudentTM investment
options. )

Successful Lobbying

Retirement-savings plans are
from Erisa diversification Tues. im.
‘These rules make it legal for a cumpa-
y's pension ptan to invest more than IU
of its assets in the compaay's own securi-
es. But savings plans such as 401(k)s can
generally invest as much as 100% of the
assets in

gigeargaii
Pal
akc foes
apeeieris
fis
bai
Terkies

participate (p separate retirement savings
plans that don't require them to bold En:
ron stock at ail. Executives can pale as
Mech a3 18% of their salanes and 1M of
their bonuses annwally into these ac-
counts, allocating the money among 4 vari-
sty of Investments.

Further. SEC filings show that so far
this year, many Enron executives were
steady sellers of company stuck they had
accumulated beyond the ambit of their
40i(kis. Former Enron Broadband Ser-
vices Chief Executive Kenneth Rice, for
example. sold Enron shares valued at $23.7
mailion during ihe period, and farmer CEO
fefteey Skilling sold $27.5 million of Enron
sl 3

“We believe it’s Impertant tor employ-
ees Io have @ slake in the company.” says
Karen Denne. a spokeswoenan for Enron.
“Its alyo important that we align em-
ployee and company performance.”

01200000001203



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01200000001133


The Future of Financial Reporting After Enron - Restoring The Public
Trust, Once Again

National SEC Reporting Conference
SEC Institute
New York, New York
December 18, 2001
Lynn E, Turner
Director of the Center For Quality Financial Reporting
Colorado State University

(formerly Securities and Exchange Commission Chief Accountant)

01308

01200000000664


our political base through surrendering to the Hispanic vote is
usually the Democrats’ job. Votes can't be bought with welfare,"
Tancredo said. - by Pamela Bamett

ee

JUDICIARY
High Court Ends Six-Year Fight Over Prozac Drug Patent
A six-year court fight over rights to the lucrative anti-

depression drug Prozac ended today when the Supreme Court refused

to consider reinstating drug maker Eli Lilly Co.'s patent, the
Associated Press reported. Generic versions of Prozac went on the
market shortly after a federal appeals court invalidated a Lilly
patent last year. That patent would have protected Lally's
monopoly until December 2003 and brought in an estimated $4
billion in sales for the company. Lilly sued generic drug
manufacturers for patent infringement in 1996, when the rivals
first sought FDA approval to make a generic form of Prozac. Barr
Laboratories Inc. and other generic drug makers claimed Lilly had
improperly double-patented Prozac to extend its exclusive control
over the drug, and the appeals court agreed, The Supreme Court
did not comment in rejecting Lilly's appeal of that ruling.
Prozac had worldwide sales of $2.6 billion in 2000, the last full
year that Lilly had exclusive rights to it. It was one of the
company’s best-selling drugs, accounting for about one-quarter of
the company's sales,

The high court today also tumed down a chance to set limits
on how far the government can go to protect endangered species.
The case the court refused to review involves shrimp found mainly
in California, but it would have affected government efforts to
protect all dying wildlife. An association of California builders
challenged the constitutionality of the Endangered Species Act
and the way the government handled the classification of shrimp.
The builders group questioned the need for protection for the
shrimp, which are not sold commercially. Paul Clement, acting
solicitor general, defended the shrimp classification.
“Individual species are part of an interdependent web," Clement
wrote. "The significance of a particular species cannot always be
easily determined at a given point in time.”

Finally, a man fired after secretly helping the FBI
investigate an anthrax threat lost his case today. The court
turned down a chance to decide if First Amendment free speech
rights cover a public employee's cooperation with law
enforcement, even when that assistance is against the wishes of
their bosses. Since Sept. 11, justices have not agreed to review
a case that directly implicates terrorism. They declined to take
this one without comment. A judge had dismissed the man's case,
and the 10th U.S Circuit Court of Appeals also said the firing
was proper. The appeals court noted that he was not fired for
reporting the alleged threats, His continued involvement with the
investigation, after telling his boss he would no longer help the
FBI, was not free speech, the appeals court said.

Se

POLITICS
Republicans To Defend More Open Seats In 2002 Races
The retirement announcements last week of GOP Reps, James

2

01076

01200000001748


eSpeed: Building Scalable and Liquid Markets for the Online Trading Community

active buyer or seller a time-based right of first refusal on the next transaction, be it a buy or sell. The
engines were developed to accommodate anonymous trading in @ variety of global markets including the
largest, US Treasuries, to one of the more splintered markets, corporate bonds. As a result, the technology
created is flexible and thereby adaptable to a broad array of financial and nonfinancial products, including
futures, energy, and global debt securities.

‘The eSpeed system is accessible to over 650 clients via multiple connection channels and in multiple
languages. ‘The delivery channels include the Internet, via a Java-based browser; by the eSpeed private
network, via eSpeed Direct, an application programming interface (API); or third-party vendors. Speed
connects its three triangulated data centers and 23 hub cities to multiple client access points with fully
redundant leased-line providers (see Exhibit 2).

= Direct backoffice
processing

* Online billing
* Supports credit
* Access to globally exposure limit for
approved ‘counterparties’ third:
futures exchange party vendors

eSpeed's Business Model

eSpeed’s transaction-based revenue model depends heavily on leveraging its technology solutions to initiate
steategic partnerships and investments in technology. The firm relies on these strategic alliances and
investments with a variety of market participants including technology providers, financial and nonfinancial
services firms, and issuers, These relationships provide cSpeed with access to technological needs and/or
new markets sectors, which in turn provide the firm access to revenue via transaction fees or licensing
agreements (see Exhibit 3).

5
©2001 TowerGroup, Needham, MA USA
May not be reproduced by any means without express parmissinn All rights reserved

01210

01200000000566


far from conclusive.

HOUSE RACES
Sesaions' Old District Site Of A Spirited Texas Showdown

Texas redistricting put more Republicans into GOP Rep. Pete
Sessions' Sth District, but his decision to abandon the
previously marginal district for a safer seat has Democrats
closely watching a competitive GOP primary. “You're going to have
either a no-name Republican or a quy with a lot of money," said
Texas Democratic consultant Ed Martin. Republicans enjoy a 61-39
percent advantage in the new 5th District, which had picked up
GoP-leaning voters in Dallas County but atill has Democratic
votera in 10 mostly rural counties between Dallas and Houston.
Instead of running in the reconfigured Sth District, Seesions has
filed for the more Republican and compact Dallas-based 32nd
District - one of two new seats Republicans will pick up through
redistricting. Five Republicans have filed to run in the March 12
primary, but the race appears to be between millionaire attorney
Phil Sudan, who unsuccessfully challenged Democratic Rep. Ken
Bentsen in 2000, and businessman Jeb Hensarling, a top political
aide to GOP Sen. Phil Gramm who has never run for political
office.

Hensarling, a businessman who once served as National
Republican Senatorial Committee executive director, claims strong
ties to the district, solid GOP credentials and support from
Gramm and other party leaders. Neither candidate begins the race
with high visibility and Hensarling acknowledges that Sudan's
personal wealth could be an advantage in the short primary
season. Sudan spent a cumulative $3 million in the 2000 race
against Bentsen, who represents a Houston-based district. Sudan
filed to run for the Dallas-based Sth District in time for the
Jan. 2 deadline after a potential GOP primary rival opted to run
elsewhere. Hensarling - campaigning on domestic security, the
economy, ¢ducation and rural development - quipped he would be
happy to introduce Sudan to the district. “Once he gets here, I'm
certainly happy to give him a roadmap to Houston,* he said.

But Sudan said voters are concerned about philosophy and
record, not geography. "I won a contested Republican primary. I
defeated a so-called Republican moderate," Sudan said of his 2000
primary. Sudan is campaigning on tax reform and security issues,
opposes abortion and supports gun ownership rights. He said would
“put up a substantial amount of my own money," but declined to
say how much. The GOP nominee will likely face Democrat Ron
Chapman, a former Dallas County appellate judge who has been on
the Dallas County ballot since 1978 and shares the name of a
popular Dallas radio personality. Democrats unsuccessfully sought
to recruit state Sen. David Cain, but describe Chapman as a
promising candidate who could benefit from a strong Democratic
turnout in Senate and gubernatorial races. Chapman, who hopes to
raise at least $1 million and is backed by Rep. Martin Frost, D-
Texas, describes himself as a loyal Democrat who can work with
Republicans to address the war and economic issues. "The general
feeling I get is that there is a lot of dissatisfaction with the
partisan bickering," he said. - by Mark Wegner

POLITICS
Bush Signs Recess Appointments For Reich, Scalia

Circumventing Senate opposition, President Bush signed recess
appointments today for conservatives Otto Reich and Eugene
Scalia. The White House gave Congress formal notification of the
long-threatened appointments early today. By exercising his
executive authority while Congress is in recess, Reich and Scalia
will be allowed to serve until Congress recesses again at the end
of the year. Bush named Reich assistant secretary of State for
Latin America, the top diplomatic post for the region that Bush

‘ 01038

01200000001710


eT TT a a ee |

e Increased focus on potential conflicts of
interest

Internal and external

@ Increased focus on “good governance”
Board / committee monitoring
Board / committee independence

01337

01200000000693


eSpeed: Building Scalable and Liquid Markets for the Online Trading Community

with participants outside the financial industry such as Axia Energy, Coral Energy, Dominion, TXU Energy
Trading, and Williams Energy Marketing and Trading, which provide liquidity and voice-broker support,

As for the technology used by TradeSpark, eSpeed provides its auction-based system, risk and credit
management tools, and network connections.

During the first quarter of 2001, TradeSpark’s trading volume, both electronic and voice-assisted, totaled SIs
billion. This is a $6% increase over the $12 billion traded in the fourth quarter of 2000, which makes the
total volume in the first six months of operation approximately $30 billion. Despite its impressive volumes
and a plethora of liquidity providers, Speed faces some stiff competition in this market segment, including
the New York Mercantile Exchange (NYMEX) and the IntercontinentalExchange, an electronic exchange
for the trading of natural gas and metals. NYMEX currently has an extended-hours electronic trading
system and relies on open outery and voice brokerage for regular hours trading; however, it is in the process
of developing its enymex trading system due out in late summer 2001. As for the Intercontinental! Exchange,
it recently acquired the International Petroleum Exchange (IPE) in London, making it a viable threat even to
the NYMEX. TradeSpark will have difficulty trading on the same level as these exchanges but should be
better equipped to compete against nonexchange market competitors such as EnsonOnline and
HoustonStreet Exchange (see Exhibit 7).

Strengths and Challenges

Company Strengths

The relationship with Cantor Fitzgerald has provided eSpeed the capital for initial technology investments and
partnerships and furnished the contractual rights to its technology in addition to heiping establish the eSpeed
name among Wall Street dealers trading with the parent company. Cantor Fitzgerald's capital set eSpeed in
motion, investing in its own proprietary trading technology without outside assistance from partners or
venture capitalists, giving eSpeed a fair degree of autonomy. By bestowing its technology to eSpeed in
exchange for equity ownership and technology support, the firm provided eSpeed a basis for its revenuc
model by paying both service and transaction fees to its subsidiary. The dealer community uses eSpeed
every day when a transaction is completed with Cantor Fitzgerald, which has given eSpeed exposure to the
street and made those dealers some of its largest clients. This relationship, although seemingly too close at
times, has supplied eSpeed with capital and a connection to the dealer community that will sustain the
platform in the future.

eSpeed, unlike many competing e-commerce firms or technology start-ups, had the backing of an established
Wal! Street broker/dealer with plenty of capital as well as access to capital via its stockholders through its
IPO and subsequent stock offering (in March 2001, with net proceeds of approximately $50 million). This
type of funding has made it possible for eSpeed to invest in venues such as TradeSpark and Freedom
International Brokerage. In addition to these alliances, eSpeed’s investenents in technology continue.
Facilitated by its second equity offering, it recently purchased the rights to the Wagner Patent for futures
trading and TreasuryConnect, an electronic trade communication and execution platform for over-the-
counter derivatives. Investments such as these help build the company's value by creating opportunities for
new business and possible licensing and servicing agreements without the concern of venture capital or other
private funding.

The ability to offer clients and partners access to scalable technology is certainly one of eSpeed’s strengths.
Within this model, eSpeed has provided for client access to both voice-brokerage and electronic trading,
which has helped facilitate the deployment of its trading systems to clients and partners. eSpced’s scalable
model suggests that its technology has a better chance of competing in ¢-trading markets, which are

2
22001 TowerGroup, Needham, MA USA
May not ba reproduced by any maans without express permission. All rights reserved.

01217

01200000000573


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Foundation board who was supposed to be a part of the delegation,
initially joked to CongressDaily that Treasury rejected the
application because "they think we're a bunch of

revolutionaries.” But Glickman quickly added that the rejection
“was a little more complex" than the Bush administration

rejecting the application to appease Cuban American voters.
Glickman said the Farm Foundation may not have engaged in “enough
advance planning in the licensing process.” But Glickman also
added, "The government didn't show the flexibility it needed to
work through the issue" and "could have helped the group" improve
its application.

John Kavulich, president of the New York-based U.S. Cuba Trade
and Economic Council, a pro-trade group, said, "I don't think
anyone should say this is the Bush administration sending a
signal.” But Farm Foundation President Walt Armbruster said ina
telephone interview from Florida, where the group that was headed
for Cuba was holding a meeting, that he "can’t tell” whether the
rejection was the result of an application problem or a political
statement. Armbruster said Treasury officials told him they
rejected the application because there were too many spouses, the
agenda was too "unfocused" and had no strategy for making a
direct sale. But Armbruster said including spouses in trips is
normal Farm Foundation procedure and that "the criteria are not
real clear” for the applications, Armbruster said some USDA
officials and senators and House members tried to intervene with
Treasury, but that he never sought Veneman's help and that he
discussed the matter only with Treasury civil servants, not
political appointees. A USDA spokeswoman said while the agency
called to check the status of the Farm Foundation’s request, no
USDA official acted on the group's behalf. Sen. Byron Dorgan, D-
N.D., said the Farm Foundation rejection is proof "the
administration is tightening restrictions on travel to Cuba" and
"demonstrates how absurd the policy is." Treasury Secretary
ONeill, Dorgan said, told him Treasury is "not actually doing
anything different, but the evidence suggests they are." - by
Jerry Hagstrom

ENVIRONMENT
Yucca Mountain Decision Heading For Capitol Hill Battle

As Nevada officials this week began considering their options
for staving off a nuclear waste repository at arid Yucca
Mountain, Congress emerged as the likely key pressure pomt in
the battle, "We're checking into all parliamentary options,” Sen.
John Ensign, R-Nev., an opponent of the waste site, told the Las
Vegas Sun. Energy Secretary Abraham Thursday designated the
Nevada site as the government's choice for permanent storage of
high-level radioactive waste from weapons plants and nuclear
power stations. But Abraham's designation is not the final word,
triggering a sequence of regulatory and political steps that
waste foes said could derail the plan. After notifying GOP Nevada
Gov. Kenny Guina of his decision on Thursday, Abraham must wait
30 days to notify President Bush of his decision, Bush then has
an indefinite period to ratify Abraham's decision. If he does,
Guinn is given 60 days under law to veto the designation. If
Guinn exercises his veto, the issue goes to Congress. The Sun 01066

2

01200000001738


Affirmed: Iron Trades
http: //www4.ambest .com/press/rr.asp?Refstring-6554465777544655

Actions Taken: Folksam International
http: //www4.ambest .com/prese/rr.asp?Refstring=6554465777554649

Odyssey Re said it would add additional provisions in its
fourth-quarter results for $19.5 million in after-tax net losses
related to the bankruptcy of energy-trading giant Enron Corp.
http://www. odysseyre.com/

BEST'S REVIEW HIGHLIGHTS

Finding Higher Ground: The insurance industry has plenty of
employment opportunities, but companies need to rethink job
descriptions and benefits packages to lure job seekers into an
industry rarely considered exciting or lucrative.

http://www, beatreview,com/2002-01/is_ground. html

From Mountains To Molehills: Insight: Work backlogs can be
cleared if agencies attack the inefficiencies and change their
procedures.

http://www. bestreview.com/2002-01/pc_mountains. html

Anticipating the Benefits: About $80 billion ig allocated to
ordinary life insurance purchases each year, suggesting the
paramount importance of understanding differences in policy
yields between whole life and universal life.

http://www. bestreview.com/2002-01/1h benefits. html

AHEAD IN THE NEWS

Mold claims, which have been plaguing homeowners insurers in
Texas, are beginning to ripple inte commercial liability lines
in California, where insurers are beginning to put mold
exclusions on lines such as general liability.

Baescsesssscscssssssessesssesssssssssess
Top Fraternal Life Societies--2000
http: //wwwd ambest .com/bestweek/ interim. asp?refnum=10503

Turmoil in the Texas Property Market: Financial Performance
Deteriorates
http: //www4.ambest .com/bestweek/ interim. asp?7refnum=10504

01200000001108


Nickoloff, Peter

From: Schultheiss, Heidilynne

Sent: Monday, October 29, 2001 3:59 PM
To: Carleton, Norman; Nickoloff, Peter
Subject: Enron Tries to Dismiss Finance Doubts
October 24, 2001

Enron Tries to Dismiss Finance Doubts
By FLOYD NORRIS

Enron has ample access to cash, the company’s chief executive said yesterday as he assured investors that there
was no need for additional write-offs stemming from unusual financing activities.

In a conference call with investors that was hastily scheduled after Enron's stock plunged on Monday, the chief
executive, Kenneth W. Lay, strongly defended the company’s chief financial officer and said there was no
conflict of interest involved in transactions that the Securities and Exchange Commission was looking into,

But he refused to go into detail on the transaction that Enron made with partnerships run by Andrew S, Fastow,
the chief financial officer, In addition, Mr. Fastow, while declaring that Enron "expects to continue to have
sufficient liquidity to meet normal obligations," declined to answer any questions about it.

The conference call, which began just as trading opened on the New York Stock Exchange, at first seemed to be
reassuring investors, Within minutes of the beginning of the call, the share price rallied to $23.25. But it soon
began falling, and ended the day down 86 cents, at $19.79. The day's low of $19.62 was the lowest since Jan.
12, 1998, and was down 78 percent from the high set by the stock in the summer of 2000.

Until recently, most investors focused on the company’s reported operating earnings, which showed good results
as it became a leading player in energy markets, But the focus has shifted to a series of transactions, some
involving off-balance- sheet financing. One, involving partnerships controlled by Mr. Fastow, led to a $1.2
billion reduction in shareholder equity that raised concern last week and led to S.E.C. inquiries that the company
disclosed on Monday.

One of the company’s strongest supporters has been David Fleischer, an analyst at Goldman, Sachs. But he told
Mr. Lay on the call yesterday that Enron had to be more forthcoming with information. "There is an appearance
that you are hiding something,” he said.

After the call, Mr. Fleischer expressed disappointment. "They've engaged in a number of transactions that one
wonders about, and that are hard to understand," he said in an interview. "They have not been as forthcoming in
explaining them” as is needed, he said. But he said he was still recommending the stock. "I don't think
accountants and auditors would have allowed total shenanigans,” he said. "In the absence of total shenanigans
going on at this company, there is tremendous value here.”

Mr. Lay cited the S.E.C. inquiries as a reason for not discussing details on the transactions involving the
partnerships that were controlled by Mr. Fastow. But he emphasized that both he and the company’s board
“continue to have the highest faith and confidence in Andy.”

Mr, Lay said that auditors from Arthur Andersen had carefully reviewed Enron's reporting in conjunction with
another off-balance-sheet vehicle, called Marlin. That company owns one-third of Azurix, an Enron subsidiary
that owns Wessex, a British water utility. The auditors "have determined there is no write-down required,” he
said under questioning by Richard Grubman of Highfields Capital Management, a money management firm.

. 01294

01200000000649


should be on access to the electricity grid. Further, they both agree that they did not
discuss any matters Enron Corporation had before FERC. However, they disagree on
how the conversation about FERC’s policy on access should be interpreted.

Mr. Hébert believes that Mr. Lay was attempting to tie his support for Mr. Hébert
continuing as Chairman to a change in Mr. Hébert’s position on this policy issue.

Mr, Lay said that because Mr. Hébert was pressing him for an endorsement,’ he took
the opportunity to ask him about his position on access, an issue that he and

Mr. Hébert did not agree on. However, Mr. Lay said he never told Mr. Hébert that

Mr. Hébert’s position on this issue was tied to his endorsement, nor did he imply any
such connection. Mr. Lay told us that during the conversation, Mr. Hébert said that
FERC was addressing some issues and that Mr. Lay would probably be happy with
the direction in which FERC was moving. This statement conflicts with Mr. Hébert’s
recollection, Mr, Hébert told us that he refused to waiver on his policy.

Mr. Hébert’s Chief of Staff and General Counsel were present during all or part’ of the
telephone conversation between Messrs. Hébert and Lay but heard only Mr. Hébert's
conversation. They based their characterization of the substance of the conversation
on what they heard and their subsequent conversation with Mr. Hébert. They both
agree that Mr. Hébert asked Mr. Lay to endorse him continuing as Chairman. They
further agree that they heard Mr. Hébert justify his position concerning the access
issue to Mr. Lay. In addition, they both said that after the telephone conversation,
Mr. Hébert said that he would not get Mr. Lay’s support unless he changed his
position and that he could not compromise his position.

GAO Legal Analysis

Three criminal statutes have some relevance to these circumstances. The first, 18
U.S.C. section 201, a bribery statute, makes it a crime to give, offer, or promise
anything of value to a public official with the intent to influence any official act; the
stabute also makes it a crime for any public official to demand, seek, receive, accept,
or agree to receive or accept anything of value in return for being influenced in
performing any official act. The second, 18 U.S.C. section 210, makes it a crime to
offer or promise money or a thing of value to any person in consideration of the use
or promise to use any influence to procure any appointive office in the U.S.
government. The third, 18 U.S.C. section 211, makes it a crime to solicit or receive
any money or thing of value in consideration of the promise of support or use of
influence in obtaining public office,

Additionally, there are ethics regulations to which all executive branch employees
must adhere, Executive Order 12674 specifically states that an employee shall not
solicit or accept any gift or itern of monetary value from a person or entity seeking
official action from, or conducting activities regulated by, the employee's agency.

The executive order further specifies that employees shal] not use public office for

* According to Mr. Lay, Mr. Hébert expressed concem about the possibility that Pat Wood would be
appointed to replace him as Chairman. Mr. Lay told us that in February, rumors were circulating that
President Bush might appoint Mr. Wood to serve as a FERC commissioner and that the President
might designate Mr. Wood to replace Mr. Hébert a3 Chairman. Mr. Wood was nominated as a
commissioner by the President on April 30 and confirmed by the Senate on May 25.

‘FERC's General Counsel said that sometime after February 9, 2001, he was summoned to

Mr. Hébert's office where Mr. Hébert was already engaged in a telephone conversation with Mr. Lay.

01113

01200000001785


From: Nancy Lazar [nlazar@isigrp.com)
Sent: Monday, December 03, 2001 10:36 AM
To: ISI Reader
Subject: ISI Morning Political Report with Audio
Importance: High

1p pe

In today's POLITICAL REPORT:

Terrorism Insurance Bilis Introduced in Senate
Enron Likely to Engage Washington on Many Fronts
Pivotal House Trade Vote Set for Thursday
Central Bank Watch

This Week in Congress

Senate Confirms Fed Governors

eee nee

Pleagze let us know if you have any questions.

All the best,

Nancy Lazar
212/446-8633

01200000001470


The GATS negotiations are designed to provide transnational
corporations

with the tools they need to take control of much of what
remains of the

‘commons' on this planet. Every service imaginable is on the
table.

including a wide range of public services in sectors that
affect the

environment, culture, energy and natural resources. By
phasing out all

governmental "barriers" to international trade and
commercial competition

in services, the GATS rules are meant to apply to virtually
all government

measures affecting trade in services, from labor laws to

consumer

protection, including regulations, guidelines, subsidies and
grants,

licensing standards and qualifications, and limitations on
access to

markets, economic needs tests and content provisions.

How Enron GATS What It Wants

While it was founded just over 16 years ago with its origins
in the natural
gas business, Enron has quickly become a high-powered,

diversified,

global services corporation. Originally formed out of a 1985
merger

between Houston Natural Gas and InterNorth (a natural gas
company in

Omaha, Nebraska), Enron soon became the largest natural gas
pipeline

distributor in the U.S. By the mid-19908, Bnron had become
the leading

U.S. buyer and seller of natural gas and electricity, with
extensive power

generation ventures overseas. By the millennium, Enron, led
by its CEO

Kenneth Lay, had transformed itself into a multi-sector
service corporation

with five major divisions: Enron ‘Online Services’ commodity
trading

system provides the largest eCommerce site in the world,
dwarfing all

other energy marketing web sites combined. Enron ‘Broadband
Services’

streamlines media applications, customizing bandwidth
solutions on the

Internet. Enron ‘Transportation Services' specializes in the
company's

traditional natural gas pipeline operations. Enron ‘Energy
Services' is now

the company's retail arm for the sale of natural gas and
electricity to both

01200000001021


eSpeed; Building Scalable and Liquid Markets for the Online Trading Community

eSpeed Markets. eSpeed Markets provides major financial institutions access to a central wholesale
marketplace for trading in a variety of financial and nonfinancial securities, including US Treasuries, futures,
and energy (sce Exhibit 5). eSpeed divides its eSpeed Markets coverage into verticals, including Financial,
Energy, Telecom, Chemicals, and Other Industries, constantly evolving its platform to include the latest
financial or nonfinancial products that are ready to be traded electronically. eSpeed powered electronic
marketplaces for Cantor Fitzgerald (serving over 500 financial institutions) and its Cantor Exchange,
TradeSpark (serving over 120 companies), and Freedom International Brokerage fall under this

product category.

ExhibieS

eSpeed Product Offerings

——| a ae
sa

Posepaue Qaverraet bores (ore Bore Deter 4 Fotenvn Fave ost Puchong

eSpeed Software Solutions. cSpeed Software Solutions, formerly eSpeed Private Label, provides
financial services institutions and issuers the opportunity to license eSpeed technology in order to build

a system catering to their specific needs, For instance, the Federal Home Loan Bank (FHLB), @
government-sponsored enterprise that provides financing for housing and substantial issuer of short-term
debt, signed a licensing agreement with eSpced in February 2001 to create the eWindow auction platform.
‘The eWindow platform will be operated by FHLB but will use Speed's trading technology solutions.

FHLB intends to use the system as an origination platform for issuing its FHLB agency discount notes to
participating dealers. cSpeed is currently in beta testing for the system, which the FHLB expects to launch
lute this summer (see Exhibit 6).

8
©2001 TowerGroup, Needham, MA USA
May not be reproduced by any means without @xpress permsso". All fights reserved.

01213

01200000000569


One of the questions that the S.E.C. may look into is whether the termination of those transactions should have
been treated as a balance sheet item, or whether it should have been taken as a loss that affected reported
eamings, An S,E.C. spokesman declined to comment.

Under accounting rules, a company's transactions in its own shares cannot produce profits or losses, whatever
the effect on cash flow. So a company that sells its shares for $10 each, and buys them back at $50, or at $1, will
report no earnings effect. Enron said that the reduction to shareholders equity, and a related reduction in notes
receivable, "is the result of Enron's termination of previously recorded contractual obligations to deliver Enron
shares in future periods.”

Stephen Moore, an analyst with Moody's Investors Service who has put Enron's debt on review for a possible
downgrade, said that while some of the details were not clear, "Essentially, Enron's promise was that a certain
amount of Enron's shares would be worth $1 billion. The shares plummeted, and they were not" worth that
much.

Enron emphasizes its own version of earnings, which leaves out some expenses, and directs attention away from
its balance sheet, which is disclosed only in S.E.C, filings, not in the earnings news release. The reduction in
shareholders’ equity would be shown only on the third-quarter balance sheet, which has yet to be released,

Earlier this year, Jeffrey Skilling, then Enron's chief executive, reacted strongly when a questioner on a
conference call challenged the failure to provide balance sheet numbers when earnings were released. He called
the questioner a common vulgarity that surprised many listeners. Mr. Skilling later resigned for what he said
were personal reasons and Mr. Lay, the chairman and former chief executive, took back the latter title,

While Enron was riding high, its often difficult-to-understand reports were generally seen as not being a
problem. The company appeared to be the dominant force in the business of energy trading, and to be able to
produce phenomenal profits. When Mr. Lay was reported as having played an important role in formulating the
Bush administration's energy policies, the aura was only enhanced. In January, the shares traded for $84.

But now, with some of the company’s ventures clearly having run into problems, it appears that investors are
growing less willing to accept the company’s reports. That the partnership transactions were disclosed at all was
because of the involvement of the chicf financial officer, and some have wondered if there might have been
similar deals with others.

Mr. Lay has promised to make the companys financial reports easicr to understand, and last week's report was at
first praised by some analysts for doing just that.

In a news release yesterday, Mr. Lay said the company welcomed the S.E.C.'s request for information. "We will
cooperate fully with the S.E.C. and look forward to the opportunity to put any concern about these transactions
to rest,” he said.

. 01297

01200000000652


ra

By RICHARD A. OPPEL Jr.

The rapid decline of the Enron
| Corporation has devastated its em-
oyees” retirement plan, which was
| heavy with company stock, and has
| infurtated workers, who were prohab-
| ited from changing their invest-
ments as the stock plunged,
Through the #i(k) retirement
1| Pla, employees chase to put much of
theer savings in Enron shares, and
the company made contributions in
company stock as well. But around
the time Enron disclosed serious fi-
Sancial problems last month, the
company froze the assets in the plan
because of an administrative
3 change, For several weeks, as the
stock lost much of its value, workers
4 ee hoon pons Do their retire.
| Ment savings evaporated. They were
A sot allowed to switch postin vie
{ al = even though the plan had far
i ess risky choices.

ynegy considered whether to seek |
renegotiate its deal to buy Enron, ©
Enron sought co shore up its —
25, Business Day, Page Cl.

|
\
j

has lost 4 percent of its value, |

“RAL Portland General Electric, the |
syDregon utility acquired by Enron |
Sgdour years ago, some workers near- |
Ms Tetirement have lest hundreds of |
of dollars. The utility has

ip grief counselors to help

a work through their problems.

“We had some married couples |

Doth worked who lost as much as

800.000 of $800,000,"" said Steve Lac

£f. an emergency-repair dispatcher

“SE Portland General. “It pretty |
= Such wiped out every emplovee’s

4efarings pian”
Rasen after it was frozen. the

les started coming out about
70mMe of the questionable activities Of |
a -

Fi

THE NEW YORK TIMES. THU!

RSDAY, NOVEMBER 22. 2008

Page 1 of 2

——

| Employees’ Retirement Plan |
| Is a Victim as Enron Tumbles |

Enron,” Mr. Lacey added. “The
stock took a tremendous drop, and
we were pretty much helpless.””

The loss serves as a grim reming-
er of the danger of relying too heav-
ily on one investment. Stock plunges
similar to Enron's have also wiped
out the retirement savings of many
employees of the Nortel Networks
Corporation. Lucent Technologies
Inc. and Global Crossing Ltd.

The loss by Enron's workers also
stands in stark contrast to the profits
made by some senior Enron execu-
tives, who sold stock during the last
few years. Enron's chairman, Ken-
neth L. Lay, made $20.7 million dur-
ing the first seven months of 2001 by
exercising stock options — and more
than $180 million by exercising op:
tions during the three prior years,
Last week, Mr. Lay agreed to forgo a
$69 million severance package after
Enron traders and empiayees made
clear how upset they were that he
would profit from the proposed ac-
quisition of the company by Dynegy
Inc. while they were suffering

Enron — which is already the sub-
ject of a Securities and Exchange
Commission investigation of trans-
actions among Enron and partner-

ships headed by the company’s for-
mer chief financial officer, Andrew
S. Fastow, and a number of share-
holders” suits — now has an addition-
al legal problem.

On Tuesday, Steve W. Berman, a
lawyer from Seattle who represented
states against the tabacco industry,
filed a lawsuit in Federal District
Court in Houston seeking class-ac-
tion status on behalf of Enron em-
ployees who lost money on the stock
through their retirement plan. The
lawsuit says that Enron schemed to
pump up che price of the stock artifi-
cially and violated its fiduciary duty
to its employees by failing to act in
their best interests.

“They were promoting Enron as a
retirement investment vehicle and
matching employees’ contributions
with Enron stock, when they knew
the stock was overvalued, and that's
a breach of their fiduciary duties.”
Mr. Berman said in an interview
yesterday.

‘What's more, he said, the assets
were frozen on Oct. 17, with the stock
at $32.20, even though Enron execu
ves knew there would be imminent
disclosures about the company’s ac-
counting practices. “They knew the
worst news was about to come out,
but they froze the stock,” he said.

Enron closed yesterday at $5.01.

‘The company declined to comment
on much of the allegations because of
pending litigation. A spakeswoman,
Karen Denne, said that the change in

administrators had been in the

en xbot 57 percent of Enron’s 21,000
employees participate in the 491(k)
plan. The company generally match-
es contributions at 50 cems
‘on the dollar, up to 6 percent of their

salary, with Enron stock, which can-
not be sold and put into © ine
vestment until the employee reaches
age 50. But Ms. Denne ald workers
otherwise “have @ range of options”
in which to invest their money,

01200000001204


Enron Corp.
oy 1775 Bye Street, N.W., Swite 600

Ys, es.
he %

October 25, 1999 Yer ALS

‘The Honorable Lee Sachs
Assistant Secretary

Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220

Dear Mr. Sachs:

1 wanted to thank you again for taking the time on October 6 to meet with myself and
other Enron representatives to discuss the President's Working Group on Financial
Markets’ upcoming report on over-the-counter (OTC) derivatives and other policy issues
related to Enron's commodity businesses.

We appreciated your thoughts on the anticipated release of the President's Working
Group report. While you indicated that the report’s recommendations would not likely
impact our existing OTC contra¢ts and commodities business, Enron remains concerned
that the report may contain suggestions that over-the-counter participants be subject to
some form of regulatory requirements in the future.

Enron's position on the matter is simple and straightforward -- there is no need for
additional regulation of OTC derivatives dealers. Current CFTC oversight is
appropriate and sufficient. OTC derivatives markets (particularly energy derivatives
markets) function very efficiently and safely today, allowing us to provide our customers
with essential, custom-tailored risk management tools. We hope that Treasury and the
other financial regulators will agree with our position, and that this view is reflected in
the Working Group report.

We look forward to working with you in the future on these important issues. If we can
provide you with additional information or assistance concerning Enron's businesses,
regulatory and legislative positions, or energy commodity markets in general, please
contact Jeff Keeler in Enron's Washington, D.C. office at 202-466-9157.

Sincerely,

fone H a

Kevin P. Hannon

Natural gas. Electricity. Endless possibilities.TM

01200000001433


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Pree Article: Twelve independent insurance agencies in
Mississippi have merged, creating one of the state's largest
privately owned insurance agencies.

http: //www4.ambest .com/BestDayNews/LoadStory.asp?BSN=47168

COMMERCIAL COVERAGE

Mold claims, which have been plaguing homeowners insurers in
Texas, are beginning to ripple into commercial liability lines
in California.

http: //wwew4 .ambest .com/BestDayNews /LoadStory.asp?BSN=47178

FRAUD

Liberty Mutual Insurance Co. is suing a New Jersey physical
therapy services company and others, alleging automobile
personal injury protection fraud.

http://www. ambeet .com/BestDayNews/LoadStory, asp?BSN=47177

Hartford Insurance Group (NYSE:HIG) said it has filed suit in
Morris County Superior Court against 27 New Jersey residents,
alleging the defendants conspired to stage motor-vehicle
accidents and fake injuries to generate hundreds of thousands of
dollars in fraudulent claims.

http://www. ambest .com/BestDayNews/LoadStory.asp?BSN=47174

LIFE INSURANCE

The forecast for the life insurance industry is cautiously
optimistic, with growth either flat or up anywhere from 3% to
8%, with increasing customer expectations and ongoing mergers a
challenge for 2002, according to directors of LOMA, the
financial-services research organization.

http: //wewd.ambest .com/BestDayNews /LoadStory.asp?BSN=47170

LITIGATION

A San Francisco superior court judge has granted final approval
of a $20 million settlement of a class-action suit against Blue
Shield of California over how Blue Shield communicated the
method it calculated copayments and deductibles, from Jan. 1,
1987, through June 30, 1992.

http: //www4.ambest .com/BestDayNews/LoadStory. asp?BSNe47181

MERGERS & ACQUISITIONS

BBeT Insurance Services said it would acquire a Greensboro,
N.C,-based employee-benefite company, expanding BB&T’s focus on
that line.

http: //wew4.ambest .com/BestDayNews /LoadStory.asp?BSN=47171

XL Capital Ltd. (NYSE:XL) said it has acquired a minority
interest in Stanfield Capital Partners LLC, an investment-
management company, and completed the acquisition of a 67%
interest in Le Mans Re.

2

01200000001111


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01200000000773


chief of staff at FEMA. Douglas worked at the NRCC from 1994-99,
serving as deputy executive director. The committee also hired

Ted Christian and Andrea Horton as two new field representatives
to track regional House races. Christian formerly served as
executive director of the New Jersey Republican Party. Horton, &
consultant with the Texas firm Olsen, Delisi & Shuvalov, has

served in the press shop of Texas Attomey General John Cornyn.

a a 7

THE FINAL WORD

* [That piece of garbage .”

- Las Vegas Mayor Oscar Goodman, quoted in the Las Vegas
Review-Joumal today, characterizing Energy Secretary Abraham
following Abraham's official designation of a site at Yucca
Mountain, Nev., 90 miles from Las Vegas, as the nation’s nuclear
waste repository. Goodman said he would marshal mayors from
cities at nuclear waste shipping points across the nation to help
fight the waste plan.

85 =

CongressDaily is published daily, Monday through Friday, by
National Journal Group Inc. Copyright 2002 by National Journal
Inc., 1501 M St., NW, #300, Washington, D.C. 20005.
Retransmission, redistribution or reproduction of CongressDaily
is prohibited without the express, written permission of National
Journal Group Inc.

To read CongressDaily on the Web, contact 1-800-207-8001 or
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President—John Fox Sullivan, 202-739-8468 (jsullivan@njde.com)
Publisher--Steve Hull, 202-739-8475 (shull@njde.com)
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Executive Editor--Keith White

Senior Managing Editor/A.M. Edition-Robert Ourltan

Senior Editor--Charlie Mitchell

Associate Editor—Greta Wodele

Assistant Editor—Chuck Jordan

Reporters-Pamela Barnett, Lisa Caruso, Geoff Earle, Keith
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Special Correspondents—Jerry Hagstrom, Julie Rovner
Subscription price: $2,649 a year. Subscription and e-mail
transmission information: 202-266-7230 (cngdaily@injde.com).

=.

CDENDIT

v

01071

01200000001743


WSJ.com Page 4 of 6

as a bid to expand her agency’s authority.

At the industry's urging, then-House Banking Chairman Jim Leach, an lowa Republican, called a private
emergency meeting of the regulators in late June 1998, summoning Ms. Born from Georgetown
University Hospital, where her daughter was undergoing knee surgery. The regulatory staff and
lawmakers berated Ms. Born for more than two hours in a fruitless effort to persuade her to stop her
campaign.

Three months later, the Long-Term Capital Management crisis erupted. "You are welcome to claim
some vindication," Mr. Leach told Ms. Born at an October 1998 congressional hearing.

In the subsequent months, Ms. Born intensified her campaign for greater derivatives regulation. And she
appeared to be gaining support. Several studies, task forces and panels were formed, recommending
lenders perform better due-diligence when dealing with high-risk traders and that trading firms improve
tisk-management models.

A coalition of regulators, including the Fed, Treasury, CFTC and SEC, meanwhile, wanted to force
hedge funds to make public more information about their holdings, a recommendation Rep. Richard
Baker, a Louisiana Republican, incorporated into a proposed law, They also recommended extending the
powers of both the SEC and the CFTC over unregulated affiliates used by regulated firms to conduct
particularly risky trades. That could have brought Enron under the CFTC's jurisdiction, since Enron had
a futures brokerage affiliate that was already registered with the agency.

An industry panel with Gerald Corrigan, a former president of the Federal Reserve Bank of New York
and now a managing director at Goldman Sachs Group Inc., acting as co-chairman made several
recommendations. One called on banks and Wall Street dealers to make a quarterly disclosure to their
regulators of their 10 biggest exposures in each of several categories of risk. It also called for them to
identity the parties on the opposite sides of those transactions.

No Consensus

Though some Wall Street firms, including Goldman, now meet informally with regulators to discuss
their exposures, the panel's recommendations were never formally implemented. "There simply was not
@ consensus" among either regulators or dealers “that it was worth the time, energy and cost to do it,”
says Mr. Corrigan.

Meanwhile, the derivatives industry was fighting the push for more regulation. The effort was
spearheaded by trade groups like the International Swaps and Derivatives Association and the Managed
Funds Association, which represents hedge funds. Enron also joined the battle.

Over the years, the company had built a formidable lobbying machine, with a staff of 28 in Washington
alone, most of whom have been laid off since the company’s recent collapse. Enron also paid $2.1
million last year to about a dozen Washington lobbying firms to work on a range of energy and financial
issues, more than double the fees it paid in 1997, according to the Center for Responsive Politics, 2
nonprofit group that studies the role of money in politics.

To date, the only significant changes in OTC derivatives laws have been those largely endorsed by the
industry, such as removing legal obstacles to the creation of common clearing corporations for settling

derivative trades among multiple parties. Another change, removing legal obstacles to two participants
treating offsetting contracts with each other as a single position, is expected to be part of new

http://interactive.wsj.com/archive/retrieve.cgi?id=SB 1008202066979356000.djmatemplates... 12/13/01

01223

01200000000579


information about the value of companies, The Garten Committee was established to
study this issue. Its report this summer recommended the SEC develop a concept release
soliciting public comment on the issue. In addition, the SEC staff called upon the AICPA
to take steps to ensure the comparability and consistency of these types of disclosures,

Many have suggested that these types of disclosures be made optional or voluntary. That
takes no effort as there is nothing that prevents a company from making these types of
disclosures today. Nothing that is, but management itself.

1 urge the SEC to move forward with a concept release or perhaps in light of Enron, go
directly into rule making. I believe all companies should be required to disclose the ten
or twelve most significant key performance indicators, or KPI’s as they are commonly
referred to. This should be a flexible disclosure system that at least initially permits each
company to determine which KPI's are most relevant to measuring the performance of
the company, and then disclose those on a consistent basis with disclosure of how those
indicators are determined.

And I would be remiss if | did not also say | wholeheartedly support Chairman Pitt and
Chief Accountant Herdman in their call for financial statements written in “Plain
English.” J tell you that all too often the legal community has nothing up on the
accountants when it comes to disclosures that often read as if the attomeys had written
them. And certainly GAAP does not require this so we cannot blame this on the FASB or
other standard setters, Those who prepare financial statements as well as auditors need to
step back, remember who our audience is, one out of two Americans, and write the
disclosures in a fashion that is much more understandable and user friendly. We need to
keep in mind that GAAP and the SEC rules are not “maximum levels of disclosures you
Must stop at, but rather are minimum levels that may very well need to be supplemented
to give an investor a clear understanding of what is being discussed.

Former SEC Chairman Ray Garrett had it right when in 1975 he said:

“In the final analysis, it seems to me that rules are a necessary part of
financial disclosure and that it is only fair to allow people to predict
accounting outcomes of transactions at the time they are entered into. On
the other hand, it is not reasonable to expect that rules will serve as an
immunization against the obligation to reflect reality in financial
statements, Rules, therefore, can only be regarded as a minimum. Good
information for investors requires good will and good sense as well as
good rules (emphasis added).

Thinking back to some of the financial statements I have prepared in the past, I know I
could have done a better job on this point myself. And this is a recommendation all of us
can implement immediately without a rule being forced upon us. | say “Lets go do it and
do it this year!”

Time To Reconsider For Mandatory Rotation

14 01321

01200000000677


but the highest net worth individuals and institutional investors as a means of establishing a
synthetic exposure, The commercial and investment banks interviewed also generally noted that
retail investors currently have access to a wide variety of securities and derivatives products to
gain exposure to equity securities, including equity-linked notes, warrants, exchange-traded
funds, mutual funds, exchange-traded options and, likely in 2002, exchange-traded security
futures,

2. Interest Rate Products

Several interviewees noted that there was very little demand for interest-rate swap
agreements at present except among institutions and high net worth individuals that already
qualify as ECPs. For example, one firm remarked that, to the best of its representatives”
recollections, it had never entered into fixed income swaps with an entity that owned or had
under management less than $100 million in assets.

Some interviewees said that non-ECPs could potentially use interest-rate swap
agreements to obtain the benefit of more favorable interest rates on houschold or small business
expenses, such as mortgage or consumer debt, separately from the underlying loan. These
interviewees added, however, that at the present time, it is convenient for non-ECPs to refinance
a mortgage or transfer consumer debt, and the ability to enter into an “unbundled” swap
agreement would not appear to offer retail customers a cost-effective or convenient alternative.

3, Energy

Several interviewees stated that non-ECPs may have an interest in swap agreements on
energy products, such as electricity, natural gas, and heating oil, as a tool to assist small
businesses and households in controlling energy costs. One firm further indicated an interest in
offering such contracts as a third party — i.e. to provide risk management transactions for such
commodities without also supplying the underlying commodity.

This firm noted that, as a result of the deregulation of the energy markets in certain states,
houscholds and businesses have entered into forward contracts for full or partial energy
requirements with competing energy providers at fixed or capped prices. It was further noted
that, in localities where physical delivery of energy products may be restricted because of
regulatory or operational constraints, cash-settled swap agreements have in some cases been
available for ECPs in order to provide them a means to hedge their exposure to price
fluctuations. Accordingly, small businesses and, to some extent, households that are not ECPs
may similarly desire to enter into swap agreements in order to control their energy costs when
forward delivery contracts are not available; in this firm's view, current uncertainty about the
status of such contracts under the CEA has hindered their development.

Some interviewees, however, opined that the current tax treatment of gains and losses on
swap agreements entered into by individuals (and outside the context of conducting a trade or

business) to hedge energy costs may make such agreements less attractive. They indicated that
while gains on cnergy swap agreements would be fully taxable, losses on these swaps either

01866

01200000000522


Board of Governors of the Federal Reserve System
Department of the Treasury
Commodity Futures Trading Commission
Securities and Exchange Commission

December 26, 2001

The Honorable Richard B, Cheney
President of the Senate

United States Senate

Washington, D.C. 20510

Dear Mr. President:

We are pleased to transmit our report on retail swaps as required by the Commodity
Futures Modernization Act of 2000 (“CFMA").

The CFMA directed the Board of Governors of the Federal Reserve System, the
Secretary of the Treasury, the Commodity Futures Trading Commission, and the Securities and
Exchange Commission (the “agencies”) to study issues regarding the offering of swap
agreements to retail customers, principally small businesses and individuals.

Specifically, the study was to address the potential uses of swap agreements by retail
customers; whether financial institutions are willing to offer such swap agreements; the
appropriate regulatory structure, if any, to address customer protection issues with respect to the
offering of such swap agreements; and other matters the agencies deemed necessary or
appropriate to address. The agencics interviewed several potential market participants whose
views are described in the report.

The CFMA also directed the agencies to submit a report to Congress on the findings and
conclusions of the study, along with any recommendations for legislative action.

As indicated in the report, the agencies do not recommend legislative action at this time
for swap agreements offered to retail customers.

Staff of the Federal Deposit Insurance Corporation, the Federal Reserve Bank of New

York, and the Office of the Comptroller of the Currency worked with the agencies during the
study and participated in the preparation of the enclosed report.

01859

01200000000515


>>

>>

> prttenenesees:
> >This e-mail is the property of Enron Corp. and/or its relevant affiliate and may contain confidential
and privileged material for the sole use of the intended recipient (s). Any review, use, distribution or
disclosure by others is strictly prohibited. If you are not the intended recipient (or authorized to
receive for the recipient), please contact the sender or reply to Enron Corp. at
enron.messaging.administration@enron.com and delete all copies of the message. This e-mail (and
any attachments hereto) are not intended to be an offer (or an acceptance) and do not create or
evidence a binding and enforceable contract between Enron Corp. (or any of its affiliates) and the
intended recipient or any other party, and may not be relied on by anyone as the basis of a contract
by estoppel or otherwise. Thank you.

> DUTATPNTR THER RNEAEASANANONEREREREREEEERERTRETRERTREESERSAA RA SAE AGEN AS

Anan en ERERTR AEH ER ERTS EN ERE REEMA eRe EEE TAN AE En ER

>>
>>
>
>

>Sign-UP for your FREE Backpacker Email at http:/www.backpacker.com/email
Oreo rre ree eerrrere)

>P.S. Click here to get a FREE trial issue of BACKPACKER:

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<http://go.msn.com/bql/hmtag3_et!_EN.asp>

01084

01200000001756


National Trade Council which is internationally recognized
as a strong
backer of the WTO, as well as a prime mover behind granting

the

President fast track authority over all trade negotiations.

White House Power Broker

What makes Enron even more pivotal in the GATS negotiations
is its

extraordinary economic and political clout. Between 1999 and
2000 alone,

Enron's total revenues increased by a whopping 151.3
percent, from $40.1

billion to 100.8 billion -- putting its current financial
woes in context. During

this period, the corporation's electricity sales doubled,
mainly due to

exploiting the California energy crisis, while its sales in
natural gas rose

by a third. As a result, Enron was ranked 16th on the Global
Fortune 500

and 6th on the U.S, Fortune $00 in 2000. In the first
quarter of 2001, the

company posted a 281 percent increase in revenues and a 20
percent

increase in net income.

At the same time, Enron's reach into the White House has
become

legendary in Washington circles. While the corporation's
political ties were

well established with the presidencies of George Bush Sr.
and Bill Clinton,

they are now much more entrenched in the administration of
George W.

Bush. Enron's CEO, Kenneth Lay, is especially well placed-
During the

2000 presidential campaign, Lay was a leading member on
Bush's Pioneer

Group, composed of the 400 plus people who personally
contributed one

hundred thousand dollars or more to his election drive. Lay
was the

number one career donor to the Bush campaign, contributing
$318,050 in

2000. Enron gave another $300,000 to Bush's inauguration

party.

When it comes to energy policies, Enron's political clout in
the Bush

Administration is simply awesome. According to Mother Jones
magazine,

Enron's Kenneth Lay is Bush's top energy advisor. Not only
is Lay a key

01200000001023


WSJ.com Page 1 of 6

December 13, 2001
Page One Feature

Enron Lobbied Hard to Limit
Oversight of Trading Operations

By MICHAEL SCHROEDER and GREG Ir
Staff Reporters of THe Watt STREET JOURNAL

WASHINGTON — A year ago, when most of the political world was obsessed with the deadlocked
presidential election, Enron Corp. was quietly but aggressively lobbying Congress, Its object: a little.
noticed bill shaping federal policy toward the complex financial instruments known as over-the-counter
derivatives.

In 1989, the Houston energy giant, originally a utility that produced and transported natural gas and
electricity, had begun shifling its focus to energy trading. It soon came to view the burgeoning market
for derivatives -- financial instruments that derive their value from an underlying commodity or wager
‘on the future -- as the key to its ambitious expansion plans. And it wanted as little government
interference with that market as possible.

The company’s lobbying campaign was so aggressive that staff members of one congressional
committee asked a lobbyist for an Enron-led industry group to negotiate major aspects of the bill
with regulators. In the end, Enron had provisions inserted in the law that blocked federal oversight of
some of its major corporate product lines, such as energy and metals derivatives, and its EnronOnline
energy -trading network.

Now, once-mighty Enron is in bankruptcy court. Its market value has plunged since last year to about
$500 million from more than $77 billion, But one of the most striking features of its rapid decline was
that financial regulators had little clue what was going on inside Enron. That's at least partly because
Enron -- as much as any company in America - had invested a lot of time and money over the past
decade in keeping government out of its business.

‘Crisis of Confidence’

Wednesday, the House Financial Services Committee belatedly jumped in. Lawmakers heard from
Joseph Berardino, chief executive of accounting firm Arthur Andersen LLP, who said that Enron's
collapse had created a “crisis of confidence" in the accounting profession, And they heaped criticism on
the company and on Andersen, its auditor, for issuing financial statements they said failed to reflect the
shakiness of Enron's condition,

Rep. John LaFalce, a New York Democrat, echoed the sentiments of many
the rise and fall of committee members when he called Enron's collapse a wake-up call, "How
Enron. many more Enrons are out there, and what are the systemic factors that made
this collapse and other future collapses possible?" asked Mr. LaFalce.

> ‘See full coverage of

> Listen to the Enron - a a, a
haaring in the House, || Wednesday, the Securities and Exchange Commission said it is considering
by arrangement with new regulations this year to require more precise disclosures about

hittpy//interactive.wsj.com/archive/retrieve.cgi?id=SB 0082020669793 56000.djmé&template=... 12/13/01

01220

01200000000576


save the Medicare+Choice program, since the Centers for Medicare
& Medicaid Services recently decided that health
participating in the program will only receive a 2% pay increase
in 2003.

http: //www4.ambest .com/BestDayNews/LoadStory.asp?BSN#47251

COMMERCIAL COVERAGE

Major commercial property/casualty premiums are uniformly on the
upswing, some by as much as 200%, and confusion reigns in the
market as carriers try to decide what they can and cannot cover
and at what price, following the terroriem of Sept. 11.

http: //www4.ambest .com/BestDayNews/LoadStory.asp?BSN=47233

EARNINGS

‘The Allstate Corp. (NYSE: ALL) said it took a $107 million
fourth-quarter charge related to restructuring expenses, The
company also said that it will pay $59 million to settle a
diminished-value lawsuit.

http: //wwwd.ambest .com/BestDayNews/LoadStory.asp?BSN=47243

FINANCIAL

Conseco Inc. (NYSE:CNC) said it has repurchased $34 million of
public debt due to mature this year since its last debt
reduction update.

http://www. ambest . com/BeatDayNews/LoadStory. asp?5SN947245

HEALTH

Several of the largest health maintenance organizations in
California are joining together in what's being called a
groundbreaking initiative that includes paying bonuses to their
contracted physician groups based on the care they provide and
patient satisfaction.

http: //wewd.ambeest .com/BestDayNews/LoadStory. asp?BSN=47241

LEGISLATION

New York lawmakers have passed a health-care reform bill that
hinges on the conversion of Empire Blue Cross/Blue Shield to
for-profit status

http: //www4.ambest .com/BestDayNews /LoadStory.asp?BSN=47248

Protecting insurers' use of credit scoring, fighting a proposed
federal charter and development of a federal reinsurance
terroriam backstop are among the National Association of
Independent Insurers’ goals this year, said Jack Ramirez,
president of the NAII.

http: //wewd.ambest .com/BestDayNews /LoadStory .asp?BSN=47230

LITIGATION

01200000001105


"Downgrades can deny them access to the capital markets," said Marty Whitman, chairman, Third
Avenue Funds, New York City.

The company will have to increasingly rely upon secured bank lending. And with Enron's assets tied
up in banks" hands, “investors will not want to take a look at the company’s common” stock, Whitman
said.

"Investor confidence is a credit issue for a trading company,” said Bob Grossman, chief credit officer,
Fitch. Enron bonds remain on Rating Watch Negative.

Crucial will be Enron's ability to maintain its trading relationships with its counterparties. It will also
have to avoid further losses and maintain its liquidity and demonstrate credit raising capability, said
Grossman.

The company has a liquidity plan that it's working on. "We are waiting to see how well they can

execute it," Grossman said. There are factors that they have control over, and others that they don't,
he added.

Search For Liquidity On
In an effort to support its capital position, the company was reported in Tuesday's Wall Street Journal
to be seeking a cash infusion of $2 billion. The company was approaching buyout firms and power
trading companies, according to the article.

And, in the current investment environment, liquidity is paramount, especially for a company that
uses a lot of cash, said Lutheran Brotherhood’s Haag.

"Anyway the company can improve its liquidity will help,” Haag said.

But creditors might be putting the company on a tighter leash. Not only is liquidity crucial, but so are
the terms on which it's offered, added Haag.

“There is a sense that the banks are grabbing up all the best security," said Harold Rivkin.

in a further move to allay investor concerns, it was reported by CNBC reporter David Faber on
Tuesday that Enron would take steps to make it much easier to understand its complex partnerships.

This concession to investor fears can't have come too soon.
*I'm very alarmed about off-balance sheet debt,” said Third Avenue Funds’ Whitman.
The company did not respond to a telephone request for comment.

-By Michael C. Barr, Dow Jones Newswires; 201-938-2008;

michael .barr@dowjones,com

* 01303

01200000000658


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Joint Report
on Retail Swaps

As Required by
Section 105(c) of the
Commodity Futures Modernization Act of 2000

Board of Governors

of the Securities and
Federal Reserve Department of Commodity Futures Exchange
System the Treasury Trading Commission Commission

December 2001

01855

01200000000511



Kelly A. Chesney Gary Townsend
Vice President/Atiomey Friedman, Billings, Ramsey & Co. Inc
First National Bank of Chicago .

Barbara Wierzynski
Jeffrey S. Lillien Executive VP & General Counsel
First Vice President/Legal Counsel Futures Industry Association, Inc.
First National Bank of Chicago

Linda Hannafey
Austin Rodgers Assistant Vice President
Senior Vice President General Re Financial Products Co.
First Union National Bank

Shek Leung
Steven Abrahams Assistant Vice President
Director General Re Financial Products Corporation
Freddie Mac eon

Jira Regan -
Henry J, Cassidy Vice President
Senior Vice President General Re Financial Products Corporation
Freddie Mac

Wendy L. Gramm
John Cresham Director, Regulatory Studies Center
Associate Tax Counsel George Mason University
Freddie Mac

Gerald A, Hanweck
Mike Dawson Professor of Finance
Freddie Mac George Mason University
Elizabeth Mancini Robert N. Mottice
Manager of Acctg. Policies & Procedures Executive Director
Freddie Mac George Mason University
Thomas A. McKenna Ted Barnhill
Assistant General Counsel Professor of Finance
Freddie Mac George Washington University
Lynn Oliver Cathy Cole
Sr. Financial Analyst George Washington University
Freddie Mac

Robert Weiner
Melinda L. Reingold Associate Professor
Assistant General Counsel George Washington University
Freddie Mac

Lynn A. Stout
Lijue Wang Professor of Law
Risk Analyst IV Georgetown University Law Center
Freddie Mac

John Walsh
Luise Welby Executive Director
Senior Counsel Group of Thirty
Freddie Mac

Jobn Riley
Tyler Yang Minority Professional Staff
Director House Committee on Agriculture
Freddie Mac

Page 5

01200000000719


poo24 Page 1 of 2

FROM THE OFFICE OF PUBLIC AFFAIRS

FOR IMMEDIATE RELEASE
January 15, 2002
PO-924

REMARKS OF TREASURY SECRETARY PAUL O'NEILL
TO THE NATIONAL RETAIL FEDERATION

Good aftemoon, It’s wonderful to be with you today. I want to take a few moments to make some
remarks about what we're up to in Washington, and then I'd like to hear from all of you. As retailers, you
are the first to sense changes in consumer behavior, and therefore sense the direction our economy is
taking. Hearing from you about what you are secing in your stores is crucial in helping me do my job.

I saw the forecast you made and also the data released this morning on retail sales from December. They
fit into my overall view of where we are today - we see signs that the economy is improving, but the
signs don't give a clear indication that our rate of improvement will be as strong as we'd like it to be.
When I talk to executives in different industries, I hear different outlooks. In some cases, I hear that
inventories are at record low levels - a good sign for an imminent recovery. Others tell me, however,
they see no prospects for new orders. The signs are mixed, and growth forecasts reflect that - suggesting
that we'll have positive growth, but less than the 3-plus percent rate that we'd like to return to quickly.
That's not good enough. It's especially not good enough for the people who've lost their jobs since this
recession started last March.

We need to take action to strengthen our recovery and speed the process of putting Americans back to
work, Last month, we were very close to getting an economic security package through the Congress,
but we didn't get it done, The President has told the Congress and the nation that we will continue to
push for tax changes that will increase business investment and job creation and put money in the hands
of consumers.

Getting the economy growing again is good for working American families, good for retailers like all of
you, and also good for the federal government's budget. As you know, the economic slowdown has
virtually eliminated federal budget surpluses for the next two years. The tax cut enacted last summer
accounts for about 15% of the reduction in this year’s surplus, new spending in the wake of the
September 11 attacks accounts for about 20%, and the rest - two-thirds of the reduction - is the result of
the slower economy. For example, the CBO reports that when first quarter revenue is adjusted for the
one time shift in timing that was legislated last year, corporate tax receipts would have been down 40%
quarter over quarter. The President's tax relief package did not reduce corporate taxes at all in 2001 ~ the
decline is entirely due to the slowdown in the economy.

The sooner we get the economy growing again, the sooner we will return to the era of budget surpluses.

http://www.treas.gov/press/releases/po924.htm 01/16/2002

01200000001181


EnronOnline - Press Room Page | of 2

Enron Communications Announces First Commodity Ba

trron Press Room
Ervon investor Relations Trade _
Presentations
Research

Legal & Privacy HOUSTON: Enron Communications, Inc., a wholly-owned subsidiary of Enron Corp. and a leade
delivery of high-bandwidth application services, announced today the first forward trade of bandw

FOR IMMEDIATE RELEASE: Thursday, December 02, 1999

“This is ‘Day One’ of a potentially enormous market,” said Jeff Skilling, Enron president and chie
officer. “Most companies that need bandwidth today are only able to secure inflexible multi-year
‘set amounts of capacity - just like ofl contracts In the 1970s, natural gas contracts prior to 1990 a
power contracts prior to 1994. As was the case in those industries, the market structure for band
currently inefficient and expensive. We are demonstrating that bandwidth can be traded under f+
based contract structures with the assurance that quality standards are in place and monitored r
the buyer and seller."

The trade will result in a monthly incremental contract for DS-3 bandwidth between New York an
Angeles that can move data at about 45 megabits per sacond-a speed that allows the tranemiss:
streaming video and other bandwicth-intensive applications,

The seller in the transaction will be Global Crossing, a workiwide leader in the construction and
high capactty telecommunications networks.

“We are excited to be a part of this new concept. As a large-scale bulider of network infrastructu
always interested in developing new, creative ways to bring bandwidth t market. We congratula
their leadership, and look forward to working with them,” said Jon Tingley, president of Global C
Services,

Also today, Enron Communications announced that the “North American (New York - Los Angel
Benchmark Segment"=-the commodity benchmark for bandwidth crossing the US—will scan be ¢
the “Atlantic (New York - London) Benchmark Segment” for trading bandwidth intemationally. Th
Segrnent links the US and European locations beginning with the UK pooling point, located in Gt
Crossing’s Landon facility,

“The North American Benchmark Segment is now open for business. The Atlantic Benchmark S
expected by May 2000," said Tom Gros, Enron vice president for global bandwidth trading.

About Enron Communications

Enron Communications delivers the Enron Intelligent NetworkTM, a Pure IPTM broadband overlay
intemet, Enron Communications also provides rich, multimedia ePoweredTM application services
bandwidth management services that enhance online commerce and communications. In early 2
Enron Intelligent Network will extend its reach to Europe, Japan, Asia and South America with m
POPs and focal ePowered distribution partners. Enron Communications offers [SPs and network
range of bandwidth transport solutions that enable businesses to handle high traffic and high bit

wholly owned subsidiary of Enron Corp., Enron Communications can be found on the web at ww

Enron is one of the world’s leading electricity, natural gas and communications companies. The

which owns approximately $34 billion in energy and communications assats, produces electricity
gas, develops, constructs and operates energy facilities worldwide, delivers physical commaditie
financial and risk management services to customers around the world, and is developing an Int

01422

http://www. cnrononline.com/docs/marketing/PressRoom/M7114/ 12/4/01

01200000000778


Prom: Michael Sendow [msondow®iciiu.org]

Sent: Saturday, December 01, 2001 8:06 PM

To: Hague Convention list

Subject: [Hague-jur-commercial-law] Enron, Int'l Trade, & the US
Government (cont'd)

http://www. corpwatch.org/trac/issues/wto/featured/2001/tclarke.heml

"In 1989, George W, Bush intervened, as governor of

Texas, urging the Argentine government to grant
Enron the contract to

build a pipeline from Argentina to Chile. The
Argentine Minister of Public

Works told reportera Bush's intervention amounted to
influence peddling.

Nevertheless, Enron was awarded the contract shortly
after Bush was

publicly seen socializing with then president of
Argentina, In 1995, the

Clinton Administration threatened to cut off
development aid to

Mozambique if it did not sign a deal for Enron to
construct a pipeline from

Mozambique to South Africa. Declared Mozambique's
natural resources

minister, John Kachamila: "Their diplomats,
especially Mike McKinley

(deputy chief of the U.S. Embassy), pressured me to
sign a deal that was

not good for Mozambique. He was not a neutral
diplomat. It was as if he

was working for Enron."

Hague-jur-commercial-law mailing list
Hague-jur-commercial -lawelists.eszential.org
http: //lists.essential.org/mailman/listinfo/hague-jur-commercial-law

01200000001032


page 2

We appreciate the opportunity to convey this report to you.

Sincerely,
t, 4 —
fh } an j . .
ee tu Hh i GX Dan
. } Paul H. O'Neill

nn Secretary
Board of Governors of the Federal Reserve Department of the Treasury
Jafies E. Newsome
Chairman
Commodity Futures Trading Commission Securities and Exchange Commission

01858

01200000000514


New

The rk Tines Nevember 23, 2201 Page 2 of 2

Employees’ Retirement Plan Becomes

j

a Victim of Enron’s Stumble —

Helpless workers
stand by as their
savings evaporate.

Gerry 0 Connor, a senor consult-
ant with the Spectrem Group, a com
suiting firm based in Chicago, satd it
was not u:common for companies to
freeze = when administrators
were switched. If yea don't, you can
wind up with misallocated money,
wrong statements, and all kinds of
complicating factors,” he said

But a heavy dose of assets in one
company stock has been a concern to
many specialists in retirement plan-
ning. Employees are taking ‘“a lot of
risk, but they don’t think of it as
seach,” Mr, O'Connor said.

“They say, “You know, I work for
this company, and we're doing
great,"

In addition to the swoon in their
401 (k) plans, Enron employees have
watched the value of their stock op-
tions wither. Enron gave a far larger
percentage of employees options
than most companies do, but now,
‘with the fall tn Enron shares, nearly
all of those options are worthless.

Enron's tumbling fortunes have
come as a particular shock to some
of its workers tn Oregon. About 95
percent of the 2,700 employees of
Portland General, which Enron re-
cently agreed to sell to help it raise
badly needed cash, are invested in
the 401(k) plan, said Scott Simms, a
spokesman,

‘The losses, he added, have hit ev-
eryone “including officers all the
way through to other staff.”

“It's certainly not something in
which certain employees have lost
out and others haven't” he said, “It
was the same plan for everyone.”

In an interview with The Orego
nian in Portiand, Peggy ¥. Fowler,
Portland General's chief executive, |
sald the asset freeze was an unfortu-
nate coincidence, “The timing cauid-
n't have been worse,” she said.

“We refer to our retirement pro- ©
gram as a three-legged stool — So- +
cial Security, the company pension |
and the 401(k).” Ms. Fowler said.
“One of the jegs has been cut off.”

01200000001205


Oster, Karen

From: Farrell, Paula

Sent: Monday, January 14, 2002 5:58 PM

To: Atkins, Preston Jr

Ce: Revesz, Paul; Oster, Karen

Subject: FW: National Journal's CongressDaily - Monday, January 14, 2002
~----Original Message-----

From: Knack, Elizabeth

Sent: Monday, January 14, 2002 3:44 PM

To: Bllis, Dina; Farrell, Paula; Hart, Susan; O'Brien, Michael

Subject; FW: National Journal's CongressDaily - Monday, January 14, 2002

~---Original Message-----
From: cp-delanationaljournal.com [mailto:cp-del@nationaljournal.com]
Sent; Monday, January 14, 2002 6:31 PM
Subject: National Journal's CongressDaily - Monday, January 14, 2002

National Journal's CongressDaily
Issue date: January 14, 2002

TRADE
U.S. Loses In WTO Ruling On Foreign Sales Corporations

A World Trade Organization appellate panel today affirmed an
earlier ruling against U.S. laws granting tax breaks for business
income earned from overseas operations. The ruling in the foreign
sales corporations case, reported to be the largest the United
States has ever lost before the WTO, delighted European
officials, who called for the United States to quickly bring
itself into compliance with WTO rules while the European Union
holds off on imposing penalties, which could reach $4 billion a
year. But U.S. trade officials signaled their disappointment and
congressional panels now must decide what course of action to
take in response. "We are disappointed with the outcome," said
Trade Representative Zoellick. "The United States respects its
WTO obligations, which serve America's interests, and we intend
to continue to seek to cooperate with the European Union in order
to manage and resolve this dispute." Zoellick continued: "This is
an especially sensitive dispute that, at its core, raises
questions of a level playing field with regard to tax policy. We
will be consulting closely with Congress and affected U.S.
interests regarding next steps." Senate Finance ranking member
Charles Grassley, R-fowa, in a statement today, said: *The [trade
negotiating authority] bill passed by the Finance Committee
includes a provision that calle for the next round of the world
Trade Organization to comprehensively address these international
tax issues. So today's ruling is yet another reagon why the
Senate should vote by the end of February on the bipartisan trade
legislation that's pending."

Business advocates today were assessing the ruling, looking
for room in the legal implications of the decision, but
implicitly acknowledging a loss on all counts. "The decision
leaves in place the underlying problem," said Homer Moyer, a
partner in the Washington law firm of Miller and Chevalier, who
works with an industry coalition that is working the FSC issue.

“We continue to have an underlying tax disparity, which must be
: 01025

01200000001697


Gregory Wierzynski
Assistant Staff Director
House Committee on Banking

R. Scott Morris
Principal
Hull and Associates, L_L.C.

Chris Samulak
Financial Engineer
Hull and Associates, L.L.C.

Raj Nagella
Financial Engineer
Hull and Associates, LLC

Kim B. Staking
Senior Financial Economist
Inter-American Development Bank

John Haggerty
Vice President Head of Credit Derivative
Intercapital America, Inc.

Seth B. Goldstein
Special Counsel to Ass. Chief Counsel
Internal Revenue Service

Michael Novey
Counsel to Assistant Chief Counsel
Internal Revenue Service

Gary Barinshtein
International Monetary Fund

Gillian Garcia
‘Senior Economist
International Manetary Fund

Russell Krueger
Senior Economist
Imernational Monctary Fund

William Lee
International Monetary Fund

Liliana Schumacher
‘Senior Economist
International Monetary Fund

Mark C, Brickell
Managing Director
J. P. Morgan & Co., Inc,

Irenes May
Vice President
J.P, Morgan & Co., Inc.

tra Kawaller
President
Kawaller & Company, LLC

Mark D. Young
Partner

Kirkland & Ellis

Willian C. Kokontis
Consultant
Lind-Waldock & Company

Edward H. Fleischman
Consultant
Linklaters & Paines

John G. Gaine
President
Managed Funds Association

Roger J, Higgins
McDermott, Will & Emery

Andrea S. Kramer
Partner
McDermott, Will & Emery

Paul J. Pantano, Jr.
Partner
McDermott, Will & Emery

Bruce Vanyek
Tax Paralegal
McDermott, Will & Emery

Darryl Steinberg
Merrill Lynch,

Michael H, Baer
Senior Advisor, Structured Finance

Mobil Corporation

Thomas Bartro
Curency Risk Manager
Mobil Corporation

Alvin Da Costa

Manager
Mobil Corporation

01364

01200000000720


Speed; Building Scalable and Liquid Markets for the Online Trading Community

* Online trading venues should consider the failures as well as the successes in the marketplace, noting that
successful e-trading technology solutions have a sustainable revenue model and a scalable technology that
is adaptable to a varicty of asset classes.

The advent of electronic trading of financial securities has radically changed not only the financial markets
but also the technology applications that allow market participants to increase efficiency, improve profits, and
reengineer the traditional ways of doing business. For institutional and retail brokers, firms of all sizes have
their own strategy for participating in e-commerce, whether it is outsourcing technology needs, participating
in consortiums of dealers, banks, or industry participants, or creating technology solutions internally. Simply
put, in the new woeld of ¢-commerce, ifa company is not investing in technology solutions for business-to-
business (B2B) marketplaces, it will be left behind,

One company with a distinctive approach to this challenge is a traditional interdealer broker, Cantor
Fitzgerald, which by making a sizable investment in its internal proprietary trading system, created what it
believes is an end-to-end technology solution for B2B marketplaces. Through the establishment of its
subsidiary, Speed, the firm has both penetrated new vertical markets and expanded on those markets in
which it currently operates voice-brokerage businesses. eSpeed’s expansion into these marketplaces has
been accomplished by means of strategic alliances, technology and financial investments, and a scalable
technology solution.

eSpeed’s objective—to become the technology solution for the B2B marketplace—has run into several
obstacles in its short history, specifically with its first offering, the Cantor Exchange (CX), a futures and
options exchange for the dealer market. The CX, now in its third year of operation, generates modest
liquidity, yet Cantor Fitzgerald and eSpeed continue to support this failed attempt to successfully attract
liquidity in the electronic derivatives trading business. In addition, eSpeed’s product suite has grown
considerably since it began successfully offering US Treasuries to the interdcaler broker (IDB) market.
This product growth in non-US Treasury securities and nonfinancial markets may have been too fast to
build sufficient liquidity and gamer interest among the trading community, since it has not yet achieved #
significant amount of liquidity.

This TowerGroup Research Note examines Speed's business model, its accomplishments, and its
future challenges.

The Creation of eSpeed

Background

In 1996, Cantor Fitzgerald, a leading broker dealer since 1945, decided to make a substantial investment in
technology to automate its interdealer financial instrument trading business, To date, that investment has
grown to approximately $250 million. Through this investment in technology, an internal trading system was
developed, which eventually led to the development of the Cantor Exchange, am electronic exchange for
futures trading that began operating in September 1998. The technology in question eventually became a
subsidiary called eSpeed_

eSpeed commenced operations as @ division of Cantor Fitzgerald on March 10, 1999, and was incorporated
in June of the same year. This led to the company’s initial public offering on December 10, 1999, when the

3
($2001 TowerGroup, Needham, MA USA
May nat be reproduced by any means without express permission, All nights reserved.

01208

01200000000564


JUDICIARY
Bipartisan Immigration Bill To See Early Senate Action

Congressional efforts to liberalize U.S. immigration policy,
which were off to a promising start early in 2001, appeared
effectively doomed immediately following the Sept. 11 attacks at
the hands of foreign terrorists - some of whom had been living
illegally in the United States for years. However, by the end of
last year, it had become clear that the event also had presented
an opening for lawmakers of various ideological stripes to
reframe their arguments in a way that was mutually beneficial.
The result was legislation sponsored in the Senate by Judiciary
Immigration Subcommittee Chairman Edward Kennedy, D-Mass., and
Immigration Subcommittee ranking member Sam Brownback, R-Kan., as
well as Seng. Dianne Feinstein, D-Calif., and Jon Kyl, R-Ariz.,
which married enhanced border security with family friendly
immigration reform, and earned the support of advocacy groups
working both issues. That bill stalled in the Senate late last
year, but is expected to be the Senate's first order of business
this session in the category of immigration, a Kennedy
spokeswoman gaid today.

Scth chambers were poised in December to unanimously approve a
legislative preconference agreement hammered out among House and
Senate lawmakers. The House border security measure, introduced
by Judiciary Chairman Sensenbrenner and Judiciary Immigration
Subcommittee Chairman George Gekas, R-Pa., was approved by
unanimous consent at the end of the session. But ite companion
measure was blocked in the Senate by Appropriations Chairman
Byrd, who was perturbed by the White House's rejection of his
request for border control funding earlier in the year. But while
that left border security as unfinished business in the Senate,
House GOP leadership took a short cut it likely will have to
answer for this year: Bowing to pressure from a band of socially
conservative Republicans, House GOP leaders agreed to omit from
the immigration package compromise 245{i} extension language
which would enable immigrants already residing in the country to
pay $1,000 to stay in the United States while they await
legalization.

The action alienated congressional Democrats - as well as the
Bush administration, which is a proponent of a temporary 245 (i)
extension - and set the stage for an intra-party fight that pits
the president against a faction of the Gop which favors greater
restrictions. The Senate early in 2001 already had approved
yearlong extension of the 245{i) pregram. A spokesman today said
Sensenbrenner is prepared to try and move the compromise 245 {i}
bill on the House floor this year. - by Pamela Barnett

JUDICIARY
Bush Said To Remain Vague On Immigration Needs

Advocates for and against a more open border policy appear to
agree on at least one thing: President Bush has done an admirable
job in remaining politically amorphous on immigration matters, in
a way that allows him to appeal to factions on both sides, A
recent statement by Bush in which he said he intends to make
immigration a "priority" this year - while failing to elaborate -
marked a familiar pattern. It is clear that Bush still is wooing
Hispanic voters - which ingiders said Bush believes is important
to his re-election bid in 2004. That is evidenced perhaps most
clearly in his advocacy of a U.S.-Mexico agreement, which would
facilitate border crossing for migrant workers. But the White
House also surprised immigration advocates on both sides laat
week, with its announcement that Bush's budget this r would
s to reverse a controversial federal law that barred legal
immigrants who arrived after 1996 from collecting food stamps.

“What [Bush] did ig not insignificant,* said a spokeaman for
Rep. Luis Gutierrez, D-Ill., who chairs the Congressional

2 01027

01200000001699



The stock exchanges should remove their rule that permits a board to “override” the
independence requirements for board members on an audit committee. And the audit
committees should be required to approve in advance all services, and disclose if they
have, as the SEC once did in the late 1970's, before the rule was withdrawn in the early
1980's.

As was recommended by the O'Malley Panel, the audit committee should be required to
obtain each year a report from the CEO and CFO that states whether the company’s
internal accounting controls are working effectively. Management should also have to
include this report in the Annual Report to shareholders as has been recommended by the
Financial Executives International. Perhaps the auditors should be required to rigorously
¢xamine the internal controls, a step they are not required to do today. It is worth noting
that in the case of Rite-Aid, management had included a report on internal controls in
their filings with the commission that failed to detail out the material weaknesses in
intemal controls. Investors heard nothing about those weaknesses, not from the
company, not from the audit committee and not from the auditor's until the Form 8-K
announcing a change in auditors was filed with the commission many months after the
restatements began. Unfortunately the Form 8-K, announcing the change in auditors for
Xerox, also highlighted material weaknesses in accounting controls. No doubt a number
of people must be asking, why is it we find out about problems with the internal
accounting controls that are necessary for accurate financial information and disclosures
to investors ONLY when there is a falling out between the company and its auditors?

Let me switch briefly to the subject of the chief financial and principal accounting
officers. Today, CFO's at the major American corporations turn over approximately four
times faster than they did at the beginning of the 90°s, And while the turnover ten years
ago was often tied to one’s retirement. it is much more likely today to be tied to a
company missing an earnings estimate. Way too often today the CFO becomes the “fall
guy” for such misses while the CEO's, COO's, vice presidents of manufacturing
Marketing and other key management positions stay on. And as surveys have shown, it
is all 100 often the CFO who is pressured by these other members of management to stir
the pot and cook the books, And when the CFO doesn’t like the recipe that is handed to
him or her, they are shown the door.

As a result, I also believe the SEC should make a change to its rules for Form $-K. A
Form 8-K should be required to be filed whenever a chief financial officer or chief
accounting officer is terminated. The report should require disclosure of whether the
audit committee approved the termination and whether there were any disagreements
regarding financial accounting or disclosure matters. Perhaps a similar disclosure should
be required for audit committee members.

Informed Inv

While | have been critical of the profession in relation to the events of the past few years,
let me point out that there has been plenty of blame to share among all of the market

6 01323

01200000000679


Fisher, Peter

From: David Gilmore [fxa@fxa.com)

Sent: Thursday, Novernber 29, 2001 8:19 AM
To: fxa@fxa.com

Subject: FXA Alert: Bank exposure to Enron.

>From FXA On-line found on www.fxa.com, Reuters FXAFX1, Telerate 57001.

[13.00/08.00) BANK EXPOSURE TO ENRON. DEUTSCHE BANK PUT ITS ENRON
EXPOSURE
AT $100MLN, JP MORGAN CHASE HAS STATED $S00MLN IN UNSECURED AND $400MLN IN
SECURED EXPOSURE. CITIGROUP PUT AT $700-S00MLN WITH ABOUT HALF SECURED.
ABN
AMRO HAS UNSPECIFIED EXPOSURE BUT CLAIMS ALL ITS LOANS ARE SECURED, AND PART
OF
$3BLN SYNDICATED LOAN FOR INDIA POWER PROJECT (DABHOL POWER CO}.
INTERESTING
‘THAT US TSY SAID WEDS IT IS FOLLOWING THE ENRON DEVELOPMENTS BUT NOTED NO
UNUSUAL ACTIVITY IN THE PINANCIAL MKTS {I.B. NO SYSTEMIC RISK). NOTHING
FROM
FED SO FAR IN TERMS OF STATEMENTS (ON ENRON) .

01200000001462


create conflicts with the notion of being a public interest self-regulatory
organization.

¢ The POB itself has no disciplinary powers and has fought to avoid getting them

© The POB has limited capabilities to ensure auditing standards are written based on
mecting the needs of the public for effective audits, as opposed to being written
by, and for, the general legal counsels of the firms.

* The Quality Control Inquiry Committee or QCIC that is often trumpeted as
investigating alleged audit failures in fact has no subpoena powers. It only has
members from the profession, often retired partners from the Big Five “club”,
lacks members from the public and only looks at documents that are already
publicly available. It has recommended cases to the PEEC for further action.
Action that too often fails to materialize.

The new regulatory system being implemented in the U.K. provides a glimpse at the key
components that must be in any effective self-regulatory system for the accounting
profession. These include:

* A governing board comprised of representatives of the public who are not
Practicing accountants and that conduct their affairs in the “sunshine.” As
Senator Patrick Daniel Moynihan has said: “Secrecy is for losers.”

¢ A disciplinary mechanism that has subpoena powers and the ability to keep its
investigations confidential until completed.

* An ability to oversee or establish auditing standards that will protect the public
and that are changed on a timely basis in response to shortcomings found in the
system as a result of timely investigations of major financial reporting problems.

© The ability to carry out timely investigations of particular financial reporting
cases, accounting firms or the profession.

* The ability to perform reviews of the profession and ensure appropriate quality
controls are working effectively.

In light of the Enron matter, the unbroken flow of financial frauds and an alarming
increase in the number of financial statements having to be restated, Congressman
Dingell has called for the POB to undertake an investigate Andersen and the profession.
We will soon see if the POB is really the representative of the investing public we hoped
for; one that will speak out on behalf of and protect investors; or is in reality what is best
referred to as a “Quiet, Lets Not Rock the Boat Board.” Keep in mind that during the
very public, very heated debate on the auditor independence mules last year, while
investor's testified and commented time and time again, the POB was so silent you could
hear the pin drop. Perhaps now we will finally see a reinvigorated POB go back to the
drawing board and adopt ALL of the recommendations of the O'Malley Panel. The
public deserves no less.

ly and Quali inting Stan

" 01318

01200000000674


how regulatory action might result in offshore migration of derivatives
activity, and how offshore activity might affect a domestic retail swaps
market.

Ill, CONCLUSIONS AND RECOMMENDATIONS FOR LEGISLATIVE ACTION

The agencies do not believe it is necessary at this time to recommend legislative action
for swap agreements offered to persons other than ECPs.

According to the interviewees, persons who are not ECPs seem at this time to have
sufficient instruments at their disposal to meet their risk management and investment needs, and
there is currently a lack of interest among most major market participants in offering swaps to
retail customers. As noted in this report, energy swaps are a possible exception to both findings.

With respect to retail energy swaps, it is possible, upon request by a market participant,
that the CFTC could exercise administrative authority as appropriate, on a case-by-case basis,
within the limitations of its current statutory jurisdiction under the CEA regarding such requests.
In this connection, the CFTC would need to consider, among other issues, the extent of its
authority to grant relief, whether the granting of such relief would be in the public interest, and
any implication such relief might have on potential state regulation of such products.

If at some future date interest in retail energy swaps increases beyond the scope of the
CFTC’s authority to address regulatory issues related to these products in a satisfactory manner,
Congress may wish at that time to consider the desirability of further legislative action with
respect to the legal status of and federal regulation, if any, of retail energy swaps, as they did in
the CFMA with respect to OTC transactions in foreign currency with retail customers. If further
legislation is considered in the future, in addition to the specific regulatory issues identified by
the interviewees, consideration should be given at that time to the economic functions served by
retail energy swaps, the public interests to be protected, and the impact of any new regulatory
regime on the development of retail products.

01870

01200000000526


"Enforcement inquiries are conducted by our staff and the SEC commissioners do not have any involvement in
the myriad decisions that our enforcement staff will be called upon to make,” Pitt said.

"It is not the function of the chairman of the SEC or any commissioner to manage any investigations. If and
when | am asked to do anything on this matter, | will follow both the letter and the spirit of the ethical
requirements of this office, Any suggestion that | would do otherwise is an attempt to politicize the workings of
an independent agency.”

Pitt also would not comment on the negotiations he is having with the top five accounting firms and the
industry trade group, the American Institute of Certified Public Accountants -- all of them former clients — on
how to revamp oversight of the profession. An SEC spokesman said those discussions are permitted by ethics
rules and are appropriate.

Industry sources said that talk about a regulatory overhaul, a topic that has been kicked around for years, was
given new impetus after Enron's failure. Enron filed for bankruptcy Dec. 2 after being forced to restate earnings,
The industry wants to unveil its proposal before Congress reconvenes next Wednesday and begins hearings into
what caused the energy company's problems, sources said.

The new framework would create a private-sector regulatory organization, similar to those that the SEC now
permits the securities markets to use to discipline members and establish guidelines for what is accepted and
unacceptable behavior, industry sources said.

But the organization would not be controlled by accounting firms, the sources said, because it would be
governed by boards whose members would come largely from outside the accounting industry, Accounting
industry officials acknowledge that the reforms may not go far enough to quell criticism from consumer groups
and some lawmakers, who say self-regulation is at the root of the accounting profession's problems.

The five major accounting firms declined to comment on the proposal.

The major accounting firms, in the past, have fought such a proposal, insisting that the current system, which
includes industry self-regulating groups and state licensing boards, are sufficient. But in missing seemingly
egregious misstatements and incorrect reports at Enron, the Arthur Andersen team raised anew questions about
how well the nation’s system of private accountants, paid by their audit clients, serves the nation’s investors.

The federal government gave the accounting industry the valuable franchise to audit companies that sell shares
to the public after the stock market crash of 1929. In return, auditors are supposed to serve the public interest,
and maintain independence from their clients.

"The true client is society in an audit -- yet the client that is paying your fee is the corporation," said Stephen
Loeb, professor of accounting and business ethics at the University of Maryland. With this system, "you have a
conflict of interest. [t's always going to be there," he said.

In addition, many accounting firms eam large sums by selling consulting services to their clients, For instance,
Andersen was paid $52 million last year by Enron -- $25 million for auditing and $27 million for consulting

services.

Accountants argue that they are professionals who can and do stand up to their clients when that is necessary,
And, they add, ultimately their livelihood depends on retaining the public's trust. Otherwise, they say, audits
would lose their value.

That, though, is exactly what is happening, some critics charge.

Arthur Levitt Jr., chairman of the SEC during the Clinton administration, proposed prohibiting accounting firms
from selling certain consulting services to corporations whosc books they audit in 2000. But that proposal was
beaten back by the accounting industry and was opposed by several members of Congress.

2

01200000001500


company’s value, dropped by $1.2 billion in the last quarter because of a deal disclosed only very hazily in
Enron's regular financial statements. The Securities and Exchange Commission is looking into the company's
financial reporting, and some investors question whether Enron has overstated profits at its primary business of
trading electricity and natural gas.

THE slump in the company’s shares accelerated after Enron revealed the fall in its shareholders’ equity. On
Wednesday, the company forced out its chief financial officer, Andrew S. Fastow, who is at the center of the
controversy over Enron's confusing finances. The company, which six months ago seemed to be reaping billions
of dollars from California's energy crisis, today faces a potential cash crunch.

The surprise about sharcholder equity inflamed investors’ smoldering concern about Enron's opaque financial
statements. Now, with Wall Street analysts and bond-rating agencies demanding more information about the
complex transactions that have fueled the company’s profits, Enron has been reduced to issuing news releases
assuring investors that it has adequate access to cash.

Enron does not appear to be in immediate danger of running out of cash, On Thursday, the company drew down
a $3.3 billion credit line it had previously arranged with a group of banks led by Citigroup and J. P. Morgan
Chase, which have cach extended at least $400 million, But because of Enron's importance in the natural gas
and electricity markets, industry experts say that any problem at the company could disrupt energy trading
nationwide.

The supply of natural gas and electricity would probably not be affected even if the company failed, because
Enron is mainly a trader, rather than a producer, of energy. But a crisis at the company might increase the
volatility of energy prices, which have swung wildly in the last year.

Philip K. Verleger Jr., an energy- markets economist, emphasized that he thought Enron would survive this
crisis. But he said it was not clear what would happen if Enron ran out of cash or if traders that use the
company’s EnronOnline Internet trading marketplace defaulted on their obligations.

"You suddenly have all these positions they have taken on there - are they good? Are the firm's hedges good?
What's the situation?” Mr. Verleger said. "It's got everyone scared,"

In the short run, Enron's credit rating may be its biggest problem. If the company’s rating falls below investment
grade, Enron could be forced to issuc tens of millions of shares of stock to cover loans that it has guaranteed.
But creating new shares would make the shares that already exist less valuable, because those shares would no
longer represent full ownership of the company.

A drop in the company’s credit rating could also prompt other energy traders and producers to back away from
doing business with Enron, hurting the company’s sales and profits.

Enron's credit rating stands several notches above the critical point. But its bonds, which are publicly traded,
have fallen so low that they are now offering interest rates of almost 10 percent, comparable with many junk
bonds. Two of the three major credit-rating agencies, Moody's Investors Service and Fitch Investors Service,
have put Enron's bonds on review for possible downgrades.

"The issue that's in the front of everybody's mind right now is credit,” said Mark Gurley, senior vice president
and gencral manager for trading at Aquila Inc., one of the nation’s largest energy traders. Aquila is based in
Kansas City, Mo.

For now, Aquila and other major energy traders and producers, including Reliant Energy, the El Paso
Corporation, and Dynegy are continuing to do business with Enron. And Mr. Gurley said that Enron's own
trading in the electricity and natural gas markets did not suggest the sort of frenzied selling reminiscent of the
collapse of Long-Term Capital Management in 1998.

° 01283

01200000000638


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01200000000686


President Calls for Review of Pension Regulations and Corporate Disclosure Rules Page 2 of 3

got to know Ken, and worked with Ken, and he supported my candidacy.

This is -- what anybody's going to find, if -- 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 that
workers are protected.

Q Mr, President, does it appear that Iran is flexing its muscles in Western Afghanistan, and does
that threaten the U.S. war on terrorism in that region?

THE PRESIDENT: Well, first of all, Iran must be a contributor in the war against terror; that our
nation and our fight against terror will uphold the doctrine, either you're with us or against us; and
any nation that thwarts our ability to rout terror out where it exists will be held to account, one
way or the other.

I hope -- we had some positive signals early -- early in this war from the Iranians. We would hope
that they would continue to be a positive force in helping us bring people to justice. We would
hope, for example, they wouldn't allow al Qaeda murderers to hide in their country. We would
hope that if that be the case, if someone tries to flee into Iran, that they would hand them over to
us, that they're a part of -- if they're a part of the coalition, then they need to be an active part of
the coalition.

In terms of Afghanistan, we are -- we vould like to work with the Iranians, as well as other
neighboring countries, to bring a stable interim government to stabilize the interim

government. And to the extent that they're involved, we would hope that they would participate, if
they are trying -- if they In any way, shape, or form try to destabilize the government, the coalition
will be -- we'll deal with them, in diplomatic ways, initially. And we would like very much for them
to be active participants in a stable Afghanistan. It’s to their advantage, by the way, that
Afghanistan be stable.

Q Mr. President, based on the evidence the Israeli delegation presented at the State Department
yesterday, about this arms shipment, do you believe that it's time for the United States to either
break or suspend relations with Mr. Arafat and the Palestinian Authority?

THE PRESIDENT: John, I think it's very important for our administration to remain engaged with
both parties. Obviously, I want to make sure that the evidence is definitive. But I'm, like many,
beginning to suspect that those arms were headed in the wrong -- to promote terror. And terror
will never enable us to achieve peace in the Middle East. So long as there's terrorists trying to
disrupt the peace process, there won't be peace.

I do believe that, once the evidence is in, that those responsible need to be held to account. On
the other hand, I also believe that our country must stay engaged in the process. I intend to ask
Zinni to go back to the region at the appropriate time, to keep pushing for a dialogue, to keep
pushing for the process to go forward,

Mr. Arafat must renounce terror, must reject those who would disrupt the peace process through
terror, and must work hard to get to the peace table. It seems like it's up to him to make these
decisions.

Q But has he been less that truthful in speaking to Secretary Powell, General Zinni and others, in
saying he had nothing to do with this and no knowledge of it?

THE PRESIDENT: We will find out the facts, John. But he Is -- you asked a question, should we
basically disengage? And the answer is no, we won't disengage from the Middle East. We will stay
involved in the Middle East peace process -- or trying to get to the peace process. And it starts

http://www. whitehouse. gov/news/releases/2002/01/print/200201 10-1 buss s1/15/2002

01200000001184


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OTO\a


> >> Sth RUNNER-UP

> >> Goes to a San Anselmo, California man who died when he hit a lift tower at the Mammoth
Mountain ski area while riding down the slope on a foam pad.

>>>

> >> The 22-year old David Hubal was pronounced dead at Central Mammoth Hospital. The accident
occurred about 3a.m.,the Mono County Sheriffs department said. Hubal and his friends apparently
had hiked up a ski run called Stump Alley and undid some yellow foam protectors from lift towers,
said Lt. Mike

> >> Donnelly of the Mammoth Lakes Police Department. The pads are used to protect skiers who
might hit towers.

>>>

> >> The group apparently used the pads to slide down the ski slope and Hubal crashed into a tower.
It has since been investigated and determined the tower he hit was the one with its pad removed,
>>>

>>>

> >> 4th RUNNER-UP

> >> Goes to Robert Puelo, 32, was apparently being disorderly in a St. Louis market. When the
clerk threatened to call the police, Puelo grabbed a hot dog, shoved it into his mouth and walked out
without paying.

>>>

> >> Police found him unconscious in front of the store. Paramedics removed the six-inch wiener
from his throat where it had choked him to death.

>>>

>>>

> >> 3rd RUNNER-UP

> >> Goes to poacher Marino Malerba of Spain, who shot a stag standing above him on an
overhanging rock and was killed instantly when It fell on him.

>>>

>>>

> >> 2nd RUNNER-UP

> >> "Man loses face at party.” A man at a West Virginia party (probably related to the winner last
year, a man in Arkansas who used the .22 bullet to replace the fuse in his pickup truck), popped a
blasting cap into his mouth and bit down, triggering an explosion that blew off his lips, teeth, and
tongue. Jerry Stromyer, 24, of Kincaid, bit the blasting cap as a prank

> >> during the party late Tuesday night, said Cpl. M.D. Payne.

> >> "Another man had it in an aquarium hooked to a battery and was

> >> trying to explode it." "It wouldn't go off and this guy said I'll show you how to set it off.” He put it
into his mouth, bit down and it blew all his teeth out and his lips and tongue off, Payne said.

>>>

> >> Stromyer was listed in guarded condition Wednesday with extensive facial injuries, according to
a spokesperson at Charleston Area Medical Division.

>>>

> >> "I just can't imagine anyone doing something like that,” Payne

> >> said.

>>>

>>>

> >> 1st RUNNER-UP

> >> Doctors at Portland University Hospital said an Oregon man shot

> >> through the skull by a hunting arrow is lucky to be alive and will be released soon from the
hospital. Tony Roberts, 25, lost his right eye last weekend during an initiation into a men's rafting
club, Mountain Men Anonymous (probably known now as Stupid Mountain Men Anonymous) in
Grant's Pass, Oregon. A friend tried to shoot a beer can off his head, but the arrow entered

* 01082

01200000001754


nttp: //wew4 .ambest .com/press/rr.asp?Refstring=6554465777554649

Assigned: Renaissance Re (debt)
http: //wwwdambest .com/press/rr.asp?Refstring=6554465777544648

Assigned: WellPoint (debt)
http: //wew4.ambest .com/press/rr.asp?Refstring=6554465777544651

SOSSSSSeSeeeeeeeeeSseessesseesesesessess
SITE OF THE DAY

California's Department of Managed Health Care has dismissed
some allegations against Kaiser Foundation Health Plans in a
hearing over the health maintenance organization's appeal of a
$1.1 million fine levied against it in May 2000.

http://www. kp.org/

-
BEST'S REVIEW HIGHLIGHTS

2001: Terror, Mold and More: Last year will be remembered for
the terrorist attacks that destroyed the World Trade Center in
New York, downed four commercial planes, killed thousands and
created the biggest losses in insurance history.
http://www. bestreview, com/2002-01/is_terror.html

Navigating Rough Seas: Directore and officers writere find tough
economic times give rise to litigation in this rapidly growing
market.

http://www. bestreview.com/2002-01/pe_seas. html

Solving the Global Disconnect: Insurers that are taking new
technologies across the world should be sure they have a
strategy in place.

http://www. bestreview.com/2002-01/tech_digconnect .html

preteen eee e ee ners ten nerenenerntt ttt tree
AHEAD IN THE NEWS

The U.S. Supreme Court will begin hearing arguments today in a
case that pits state law against the federal law governing how
much influence health insurers have over a patient's right to
get a second medical opinion.

REPORTS

Top Fraternal Life Societies--2000
http: //www4.ambest .com/bestweek/interim.aap?refnum=10503

Turmoil in the Texas Property Market: Financial Performance
Deteriorates
hetp://wwwd.ambest .com/beetweek/interim.asp?refnum=10504

01200000001114


House Resources Committee Staffer To Join Lee & Smith

Just two days after House Resources Chairman Hansen announced
he will retire next year, Allen Freemyer, chief of staff for the
committee, said today he is leaving the panel to join Lee &
Smith, a lobby shop which represents developers and Utah State
University. Freemyer, @ Utah native, plans to leave Feb, 1.
Elsewhere, Christi Harlan, former communications director for the

Senate Banking Committee under former Banking Chairman Gramm, has

been named director of the SEC’s Office of Public Affairs. Harlan
most recently served as director of external affairs at the

Federal Emergency Management Agency. Prior to joining the Banking

Committee staff, which she left last year, Harlan spent 20 years
as a reporter.

=,

POLITICS
Sununu Leads Smith In N.H, Primary Matchup According To Poll
For the first time, a poll shows Republican Rep. John Sununu

leading Sen. Bob Smith in their New Hampshire primary matchup. An

American Research Group poll conducted last Wednesday through
Saturday shows Sununu leading Smith 51-27 percent, That is a
dramatic change from previous ARG polls, which showed Smith
leading Sununu 47-39 percent in November, after having widened
his 47-41 percent lead in October, The new results showed Sununu
did not gain so much as Smith lost ground, with 22 percent of
voters saying they were undecided, Previous polls showed 14
percent or fewer undecided. The new poll of 600 likely Republican
primary voters has a 4 point error margin. ARG pollster Dick
Bennett said the reversal reflects the fact that primary voters

are now refocusing on issues such as the economy, education and
health care.

=

THE FINAL WORD

"Given the recent swirl of events, I hardly think it would be
appropriate for me to comment on how sexy the media is.”

~ White House Press Secretary Ari Fleischer, responding
jokingly to a reporter's question Wednesday about how the White
House felt about descriptions of Defense Secretary Rumsfeld as
the media star of the year. "He's my hero when it comes to how to
handle the press, I'll tell you that,” Fleischer added.

eo
CongressDaily is published daily, Monday through Friday, by
National Journal Group Inc. Copyright 2002 by National Journal
Inc., 1901 M St., NW, #300, Washington, D.C. 20005,
Retransmission, redistribution or reproduction of CongressDaily
is prohibited without the express, written permission of National
Journal Group Inc.

To read CongressDaily on the Web, contact 1-800-207-8001 or
njcire@njde.com for your username and password.

President-John Fox Sullivan, 202-739-8468 (jsullivan@njde.com)

?

01061

01200000001733


I want to thank Andy, as usual, for the kind introduction. As you no doubt know by now,
Andy and the SEC Institute put on absolutely the premier conferences for professionals
who deal with the SEC and financial reporting of public companies. | am once again
honored that he would invite me to the podium.

An Important Rol 0

Our profession has the honor of serving the public as a result of a franchise Congress saw
fit to convey to us sixty-eight years ago. The collective roles we play are critical to the
success of the U.S, capital markets and ultimately to the U.S. economy.

Some of you prepare financial statements that provide investors and the capital markets
with the financial information they require, in order to make informed decisions. Some
of you are involved with independently ensuring the integrity of that data, an equally
important role, Without the public service our profession performs, the capital markets
could not function efficiently.

And just how important is that? Lets put it in context. Today, one out of two American
adults have invested their money, including their savings for perhaps retirement or their
children’s education, in the markets. That is up approximately sixty percent in the last
decade. It is likely your neighbor, a member of your family or the person sitting next to
you have placed their trust and confidence in what you, what we all do in our profession.

During the past ten years our profession has experienced much financial success. We
have all lived through the greatest economic boom our country has ever experienced. No
American, in the 225 years since the Declaration of Independence, has seen such a
phenomenal period of growth and wealth.

Changing Times - A Crisis In Confidence

But in the past, as with today, we have seen the good times also bring with them
excesses. In the early 1800's everyone invested in canals after the success of the Erie
Canal. But that excess eventually turned into an economic decline and losses by
investors, Steamships, then railroads replaced the canals. Today's Union Pacific was
brought out of bankruptcy during a period when investor's lost their shirts, so to speak
from excessive investing in this new technology. Likewise, the new technologies of
radios, cars and airplanes in the 1920"s preceded the stock market crash of 1929. Having
been bumed too often and being skeptical, and with war bonds offering greater safety in
investing, investors did not return to the markets until after World War II.

Some have said the rooster has come home to roost given the unbridled speculation and
irrational exuberance of the 1990"s, From the flower children generation of the 60's and
70°s that was going to change the world, we tumed into the “me” generation by the 90’s.
We bought into the dot.com phenomena which has turned into the dot.gone, as in
investor's money is now gone. We bought into the greater fool theory and over time
were fooled ourselves.

° 01309

01200000000665


"Both the House and Senate Budget committees have concluded the
current budget situation is a result of the war on terrorism and

the recession - not tax relief," Watts said. “If it wasn't for

the Republican-led initiative to give Americans more of their
money back, we'd probably be deeper in recession than we are
today."

Spratt said Congress was sure to extend expiring tax
provisions and address the alternative minimum tax, adding
hundreds of billions to the tab. And, he noted, last year's tax
bill is set to expire in the 10th year, something a future
Congress would not be likely to allow. Further spending on
defense and homeland security will only add to the problem,
leading to on-budget deficits in the short term - and possibly in
the out years if economic assumptions change. "We've got a
problem," he said, But Spratt declined to say that elements of
the tax cut should be repealed, saying the administration should
come up with solutions. "We think that they have the first move,”
he said.

Meanwhile, inspired by signals that the White House will
continue to push for an economic stimulus package, business
lobbyists have decided to keep the Tax Relief Coalition operating
this year, The TRC was founded initially to push for passage of
Bush's 2001 tax cut and later threw its weight behind making
those cuts permanent and enacting an economic stimulus plan. A
source close to the group said the organization in 2002 would
focus on protecting the tax cuts scheduled to take effect in
upcoming years, supporting a renewed administration push for an
economic stimulus bill and making permanent the tax cuts enacted
last year, "We can't fight this like the Korean War, where they
get to come south but we can’t go north," the TRC source said,

"In order to protect the tax cuts [enacted last year], we have to

fight for permanence." Sources said the management committee for
the TRC, which includes over 1,000 business groups, will meet
today to ratify the decision to stay in business. The National
Association of Wholesaler-Distributors, the U.S. Chamber of
Commerce and the National Association of Manufacturers are among
the leaders of the TRC. - by Geoff Earle and Charlie Mitchell

a

FINANCE
Bankers, Realtors Square Off On Real Estate Brokerage

The American Bankers Association is calling on its members to
respond to the National Association of Realtors, which has
launched a vigorous campaign to stamp out a pivotal federal
rulemaking supported by banks. The rule, pending before the
Treasury Department and the Federal Reserve, would allow
financial holding companies and national bank subsidiaries to
engage in real estate brokerage activities - an action that NAR
President Martin Edwards has said would mean "the market will
soon be dominated by a smattering of large banking conglomerates
whose primary goal is to cross-sell various financial products,
not to put people in homes and commercial properties." He added
that the end result "will be fewer choices for consumers, higher
fees and less competitive loans." The NAR turned up the heat last
year, enlisting House and Senate lawmakers to introduce
bipartisan bills to preclude any such federal action. The group

3

01057

01200000001729


state Rep. Gary Cates, a Republican who chairs the Elections and
Ethica Subcommittee, today told CongressDaily he did net know
whether Traficant'a district would be eliminated, but said GOP
Gov. Bob Taft and party leaders could unveil « plan Wednesday.
While Republicans control the process, some Democratic votes will
be needed to enact a law in time for the state's Feb. 21 filing
deadline and May 7 primary. Traficant goes on trial Feb. 4. A
spokesman aaid Traficant plana to seek re-election, but would
study redistricting maps before deciding where to run.

THE FINAL WORD

"I asked the president, ‘What was so exciting?’ I didn't think
it was that big of a game.*

- Sen. Tom Harkin, D-Iowa, quoted by the Quad-City Times of
Davenport, Iowa, at the John Deere & Co. Harvester Works plant in
Bast Moline, Ill., where President Bush spoke the morning after
he fainted while eating pretzels and watching football. Bush was
watching the NFL playoff game between the Baltimore Ravens and
the Miami Dolphins. Baltimore won the game, 20-3.

sDaily is published daily, Monday through Friday, by
National Journal Group Inc. Copyright 2002 by National Journal
Inc., 1501 M St., NW, #300, Washington, D.C. 20005.
Retransmission, redistribution or reproduction of CongresaDaily
is prohibited without the express, written permission of National
Journal Group Inc.

To read CongressDaily on the Web, contact 1-800-207-8001 or
njcire@njde.com for your username and password.

President--John Fox Sullivan, 202-739-8468 (jaullivanenjde.com)
Publisher--Steve Hull, 202-739-8475 (shull@njdc.com)
Bditor--Louig Peck, 202-739-8481 (lpeck@njdc.com)

Bxecutive Editor--Keith White

Senior Managing Editor/A.M. Edition--Robert Ourlian
Senior Editor--Charlie Mitchell

Associate Editor--Greta Wodele

Assistant Editor--Chuck Jordan

Reporters--Pamela Barnett, Lisa Caruso, Geoff Earle, Keith
Koffler, Brody Mullins, Stephen J. Norton, Mark Wegner
Special Correspondents--Jerry Hagstrom, Julie Rovner

Subecription price: $2,649 a year. Subscription and e-mail
transmission information: 202-266-7230 (cngdailyanjdc.com).

CDENDIT

01032

01200000001704


eSpeed: Building Scalable and Liquid Markets for the Online Tracing Community

Exhibit 6
eSpeed Software Solutions Agreements
System Name | Date - | Target Market Provided by eSpeed
September | Origination’ FHLB eSpeed is providing the
2001 Dealers Agency auction platform.
Discount
Notes
January eSpeed is providing online ~
2001 distribution of JBGs and
other fixed-income securities,
October | eSpeed system supplements
2000 Visible Markets’ existing

online, auction marketplace,
but will not disclose for which
products.

eSpeed Online. cSpced Online supplies retail-based online brokerages access to the eSpeed system for
trading in securities other than equities, Through eSpeed Online, online retail brokers can offer a broader
range of products to their clients via their own branded Web sites without actually having to hold those
instruments in inventory, Retail clients of the online brokers gain access to the wholesale market prices
provided by dealer participants using the eSpecd system, Offered are such products as governments,
municipals, corporates, and more.

Speed has negotiated agreements with the following 13 online brokerage firms; AB Watley, Bondpage.com,
Charles Schwab, Firstrade Securities, MostActives.com, Mr. Stock, Muriel Siebert, myTrack, Scottrade,
Sutton Online, The Net Investor, Tradescape, and WebStreet Securities. The only eSpeed Online
partnership to begin live trading is Charles Schwab, in January 2001, which is utilizing ¢Speed's fixed-income
trading services, branding the bond trading portion of its site, Schwab BondSource Services, where Schwab
clients have access to trading in US Treasuries and agency securities.

9
©2001 TowerGroup, Needham, MA USA
May not be reproduced by any means wthout express permission. Al rights reserved

01214

01200000000570


poo3l Page 3 of 3

prevent anyone from taking those decisions away from them. We are committed to delivering to the
President recommendations that promote the retirement security of working Americans.

We are also pursuing new methods of making the full range of Treasury securities more widely
available, because Treasury securities are a valuable tool for every American seeking financial security.
We offer the safest, most liquid, securities in the world to fill investor needs across the whole spectrum
of portfolios, from the individual investor who has $50 to invest, to the largest asset managers and other
firms who invest billions of dollars in managing their portfolios.

The Internet now gives us the technological wherewithal to create the broadest possible primary market
for Treasury securities that imagination and effort will allow.

The Bureau of Public Debt already has some of this in place. Their website offers investors the
opportunity to get information on and buy both savings bonds and marketable bills and notes directly
from the Treasury. Creating and continually enhancing this direct link to Treasury products will let our
customers move seamlessly along the whole continuum of the securities we offer as their investment
needs evolve.

Enhancing and protecting retirement security for all Americans is one of President Bush's priorities, and
one of my top agenda items for this year. I'm eager to expand the availability of savings tools to all
Americans, and to ensure that working American's ownership of their retirement nest eggs is protected.

Search | Email | Treasury Home Page | Sitemap

http://www. treas. gow/press/releases/po93 1 htm 01/18/2002

01200000001180


priority for labor groups this year. A spokesman for Senate
Health, Education, Labor and Pensions Chairman Kennedy said the
committee would hold a hearing in early February to address the
401{k} issues raised by Enron. "We realize that there's a larger
problem out there that needs to be addressed," the spokesman
said, House Education and the Workforce Chairman Boehner has also
said he will explore the issue. A spokesman for Boehner said a
bill Boehner passed in the House last year that would make it
easier for companies to give retirement investment advice to
employees would address some of the concerns being raised about
Enron. Sens. Jon Corzine, D-N.J., and Barbara Boxer, D-Calif.,
introduced a bill recently to prevent employees from owning more
that 20 percent of their company's stock, an approach opposed by
WAM, - by April Fulton

FINANCE
Gaps Shown In Company's Political Contributions

Although Enron Corp. and its top brass pumped millions of
dollars to the Republican Party and President Bush over the
years, the embattled energy concern gave few contributions to the
members of Congress who may investigate the fate of the firm and
ite executives, according to a CongressDaily analysis of
fundraising documents. In the 1999-2000 election cycle, for
example, Enron did not contribute a single dollar directly to the
Republican and Democratic leaders of the House and Senate panels
that plan to lead the investigation into Enron's high-profile
collapse. The company gave $1,000 to the pergonal re-election
efforts of Senate Minority Leader Lott - but no money to Minority
Whip Nickles, Republican Policy Committee Chairman Larry Craig of
Idaho, Majority Leader Daschle or Majority Whip Reid. Likewise,
House Speaker Hastert received just $3,500 from Enron for his
pergonal re-election effort and House Minority Leader Gephardt
took in $1,000.

At the same time, Enron earned a spot in the top 80 political
contributors in 1999 and 2000 for the first time by giving $1.1
million to national Republican Party accounts. In addition,
Houston-based Enron was the 12th largest contributor to Bush's
presidential campaign, with $114,000. The discrepancy is the
result of a fundraising strategy that called for Enron to focus
on writing large checks to national and state party accounts -
while giving far leas money directly to the re-election efforts
of individual members of Congress. In 1999-2000, Enron and its
executives gave $1.7 million in soft money donations to the
political parties and just $300,000 directly to candidates.

As a result, Enron's contributions to key members of Congress
have been relatively sparse. In the last election cycle, Enron
contributed just $137,500 in regulated, hard dollars to the
hundreds of laweakere who sit on a range of congressional
committees that plan to investigate the company, including the
House Government Reform, House Energy and Commerce, House
Financial Services, Senate Governmental Affairs, Senate Energy
and Natural Resources, Senate Commerce and Senate Banking
committees. That is far less money than scores of other
organizations contributed. The $27,000 that Enron gave to the
Republican members of the House Energy and Commerce Committee,
for example, fell behind 114 other organizations. Rep. W.J.
(Billy) Tauzin, R-La., who last year took over the Energy and
Commerce chairmanship, alone gave more money to committee
Republicans than Enron in 1999 and 2000.

In the first half of 2001, Enron's contributions to
influential members of Congress slumped further. According to
Bnron's most recent financial disclosure for the period from
January to June 2001, the company did not contribute to the
personal re-election efforts of Hastert, Gephardt, Lott or
Daschle. At the same time, the company contributed just $12,000
to the membera of the seven congressional panels that plan to

; 01034

01200000001706



Nickoloff, Peter

From: Schultheiss, Heiditynne

Sent: Monday, October 29, 2001 10:00 AM
To: Carleton, Norman; Nickoloff, Peter
‘Subject: Europe Energy Firms Are Wary of Enron
October 29, 2001

Europe Energy Firms Are Wary of Enron
By REUTERS
Filed at 9:08 a.m. ET

LONDON (Reuters) - Energy companies in Europe are shying away from trading with troubled U.S. energy
group Enron amid concems about the company's credit status, industry sources said on Monday.

Several large energy groups have frozen their dealings with Enron -- one of Europe's biggest gas and power
traders — as they hold urgent talks with the U.S. group about sctting up new credit arrangements, the sources
said.

*[ think Enron's approach is to get the major counterparties back on board as quickly as possible and then hope
the smaller ones will follow," said the head of risk management at one UK utility that halted its trade with Enron
last week,

*’They are talking with us about bank letters of credit,” he said. “The people that are still trading with them are
doing so on a very restrictive basis.”

A spokesman for Enron's European headquarters in London headquarters declined to comment.

Reluctance to trade with Enron in Europe comes as the company tries to rebuild investor confidence after its
stock hit five-year lows,

Triggering the slide was news last weck the U.S. Securities and Exchange Commission is investigating huge
losses relating to a private equity operation run by its former chief financial officer.

Houston-based Enron trades a large amount of its volume in the U.S. and Europe through its Intemet
EnronOnline system.

Last Friday the company said trade on EnronOnline was above average levels with more than 8,400 transactions
at a notional value of approximately $4 billion.

Traders said Enron's plight could hit liquidity in European gas and power markets, where liberalization has
unleashed rapid growth in energy trading in the last couple of years.

One industry source cited a brokers list showing cight companies in the UK electricity market had put on hold
their trading Enron, which is among the biggest five traders in the market.

In mainland Europe, where Enron has been a major driver of liquidity, potential counterparties are treading with
care.

“We are avoiding them as counterparties -- either by not trading with them or by using a 'sleeve' (a third party
trader),” said a senior trader at one of Germany's big utilities, who declined to be named.

ul 01277

01200000000632


EnronOnline - Press Room Page | of 1

an

Enron Launches EnPipe Virtual Gas Transportation Serv

inet FOR IMMEDIATE RELEASE: Monday, March 05, 2001

Presentations

Research London: Enron today announced the launch of EnPipe, its virtual gas transportation service.
guanine “EnPipe is a location swap service linking the UK and Belgian gas markets, providing an alterna

Bacton to Zeebrugge Interconnector gas pipeline,” explained John Sherriff, President and CEO o
Europe. "it's a virtual gas transportation service which we can provide through an innovative com
contracts and sssets,”

"Compared with existing capacity subleases, EnPipe is easier to use, more transparent and mor
With EnPipe, our customers can avoid the risks associated with reliance on @ single physical fac

EnPipe products ara available in both forward and reverse flow directions for any periods betwee
to one gas-year out to 2005. Deliveries for ail products are at the NBP and the Zeebrugge Hub,
costs and potential for problems associated with particular facilities and beach delivery points

The EnPipe service will start on fst April 2001, with bids due by 17.00h (GMT) on 14th March 20

Further informaven for customers is available from the EnronOniine website (www.enrononiine.c
the Continental Gas Trading team at Enron (+44 20 7783 7084).

Editors Notes

Enron’s European activities began in 1989 and are headquartered in London. Today the compan
over 4,500 people across Europe with principal offices in Amsterdam, Brussels, Bucharest, Buda
Frankfurt, London, Madrid, Milan, Oslo, Warsaw, Stockholm and Zurich. Enron is a leading parti

Siberalised UK and Nordic energy markets and is the leading new entrant in the rapidly liberalisin
European energy markets. Natural gas and electricity marketing businesses are supported by po
developed, owned and/or operated by Enron in italy, Poland, Spain, Turkey and the UK, includin
largest privately-owned COGT combined heat and power plant, the 1875 MW Teesside station in

Enron is one of the work?’s leading electricity, natural gas and communications companias. The
revenues of $101 billion in 2000, markets electricity and natural gas, delivers physical commodt
financial and risk management services to customers around the world, and has developed an in
network platform to facilitate online business. Fortune magazine has named Enron “America's M
Company” for six consecutive years. Enron’s Internet address is www.enron.com. The stock és tr
the ticker symbol “ENE.”

For additianal information please contact:
Jackie Gentle

+44 20 7783 4141

® Back totop

) 1 3 94 12/4/01

01200000000750

http://www.enrononline.com/docs/marketing/PressRoom/03_05_01/


Nickoloff, Peter

From: Schultheiss, Heidilynne

Sent: Monday, October 29, 2001 10:06 AM.

To: Carleton, Norman; Nickoloff, Peter
Subject: Once-Mighty Enron Strains Under Scrutiny
October 28, 2001

Once-Mighty Enron Strains Under Scrutiny
By ALEX BERENSON and RICHARD A. OPPEL Jr.
IS time running out for Enron?

At the beginning of this year, the Enron Corporation, the world's dominant energy trader, appeared unstoppable.
The company's decade-long effort to persuade lawmakers to deregulate electricity markets had succeeded from
California to New York, Its ties to the Bush administration assured that its views would be heard in Washington.
Its sales, profits and stock were soaring.

And under the leadership of Jeffrey K. Skilling, its chief executive, Enron's arrogance had grown even more
quickly.

The company, based in Houston, dripped contempt for the regulators and consumer groups that stood between it
and fully deregulated markets - for electricity, water and everything else, Everyone would win under
deregulation, Enron said - especially its shareholders, whose stock would soar as the company profited ftom
creating new markets.

"We are on the side of angels," Mr. Skilling said in March, dismissing those who saw the company as a profitecr
in California's energy crisis. "People want to have open, competitive markets. They want fair competition. It's
the American way.”

But less than a year later, everybody seems to have lost, especially Enron's investors. Enron's stock is plunging,
and questions about its finances are mounting.

Some experts in the energy industry worry that if the crisis at the company worsens, trading in natural gas and
electricity could be seriously disrupted and energy prices could grow more volatile. In a worst-case outlook,
Enron could become the 200 version of Long-Term Capital Management, the huge hedge fund whose collapse
roiled financial markets during the fall of 1998, Enron's shares have fallen more than 80 percent this year,
erasing $50 billion in shareholder value.

Enron closed on Friday at $15.40, down 95 cents, after hitting a $2-week low of $15.04 earlier in the day.

The future of electricity deregulation is in doubt, thanks to blackouts and soaring power prices in California
earlier this year - a crisis that ended only when that state contradicted deregulation's basic tenets by intervening
deeply in the power market. Enron's cfforts to become a profit-making water supplier and to create a new market
in broadband communications capacity have been expensive failures. In August, Mr. Skilling quit, forcing
Kenneth L. Lay, his predecessor as chief executive and still Enron's chairman, to resume day-to-day control of
the company.

The company declined to make senior executives, including Mr. Lay, available for comment, and asked that
questions be submitted in writing. Mr. Skilling could not be reached.

Enron's problems boiled over earlier this month, when it disclosed that its shareholders’ equity, @ measure of the

° 01282

01200000000637


Fisher, Peter

From: Roseboro, Brian

Sent: Wednesday, January 16, 2002 9:41 AM

To: Fisher, Peter

Subject: FYI; SEC, Accounting Firms Redrafting Audit Rules
FYI

SEC, Accounting Firms Redrafting Audit Rules
Agency Chairman Draws Fire for Role in Effort

By Kathieen Day and Albert B. Crenshaw
Washington Post Staff Writers
Wednesday, January 16, 2002;

Securities and Exchange Commission Chairman Harvey L, Pitt and the accounting industry are scrambling to
craft a new system for policing auditors in an effort to shore up confidence in the financial reports of publicly
traded companies.

The new plan, which could be unveiled within days, is designed to head off criticism in the wake of the Enron
Corp. fiasco that the current system of self-regulation does not work. The effort is being driven by Pitt, who
faces complaints from some lawmakers that he should distance himself from the SEC's investigation.

Pitt represented the five major accounting firms as a private lawyer before he was appointed by President Bush
to take over the SEC on Aug. 4,

Sens, Jon S, Corzine (D-N.J.) and Byron L, Dorgan (D-N.D.) have said Pitt's previous ties to the industry
should require him to declare a hands-off policy, "I think Harvey Pitt has a high degree of integrity,” said
Corzine, a former partner with Goldman Sachs Group Inc. "But I do believe for appearance’ sake . . . Pitt ought
to do what Attorney General John Ashcroft has done and clearly step aside from the process."

But Pitt disagreed. "To talk about recusals at this point misperceives how this agency operates," he said in an
interview,

Pitt said he has done and will continue to do his job in accordance with ethics rules, which forbid — but with
some exceptions -- the SEC chairman from taking any action concerning a former client for 4 year after taking
office.

The SEC, which regulates financial markets, is also responsible for the oversight of accounting firms, which are
supposed to certify that financial records give a fair portrait of a company's finances.

With the Enron collapse focusing criticism on accounting firms, the SEC is facing conflict-of-interest questions,
not only because of Pitt's former ties to the industry, but also because Bush's two nominations for vacant scats
on the five-member SEC come from big accounting firms.

Pitt yesterday would not comment on how he voted last fall, when the commission agreed to launch an
investigation into the Enron affair. That investigation is examining the role played by Enron officials and the
company’s outside auditor, Arthur Andersen.

Pitt also would not specify what he would do if the SEC staff were to come before the commission again, at the
conclusion of its investigation, with recommendations that actions be taken against companies or accounting
firms.

01200000001499


All the pieces were now in place
tor @ cfs that Could nat be man-
aged. The final countdown to disas-
ter over the hwo months leading up
to Enron's Chapter 11 bankruptcy
fling on December 2 is charted in
our timeline. By the time that Enron
had adjusted its criss monagement
to cope with its Comorate gover-
nance folures. its Equity fime-
bomb was ticking much too fast.

The company formolty restated
its eamings on November 8 to
account far © $1.2 bilon reduction
to shareholders’ equity. It was
obiged to cdmit “certain off-pal-
ance sheet antitias snoukt have
been inckided in Enron's const
dated finoncio! stotements pur-
svont fo generoly occepled
cocounting principles”.

including them meant Enron's
declared debt burden increased
by hunckeds of mmiions of dollars in
the period. ond its net income was
fkewise reduced. Erron's own surn-
mary of the restctement Is given in
Box 6. bul the nunbes weren't os
importont os Its own terse odmisiON
that TMe origingl “financial state-
ments for theve periods ond the
audit reports relating to the year
end financial stotements for 1997
ttvough 2000 souk! not ba relied
upen"

Conclusion

Already. observers of the Enron
bonkupicy hove token divergent
wiews on its couses. Those who give
the benelit of the doutst to Enron's
top exacutivas suspect tat whie
the company might inevitably
been heoding for a fall in terms of
its share price. i wos cotoputed
into Donkruptcy by panio-stricken
inwestoss, The argument soys that
inwestoss tofed to recogrise that

Enron's occouniing ond comporcte
govermence problems had inflicted
telotivey trivial damage on an
ementoly healhy company.

Those of & more cynical bent
have suggested that freon wos o
stor performer onty in the serwe of
pulling On G good Oct, For these
comementoton, Enron's ability to
meet eornings targe's. and report
other figures and rotios that
Pleased the market, was the result
of the over-claver - not necessorily
WHegal = shaping of cashtiows. That's
@ charge that con only be finally
wetted by a minte examination at
the company's boats, and by the
SEC Inwestigation now uncer way.

The chief executive officer of
Andersen. the accounting tern mat
udtad Enron, has clready sought
to detect criicism by pointing to. o
general tole of the accounting:
srotession, He says that today’s
compony occounts are foo back-
wordiooking. that they offer only
intermittent diciomse. that they fal
to come to teens wilh off-balance
sheet specic! purpose venicies, ond
that they should support © wider
range of bey performance indica-
tors.

The votious enquifies into the
Enron foluee are fkaly to probe
deep and tong By that time.
though, we wil hove for more infor
mation to hand shan did investors
a: they dumped Enron's shores. or
creditors as they enforced conn
ent clauses to pul ther capital out
from the company

This suggests that we must look
Jor a simpler explanation of Enron's
$80-40-2é-cent death spiral.

Pethoos Enron's shoreholders
sold out on the compony because
they befeved that to france its
dreoms ond mats its targets, the

“The restatement will inchade a reduction to reported
income of approximately $96 million in 1997, $113

million in 1998, $250 million in 1999 and $132 milliow
in 2000, increases af $17 million for the first quarter of
2001 and $5 million for the second quarter und 2
reduction of $17 millice for the third quarter of 2001,
‘These changes to net income are the result of the
retroactive consolidation of JEDI and Chewco beginning
in Nowember 1997, the consolidation of the LIM!
subsidiary for 1999 and 2000 and prior year propesed.
audit adjustments. The consolidation of JEDI and
Chewoo also will increase Enron's debt by approximately
‘5711 million im 1997, $561 million in 1998, $685 milion
in 1999 and $628 million in 2000~

Enron, summary of reitatement of accounts, see
‘aip.//www eciron com ‘oom'ses

company had enginsered oway
ony chance of G more mundane
@xktonce, There was no floor fo the
share price because o3 the stock
fet, investors and creditors come to
suspect that mechanisms were
ready in ploce that woud drain
ony $@-a-share core busines of
the iquigity ond reputolion thot &
depended vpon, They already
knew that the company’s accounts
would be of litle use in such o situa
tion. And they no longer beleved
the only people who could quickly
filin the gaps. @

Notes

xo!

Newerribe’ 15, 200

December 4 2007

+ Bik “CRO Profie: Sick Bay » Enron Comoration”. Ferry

2 "frron Mans Awe! $@8-Ol! to Sias Debt”. Houston Crronict,
J Moody's Special Comment, "The Unintended Consequences
of Roling Triggan”, Decemper 7, 2001.

4 Enron. preambles 19 retclement of occas, 380

$ Jon teradino, "A Wake-Up Cot, The Wall Stee! Jounal

01200000000785


French traders said wariness about dealing with Enron had dampened liquidity although Enron was still in the
market on Monday morning.

“Enron is a major player so counter parties are looking to see if there is a problem,” said onc French trader.

Copyright 2001 Reuters Ltd. <http://www.online.reuters.comy> | Privacy Information
<http://www.nytim i i html>

° 01278

01200000000633


enforcement, even when that assistance ia against the wishes of
their bosses. Since Sept. 11, justices have not agreed to review
@ case that directly implicates terrorism. They declined to take
this one without comment. A judge had dismissed the man's case,
and the 10th U.S Circuit Court of Appeals also said the firing
was proper. The appeals court noted that he was not fired for
reporting the alleged threats. His continued involvement with the
investigation, after telling his boss he would no longer help the
FBI, was not free speech, the appeals court said.

POLITICS
Republicans To Defend More Open Seats In 2002 Races

The retirement announcementea last week of GOP Reps. James
Hansen of Utah and Joe Skeen of New Mexico bring to 26 - eight
Democrats and 18 Republicans - the number of House members
announcing they will not seek to return to the 108th Congress,
leaving Republicans more than twice as many open seats to defend
during November's midterm elections. The tally includes Rep.
Steve Largent, R-Okla., who will officially resign his seat Feb.
15 to concentrate on his run for governor. Republican etate Rep.
John Sullivan was elected Jan. & to replace Largent, but cannot
be eworn in until Largent resians.

Three Democrats and nine Republicans have already announced
they will retire, including Democratic Reps. Eva Clayton of North
Carolina, William Coyne of Pennsylvania and Tim Roemer of
Indiana, In addition to Skeen and Hansen, Republicans planning
retirement are House Majority Leader Armey, Reps, Porter Goss and
Dan Miller of Plorida, Steve Horn of California, Marge Roukema of
New Jersey, Bob Schaffer of Colorado and Wes Watkine of Oklahoma.
Houge Republicans have urged Gos: whose profile as House
Intelligence Committee chairman has risen since the Sept. 11
attacks, to reconsider his retirement, in part to help
Republicans in Florida redistricting.

Five Democrats and nine Republicans have declared they will
give up their seats to pursue bids for statewide office,
Democratic Reps. John Baldacci of Maine, Tom Barrett of
Wisconsin, Rod Blagojevich of Illinois and David Bonior of
Michigan are all running for governor in their home states, while
Texas Rep. Ken Bentsen is seeking the Democratic nod for Senate.
Republican Reps. Saxby Chambliss of Georgia, John Cooksey of
Louisiana, Greg Ganske of Iowa, Lindsey Graham of South Carolina,
John Sununu of New Hampshire and John Thune of South Dakota are
running for Senate. GOP Reps. Van Hilleary of Tennessee and Bob
Riley of Alabama, as well as Largent, are vacating their seats to
run for governor.

Redistricting played an important role in more than one
retirement decision. Coyne, Horn and Bonior all announced their
retirements after redistricting plana made clear their seats
would be eliminated or merged, although only Horn listed it as a
epecific factor. Chambliss and Ganske faced radically different
districts if they chose to run for re-election. Oklahoma
redistricting could drastically alter districts now held by
Largent and Watkins, while Wisconsin, which loses a seat, is
likely to carve up Barrett's district, - by Mark Wegner

POLITICS
Bush Calls For Broader Powers To Negotiate Trade Pacts

Apparently recovered from a fainting incident that left him
with 4 scraped cheek and bruised lip, President Bush renewed his
push today for expanded trade as a cure for recession and vowed
anew to oppose any repeal or delay of tax cuts enacted last year.
Bush opened a two-day, three-state push by reiterating his
request for broader powers to negotiate trade pacts, gaying, "I'm
confident we need to open up markets, not close thes down.* Bush
pledged to fight any effort to roll back tax cuts approved last

: 01029

01200000001701


Enron bankruptcy, to make sure we can learn from the past, and make sure that workers are protected,

Q What can you do about pensioners -- what can you do about pensioners now? Isn't that horse already out of
the bam at Enron?

THE PRESIDENT: Our group is meeting, and they will bring recommendations here. They'll look at — fully
investigate what went on. My concern, of course, is for the shareholders of Enron. But my -- I have great
concem for the stories -- for those I read about in the stories who put their life savings aside, and for whatever
reason, based upon some rule or regulation, got trapped in this awful bankruptcy and have lost life savings,

And one of the things this group is going to do is take a good hard look at it.
Thank you all,

01200000001546


year, the Associated Press reported. *I've made up my mind - the
tax relief plan we passed, which you're now beginning to feel the
effects of, is going to be permanent," he said. He is traveling
this afternoon to a feed mill in Aurora, Mo and Tuesday to New
Orleans. Senate Agriculture Chairman Harkin, who appeared with
Bush in Moline, had urged the president to make time "to meet
with farmers, rural leaders and others" who are interested in the
new farm bill. Harkin's letter appeared to be part of a
Democratic campaign to point out that Bugh officials meet with
agribusiness rather than farmers. Harkin later said that Bush has
agreed to meet with him later this month to discuss the farm
bill.

POLITICS
Clinton Seeking Changes To Proposed Federal Compensation Plan
Survivors of the Sept. 11 terrorist attacks and relatives of
those who died are joining Sen. Hillary Rodham Clinton, D-N.Y.,
in seeking changes to the proposed federal compensation plan, the
Associated Press reported. The Sept. 11 Victims Compensation Fund
was created as part of a $15 billion airline relief package
established by Congrese. It allows families to apply for federal
monéy to caver lost wages, pain and suffering, as long as they
agree not to sue airlines and other entities. Clinton Sunday met
with families and announced several proposed changes to
eligibility guidelines, including eliminating a requirement that
the injured seeking compensation must have received medical
treatment by noon on Sept. 12. Families of those killed in the
attacks receive an immediate payment of $50,000, and those
injured get $25,000 when their applications are processed, The
minimum award for the families of deceased is $250,000, before
deductions. The average award is expected to be about $1.65
million, Clinton said the 24-hour rule should be removed because
many victime could not get to a hospital until later. The Justice
Department's deadline for written comments on the legislation is
Jan. 22.

POLITICS
Most State Election Officials Oppose Reform Under Consideration
A majority of state election officials oppose election reform
standards under consideration in Congrese but do support
improvements in voting technology and machinery, according to a
survey released today by the nonpartisan Election Reform
Information Project. "They are enthusiastic at the Prospect of
federal funding for elections, but nervous about what ‘strings'
might be attached," Project director Doug Chapin said. More than
70 percent of top state election officials said they opposed
federal standards for recruitment and training, Blection Day
operations and procedures, recount procedures and ballot Gesigns,
while 58 percent also said they opposed federal standards for how
votes are counted. But 69 percent said they did support
technology improvements, and ¢aid funding was the biggest
obstacle to improving elections. However, slim majorities of
local officials voiced support for better tri ning and for
procedures for counting votes and contested elections. The House
Pp dan election reform bill in December. The Senate has yet to
approve a bill although a bipartisan group of key senators did
unveil a bill late last year, The survey, conducted by Princeton
Survey Research Associates, interviewed the chief election
official in 36 states and in 208 counties between Oct. 16-Nov. 9.

TRANSPORTATION
America West Airlines Meets Conditions For Loan Backing
Cash-strapped america West Airlines said today it has met the
government's conditions to receive federal backing for a $429 01 030

6

01200000001702


review, the company has made adjustments to its financial statements for
fiscal years 1997 and 1998, (emphasis supplied)”

The key point here is that a desk top review by a staff accountant in Washington D.C.
turned up the initial restatements that eventually led to more changes in the Rite Aid
financial statements and the financial fraud case the legal authorities and SEC are

currently investigating. Changes that decreased inventory by more than half a billion
dollars, decreased property, plant and equipment by more than $600 million dollars, and
decreased shareholder's equity by approximately $1.6 billion dollars. 1 ask you, as many /
ask me, how is it this SEC staff person found what others in the field, including the
auditors, did not?

And what must the public think of the recent headlines heralding the settlement of a Big
Five accounting firm of fraud charges for its involvement in a medicare billing scam?
This same firm's international operations are the subject of a recent case brought by the
Justice Department and the SEC charging them with being an active participant in fraud.
Let me read from the allegations:

“The complaint alleges that in 1999, Harsono authorized KPMG-SSH
personnel to bribe an Indonesian tax official on behalf of one of KPMG-
SSH's clients....KPMG-SSH agreed to make the illicit payment to influence
the Indonesian tax official... The Commission's Order finds that, in March
1999, Baker Hughes’ CFO and its Controller authorized the above described
illegal payment, through KPMG-SSH, its agenr in Indonesia, to a local
government official in Indonesia. (emphasis supplied)”

Atan intemational conference of securities regulators in June of this year, the
intemational CEO of this firm said the SEC had over stepped its bounds last year with its
auditor independence rulemaking. He stated auditor independence rules should be based
on an accounting firm assessing whether it had determined it was independent or not. In
response to those comments, ] ask you, does anyone here today think an “agent” making
illegal bribes for a client, is capable of making a determination of whether they are an
independent third party, capable of rendering an unbiased opinion on a set of financial
statements?

Enron

And to top it all off, we now have Enron, who until recent months, was the seventh
largest corporation in America. A company whose value affected every S&P 500
indexed fund in the country.

USA Today has put the losses to investors in Enron at $92 to $93 billion dollars. The
Joss to the common stock holders alone is approximately $63 billion dollars. I think it
will be some time, months, maybe years before we know the full collateral effect and
losses from the collapse of Enron. But for today, let me put these losses in Perspective
for you. They are:

s 01312

01200000000668


One of the things that really caught my attention while ] was at the Commission, as well
as on other occasions, was the number of times I have seen auditors actually identify an
issue, but then did not get it fixed. Instead of calling 2 strike, they were like an umpire
who gives the batter a pass and calls “ball four” rather than strike three — you're out.
Waste Management, WR Grace and JWP are three such examples mentioned in a recent
Washington Post series of articles that should be required reading in each auditing class.

Ellen Seidman, then Director of the Office of Thrift Supervision or OTS, testified before
the Senate Committee on Banking, Housing and Urban Affairs on September 11", 2001
regarding the audit of the failed Superior Bank. In her opening statement the Director
stated “Congress or the FBA's [Federal Banking Agencies] could also encourage the
AICPA and SEC to establish an ‘external auditor rotation requirement’ ...its adoption
would result in a ‘fresh look’ at the institution from an audit perspective, to the benefit of
investors and regulators.”

Over the years I have wavered back and forth on whether we should institute periodic
mandatory rotation of audit firms. On one hand the accounting firms rotate the audit
partner every seven years. Yet I have seen the former partner rotated “off” to serve in a
client relationship role, while @ new younger partner is brought on, When | raised this as
an issue with the AICPA SEC Practice Section a couple of years ago, they quickly
dismissed it as a non-issue.

The accounting firms also cite that problems have been encountered in the first year of an
audit. They state the first year is when an auditor is most at risk while learning about the
business. However, I have never heard one of them say they did not learn enough about
the business in the first year to complete the audit, And think about it, | am not aware
that any of the financial fraud cases | cited above involved the first year audit of an
company.

Asa result, | think it is time we rethink the need to institute mandatory auditor rotation. 1
can't help but think that if the partners of Andersen, PWC or Ernst & Young on Waste
Management, WR Grace or JWP had known someone would be looking at their work,
they might have called the third strike in the numbers game.

V ce Governs

And I would be remiss if] did not discuss the issue of corporate governance. The second
most popular accounting question on Enron behind “where were the auditors” is the
question of “where was the audit committee?” Unfortunately we won't know the answer
for some time, as we do not know if they did ask the tough questions and if they did, who
provided the answers.

But in the meantime we can move forward with changes to enhance the role of the audit
committees. Consistent with the findings of the Blue Ribbon Panel on Audit

Committees, we should request the stock exchanges to adopt measures that would require
the audit committee, as opposed to management, to retain the services of the auditors.

15 01322

01200000000678


WSJ.com Page 2 of 6

Hearings.com. You will companies’ accounting policies. And federal energy regulators said they are
need RealPlayer, available || planning new rules for energy-derivatives accounting.

The Enron debacte spotlights an enormous void in the nation’s system of
“ee financial regulation, and it is rekindling a difficult debate over just how that
gap should be filled.

> Enron Unveils

Restructuring Pian |! Innovations in technology and finance have helped obliterate clear
Center oe ipeline, distinctions between banks, brokerage firms and newer hybrids, such as

" Enron, which built a privately run online trading empire that handled huge
volumes of electricity and natural gas.

> SEncon Could Spark

New Attention to
Accounting Multiple Standards

These days, it's possible for exchanges, which once required centralized trading floors crowded with
traders, to spring up overnight in cyberspace. Meanwhile, financial regulators, hewing to decades-old
divisions of authority, continue to keep a close watch on banks, brokerage firms and conventional
exchanges, while leaving new entrants such as Enron to police themselves.

There now is a widespread consensus among policy makers that, at the very least, the nation needs
stricter accounting rules that would force companies such as Enron to do a better job of disclosing their
financial conditions. Other industry watchers would go further. Enron, they say, was one of the country's
leading commodities markets. It had amassed a $19 billion portfolio of derivatives.

In many ways, the Enron debacle raises the same questions that arose three years ago, after the near-
failure of hedge fund Long-Term Capital Management — a private investment fund for wealthy
individuals that made leveraged bets on financial markets. Long-Term Capital's misplaced wagers, many
based on derivatives, almost triggered a meltdown in global markets during 1998,

In the months following that near-calamity, many policy makers, such as then-Treasury Secretary
Robert Rubin, vowed to change the regulatory system to avert similar risks in the future. While they
opposed tighter regulation for derivatives trading, they argued there was at least a need for greater
disclosure in the derivatives market.

Since then, however, a broad industry coalition including Enron has worked with sympathetic regulators
and legislators to beat back pressure for more oversight of over-the-counter derivatives. And in some
cases, they have rolled back powers that regulators had had.

Most regulators and financial-industry executives insist that the financial system remains sound. The
fact that Enron's collapse doesn't as yet appear to have been caused by its derivatives trading, or to have
triggered a broader crisis, seems to bolster their argument.

Advocates of derivatives say the instruments give companies, investors and lenders a way to reduce their
exposure to many kinds of financial risks. Indeed, that's the main reason for their popularity.

New types of derivatives have emerged in recent years, allowing traders to bet on electricity prices,
telecommunications bandwidth and the influence of the weather, all of which Enron dominated. Enron
also was a big player in credit derivatives, which act as an insurance policy against corporate bankruptcy
by promising to pay back a lender's money in exchange for a premium,

http://interactive, wsj.com/archive/retrieve.cgi?id=SB 1008202066979356000.djmdéctemplate=... 12/13/01

01221

01200000000577


EnronOnline - Press Room Page 1 of 2
—_

Enron Launches Clickpaper.com in Europe

Enron Press Roam

Error Investor Relations FOR IMMEDIATE RELEASE: Tuesday, January 30, 2001

Presentations

Revearch London: Enron Industrial Markets announced today the European launch of Clickpaper.com, an
_—_—_— based transaction systam dedicated to the forest products industry to support its expansion plan
Legal & Privacy ‘sector.

Clickpaper.com provides a ‘Trade” platform to buy and sel physical and financial (swaps) pulp, p
wood products, which is principal-hased, commission-free, and real-time. in addition, Clickpaper
function provides open space to anonymously post bids and offers with other market members 0
commission-free basis for products that do not fit the terms, conditions or specifications for the ¢
products that are posted on the ‘Trade’ portion of the sile. The Web-site also provides news, res
information directly related to the industry

“Enron is the world’s leading provider of financial risk management services to the pulp and pap
By adding firm contracts for physical products with defined quality and performance specification
range of pulp, paper and wood commodities, Clickpaper.com will become the preferred on-line s
principal-based transactions in this rapidly commoditizing industry,” said Jeffrey McMahon, presi
of Enron Industrial Markets. “Utilizing the proven business model created with EnronOniine, Clic
offers customers in the pulp and paper industry a unique set of benefits, including competitive pr
price transparency, which we believe will provide liquidity to this market.

Since launching with dollar-denominated products in September 1998, Enron's Clickpaper.com h
more than one million tonnes of product, equivalent to USD 650 million in national value of phys
financial products traded.

The European launch of Clickpaper.com coincides with the listing of a wide range of both physic
financial pulp, paper and packaging products in GBP Sterling and German Marks on the system
NBSK (Northern Bleached Softwood Kraft or ‘pulp’), Newsprint, LWC (Light Weight Coated), A+
(Old Corrugated Containers), and Testliner. More than 300 producers and consumers have been
the first wave of marketing activity designed to encourage them to trade on the Inlemet-based sy

Future plans for Clickpaper.com include expanding the product menu with additional financial ris

management products, and additional physical pulp, paper, and wood products on a global basis
and the commoditization of the products increases and an active, transparent spot and forwarc m
pulp and paper products develops.

Editors Notes

Tho system is currently available at www.Clickpaper.com. Guest passwords and user IDs are av
i customers in the industry, Prices for pulp, paper and packaging products will continue
on www, EnronOnline.com.

Enron has provided risk management products and financing for the pulp, paper and wood prod
since 1997 and is the largest trader of financial risk managernent products in the pulp and paper
date, Enron has completed financial transactions totaling more than 17 million tons of pulp and p
with a notional value exceeding $9 billion. Producers and consumers have used these products

price risk associated with their raw materials and finished products.

Enron's European activities began in 1989 and are headquartered in London. Today the compan
more than 4000 people across Europe with principal offices in Frankfurt, London, Oslo, Moscow

01420 i260;

01200000000776

http://www.cnrononline.com/docs/marketing/PressRoom/M 14078/


John W. Rutter
Chief, Analyis & Special Studies
U.S, Department of Commerce

Helen Yin
Senior Economist
US. Department of Commerce

Jan Broady
US, Department of Labor

Louls Campagna
Chief, Division of Exemptions
U.S, Department of Labor

Angie LeBlanc
U.S. Department of Labor

Michael Schloss
Senior Trial Attorney

U.S. Department of Labor

Janet Schmidt
Pension Law Specialist
U.S, Department of Labor

Andrea Selvaggio
Pension Law Specialist
US, Department of Labor
Karin Weng

U.S, Department of Labor

Fil Williams
OEO, Team Leader
U.S. Department of Labor

‘Norman Carleton
Office Director
U.S. Department of Treasury

Paul J. Crispino
Attomey Advisor

U.S. Department of Treasury

Warren Gorlick
Attomey/Financial Policy Advisor
U.S, Department of Treasury

Gerry Hughes
Financial Analyst
US, Department of Treasury

Page 10

Thomas M. McGivern
Deputy Associate General Counsel
U.S, Department of Treasury

Peter Nickoloff
Financial Economist
U.S, Department of Treasury

Heidilynne Schultheiss
Financial Economist

US, Department of Treasury

Lawranne Stewart
Government Securities Specialist
U.S, Department of Treasury

Jobn Yetter
U.S. Department of Treasury

Jim Black
Senior Evaluator
U.S. General Accounting Office

Michael Burnett
Assistant Director
U.S. General Accounting Office

Tamara Cross
Senior Evaluator
U.S, General Accounting Office

Cody Goebel
Senior Evaluator
U.S, General Accounting Office

John Heires
Evaluator
U.S, General Accounting Office

Christine Kuduk
Economist
US. General Accounting Office

Thomas McCool
Director
U.S. General Accounting Office

Mitch Rachlis
Senior Economist
U.S, General Accounting Office

Paul Thompson
U.S, General Accounting Office

01368

01200000000724


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Ellis, Dina
From: Hart, Susan

Sent: Tuesday, June 12, 2001 4:54 PM
To: Ellis, Dina; DeMarco, Edward

Moran Urges Support For Opt-Out Privacy Plan, Commission
by Bara Vaide <mailto:bvaida@nationaljournal.com>

The privacy position of the new chairmen of the Senate Commerce and Judiciary committees poses a concern to
the high-tech community, Rep. James Moran, D-Va., co-chairman of the New Democrat Coalition
<http://www.ndol.org/ndol_ka.cfm?kaid=103>, told high-tech lobbyists Tuesday.
“As elated as | am at the change in the leadership of the Senate, the chairs of the Judiciary and Commerce
committees have sponsored opt-in bills ... that will mean a difficult situation on the [Senate] playing field,"
Moran told the lobbyists who had gathered to hear a preview of the New Democrat Coalition's "e-genda 2001,"
scheduled for release Wednesday afternoon.
The opt-in approach to privacy would put the burden on online businesses to obtain consent from consumers
before using their personal information for marketing purposes or selling it to third parties. Moran instead urged
the lobbyists -- from Microsoft, Cisco Systems, AT&T, Hewlett-Packard, VeriSign, Enron and other high-tech
companies -- to consider supporting the opt-out approach that would put the burden on consumers.
Sens. John McCain, R-Ariz. and John Kerry, D-Mass,, introduced the leading opt-out privacy bill, $, 2928

i zr i

<http://rs' wicgi-bi 1928: =mé>, in the 106th Congress. Moran
also urged the lobbyists to support a bill, H.R. 583 <http://1s9,loc.gow/cgi-bin/bdquery/z?d107:HRO05S83:

@@@L&summ2=m&>, that he co-sponsored. It would create a 17-member commission to study existing
privacy laws, conduct field hearings and make legislative recommendations to Congress within 18 months.
Moran said the House Government Reform Committee could consider his bill soon -- before its leading
Republican co-sponsor, Asa Hutchinson of Arkansas, leaves the House to head the Drug Enforcement
Administration for President Bush.

Sources close to the Senate Commerce Committee have said new Chairman Ernest (Fritz) Hollings, D-S.C.,
plans to hold several hearings on privacy policy in July. The hearings likely will focus on various aspects of the
opt-in privacy bill, S, 2606, that Hollings sponsored in the 106th Congress, but Hollings does not plan to
reintroduce his bill until after the hearings, industry sources said.

On other high-tech related issues, Californian Calvin Dooley, co-chairman of the House New Democrat
Coalition, told the lobbyists that new legislation to renew presidential trade-negotiating expected to be
introduced in the House this week is "dead on arrival" with Democrats if it does not include language related to
labor and environmental standards.

Dooley has been trying to craft a compromise bill that would include enforcement of labor and environmental
provisions. Many Republicans want to leave those issues out of trade deals.

New Democrats, however, are optimistic about House passage of legislation to renew normal trade relations
with China, Although Congress voted last year to approve permanent normal trade relations with China, the
country has yet to join the World Trade Organization, hence forcing another annual vote on the issue.

On other issues, the New Democrats are developing a comprehensive energy policy because they said the West
Coast's energy problems are threatening the ability for future high-tech growth in the region.

01200000001623


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LOBBYING
House Resources Committee Staffer To Join Lee & Smith

Just two days after House Resources Chairman Hangen announced
he will retire next year, Allen Preemyer, chief of staff for the
committee, said today he is leaving the panel to join Lee &
Smith, a lobby shop which represents developers and Utah State
University. Freemyer, a Utah native, plans to leave Feb, 1.
Elsewhere, Christi Harlan, former communications director for the
Senate Banking Committee under former Banking Chairman Gramm, has
been named director of the SEC's Office of Public Affaire. Harlan
most recently served as director of external affairs at the
Federal Emergency Management Agency. Prior to joining the Banking
Committee staff, which she left last year, Harlan spent 20 years
as a reporter.

POLITICS
Sununu Leads Smith In N.#. Primary Matchup According To Poll

For the firet time, a poll shows Republican Rep, John Sununu
leading Sen. Bob Smith in their New Hampshire primary matchup. An
American Research Group poll conducted last Wednesday through
Saturday shows Sununu leading Smith 51-27 percent. That is a
dramatic change from previous ARG polls, which showed Smith
leading Sununu 47-39 percent in November, after having widened
his 47-41 percent lead in October. The new results showed Sununu
did not gain so much as Smith lost ground, with 22 percent of
votera saying they were undecided. Previous polls showed 14
percent or fewer undecided. The new poll of 600 likely Republican
primary voters has a 4 point error margin, ARG pollster Dick
Bennett said the reversal reflects the fact that primary voters
are now refocusing on issues such as the economy, education and
health care.

THE FINAL WORD

"Given the recent swirl of events, I hardly think it would be
appropriate for me to comment on how sexy the media is."

- White House Press Secretary Ari Fleischer, responding
jokingly to a reporter's question Wednesday about how the white
House felt about descriptions of Defe: Secretary Rumsfeld as
the media star of the year. "He's my hero when it comes to how to
handle the press, I'll tell you that," Fleischer added.

CongressDaily is published daily, Monday through Friday, by
National Journal Group Inc. Copyright 2002 by National Journal
Inc., 1501 M St., NW, #300, Washington, D.c. 20005.
Retransmission, redistribution or reproduction of CongressDaily
is prohibited without the express, written permission of National
Journal Group Inc.

To read CongressDaily on the Web, contact 1-800-207-8001 or
njcirc@njde.com for your username and pasaword.

President--John Fox Sullivan, 202-739-8468 (jsullivanenjdc.com)

Publisher--Steve Hull, 202-739-8475 (shull@njde.com)
Editor--Louis Peck, 202-739-8481 (lpeckanjdc.com)

Executive Editor--Keith White

Senior Managing Editer/A.M. Bdition--Robert Ourlian
Senior Editor--Charlie Mitchell

Associate Editor--Greta Wodele
Assistant Editor--Chuck Jordan 0} 1 047

01200000001719


greatest source of appointees at USDA, American Farm Bureau
Federation President Bob Stallman, who sits on the Parm
Foundation board, said this week he was "disappointed a group
like the Farm Foundation can't go to Cuba" and was particularly
disturbed that the rejection came on Jan. 3, only five days
before the group was scheduled to leave.

Former Agriculture Secretary Glickman, a member of the Farm
Foundation board who was supposed to be a part of the delegation,
initially joked to CongressDaily that Treasury rejected the
application because "they think we're a bunch of
revolutionaries." But Glickman quickly added that the rejection
"was a little more complex" than the Bush administration
rejecting the application to appease Cuban American voters.
Glickman said the Farm Foundation may not have engaged in "enough
advance planning in the licensing process." But Glickman also
added, "The government didn't show the flexibility it needed to
work through the isaue" and "could have helped the group" improve
its application,

John Kavulich, president of the New York-based U.S. Cuba Trade
and Economic Council, a pro-trade group, said, *I don't think
anyone should say this ig the Bush administration sending a
signal." But Farm Foundation President Walt Armbruster said in a
telephone interview from Florida, where the group that was headed
for Cuba was holding a meeting, that he “can't tell" whether the
rejection was the result of an application problem or a political
Statement. Armbruster said Treasury officials told him they
rejected the application because there were too many spouses, the
agenda was too "unfocused" and had no strategy for making a
direct sale. But Armbruster said including spouses in trips is
normal Farm Foundation procedure and that "the criteria are not
veal clear" for the applications. Armbruster said some USDA
officials and senators and House members tried to intervene with
Treasury, but that he never sought Veneman's help and that he
discussed the matter only with Treasury civil servants, not
political appointees. A USDA spokeswoman said while the agency
called to check the status of the Farm Foundation's request, no
USDA official acted on the group's behalf. sen. Byron Dorgan, D~
N.D., said the Parm Foundation rejection is proof "the
administration is tightening restrictions on travel te Cuba" and
"demonstrates how absurd the policy is." Treasury Secretary
O'Neill, Dorgan said, told him Treasury is "not actually doing
anything different, but the evidence suggests they are." - by
Jerry Hagetrom

ENVIRONMENT
Yucca Mountain Decision Heading Por Capitol Hill Battle

As Nevada officials this week began considering their optiona
for staving off a nuclear waste repository at arid Yucca
Mountain, Congress emerged as the likely key pressure point in
the battle. "We're checking into all parliamentary options," Sen.
John Ensign, R-Nev., an opponent of the waste site, told the Las
vegas Sun. Energy Secretary Abraham Thursday designated the
Nevada site as the government's choice for permanent storage of
high-level radioactive waste from weapons plants and nuclear
power stations. But Abraham's designation is not the final word,
triggering a sequence of regulatory and political steps that
waste foes said could derail the plan. After notifying GOP Nevada
Gov. Kenny Guinn of his decision on Thursday, Abraham must wait
30 days to notify President Bush of his decigion. Bush then hae
an indefinite period to ratify Abraham's decision. If he does,
Guinn is given 60 days under law to veto the designation, If
Guinn exercises his veto, the issue goes to Congress. The Sun
reported today that Guinn Thursday told Abraham that "I wae
damned disappointed in his decision and he was to expect my
veto."

If Guinn sends the issue to Congrees, as expected, the two

‘ 01036

01200000001708


player on Bush's 48 member Energy Advisory panel but he also
works

closely with Vice President Dick Cheney's new Energy Policy

Development Council formed to find short term solutions to
energy

problems. During the 2000 election campaign, Enron's
Political Action

Committee contributed to the senatorial campaigns of:
Spencer Abraham

(R-Michigan), who became Bush's Secretary of Energy; Jett
Bingaman

(D-New Mexico), who became the new chair of the Energy and
Natural

Resources Committee in the now Democrat controlled Senate;
as well as

the re-election of Tom Delay (R-Texas) who sponsored the
bill that

mandated the deregulation of electricity across the U.8.
Moreover, three

top White House advisors involved in drafting President
Bush's national

energy strategy are reported to have either held stock or
earned fees from

Enron: Karl Rove, Bush's chief political strategist;
Lawrence Lindsay,

Bush's chief economic advisor; and Lewis Libby, Cheney's
chief of staff,

US Energy Deregulation, A Blueprint for the WTO?

The recent deregulation of energy services in the U.S.
became a major .

demonstration case of Enron's political clout, as well as
perhaps a major

clue as to how the new GATS rule making could play out on
the

international scene. Known ag the ‘Enron Bill' in D.C.
circles, Sen. Tom

Delay's legislative package called for a national
deregulation of energy,

particularly electricity. To strengthen their position, a
series of moves were

made in regards to the Federal Energy Regulatory Commission.
Pirst,

CEO Ken Lay and cther Enron officials interviewed
prospective candidates

to fill vacancies on the Commission and President Bush chose

two people

recommended by Enron. Then, the New York Times revealed on
May 26,

2001 that Lay himself wrote to the Commission Chair, Curtis
Hebert,

saying that if Mr. Hebert changed his views on electricity
deregulation,

Enron would continue te support him in his new job. Hebert
was reportedly

01200000001024


Tony Clarke ia the Director of the Polaris Institute in
Canada.

01200000001028


Board of Governors of the Federal Reserve System
Department of the Treasury
Commodity Futures Trading Commission
Securities and Exchange Commission

December 26, 2001

The Honorable J. Dennis Hastert
Speaker of the House

United States House of Representatives
Washington, D.C. 20515

Dear Mr. Speaker:

We are pleased to transmit our report on retail swaps as required by the Commodity
Futures Modernization Act of 2000 (*CFMA”).

The CFMA directed the Board of Governors of the Federal Reserve System, the
Secretary of the Treasury, the Commodity Futures Trading Commission, and the Securities and
Exchange Commission (the “agencies”) to study issues regarding the offering of swap
agreements to retail customers, principally small businesses and individuals.

Specifically, the study was to address the potential uses of swap agreements by retail
customers; whether financial institutions are willing to offer such swap agreements; the
appropriate regulatory structure, if any, to address customer protection issues with respect to the
offering of such swap agreements; and other matters the agencies deemed necessary or
appropriate to address. The agencies interviewed several potential market participants whose
views are described in the report,

The CFMA also directed the agencies to submit a report to Congress on the findings and
conclusions of the study, along with any recommendations for legislative action.

As indicated in the report, the agencies do not recommend legislative action at this time
for swap agreements offered to retail customers.

Staff of the Federal Deposit Insurance Corporation, the Federal Reserve Bank of New
York, and the Office of the Comptroller of the Currency worked with the agencies during the

study and participated in the preparation of the enclosed report.

01857

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010e98


Senate should vote by the end of February on the bipartisan trade
legislation that's pending.”

Business advocates today were assessing the ruling, looking
for room in the legal implications of the decision, but
implicitly acknowledging a loss on all counts. “The decision
Ieaves in place the underlying problem," said Homer Moyer, a
partner in the Washington law firm of Miller and Chevalier, who
works with an industry coalition that is working the FSC issue.

"We continue to have an underlying tax disparity, which must be
rectified one way or the other, even if it requires changes in
WTO rules." The Associated Press reported that BU Trade
Commissioner Pascal Lamy said he was pleased and called for
“rapid proposals” from Washington to rectify the tax laws, "Now
it is up to the United States to comply with the WTO's findings
to settle this matter once and for all," Lamy said.

The FSC case goes back several years. In February 2000, the
WTO Appellate Body upheld a ruling that the FSC provisions of tax
law violated WTO subsidy rules. In response, Congress approved
the Extraterritorial Income Exclusion Act of 2000, but the
European Union won a WTO ruling last August that the revised law
still conferred a “prohibited export subsidy" and failed to
withdraw the FSC "subsidy," as the earlier ruling directed. It
was that ruling that was affirmed in today’s WTO appeals ruling.
Under an EU-U.S. agreement reached in September 2000, the dispute
now will go back to a WTO arbitrator to decide on the cxact
amount of possible countermeasures. The arbitrator's report is
expected by the end of March, according to an EU statement. - by
Bruce Stokes and Geoff Earle

==.

EMPLOYMENT
Hill's Labor Agenda For 2002 Tinted By Enron Debacle

When Congress returns to work next week, legislators, staffers
and lobbyists will find the Washington labor agenda transformed
by investigations into employee 401(k) and pension investment
programs brought on by the Enron scandal, But they also face
questions about reviving an economic stimulus package,
ergonomics, and a renewed call to increase the minimum wage.
Enron "will dominate the conversation for the coming months,”
predicted Ann Combs, assistant secretary for the Pension and
Welfare Benefits Administration, which handles employee benefit
issues for the Labor Department, in a telephone interview with
CongressDaily. The pension administration launched an
investigation in November into how Enron employees lost most of
their savings intended for retirement when Enron stock plummeted
Jast year, and whether the companies’ investment trustees
fulfilled their duties to employees.

Also, Labor Secretary Chao recently was chosen to work with
Treasury Secretary O'Neill and Commerce Secretary Evans to look
at needed modifications in retirement laws in the wake of the
Enron debacle, The group met for the first time Friday, and,
while there is no deadline for sending recommendations to
Congress, Combs said, "Everyone appreciates the urgency of the
situation.” Senate Health, Education, Labor and Pensions Chairman
Kennedy will hold a hearing on the Enron retirement investment
issue next month, and House Education and the Workforce Chairman

19

01073

01200000001745


Gpportionment of resporuitlities.
and giving the head of internal
oualt direct access to the oud?
committes and the board.”

Bon Truslow is CRO at North
Carotna-based bank Wochovic
(see box A on page 2 for a case
study). He says the issue of ‘high-
level’ rik is genercliy more acute in
companies where management is
under unrealistic performance
Presure. “i don't wory ot af about
the risks of senior monogement
doing sometning | don't know
‘about of have contro! over,” he
says. “Our board & clear about det-
gating the job of managing tisk to
me, and there's ite opportunity for
something to be going on thot |
don't know about. in several wel-
imown cases where other compa.
nies hove discioved big surprises
ower the post few years, ifs hard to
classty them other thon as the
result of managers feeling very
intense premure over stock per-
formance. and taking bod deci-
sions accordingly.”

Schachter of Caxton Corpora-
tion agrees: “i does seem os if
some high protia risk manogament
dsosters hove involved not o
‘rogue Wader’, but Yogue senior
monegement’. ERM wil diways be
challenged to control risks that are
taking place Aight at the top of an
organisation - and no matter how
you organi it. it the rik manager
doen't either have a very senior
role of report to someone in the
organisation who is very senior,
then you won't catch these things.”

Having senior people in a fim
taking unacceptable risks is,
‘amang other things. 0 faitty serious
form of operational risk. And it's this
(ak class thot poses perhops the
mast problems when it comes to

deciding who should monitar it. The
Closic fisk categories of market,
Credit and tquidity rise ore {falty
obviously) the preserve of rsk man:
gers. except when internal audit
staps in to check thot they ore
being handles corecty. But oper-
tional! nist is on seve Mot could
Potentiaty involve everyone in the
company. fom CEO to security
Quord, So how far is #1 the resporni-
bitty of rst managers. and how far
should other functions within the
organisation be involved int?
‘CBC's Peccic precicts that oper-
ational risk monogement wil even
tually become os refined as market
OF credit rak, with tolerance levels

Operational risk is an issue that
could potentially involve _
everyone in the company, from
the chief executive officer to

the security guard”

se! for operational mk exposure.
“The role of the risk Manager wil be
to measure these risks and to
enyure thot ese tolerance frits
2°6 Not being breached.” he says.
“when there is 0 Conger that thoy
ore obsut fo be breached, the risk
manager wil bring this to the atten:
tion of the risk Cornmitteer, So risk
monagers won't take decisions
about changing the rik toleronce
of fhe firm but they wil help to
establish the tolerance leves in the
first place, making recommende-
tions through the rik committee,
and then monitor the fend of how
much op risk is taken on.”

The FSA's Chesworth says the
interna! audit function wil ako have

01436

@ role to play in checking on oper.
atonal risk. “in many ways. opera-
tional risk Is. a brand name foro sat
of réks that have aways existed,
ond # firms hocn't aready been
managing those things to some
extent then they wouldn't si be
ere. In thot sense. internal oucit
wil cready have been looting at
op rise"

The ouditor’s role becomes more:
complicated In tims where quant
tate methods ore applied to
model the level of op risk expose,
Soy Chesworth: “Wil intemal aud
tors be expected fo look ot these
models ond understand them? &
cosheffective to employ people in
the intemal audit deportment who
Nove Me sk¥s to undersiond ond
check the operationa’ risk models
used by the risk manegement
groupe”

Gut she notes that the qualitative
side of operational rk manage-
mant wil Continug t be important,
‘and intemal quaitors wil continue
to Goublecheck how it 6 being
managed, “The quandtative side of
op titk = oF risk in general ~ & oll
bout measuring experience ond
using It to moke predictions, With
that comes the ability to set limits
and ollecate capitol Bul that
doesn't mean you can just st back
once you've done that,

“The mots helps you to mecsure
and afocote capital to it but op rst
Is about processes ond bahoviours.
So | wouldn't expect to see o big
mave away ‘om the qualtative
control aspects, even wath extra
focus on the quantitative side,” she
soys. =

ERisk.com >

|

|

| "Intemet audit in bans and te supertior’s relationship with
auditor”, Bonk lor Intemational Setsements, August 200

Int Merwn org ipueime bela Me}

01200000000792


Christopher L. Culp
Director, Risk Management Services

CP Risk Management LLC

Andrea Neves
Vice President
CP Risk Management LLC

Susan C, Ervin
Counsel
Dechert, Price & Rhoads

Lori Santamorena
Executive Director
Department of the Treasury

Linda B. Klein
Partner
Dewey Ballantine LLP

David Sevigny

H. Joseph Hrgoveic
Manager
Enron Corporation

Balvinder Sangha
Senior Economist
Emst & Young

Ray Beeman
National Tax manager
Emst & Young LLP

David A. Golden
Partner
Emst & Young LLP

Anne Kerttula
Economist
Emst & Young LLP

Albert Kiss

National Tax Manager
Emst & Young, LLP

Thomas S, Neubig
Partner, National Director
Emst & Young, LLP

Luiz de Toledo
Vice President, Credit Portfolio
Fannie Mae

Page 3

Carolyn Swift
VP and Deputy General Counsel)
Fannie Mac

Jim Shannon
Senior Program Administrator
Federal Deposit Insurance Co.

Miguel D. Browne
Manager
Federal Deposit Insurance Corparation

Arthur J, Murton
Deputy Director
Federal Deposit Insurance Corporation

Allen Puwalski
Senior Financial Analyst
Federal Deposit Insurance Corporation

Robert Storch
Chief Accountant
Federal Deposit Insurance Corporation

Curtis Wong
Capital Markets Specialist
Federal Deposit Insurance Corporation

Syed Ahmad
Senior Financial Economist
Federal Housing Finance Board

Eric E. Berg
Attomey
Federal Housing Finance Board

Mitch Bems
Director, Office of Supervision
Federal Housing Finance Board

James L. Bothwell
Director and Chief Economist
Federal Housing Finance Board

Ellen Hancock

Senior Financial Economist
Federal Housing Finance Board
Austin Kelly

Senior Financial Economist
Federal Housing Finance Board
R. Patrick Lagos

Accountant
Federal Housing Finance Board

01361

01200000000717


Nickoloff, Peter

From: Schultheiss, Heidilynne

Sent: Monday, October 29, 2001 4:02 PM
To: Carleton, Norman; Nickoloff, Peter
Subject: Where Did the Value Go at Enron?
October 23, 2001

Where Did the Value Go at Enron?
By FLOYD NORRIS

What really went on in some of the most opaque transactions with insiders ever seen?

Wall Street has been puzzling over that since Enron released its quarterly earnings a week ago. Yesterday shares
in Enron plunged $5.40, to $20.65, after the company said that the Securities and Exchange Commission was
looking into the transactions,

The reaction was in some ways puzzling. Given the questions that have been raised since the earings
announcement - some of them prominently featured in The Wall Street Journal - it was likely that the S.E.C.
would begin a preliminary inquiry.

Whether it will go farther than that is not clear, but if nothing else the slide in Enron shares over the last week
shows the hazards that can confront a company that allows word of a major reduction in its balance shect value
to dribble out. Enron's shares rose 67 cents, to $33.84, last Tuesday, as investors first reacted to the earnings
announcement. But since then they have fallen $13.19, or 39 percent.

The $1.2 billion reduction in shareholders' equity was not mentioned in a news release Enron issued on its
quarterly earnings last Tuesday. It was briefly mentioned in a conference call with analysts, but many of the
listeners seem to have not noticed that, wrongly thinking Kenneth L. Lay, Enron's chairman and chief executive,
was referring to a $1 billion write-off that was disclosed in the earnings release.

When questions were asked in the following days, the explanations were less than thorough. Enron explained
that the reduction in shareholders' equity was related to the termination of "structured finance vehicles"
involving partnerships that had been controlled by the company’s chief financial officer.

"Both the debt and the equity people are looking for more clarity about how the company goes about its
business,” said Ralph Pellecchia, a credit analyst at Fitch Investors Service. He added that the issuc of the
company’s "credibility related to this transaction really seems to have a life of its own."

Enron declined yesterday to allow any officials to be interviewed about its financial reports. But last night it said
Mr. Lay would hold another conference call with investors at 9:30 a.m. today.

The company’s earlier disclosures regarding the partnerships baffled many analysts. They referred to such things
as "share settled costless collar arrangements" and "derivative instruments which eliminated the contingent
nature of existing restricted forward contracts.” The disclosures said the company entered into the transactions
“to hedge certain merchant investments and other assets."

It appears that Enron was able to report profits ftom them, even though the underlying assets included
investments that declined in value. The Wall Street Journal, citing reports the partnerships made to institutional
investors, has reported the partnerships did well enough to make large cash distributions to their investors.
Enron officials in recent days have refused to discuss the arrangements in any detail.

° 01296

01200000000651


Q. When were concerns raised with Enron?

A. The complaints grew as Enron's share price fell earlier this year. By this summer, Enron decided that Mr.
Fastow would sell his stake in the partnerships. Then, because the partnerships would no longer be considered
related to Enron, the company would no longer have to disclose anything about the transactions. But investors
were still worried, and Enron later closed out its deals with the partnerships.

Q. How did Enron do?

A. Badly, It took a $35 million loss, which, given the size of the transactions involved and the previous profits
taken, was not very much. But it also reduced shareholder equity by $1.2 billion.

Q. How did that happen?

A. That, like so much else, is not clear. But it looks as if the partnership owed Enron that much money, could
not pay and was Ict off the hook by Enron. In returm, Enron terminated "previously recorded contractual
obligations to deliver Enron shares in future periods." Enron treated that like a share buyback, even though the
shares in question had not been issued, and determined that there was no need to treat it as a loss that would
reduce reported earnings.

Q. Is that legal under the accounting mules?

A. Presumably it is, But Enron's limited disclosures make it impossible to say for sure. Enron may have
discovered ways to use the accounting rules to enable it to keep losses off income statements, while leaving
profits on them. That may become clearer when the Securities and Exchange Commission, which has begun
preliminary inquiries, completes its work. FLOYD NORRIS

Copyright 2001 The New York Times Company
“hutnu/www nytimes.com subscribe/he|p/copyright.himl> | Privacy Information

of WW hel, -html>

s 01281

01200000000636


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01200000001128



Related Party Transactions 2000
RT LI I 3

e Enron and the Related Party entered into an
agreement to terminate certain financial instruments

« Enron received approximately 3.1 million shares of
Enron common stock held by the Related Party, A
put option was terminated under this agreement.

« Enron paid approximately $26.8 million to the
Related Party.

“Enronism”

Financial Times, Jan 10, 2002
ES 7 Ee eR |

e "You have two cows. You sell three of them to your publicly
listed company, using letters of credit opened by your brother-
in-law at the bank, then execute a debVequity swap with an
associated general offer so you get all four cows back, with a
tax exemption for five cows.

e The milk rights of the six cows are transferred via an
intermediary to a Cayman Island company secretly owned by
the majority shareholder, who sells the rights to all seven
cows back to your listed company,

e The annual report says the company owns eight cows, with an
option on one more."

01335

01200000000691


Survey Research Associates, interviewed the chief election
official in 36 states and in 208 counties between Oct. 16-Nov. 9.

SS ee

TRANSPORTATION
America West Airlines Meets Conditions For Loan Backing
Cash-strapped America West Airlines said today it has met the
government's conditions to receive federal backing for a $429
million loan, the Associated Press reported. The deal is expected
to be signed and the money made available by the end of the week,
the airline said. America West is one of only two airlines to
apply for part of the $10 billion in loan guarantees approved by
Congress to help airlines following the Sept. 11 terrorist
attacks. The loan guarantees essentially make the government a
co-signer on the company's loan. In America West's case, the
government would agree to pay back up to $380 million if the
airline defaults, The Air Transportation Stabilization Board
approved the federal aid Dec. 28, with the condition America West
provide assurances it would keep down Labor costs and give the
government the option of buying a third of the airline's stock at
a fixed price. Under terms of the America West deal, the
government has until 2012 to purchase nearly 18.7 million shares
at $3 apiece. So, for example, if the price rose to $8 a share,
the government could sell it and make profit of about $94
million,

2.

POLITICAL ROUNDUP

California. In his first major campaign appearance of the 2002
election cycle, Rep. Gary Condit, D-Calif, reminded voters
during a Friday candidate forum of his bipartisan style of
legislating and of his seven terms representing the Central
Valley's 18th District. "I have been effective on your behalf.
And I'm going to ask you something. I've helped you. I'm asking
you to help me in March,” Condit said, according to the Los
‘Angeles Times, Condit, politically damaged by his relationship
with missing federal intem Chandra Levy, faces opposition in the
March $ open primary from five Democrats and four Republicans.
Reconfigured after redistricting, the 18th District is reliably
Democratic, but a Condit victory in the primary could boost GOP
state Sen, Dick Monteith in the general election. Assemblyman
Dennis Cardoza, Condit's strongest Democratic opponent, did not
attend the forum, choosing to keep a previously scheduled
campaign event. According to the Times, no one raised the issue
of Condit’s relationship with Levy until the end of the 90-minute
forum, when Republican Modesto City Councilman Bill Conrad raised
the issue, drawing boos from an audience of about 150.

Michigan. Michigan Democratic Party officials are launching
another effort to alter the first-in-the-nation status given by
party rules to New Hampshire and Jowa in the presidential
nominating process. State party leaders aborted an carlier
effort, led by Sen. Carl Levin, to avoid a national convention
floor fight in 2000, But in a Jan. 9 letter to Democratic
National Committee members, state Democratic Chairman Mark
Brewer, National Committeewoman Debbie Dingell and Levin said

they will propose an amendment to change rules for the 2004
" roe 01079

01200000001751


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 clection 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

01203

01200000000559


Oster, Karen

From: Farrell, Paula

Sent: Monday, January 14, 2002 6:02 PM

To: Atkins, Preston Jr

Ce: Revesz, Paul; Oster, Karen

Subject: FW: National Journal's CongressDaily - Thursday, January 10, 2002

arte Original Message-----

From: Knack, Elizabeth

Sent: Thursday, January 10, 2002 3:35 PM

To: Bllis, Dina; Farrell, Paula; Hart, Susan; O'Brien, Michael
Subject; FW: National Journal's CongreseDaily - Thursday, January 10,
2002

From: cp-del@nationaljournal.com (mailto:cp-del@nationaljournal.com]
Sent: Thursday, January 10, 2002 6:21 PM
Subject; National Journal's CongressDaily - Thursday, January 10, 2002

National Journal's CongressDaily
Issue date: January 10, 2002

WHITE HOUSE
White House Urges Nonpartisan Investigation Of Enron

The White House teday had tough words for congressional
investigators readying probes into the bankruptcy of former
energy giant Enron, warning lawmakers to steer clear of
“partisan" activities targeting Republicans and urging them to
focus instead on the circumstances surrounding the company's
failure, "I think people need to remember that the American
people are sick and tired of partigan witch hunts and endless
investigations," White House Press Secretary Ari Fleischer said
teday, "Enron gave hundreds of thousands of dollars to
Democrats," he noted. "If Congress instead focuses on
partisanship and focuses on blame of one party, then Congress
will not serve the country well," Fleischer said, calling Enron's
fall an opportunity for legislators to devise new policies to
avoid repeat acts by other companies, Fleiecher refused to say
specifically whether it would be proper for Congress to look into
direct contacts between Enron and administration officials. Enron
Chairman and CBO Kenneth Lay and hia company together have been
among President Bush's most generous benefactors, but Lay and
Enron have alao donated significant sums to other Republicans and
to Democrats.

Pleischer revealed that Lay contacted both Treasury Secretary
O'Neill and Commerce Secretary Evans last fall about Enron's
financial situation. Neither O'Neill nor Evans told the president
of Lay's contacts with them. Bush, in fact, only found out today,
Fleischer said. Bush first heard about Enron's collapse last
fall, when it become evident to the general public, Pleischer
indicated. The president said today at the White Houge that he
had never discussed Enron's finances with Lay, adding that he had
last seen Lay last spring. Lay last fall teld O'Neill of concerns
that Enron would not be able to meet its obligations and that the
company's declining fortunes could adversely impact the energy
sector. O'Neill asked a deputy to look inte the matter and 6] 1 042

1

01200000001714


of Lay's contacts with them. Bush, in fact, only found out today,
Fleischer said, Bush first heard about Enron's collapse last

fall, when it become evident to the general public, Fleischer
indicated. The president said today at the White House that he
had never discussed Enron's finances with Lay, adding that he had
last seen Lay last spring, Lay last fall told O'Neill of concerns
that Enron would not be able to meet its obligations and that the
company's declining fortunes could adversely impact the energy
sector. O'Neill asked a deputy to look into the matter and
concluded the problem was isolated to Enron, according to
Fleischer. Lay told Evans that he was "having problems with his
bond rating and was worried about its impact on the energy
sector,” Fleischer said. Evans spoke with O'Neill and the two
agreed no action should be taken "to intervene” with Enron's
bondholders, according to Fleischer. At presstime, CNN reported
that Attorney General Aschroft had recused himself from playing
any role in the Justice Department's investigation,

Responding to what he said was a “wave of bankruptcies," Bush
today ordered O'Neill, Evans and Labor Secretary Chao to convene
a working group to investigate rules and regulations governing
pensions. The group will “come up with recommendations" on how to
“reform the system to make sure that people are not exposed to
losing their life savings as a result of bankruptcy," Bush said,

And in a move he said was a direct result of the Enron collapse,

Bush said O'Neill, the SEC, the Federal Reserve and the Commodity
Futures Trading Commission would analyze corporate disclosure
rules in order to protect stockholders in the future. - by Keith

Koffler

BUDGET
Spratt Urges Bush To Convene Another Budget Summit

House Budget ranking member John Spratt, D-S.C., today offered
@ gloomy economic budget forecast for FY03, and called for the
administration to convene a budget summit to put the nation on a
sound fiscal course. "We need to come together and try to settle
our differences around the same table," he suid. Spratt said a
mode! for the talks could be the 1997 negotiations under former
President Clinton that led to a series of budget surpluses. "If
we could have another negotiation like that, I think it could be
useful,” said Spratt, who also pointed to the 1990 budget deal,
when President Bush's father reluctantly agreed to raise taxes -
alienating conservatives and, some argue, triggering Bush's
defeat to Clinton in 1992. "He can take a page from his father’s
experience,” said Spratt, “and hope it doesn't cost him what it
cost his dad. But his dad did the nght thing." The White House
today responded coolly to Spratt's suggestion. White House Press
Secretary Ari Fleischer said consideration of the budget by its
relevant congressional committees is "the best process,”

Spratt also tried to explain why once rosy budget surplus
forecasts have gone south over the course of one year. Spratt
estimated FY02 will produce a deficit of $179 billion when Social
Security and Medicare funds are excluded, and said the $1.3
trillion tax cut passed last year was the predominant factor,

House Republican Conference Chairman J.C, Watts of Oklahoma this
aftemoon countered with a statement defending the GOP tax cut,

2

01056

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Virginia P, Allen
Senior Tax Attorney
(CMS Energy Corporation

David M, Battan
Chief Counsel
Commodity Futures Trading Commission

Paul H. Bjarnason, Jr,
Chief Accountant
Commodity Futures Trading Commission

Jim Carley
Attomey
Commodity Futures Trading Commission

Andrea Corcoran
Director
Commodity Futures Trading Commission

Phyllis Dietz
Attorney Adviser
Commodity Futures Trading Commission

De'Ana H. Dow
Legal Counsel
Commodity Futures Trading Commission

Thomas J. Erickson
Commissioner
Commodity Futures Trading Commission

Elizabeth Fox
Counsel to Commissioner Newsome
Commodity Futures Trading Commission

Madge M, Hamilton
Legal Counse! to the Commissioner
Commodity Futures Trading Commission

Harold Hardman
Assistant General Counsel
Commodity Futures Trading Commission

Ron Hobson
Economist
Commodity Futures Trading Commission

Tom Joseph
Staff Attomey
Commodity Futures Trading Commission

Greg Kuserk
Economist
Commodity Futures Trading Commission

Page2

A. Roy Lavik
Inspector General
Commodity Futures Trading Commission

John Lawton
Associate Director
Commodity Futures Trading Commission

David R. Merrill
Deputy General Counsel
Commodity Futures Trading Commission

Gary Miller
Assistant Chief Accountant
Commodity Futures Trading Commission

‘Scott Parsons
Policy Advisor to Commissioner Newsome
Commodity Futures Trading Commission

C. Robert Paul
General Counsel
Commodity Futures Trading Commission

Clarence Sanders
Attomey
Commodity Futures Trading Commission

Alan Seifert
Deputy Director
Commodity Futures Trading Commission

Myra R. Silberstein
Attorney
Commodity Futures Trading Commission

John E, Tull, Je.
Commissioner
Commodity Futures Trading Commission

Robert B, Wasserman

Special Counsel
Commodity Futures Trading Commission

George Wilder
Staff Attomey
Commodity Futures Trading Commission

Nancy Yanofsky
Assistant General Counsel
Commodity Futures Trading Commission

Thomas Miller
Director of Economic Policy Studies
Competitive Enterprise Institute

01360

01200000000716


The Pennsylvania Supreme Court has ruled that when an insurance
company acts in bad faith by refusing to settle a claim, it
breaches its contractual duty as well as its fiduciary duty
toward ite policyholder.

http: //www4.ambeat .com/BestDayNews/LoadStory ,asp?BSN=47232

RATING ACTION

Free Article: A.M. Best Co. has affirmed the financial strength
rating of A (Excellent) for PMA Capital Insurance Group,
Philadelphia, and removed it from under review.

http: //wew4.ambest .com/BestDayNews/LoadStory.asp?BSN-47246

Pree Article: A.M. Best Co. has downgraded the financial
strength rating te A (Excellent) from A+ (Superior) of the Royal
& Sun Alliance Insurance Group (RSA), United Kingdom.

http: //wew4 .ambest .com/BestDayNews/LoadStory.asp?BSN=47226

STATE REGULATION

Ohio Director of Insurance Lee Covington said he's suing nine
former officers of Credit General Insurance Co. and Credit
General Indemnity Co. for failing to protect the companies from
becoming insolvent.

http://www .ambest .com/BestDayNews /LoadStory.asp?BSN=47229

TERRORISM

A committee of insurance commissioners is deciding whether to
allow terrorism exclusions for personal property and personal
umbrella polices, similar to the exclusions most states are
approving for commercial insurance policies.

http: //wew4.ambest .com/BestDayNews/LoadStory.asp?BSN=47237

The headquarters staff of global reinsurer St. Paul Re returned
Jan. 14 to its offices at 195 Broadway, one bleck from the World
Trade Center site, for the first time since the Sept. 11
collapse of the towers.

http: //wew4.ambest .com/BestDayNews/LoadStory.asp?BSN<47234

EXECUTIVE

Citigroup (NYSE:C) said it has named Robert B. Willumstad
president.
http://www4.ambest .com/BestDayNews/LoadStory.asp?BSN=47249

The former head of defunct medical malpractice insurer PIE
Mutual Insurance Co. has pleaded guilty to three felony counts
in connection with misappropriating PIE funds and making illegal
political contributions, the U.S. Department of Justice said.
http: / /wwwd.ambest .com/BestDayNews/LoadStory .asp?BSN=47242

Regence Group, an affiliation of Blue Cross and/or Blue Shield
companies in four states, has promoted Susan A. Hansen to vice
president of membership and claims-systems consolidation.

3

01200000001106


Comments, feedback: mailto:bestday_editor@ambest.com
For advertising information, call (908) 439-2200, Ext. 5513.

To search for an A.M. Best financial strength rating:
http: //www3.ambest .com/ratings/search. html

no longer wish to receive your e-mail copy of BestDay,
visit https: //www3.ambest.com/customers/un.asp?c#408672 to cancel
delivery.

All items copyright 2001, A.M. Best Co. All rights reserved.

01200000001109


EXECUTIVE

Protective Life Corp. (NYSE:PL) said it has named Richard J,
Bielen senior vice president, chief investment officer and
treasurer of the company and its principal subsidiaries.
http://www4.ambest .com/BestDayNews/LoadStory.asp?BSN=47141

Mutual of America Capital Management Corp. has appointed Peter
gd. Schmole as vice president of marketing.
http://www4.ambest .com/BestDayNews/LoadStory.asp?BSN=47160

Note: All articles marked "Free" are valid only for the day of the
newsletter's release. Subsequent te that date, full

text of previously published articles is available to BestWire subscribers
or on an individually purchased basis
Previously issued press releases are available at A.M. Best's worldwide
Web site.

http: //wews .ambest .com/press/

BESTWEEK SUBSCRIBERS@«=

Highlights of the Jan. 14 BestWeek include:

-- A Closer Look: Online Aggregators Retool in Drive for
Profitability

-- Review/Preview News Commentary: Extreme Reality...Managing
the Unimaginable: A.M. Best's Life/Health Review/Preview
Available on Web; P/C Trends Gain Momentum After September
Terror

-- Special Report: Turmoil in the Texas Property Market:
Pinancial Performance Deteriorates

-- Statistical Study: Top Fraternal Life Societies--2000
~- In the Spotlight: Ace's Evan Greenberg Surveys New Landscape
-- Pull ratings update, plus selected rationales.

To access current issue:
http://www. bestweek.com

Downgraded: SCOR
http: //www4.ambest .com/press/rr.asp?Refstringe6554465777544656

Affirmed: QBE International
http: //www4.ambest.com/press/rr.asp?Refstring=6554465777544653

Affirmed: QBE Re Europe
http: //wwwa.ambest .com/press/rr.asp?Refstring-6554465777544654

Affirmed: Iron Trades
http: //www4.ambest .com/press/rr.asp?Refstring=6554465777544655

Actions Taken: Folksam International

01200000001113


eSpeed: Building Scalable and Liquid Markets for the Online Trading Cammunity

return, Cantor Fitzgerald provides voice-assisted brokerage services, fulfillment services such as clearance
and settlement, credit risk management, compliance, and other related services, Per the arrangement,
transaction revenues are divided as such: eSpeed takes 100% of the revenues on all electronic transactions
and in turn pays Cantor Fitzgerald 35% of the revenue. Vice versa, if Cantor Fitzgerald executes a
voice-brokered trade, the firm receives 100% of the revenue and pays eSpeed 7%, Other eSpeed Market
relationships such as TradeSpark have similar transaction fee arrangements (sce Exhibit 4)

Exhibir 4
eSpeed’s Transaction Revenue Model

Trades with Cantor Trades with TradeSpark

Wnt % i C ial

For voice-assisted

transactions, Gante
15 100% af thse]

Trades with Cantor Exchange

The ties between Cantor Fitzgerald and eSpecd run deep, cach depending on the other for revenue and its
future success, The company’s capital infusion and influence have enabled Speed to build its system as
well us provide liquidity through its voice-brokerage support, which accounts for less than half of eSpeed's
order flow.

eSpeed Product Offerings

The eSpeed product offerings leverage the company’s technology across a variety of markets, creating
strategic alliances within the financial and technology communities. These partnerships result in revenucs
from the licensing of its technology, and transaction fees generated through trading volumes carry over its
electronic trading engine. The eSpeed product offering reflects its atternpt to bring liquidity to its trading,
system while providing technology to market participants that lack the time or capital to build trading systems
that cover less profitable, complex, or more illiquid financial and nonfinancial products These offerings to
the e-commerce sector of the financial and nonfinancial industry include eSpeed Markets, eSpeed Software
Solutions, and eSpeed Online.

?

©2001 TowerGroup, Neecham, MA USA
May not be reproduced by ary means without express permission. All rights resorved.

01212

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and their employees who simply want to compete on an equal
footing and serve their customers in the best possible way.*
House Financial Services Chairman Oxley has taken pains to remain
publicly neutral on the issue. At a May hearing cn the subject,
he acknowledged the concerns of the rule's detractors, but alao
emphasized the importance of industry competition. - by Pamela
Barnett

TRADE
Aid For Displaced Workers May Become Bargaining Chip

House Democrate who were unsuccessful in expanding trade
adjustment assistance last year are looking to the expected
conference on the bill to renew presidential trade negotiating
authority as a second chance to accomplish their goal, according
to industry and congressional sources, National Journal's
Technology Daily reported. The TAA program provides economic
assistance for displaced workers and companies, but it expired at
the end of 2002, Late last year, the Senate Finance Committee
approved a bill to extend and reform the program, and that
proposal could be included in trade negotiating authority
legislation, formerly known as fast track, during the debate
expected to take place this year in the Senate. Majority Leader
Daschle last Friday said he expects to have that debate early
this year, although he did not commit to a specific date. In that
major economic speech, Daschle said: "As part of our
consideration of fast track, Senate Democrats are proposing to
expand Trade Adjustment Assistance. We believe that we should
expand assistance to all workers who are hurt by global
production shifts."

The Senate TAA meagure is similar to a House bill introduced
by Democratic Reps. Anna Eshoo of California and Ken Bentsen of
Texas, who were among the leading advocates of a more generous
worker assistance package in exchange for their support of trade
negotiating legislation. Ultimately, they failed and the House
passed ite version of trade negotiating authority by one vote,
and without the support of traditionally trade-friendly Democrats
like Eshoo. If the Senate adds the trade adjustment assistance
language to its trade negotiating authority bill, the issue
likely will become a bargaining chip in the conference with the
House and could boost House Democratic support for a final bill,
Several sources said. - by Bara Vaida

AGRICULTURE
Farm Bureau Re-Elects Stallman, Pushes For Parm Sill

RENO, Nev. - Delegates to the American Parm Bureau Federation
convention today unanimously re-elected Bob Stallman, a Texas
rice producer, for a second term as president. The election
appeare to affirm support for the hardline positon Stallman took
last year favoring quick passage of a new farm bill, a stand some
Republican senators gaw as siding with Democrats. A Farm Bureau
lobbyist noted the delegates also kept the game farm bill policy
proposals they adopted last year. The group also passed an
increase in the dues the state bureaus pay to the national
office. Dave Meacham, vice president of the Nevada Farm Bureau
said he supported the increase because "You all know we have
(Senate Majority Whip) Harry Reid. We've got to have another
lobbyist or two back in Washington to paddle him.*

At @ news conference Wednesday, Stallman pointed out delegates
reaffirmed Parm Bureau's support for maintaining direct Freedom
to Farm payments, raising loan rates, establishing a
countercyclical income support program for farmers, and re-
establishing the Northeast Dairy Compact as well as creating a
Southern dairy compact. Stallman also said delegates support a
prohibition on packer ownership of animals to be slaughtered and
added that meat with a U.S. label should come from "animals born, 01 045

4

01200000001717


EnronOnline - Press Room Page | of 2

—

Enron Broadband Services Launches Online Bandwidth
Fron ineestor Relations In Europe

FOR IMMEDIATE RELEASE: Tuesday, February 27, 2004

London: Enron Broadband Services, a wholly-owned subsidiary of Enron Corp. (NYSE: ENE), a
today the launch of online bandwidth trading in Europe. Bandwidth transactions that used lo take
close can now be concluded in minutes, creating wholesale market efficiencies.

Legal & Privecy

Bandwidth trading is carried out via the EnronOniine trading platform. Launched in November 19
the trading of Enron's natural gas, ail, electricity and other commodities, EnronOnline is the wort
business-to-business e-commerce website, currently handling over 3,850 transactions with a no
over $2.8 billion, each day.

The easy-to-use, customisable site enables registered customers to log on and buy and sell ban
a few clicks. STM-1 capacity is available, with contract durations of between three and 12 month
delivery ranging from two to 14 months. Once a transaction is closed, settlement and provisionin
offfine,

To provide the physical infrastructure to enable bandwidth trading, Enron has installed pooling p

switching and interconnection facilities at selected locations throughout Europe, through which c
between bandwidth buyers and sellers can be established and monitored. To further facilitate th

commoditisation of bandwidth, Enron has also developed standard terms and conditions which p
start dates and service level agreements backed by liquidated damages.

“Enron's online bandwidth trading service is not an exchange or bulletin board. instead, it satisfie
quoted price with Enron acting as the principal." said Marcello Romano, vice president, Bandwid
Enron Broadband Services, Europe.

"The last three months have marked a turning point in the development of this market in Europe
are waking up to the value of firm service level agreements and the flexibility offered through ban
trading and risk management solutions. The best efforts service associated with this market is fin
challenged.”

Editors Notes

About Enron

Enron Broadband Services is a leading provider of high quality, high bandwidth delivery and app
services. The company’s business model combines the power of the Enron intelligent Network, E
Broadband Operating System, bandwidth trading and intermediation services, and high-bandwid

applications to fundamentally improve the experience and functionality of the Internet, Enron's 8

Operating System allows application developers to dynamically provision bandwidth for the quat

necessary to deliver broadband content. Enron is also creating a market for bandwidth that will a
providers to scale to meet the demands required by increasingly complex applications, Enron Be

Services can he found on the Web at www.enron.nat.

EnronOniine (www. EnronOnline.com) offers customers a free Internet-based system for conduc
transactions with Enron as principal. EnronOnfine provides real-time prices for bandwidth, power
coal, weather products, petrochemicals, pulp and paper and other commodities in the Americas,
Asia. Since its launch in November 1999, EnronOnline has expanded to include approximately 1

http://;www.enrononline.com/docs/marketing/PressRoom/02_27_01 0 1 3 9 2 12/4/01

01200000000748


August 16, 2001

The Honorable Joseph |. Lieberman
Chairman

Committee on Governmental Affairs
United States Senate

This letter responds to your May 30, 2001, request that we review the
communications between Curt Hébert, Jr., Chairman of the Federal Energy
Regulatory Commission (FERC), and Kenneth Lay, Chairman of Enron Corporation,
who were the subjects of an article published in The New York Times on May 25,
2001. You were concerned that communications between the Chairman of FERC, an
independent federal agency, and the Chairman of Enron, an entity regulated by that
agency, may violate applicable federal criminal statutes or ethics regulations.

We conducted our work in June 2001. We interviewed witnesses who have first-hand
knowledge of the conversation referred to in the Times article-Mr. Hébert, his Chief
of Staff, FERC’s General Counsel, and Mr. Lay.

In summary, based on our review of the information we gathered and consultation
with our General Counsel, we found no evidence that either Mr. Hébert or Mr. Lay
violated criminal statutes or ethics regulations,

Communications Between Mr. Hébert and Mr. Lay

Messrs. Hébert and Lay confirmed that they had a telephone conversation in
February 2001, that Mr. Hébert asked Mr. Lay to endorse him continuing as FERC’s
Chairman,” and that Mr. Lay asked Mr. Hébert about his views on what FERC’s policy

‘ President George Bush named Mr. Hébert as PERC Chairman on January 22, 2001. The President,
with the advice and consent of the Senate, appoints all FERC commissioners to 5-year terms. The
President designates one of the commissioners to serve as Chairman; the designated Chairman need
not be approved by the Senate. Thus, Mr. Hébert serves as Chairman at the President's sufferance and
could be replaced, without Senate approval, if the President desired. On August 7, 2001, it was
reported that Mr. Hébert announced his resignation, to be effective at the end of August 2001.

* According to Mr. Lay, Enron had written to the White House supporting Mr. Hébert when he was first
appointed FERC Chairman.

GAO-01-1020R Communications Between FERC and Enron

01112

01200000001784


Page 3 of 4

forecasts," Mr. Lutnick said.

It is not possible to say how these gains will affect Mr. Lutnick's own compensation. At Cantor, he is
the general managing partner of a private limited partnership, which does not disclose compensation

for any of its partners, including Mr. Lutnick. At eSpeed, where his 2000 salary was $350,000 and his
bonus was $650,000, his 2001 compensation has not yet been made public.

The rebounding stock market was one important ingredient in the fourth-quarter recovery at Cantor,
of course. Fortunately for Cantor, some 75 percent of the firm's top revenue producers in its stock-
trading business worked outside the doomed New York office.

Yesterday, Cantor opened an office in Shrewsbury, N.J., easing the crowding in the makeshift trading
room Mr. Marber set up in Midtown Manhattan after the attacks. The new suburban office will start
with 10 people, but Mr. Marber hopes it will grow to about 25 if the firm's stock-trading business
continues to thrive

Cantor and eSpeed each carried $40 million in property insurance and $25 million in business-
interruption coverage, according to Mr. Lutnick. That is expected to largely cover the property and
business damage, including an estimated $32.4 million in total losses at eSpeed and additional
undisclosed partnership losses at Cantor.

But Cantor's recovering profits also benefited, perversely, from some terrible luck -- its own and that
of the Enron Corporation.

Well before the attacks, Cantor had begun to shift its core business, trading government and
corporate bonds for big institutional clients, from expensive human traders to the less-expensive
electronic trading system operated by eSpeed. With the sudden loss of so many of its traders, Cantor
was forced overnight to shift more of its lower-margin business to eSpeed. Though eSpeed itself lost
about 180 of its 477 worldwide employees, it was nevertheless able to resume operations within 48
hours of the attacks.

"We always knew that eSpeed would be our future,” said Joseph C. Noviello, now that company's
chief information officer. "But that future arrived instantly on Sept. 11."

With that future, Cantor has stepped out of about a dozen markets where its traders were once
active, "There was too much of a human loss to go back and try to rebuild it the old way," Mr.
Lutnick said. "We have to be different; we have to play the hands that have been dealt to us."

To be sure, eSpeed still faces stiff competition in the rapidly consolidating electronic bond-trading
arena, which has shrunk by almost a third of its players over the last year, according to a tally by the
Bond Market Association. But Mr. Lutnick says eSpeed is still "the dominant system for trading U.S.
Treasury securities around the country," and Wall Street analysts generally agree.

In addition, eSpeed got a boost from the trouble at Enron, the giant energy company that filed for
bankruptcy a month ago. Before its collapse, Enron was doing a bustling business through Enron
Online, its energy trading service. After Enron failed, that trading shifted to more diverse trading
networks, including TradeSpark, which is jointly owned by Cantor, eSpeed and five large energy
companies including a subsidiary of the Williams Companies.

01/16/2002

01200000001411


> >> Robert's right eye. Doctors said that had the arrow gone 1 millimetre to the left, a major blood
vessel would have been cut and Roberts would have died instantly.

>>>

> >> Neurosurgeon Doctor Johnny Delashaw at the university Hospital in Portland said the arrow
went through 8 to 10 inches of brain with the tip protruding at the rear of his skull, yet somehow
managed to miss all major blood vessels. Delashaw also said that had Roberts tried to pull the arrow
out on his own he surely would have killed himself. Roberts admitted afterwards that

> >> he and his friends had been drinking that afternoon. Said Roberts, "I feel so dumb about this.”
No charges have been>

> >> filed, but the Josephine County district attomey’s office said the initiation stunt is under
investigation.

>>>

>>>

> >> Now THIS YEAR'S WINNER

> >> (The late) John Pemicky and his friend, (the late) Sal Hawkins, of the great state of Washington,
decided to attend a local Metallica concert at the George Washington amphitheatre. Having no
tickets (but having had 18 beers between them), they thought it would be easy to “hop” over the nine
foot fence and sneak into the show.

>>>

> >> They pulled their pickup truck over to the fence and the plan was

> >> for Mr. Pernicky, who was 100-pounds heavier than Mr. Hawkins) to hop the fence and then
assist his friend over. Unfortunately for (the late) Mr. Pernicky, there was a 30-foot drop on the other
side of the fence. Having heaved himself over, he found himself crashing through a tree. His fall was
abruptly halted (and broken, along with his arm) by a large

> >> branch that snagged him by his shorts. Dangling from the tree with a broken arm, he looked
down and saw some bushes below him. Possibly figuring the bushes would break his fall, he
removed his pocket knife and proceeded to cut away his shorts to free himself from the tree.

>>>

> >> Finally free, Mr. Pernicky crashed into holly bushes. The sharp

> >> leaves scratched his ENTIRE body and now, without the protection of his shorts, a holly branch
penetrated his rectum. To make matters worse, on landing, his pocket knife penetrated his thigh.
>>>

> >> Mr. Hawkins, seeing his friend in considerable pain and agony,

> >> threw him a rope and pull him to safety by tying the rope to the pickup truck and slowly driving
away. However, in his drunken haste/state, he put the truck into reverse and crashed through the
fence landing on his friend and killing him.

>>>

> >> Police arrived to find the crashed pickup with its driver thrown

> >> 100 feet from the truck and dead at the scene from massive internal injuries. Upon moving the
truck, they found John under it half-naked, scratches on his body, a holly stick in his rectum, a knife
in his thigh, and his shorts dangling from a tree branch 25-feet in the air.

>>>

> >> Congratulations gentlemen, you win...

>>>
>>>
>>>
>>>
>>>
>>> —
>>>
>>>

> >> - Part.001> > <>

» 01083

01200000001755


Hansen of Utah and Joe Skeen of New Mexico bring to 26 - cight
Democrats and 18 Republicans - the number of House members
announcing they will not seek to return to the 108th Congress,
leaving Republicans more than twice as many open seats to defend
during November's midterm elections. The tally includes Rep.
Steve Largent, R-Okla., who will officially resign his seat Feb.

15 to concentrate on his run for governor. Republican state Rep.
John Sullivan was clected Jan. 8 to replace Largent, but cannot

be sworn in until Largent resigns.

Three Democrats and nine Republicans have already announced
they will retire, including Democratic Reps. Eva Clayton of North
Carolina, William Coyne of Pennsylvania and Tim Roemer of
Indiana. In addition to Skeen and Hansen, Republicans planning
retirement are House Majority Leader Armey, Reps. Porter Goss and
Dan Miller of Florida, Steve Horn of California, Marge Roukema of
New Jersey, Bob Schaffer of Colorado and Wes Watkins of Oklahoma.
House Republicans have urged Goss, whose profile as House
Intelligence Committee chairman has risen since the Sept, !1
attacks, to reconsider his retirement, in part to help
Republicans in Florida redistricting.

Five Democrats and nine Republicans have declared they will
give up their seats to pursue bids for statewide office.

Democratic Reps. John Baldacci of Maine, Tom Barrett of
Wisconsin, Rod Blagojevich of Illinois and David Bonior of
Michigan are all running for govemor in their home states, while
Texas Rep. Ken Bentsen is secking the Democratic nod for Senate,
Republican Reps. Saxby Chambliss of Georgia, John Cooksey of
Louisiana, Greg Ganske of lowa, Lindsey Graham of South Carolina,
John Sununu of New Hampshire and John Thune of South Dakota are
running for Senate. GOP Reps. Van Hilleary of Tennessee and Bob
Riley of Alabama, as well as Largent, are vacating their seats to

run for governor,

Redistricting played an important role in more than one
Tetirement decision. Coyne, Horn and Bonior all announced their
retirements after redistricting plans made clear their seats
would be eliminated or merged, although only Horn listed it as a
specific factor. Chambliss and Ganske faced radically different
districts if they chose to run for re-election. Oklahoma
redistricting could drastically alter districts now held by
Largent and Watkins, while Wisconsin, which loses a seat, 15
likely to carve up Barrett's district. - by Mark Wegner

==.

POLITICS
Bush Calls For Broader Powers To Negotiate Trade Pacts
recovered from a fainting incident that left him
with a scraped cheek and bruised lip, President Bush renewed his
push today for expanded trade as a cure for recession and vowed
anew to oppose any repeal or delay of tax cuts enacted last year.
Bush opened a two-day, three-state push by reiterating his
request for broader powers to negotiate trade pacts, saying, "I'm
confident we need to open up markets, not close them down." Bush
pledged to fight any effort to roll back tax cuts approved last
year, the Associated Press reported, "I've made up my mind - the
tax relief plan we passed, which you're now beginning to feel the
effects of, is going to be permanent," he said, He is traveling

B

01077

01200000001749


made hia primary foreign relations priority before the war on
terrorism conaumed his first year in office. Scalia, the gon of
Supreme Court Justice Antonin Scalia, now jumes the post of
Labor Department solicitor, for which Bush nominated him several
months a

POLITICS
Reform Council Reaffirms Support For Stripping Amtrak Of Tracks,
Stations

Holding what may be their last meeting, members of the
advisory Amtrak Reform Council today reaffirmed their support for
stripping the financially troubled railroad of the tracks and
stations it owns, but etill must decide whether and how to open
train operations to competition. The Council, which will deliver
its recommendations to Congress Feb. 7, was holding a daylong
meeting today. Two of the three reform options would abolish
Amtrak's monopoly on intercity rail travel by introducing
competition for some or all routes. The other option would keep
rail operation under a federal carrier, which could be Amtrak, or
a series of regional carriers. The National Association of
Railroad Passengers said Thursday that recommendationa to
separate Amtrak from its nonrail assets “bear a disturbing
similarity to the early steps in the process that led to
Britain's current railway crisis."

ENVIRONMENT
Allard Urges Whitman Te Delay Transfer, Restructuring Of EPA's
Ombudeman

Sen. Wayne Allard, R-Colo., is asking EPA Administrator
Whitman to delay a transfer and restructuring of EPA's ombudsman
until Congress reviews the decision. In March, Allard and Idaho
GOP Sens. Larry Craig and Mike Crapo introduced legislation to
make the Office of the Ombudsman independent. However, Whitman
plans to officially move the ombudsman, Robert Martin, into the
EPA Inspector General's office next week. The change had been
recommended in a GAO report. Allard is concerned the change will
cost the ombudeman his independence, which is key to his job. On
Tuesday, Allard wrote Whitman to reiterate the request. In
addition to the letter, Allard also talked with Whitman over the
phone last week seeking the delay. Meanwhile, Martin Thursday
filed a lawsuit to prevent the reshuffling of his office, saying
it would weaken his independence within the agency, the
Associated Press reported. The watchdeg group Government
Accountability Project joined Martin in the lawsuit.

POLITICS
Lieberman To Deliver Foreign Policy Address Monday

Sen. Joseph Lieberman, D-Conn., plans to deliver a foreign
policy address Monday at Georgetown University. Lieberman ia
returning from a congressional delegation to Central Asia, which
included stops in Afghanistan and Pakistan, Lieberman's speech
comes on the heels of a speech last Friday by Majority Leader
Daschle criticizing the administration's economic policy.
According to Lieberman's office, his speech will be a major
address outlining Lieberman's vision for winning the war on
terrorism.

POLITICS
Poll Finds Support For Reforming The Postal Service
The Direct Marketing Association - the leading trade group for
the direct-mail industry - released a national poll Wednesday
that indicates support for reforming the U.S. Postal Service.
When asked, "Do you believe that solving the problems of the U.S. 01 039

7

01200000001711


even planned to use its skis ond
casets fo atfer whole new cistriby-
tion channels to lucrative entertains
ment industies

Loter on, in Gutumn 2001. as the
company faced disaster, @ top
executives were forced to admit
that fhey hod used the debt cape
tol faked on ond ofl-bolonce see?
@uring the boom years to make
some poor vestments in non-core
businesses? To many. it seemed
‘nat Enron had bought its internat
and other naw economy dreams
by mortgaging its chances of sve-
vival Gt a more mundane com-
pany.

By then it had been reveated just
how complicated same of the off-
balance sheet trarsactions recily
were. On Novernber 8, 2001. Enron,
heving broken Gccounting rules.
wos obliged to reveal a small frac-
tion of its oft-bofance sheet trons
octions, I's not clear tom Enron's
restatement of its accounts what
the economic motivation was for
complicated transactions such os
that described in Box A jsee page
5} But one thing became clecr os
trouble brewed in the summer of
2001: complicated off-balance
sheet tronsactions such os this
made # dificult to convince ana.
Wats thot the company wos being
skoigntiorwod im as afternpt to
meet eomings largets

Anoilvsts aso began to realie
thay had no woy to be cerlon
whether or not cain booked
uptont had come with @ hidden
price tag in he form of turwe crest
risk oF other Gobiifies

Olt-balence sheet transactions
©0" be used to shape the rk ond
leverage protie of @ company in
mere erctound ways, For exams,
ine Marin specict purpose enity

that was created to vase money
from Enron's water company
sre", issued FOme $909 milion in
debt to Investors, dur in 2003, that
is Docked by ils waler compony
550%. BUt IT the book valve of the
woler compony amets. won os
Wesex Water. fel belore the debt
was repcicl then Baron was likely to
have to make up the shortioll by
means of a charge against Its own
eornings. Osprey. a vehicle for rait-
ing finance using Enron's energy
and other assets, has a sinfaor struc-
hee

In cation, crecitors that fundect
some of the special purpose vehi
cles were promised early repay-
ments in cash or cotateralit Enron's
credit rating tal below 0 certain
level. This king of clouse fs increas:
ngy common in corporate france
@s investors in debt instruments
hope it wil reduce the risk Mat they
wikend up holding crecsit risky "junk*
bonds, But whie agraring to these
clauses helped Enron gain the
financing that it needad at a com.
petitive rate. the contingent nature
of the funcing signiicently reduced
the chances of the company sur.
viving ony crisis that triggered flows
of stock. cath or soleble assets
Bact to its financing partners.

ih a report on the potential Gan.
ge" of rafings downgrade triggers.
released alter the Enron bank
ruptcy on December 7, Moody's
investors Service noted frat os
Enron's ratings were downgroded.
it Yiggered @ number of cosmo
collate demands, These in-
Ciuded, says Moody's. “o $490 mi-
fon note payable to o fmited part
nemhip which absent cofaterat Is
0 demand odfigation Moreover.
Erren must repay. refinance. or
cath colotersike eddifonat foci

01427

_ ~— ERisk.com

November 8, 2061; Baron formally restates tx saetings foe 1997
%© 2001, te account for the 51.2 Dillion reduction to shareboiders”
‘equity thst has already cxased i wo reuch trouble, It adrnits the
“certain oifstalarce eet eatities should have been incised in
Bron’ consolidated feusncial staiemeets”. Inching them moans
‘hat Enron's declared debt bendes increased by hrendoeds af
millions of dollars in the period, and its net income is likewise
reduced.

November 9, 2001: Staring disaster in the face, Baron ansousces
‘hat it has ageood to a takeover by ChevrosTexacebacieed Denegy.
The company would be led by Dynegy's Chuck Watson, whe
seasnuves imeemors thatthe new company world “keep & smog
Dalance sheet and straighetorsard fnascial strucnme as bey
(peneties”. Under the deat, ChevronTexse advances Dynegy $1.5
billion vo bay x share in the Northen Naaural Gas pipeline, giving
Enros the cash infusion ix needs Wo stay afloat and preserve ts
ered ratings. Dynegy gains the right 10 purchase the whole af the
Pipeline if the deal fil through. Rather hopefully, the press
announcement desortbes the takeover 4s “unleashing the value of
Esron’s core energy heiress”,

November 12, 2001: Esrus downgraded, which i adeniss on
\Nowernber 10 will sequipe it to pay off earty $460 milion of debe
that woold otherwise mature in 2003. Shores fall again, and though
by Nowestber 2! the compeaty has sacceeded in renegrtiating the
dete, market commentators are sacting to say that Dynegy right
(evvoice muverial adverse change (MAC) clauses in the merger
agreemen, and breaches of represenanon, vo free Reel of the deal
‘Signs are growing ther Enron's core enwgy trading business will
sous be crippled by the wacertuiney.

November 21, DWI: Betwers Nevernber 16-21, Eamon arranges &
S51 Dillion cre line fhoen JPMorgan Chase and Citigroep, secures
agains its pipelines. The company continues desperate negotiations
‘with its other creditors to preserve ies inning and liquidity.

November 28, 2081) Dynegy tne says i has tenminaned the merger
ngrrement and wall cnercise is opsion w purchase Enven’s imevest
in the Northern Natural Gas Company. The mais rating agencies:
Gowngpade Eneun’s cuting to beluw investreen! grade, which in ore
Wiggers harmedul clauses in Enron's debt obligations. Lay suys there
vill be a tempceary saspeasion of a payenents except those
eceiaary 10 poctect the conepuny’s cure exergy franchise. Over the
et few days, Envea's shares wade betwoon 45 umd 25 cents, down
Gore their high of $90 in 2000.

December 2, 2001: Enron fies fee chapter 11 banikruptey
protection trove the courte saying it intends to sue Dysegy Sar $10
billion fot breach of comtsact. bes executives certirnse bo atnuagple
ssvbeape sores of tho wabee of its core energy business, oat
itup 45.4.new erty. But Geen this date, the lawyers and the US
tunduupiey court hold the whup hand over & corporation tit had

rarely missod is eamings targets.

Desember 3, 201i Thowsands of empihiyees in Housiom ave
lad off sa corerrerrators speculate on the chaace of Erven finding
emough financing act macho credibility 9 preserve its core
‘satura pus and power trading Rusinesies, for the benefit of ts

Pics Od |

01200000000783



UoH}2Npap Ke} ON

wou]

YSL SO} OR aap sey Aap pune woy

Bu0"pjosmam :qam
1OOZ-EPe-LL8 19

NOLWZINVS

G109 ANd ALINDAS A

Nd

Po
oO
=
°
So
So

a)
°
So

rs
w
zc
oO
e
ca
;
:
Fa


could rebound.

But for now, investors are skittish, and some competitors are eager to take advantage of Enron's plight.

a 01287

01200000000642


Charles W. Smithson
Managing Partner
Rutter Associates

Donald L. Horwitz,
Senior VP and General Counsel
Sakura Deltsher, Inc.

Gerald J. Pannekoek
Executive Vice President
Sakura Dellsher, Inc.

Andre E Owens
Partner
Schiff, Hardin & Waite

Conrad Bahike
Special Counsel
Schulte, Roth & Zabel, LLP

Paul Roth
Partner
Schulte, Roth & Zabel, LLP

Michael L. Loftus
Attomey
Securities & Exchange Commissikon

Erik Sirri
Chief Economist
Securities & Exchange Commission

Jane Adams
Deputy Chief Accountant
Securities and Exchange Commission

Pascal Destoches
Professional Accounting Fellow
Securities and Exchange Commission

William Friar
Senior Financial Analyst
Securities and Exchange Commission

Lourdes Gonzalez
Counsel to Commissioner Laura S. Unger
Securities and Exchange Commission

Jon Kroeper
Counsel to Commissioner Laura S. Unger

Securities and Exchange Commission

Jenifer Minke-Girard
Assistant Chief Accountant
Securities and Exchange Commission

Page 9

Dominick Ragone
Professional Accounting Fellow
Securities and Exchange Commission

Carol Stacey
Associate Chief Accountant
Securities and Exchange Commission

Robert Uni
Professional Accounting Fellow
Securities and Exchange Commission

Patricia McClanahan
VP and Counsel, Tax Policy
Securities Industry Association

Walt Lukken
Professional Staff
Senate Committee on Agriculture

Miriam Radich .
Shearman & Sterling

Philip McBride Johnson, Esq,
Partner
Skadden Arps Slate Meagher & Flom

James M. Cain
Partner
Sutherland, Asbill & Brennan

Rick Massumi
Partner

Sutherland, Asbill & Brennan

Peter Simonyi
Law Clerk
Sutherland, Asbill & Brennan

Warren N. Davis
Partner
Sutherland, Asbill & Brennan LLP

Michael Decker

Vice President

‘The Bond Market Association
Andrew Waskow

Director
The Bond Market Association

Samir Shah
Tillinghast-Towers Perrin

01367

01200000000723


Let me give you some food for thought. Companies like Webvan and EToys have
become as extinct as the dinosaur, Of the 547 IPO’s from 1999, many trade for pennies
or don’t trade at all. The recent and final Fortune Dot.com Deathwatch highlighted that
519 dot.coms have passed in the last two years, 384 since the beginning of the year, with
98,522 people being laid off in 2001 by these once high flyers.

Investors were sold a “bill of goods" by the underwriters of the “new economy” and have
been burned by their own lack of research. The underwriters lined their pockets while the
pockets of investors got fleeced. In the December 11" edition of the Wall Street Journal,
an article said of Credit Suisse First Boston's $100 million settlement, “many small
investors ended up as losers when they rushed to buy those new stocks just as the favored
customers were selling.” As a result, investors today are unwilling to fund new
technology companies and innovation in our economy suffers. No one should be
surprised,

Analysts also lost the public's trust when they became cheerleaders who pushed for new
business, rather than pushing the numbers and providing honest, intellectual research. In
fact, research by four university of California professors show that stocks most highly
recommended by analysts in 2000 under performed the market last year by 31.2% while
those they least favorably recommended out performed the market by 49%, The only
thing more amazing to me is why analysts think the investing public should read their
reports. Perhaps Regulation Fair Disclosure will help save the analysts from themselves,
as once again they are compelled to do what their name implies, analysis. Lets hope the
whispers have been silenced for good.

The tale of our own profession is not a rosy one. There has been a constant parade of
stories in the press about financia! fraud, which are causing the investing public to
question the credibility, the integrity and the validity of what we do. | remember
attending a conference in March of 1998, before | joined the Commission, at which a
respected member of the Bar held up an article for the audience. The title of the article
was “Pick a Number, Any Number." Many similar articles including one where the title
was CPA — Certified Public Accomplice, have followed that up. The President of the
American Institute of Certified Public Accountants, or AICPA, said he believed the word
“Accountant” in CPA was constraining on the profession. Personally, I like the ring to it
a lot better than the word accomplice!!

But more recent articles in Harvard Business Review and Business Week have followed
these articles. These stories have highlighted widespread abuses in earnings management
and the use of pro forma numbers. Numbers that present a company as “management
wishes it was” — not as it truly is. Numbers that make one wonder if Grimm’s Fairy Tales
haven't come to the world of accountants and become a part of our curriculum,

But then again, we are quickly snapped back to reality by such tales as:

3 01310

01200000000666


TOWERGROUPY

The Procer of Kenmetedge

ESPEED: BUILDING SCALABLE AND
Liguipd MARKETS FOR THE ONLINE
TRADING COMMUNITY

027.6985
June 2001
Chartotte L, Needham

Vision

Ithough gaining credibility has taken some time, the acceptance of
online trading means a more efficient marketplace for all players,

Demand for online trading of financial and nonfinancial products has grown :

significantly in recent years by both the buy side and sell side alike. For

those who create online marketplaces, more challenges lieahead, including *

maintaining liquidity, improving efficiency, straight-through processing, and
creating electronic markets for new nonfinancial commodities: and futures
such as energy, weather, and bandwidth.

Through its relationship with Cantor Fitzgerald, eSpeed has achieved
success in the interdealer broker market, leading all electronic interdealer
brokers (DBs) in the trading of US Treasuries. Treasury transaction
volume, both electronic and voice-assisted, on the eSpeed system
accounted for just over 50% of all trading in the first quarter of 2001,
when average daily trading volume was an estimated $94 billion.
However, eSpeed's domination of the IDB market ends where the
Treasury market ends and other securities markets begin, Since market
acceptance of eSpeed’s other product lines has yet to develop critical
mass, the opportunity for growth may be increasingly difficult.
Furthermore, no e-trading system has successfully integrated a wide
range of products ona single platform, casting doubt on the ability

of any one platform to support in-depth multiproduct trading,

+ Cantor Fitzgerald has invested
‘over $250 million in electronic
trading technology since 1996.
197989, the firm spun off is.

dealers to futures exchanges.
As challenging as this sounds,
the competition actually provides
a glimpse of how eSpeed has.

TowarGroup Research Noles are avaiable to subscribers on the Internet af wwe towargroup. com or by cating +t 781 282 5301

£2001 TowerGroup, Needham, MA USA
May not be reproduced by any means without express permission. Al rights reserved.

01206

01200000000562


Other BRC Recommendations
Te AT I RD eet
Independence

« Tighter definition of independence for board
members on the audit committee

e Committee comprised solely of independent
directors.

Other BRC Recommendations
“ent Mn NEI ER NE Re on

Effectiveness

e Minimum of three financially literate directors

e Outside auditor is accountable to the board of
directors and the audit committee

* Audit committee is responsible for ensuring that the
outside auditor is independent.

e Audit committee and outside auditor should discuss
judgments about the quality of the company's
accounting principles.

01328 3

01200000000684


would not be deductible or would qualify as a misccllancous deduction, which are only
deductible to the extent total miscellaneous deductions exceed two percent of adjusted gross
income.”

In summary, all but two of the interviewees reported that there docs not appear to be
significant demand for retail swaps at present, with one firm specifically stating that there was
retail interest in swap agreements with respect to energy products. The interviewees generally
noted that retail customers currently have access to a wide range of derivative instruments and
other altematives to swap agreements to meet their financial needs, for example, for purposes of
hedging or gaining exposure to particular securities or interest rates, To the extent that non-ECPs
might seck to use swap agreements to protect against adverse price movements with respect to
household or business expenses (e.g., interest rates, energy prices), several interviewees
suggested that in most circumstances it would be cheaper and more convenient for non-ECPs to
purchase such protection together with the underlying loan or commodity, rather than in a
Separate transaction.

B. Extent to Which Institutions Are Willing to Offer Swap Agreements to
Persons Other than ECPs

According to most of the interviewees, derivatives market participants are not gencrally
planning to offer swap agreements to retail customers at present, apart from the interest there
may be in offering retail swaps with respect to energy products. In general, the interviewees
noted that firms currently have no commercial interest in offering swaps to retail customers
because there is no demonstrable demand for them. Lack of demand is apparently sufficient to
preclude any desire on the part of these institutions to explore issuance of these instruments, thus
obviating the need to analyze legal issues.

In responding to any customer demand for such products that might arise in the future,
some interviewees identified specific considerations derivatives firms would need to address
generally in developing and marketing swap products to non-ECPs. In particular, to the extent
that non-ECPs were to prefer retail swaps over existing alternatives because of specific perceived
advantages ~ such as greater flexibility — firms would have to consider the costs associated with
providing those features in a retail context. These include, for example, administrative issues
associated with negotiating retail swaps, the potential credit risks of offering retail swaps to non-
ECPs, and the need to implement sales practices for the offering of swap agreements to non-
ECPs.

Administrative Issues. Four interviewees specifically indicated that administrative and
technological issues related to the entering into and preparing the documentation of retail swaps
would have to be considered in developing a profitable business model for such products. For
example, to make offering of retail swaps feasible from an administrative and technological

* This issue is discussed in Appendix 3.

01867

01200000000523


e Rite Aid

© Livent

¢ Informix

* WR Grace

* Sunbeam

© Just For Feet

« Lernout and Hauspie

© Xerox

© Lucent

e Oxford Healthcare

¢ Superior Bank

* HBO McKesson

© = Microstrategy

© Critical Path

e Waste Management.
The price tag to investors as a result of the restatements of financial statements arising
from these cases and others during the past half dozen years or so total close to $100
billion dollars, The number of restatements have risen from 116 in 1997 to over 230 in
2000 according to a study by Andersen. In many of the restatements, the previously
audited numbers were found to be in error for not just one, but rather two or more years
And so people are asking, “where were the auditors?” Can you recall any of the
headlines associated with the above cases saying — “Investors Protected - Fraud Detected

In Time by Auditors.”

Let me read you from a footnote in the 1999 Rite Aid financial statements. It says:
{ “In connection with the review by the staff of the Securities and Exchange
Commission of a registration statement relating to debt securities previously

sold by the company, the company is discussing with the staff certain
. accounting matters. As a result of those discussions and the company’s

‘ 01311

01200000000667


And the defense Bar should not be underestimated. Recent cases involving Baymark and
California Micro Devices have raised serious questions as to whether the standard of
recklessness the SEC applies to Rule 102(e) proceedings against accountants, is too high
a standard by which to measure unprofessional conduct by an accountant or auditor.
Rule 102(e) is the regulation by which the SEC may censure an accountant in a public
company or an auditor and deny them the right to practice before the Commission. The
tule is used to protect the integrity of the system and processes that are key to efficient
markets. It requires that an accountant must be reckless in order to demonstrate they
have engaged in unprofessional conduct. As a result, in cases involving negligence or
other unprofessional behavior that is less than recklessness, a 102(e) sanction baring the
practice of the accountant before the commission or in a public company cannot be

pursued.

It should be noted that some professionals have challenged the SEC with respect to
whether a Rule 102(c) proceeding may be initiated against an accountant within a public
company, if they are not a currently licensed CPA. Today, many of the CFO's,
Controllers and key financial reporting people do not have, or have not maintained a
current CPA license. In essence, the lack of current SEC actions pursuant to Rule 102(¢}
against non-licensed accountants sends a strong message. | think it is the wrong message
that CFO's and Controllers are better off without their licenses than they are with them.

‘tive Oversight

A third piece of any solution will necessarily entail effective oversight of the profession
In the mid-80"s, the CEO of Pricewaterhouse proposed an SEC supervised self-regulatory
organization or SRO, I believe we need to seriously consider whether the time has come
for an SEC supervised SRO in light of:

¢ The AICPA and profession having cut-off the funding for the POB in spring of
2000 when it attempted to fulfill its mandate to the public and carry out an
investigation of the lack of compliance with independence rules

© The AICPA having a weak, if not totally ineffective self-disciplinary group called
the Professional Ethics Executive Committee or PEEC. A group that conducts its
meetings behind closed doors, that often defers taking action on cases for years at
a time, that has no subpoena powers, and that has failed to take action in a number
of instances after the SEC has. The AICPA and firms had stated to the SEC and
public in press releases towards the end of 2000 that they would work towards
increasing the public membership of this organization from the current three out
of 20 members. Andersen publicly said it would support an increase in public
membership to half of the committee’s total membership. Unfortunately, this has
become a broken promise.

© The AICPA creating a for-profit portal and web of business relationships along
with a business consulting credential, It is difficult to understand how a not-for-
profit organization can enter into this web of for-profit relationships and not

10

01317

01200000000673


transmission information: 202-266-7230 (cngdaily@njdc.com).

CDENDIT

° 01041

01200000001713


other specified financial instruments from the CEA.’ Specifically, the CFMA explicitly excluded
OTC foreign currency futures and options transactions offered to retail customers by certain
federally and state-regulated entities from most provisions of the CEA*

This Report docs not cover retail swap agreements in foreign currency because Congress
has addressed these transactions in the CFMA’s revisions to the Treasury Amendment.
However, in the CFMA, Congress did not address CEA issues involving retail swap agrecments
on underlying assets or instruments not covered in the clarifications to the Treasury
Amendment.” Instead, Section 105(c) of the CFMA posed the following topics for the agencies
to investigate in the study:

1. The potential uses of swap agreements by persons other than eligible contract
participants.

2. The extent to which financial institutions are willing to offer swap agreements to
persons other than eligible contract participants.

3. The appropriate regulatory structure to address customer protection issues that may
arise in connection with the offer of swap agreements to persons other than eligible
contract participants.

4. Such other relevant matters deemed necessary or appropriate to address.

+ 7 U.S.C. §2(c). Prior to the CFMA, there was disagreement concerning the scope of a provision of the
CEA known as the “Treasury Amendment,” which provided an exclusion from the CEA for foreign
currency transactions. The CFMA provided clarity to this issue. With respect to government secunty
transactions, futures on government securities which trade on an organized exchange are subject to the
jurisdiction of the CFTC. 7 U.S.C. §2(c)(2)(A). Other transactions in government secunties, regardless of
the nature of the counterparties, are excluded from most provisions of the CEA. 7 U.S.C. §2(cX1).

* OTC futures and options transactions in foreign currency offered to or entered into with retail customers
are excluded from most provisions of the CEA if the counterparty is @ regulated bank, a registered broker-
dealer or futures commission merchant (“FCM”) or affiliate thereof, or one of a number of other federally
or state-regulated entities. 7 U.S.C. §2(¢2)\(B). However, such transactions remain subject to certain
provisions of the CBA, including antifraud, if entered into by an FCM or affiliate of an FCM that ts not
also one of the other enumerated entities. 7 U.S.C. §2(c)(2(C).

OTC foreign currency futures and options transactions offered to or entered into with retail customers by
all other entities are subject to the CEA and the CFTC’s jurisdiction, as provided in the amended CEA, as
are foreign currency futures and options transactions executed or traded on an organized exchange (other

than foreign currency options executed of traded on a national securities exchange, which are subject to
SEC jurisdiction),

* Analysis of whether any particular types of retail swaps are subject to the CEA or any other federal laws
falls outside the scope of the study required by Congress and this Report,

01200000000519


Celeste M. Molleur
Market Risk Specialist
Office of Federal Housing Enterprise Oversight

David J. Pearl
Director, Research, Analysis & Cap Stand
Office of Federal Housing Enterprise Oversight

Mary Ellen Taylor
Senior Policy Advisor
Office of Federal Housing Enterprise Oversight

Geoffrey Webb
Expert
Office of Federal Housing Enterprise Oversight

Stephanie Boccio

National Bank Examiner and Risk Expert

Office of the Comperoller of the Currency
e

Michael L. Brosnan
Director
Office of the Comptroller of the Currency

Mike Carhill

Deputy Director
Office of the Comptroller of the Currency

J. Ray Diggs
National Bank Examiner
Office of the Comptroller of the Currency

Laurie Edjund y
National Bank Examiner & Fiduciary Spec
Office of the Comptroller of the Currency

James D, Kamihachi

Senior Deputy Comptroller
Office of the Comptroller of the Currency

Nick Kiritz
Financial Economist
Office of the Comptroller of the Currency

Karen McCluskey
National Bank Examiner
Office of the Comptroller of the Currency

Margot Schwadron

Risk Expert

Office of the Comprroller of the Currency
Steven Swidler

Sr. Financial Economist
Office of the Comptroller of the Currency

Pape 8

Nancy Wentzier
Director
Office of the Comptroller of the Currency

Kurt Wilhelm
National Bank Examiner
Office of the Comptroller of the Currency

Anthony G. Comyn.
Director of Risk Management
Office of Thrift Supervision

Mark D, Flood
Office of Thrift Supervision

James C. Yong
First Vice President & General Counsel

Options Clearing Corporation

Jane Kang Thorpe
Attorney ‘
Orrick, Herrington & Sutcliffe, LI

Leon M. Metzger
Executive Vice President'~
Paloma Partners Management Company, LLC

Richard A. Cangelosi
Vice President
Philadelphia Stock Exchange

Vernon Keesey
Director, Equity Product Sales
Philadelphia Stock Exchange

Lisa Yang
Director
Philadelphia Stock Exchange

Jordan Kiear
Price Waterhouse Coopers

Viva Hammer
Pricewaterhouse Coopers LLP

John Ensminger
Director
RIA Group

Ethan Berman
CEO
RiskMetries Group

01366

01200000000722


an improved standard requiring auditors to document more of the work they perform, not
all of these firms voted in suppor of the improvements.

The CEO's did call for, as SEC Chairman Pitt has previously done, enhanced financial
disclosures such as greater disclosure of key financial performance measures and more
timely disclosure of material information to investors. | commend the Chairman of the
SEC and Big Five firms and wholeheartedly support their efforts in this regard, Of
course companies can currently do this under existing SEC rules but in many instances
have chosen not to.

But there is one MAJOR point these accounting firm CEO’s are missing. It is the public
interest issue. It is why we have a“P” in CPA. It is the fact that it does not matter what
rules we have for SPE’s, it doesn’t matter what financial information is required to be
disclosed, or when it is disclosed, if:

1, The CEO and CFO plays the numbers game and puts out inaccurate, incomplete
or misleading information, and

2. The auditor fails to say time out, the numbers have to be changed and corrected.

A good first step toward demonstrating to the public we are more concerned about
serving the public and less about how we can maximize consulting work by cross-selling
services, would be to tell the public we are going to remain CPA's, not cognitor’s, not
XYZ'ers, or whatever name they think of next at the AICPA. | urge you to vote against
the monstrosity of a proposal by the AICPA for a global business consulting credential,
and the related for profit portal project that appears to line the pockets of some within the
AICPA, but certainly not those we serve. As BDO Seidman said in a September 5, 2001
letter to the AICPA, “In our view, the proposed global credential is an ill-conceived
initiative that could greatly damage the accounting profession and, indeed, may already
have irreparably tarnished the self-image of the CPA.” PricewaterhouseCoopers, BDO
Seidman and the growing number of state societies that have come out vocally against
this proposal are to be recognized and thanked for their opposition to this shipwreck in
the making.

jiate Adoption of 0 Reco dation

A second step towards a solution that will reassure the public, would be for the firms to
commit to adopt all of the recommendations of the O'Malley Panel now, The O”Malley
Panel recommendations include the call to rewrite most, if not all of the auditing
standards to make them more detailed and put “teeth” in them. They also include the call
for forensic type auditing procedures and greater documentation of the actual work
performed. These recommendations should be expedited through the ASB on a “fast
track” basis. Already the public has waited for over a year. The public should not have
to wait for another year or two or three.

‘ 01315

01200000000671


y=
Fair Shares?

! Why Company Stock

Js a Burden for Many—
d Less So for a Few

| Workers Often Must Hold On
r ToStakes Held in 401(k)s:
Top Brass Have Options

By Eisen & Scuvetz

And THEO FRANCES
Repariers of Tree Walt STREET JouRWAL
In the 1990s, as the stock market
ed year aller year, many corpora-
jons and their employees entered into a
arriage of convenience: The company

Rock far executive pay, incentive bonuses,
ir contributions to 401k) retirement-sav-
gs accounts.

But as share prices have fallen over the
st year and a half, it has become clear
not all stock handouts are created

ering company stock in their 40t(ki

‘7 Tplans only contribute their own shares to

accounts, and that 35% of those
Companies restrict sales of the stock.

{eerie Study that nearty half of 215 firms

z
I I THE WALL STREET JOURNAL TUESDAY. NOVEMBER 27,2001
————————————————————————

Gillette doesn't let empboyees switth out
of its stock contributions to their 401(k)s us
til age 30, according to government filings.
AlCoca-Cota Co.. it's age33. Procter & Gam-
ble Co., Qwest Communications Interna-
tional Inc. and troubled Enron Corp.—a0w
facing lawsuits over employees’ #01(k?
losses —are among the many others that im-
pose similar restrictions. So far this year.
Gillette employees have had to watch the
company-contribution portion of their re-
tirement savings shrink by millions of dol-
lars as the share price has fallen L%. Em-
ployees at Cocs-Cola have endured a share-
price decline this year of 18%. Procter &
Gamble shares have been fiat.

The companies point out that execu-
tives participate in the same 401(k! plans
as other employees, sedject to the same
restrictions. Stil the bulk of company
stock that executives own ts usually held
outside such restricted accounts,

At Qwest, with a share price down 6%
0 far this year, lop executives and direc:
tors have sold a combined $172 million of
Qwest shares so far this year. according to
SEC data collected by Thomson Pinan-
cial/Lancer Analytics. Qwest Chief Execu-

eipate in a supplemental retirement-sav-
ings plan with a guaranteed annual return
of 1%. Executives at Qwest are able to

t
;
kg
x
3
a
2

:
i

than $5 million. “It's for the upper tier of
management,” Mr. Dweck says.

ployees have ample opportunity to diver-
sily their retrement-savings portfolios by
investing thelr own contributions in other
opwons offered. Indeed, many workers
have illadvisedly put a lot of their own
401/k) money into their employers’ stock.

Wyn Triska, a 42-year-old power-plant
technician for an Enron unit in Estacads,
Ore.. says be "armed many of his co-work-
ers of the dangers of wagering all their

Page | of 2

retirement savings on Exron. “Even when
Enron was going up.” he says, “Il never put
2 Cent into M=jt just doesn’t’ make sense
to load up on ome stock.” Nonetheless, even
lie has been onable to sell the stock that
Enrom has contributed to Mis 401(k} as the
share price has plummeted from $56 a lit-
Ue more than 2 year ago to arownd 54 now.
Under the company’s #91(k) rules. be
can't sel until age 30.

For many rank-and-file workers. risk-
averse or not, ther 401/k)s are their larg-
est assets. apart from their homes. So hold
ing company stock they can't sell has be-
came a Source of resentment and frustra-
tom. Federal pension law jeaves 401(k)
plans largety outside the realm of regula-
tion. But lately, some employees have
taken their frustration to the courts.

Just this moath, in three separate law-
suals—the latest fled yesterday —partic)-
pants in Enron's 401¢k) plan allege that En-
Ton misled them about the risks of investing
inthe company’s shares. The suits. ail fled
in Federal District Court in Homston, note
that the company “locked down” the retire-
mentplan from Oct. 17 to Nov. 18 tomaxe ad-
ministrative changes. That prevented all
employees. regardless of age. from selling
any Enron shares tn their 401(kis as the
stock price collapsed amid financial turmot!
at the company and an SEC investigation
into its accounting practices. Earon says it
doesn’t comment on pending litigation.

‘These lawsuits, along with a handful
Gled against other companies recently,
don't take on directly the practice of fore-
ing employees to accept and hold company
stock in their #01(k)s. That's perfectly le-
gal. So whatever the outcome, a company
would still be able to restrict employee
sales of company-stock contributions to
1K) before the price deciines. “Even
when they've had gains, they can't really
Jock them in because they can't diversify,”
says Randall Shoker, an Oxford, Ohio, fi-
nancial adviser.

Michel Green knows that. The 35-year-
old investment specialist joined Dell Com-
pater Corp. in 1995 as a product manager.

‘I tried so hard to sell’

Dell shares, says one
. We went

around and around.”

He and his wife, Lisa, an assistant control-
ler at the company, were thrilled as the
stock rose to about $51 a share in late 1999
from $1 in mid-1985, adjusted for splits.

But by the late ‘90s, the couple felt over-
exposed to Dell. In addition to the Deil
stock that the company had contributed to
‘their 401(x) ptans, they had received stock
options as bonuses, And they had bought a
home in Austin, Texas, where the real2s-
tate market bs tied In part 10 the fortunes
of Dell, one of the area's biggest employ:
ers. ao)

01200000001202


Julie Pafler
Senior Financial Analyst
Federal Housing Finance Board

Gerald C. Schober
Senior Accountant
Federal Housing Finance Board

Scott L. Smith
Director
Federal Housing Finance Board

William Bergman
Senior Financial Markets Analyst
Federal Reserve Bank of Chicago

Adrian D’Silva
Director, Capital Markets
Federal Reserve Bank of Chicago

Dik nm
Peserall Reserve Bank of Chicago

Kevin J. Clarke
Team Leader
Federal Reserve Bank of New York

Eric Foster
Attorney
Federal Reserve Bank of New York

HaeRan Kim
Counsel and Vice President
Federal Reserve Bank of New York

Jennifer Puntus
Financial Specialist
Federal Reserve Bank of New York

Tom Brady
Chief
Federal Reserve Board

Denise Dittrich
Federal Reserve Board

Gordon Eastburn
Federal Reserve Board

James Embersit
Manager
Federal Reserve Board

Eric Engen
Senior Economist
Federal Reserve Board

Angela Head
Federal Reserve Board

Susan Hume Mcintosh
Senior Economist
Federal Reserve Board

Mary Frances Monroe
Federal Reserve Board

Patrick Parkinson
Associate Director
Federal Reserve Board

Maria Perozek
Economist
Federal Reserve Board

Michael Prell

Director

Federal Reserve Board
Martha Scanlon “
Deputy Associate Director
Federal Reserve Board

Thomas D. Simpson
Associate Director
Federal Reserve Board

Albert Teplin
Chief, Flow of Funds Section
Federal Reserve Board

Sam Vohra

Supervisory Financial cial Analy
Federal Reserve Board

Alice Patricia White
Assistant Director
Federal Reserve Board
Dan Calacci

Director of Credit Derivatives
FIMAT, USA, INC,

Jeffrey P. Mahoney

Project Manager
Financial Accounting Standards Board

01362

01200000000718


Overview of Audit Committee
& Audit Issues
SR SS PT A er tie:

Stuart L. Gillan
Research Economist

il TAA sti

The views expoesied are those of the aather and de net nerestarily reflect thn of
TIAA-CREF.

Big Issues
SES ROP eT aE
» Audit Committee
» External Auditors
» Board of Directors
» Disclosure
Conflicts of interest
Off-balance sheet items
e Stakeholders
Employees
Creditors

01326

01200000000682


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po924 Page 2 of 2

Of course we should run a budget surplus when our economy is running well, but we should not raise
taxes to achieve an accountant's surplus when our economy is limping or in the early stages of recovery.

Because it is so topical, I want to say a few words about the assignments the President gave me last
week to convene two groups to see what action should be taken, if any, to modify laws, rules or
regulations to better protect employees and investors from the circumstances of Enron employees and
investors.

We who believe in free markets know that government plays a crucial role in establishing the rules of
the game. Market economies work when the rules of the game provide investors with the information
they need to make sound decisions and also provide them with certainty that the rules will be followed.
The United States has the lowest cost of capital in the world because we have the best mules. Individuals
~ whether they are asset managers at large investment houses or simply managing their own personal
savings — are confident that they have the information they need to make sound decisions and the ability
to act on that information as they see fit.

In the Enron case, something clearly went awry.

The Justice Department is pursuing a criminal investigation. If anyone at Enron broke the rules, they
will be punished.

At the same time, the President has asked us to look at the rules that apply to 401(k)s, pensions and
other types of retirement plans to make certain the rules are adequate to ensure that individuals do not
lose control over the life savings they own. We also need to review whether accurate information is
available so that individuals can make wise saving and investment decisions.

I met Friday with Labor Secretary Elaine Chao and Commerce Secretary Don Evans to begin an
examination of the rules that apply to 401(k) plans and private pensions. Working Americans save
through their 401(k)s to buy a home, to pay for their children's education, and to retire in comfort. These
savings belong to individual workers, and no one should take control away from the individuals who
own those nest eggs. We will look at a broad range of issues, including the rules governing
diversification, temporary lock out, and the availability of information to employees. We must ensure
that the rules enhance opportunities for individuals to invest in our economy and ensure that their
ownership of their life savings is protected. For individuals to make the best possible decisions, they
must know that the rules prevent anyone from taking those decisions away from them.

Finally, the President has asked me to lead a group looking into disclosure rules, so that all investors
have the information they need to make sound decisions. I will be working with Chairman Greenspan,
with Harvey Pitt at the SEC and Jim Newsome at the CFTC to ensure that rules for disclosure keep pace
with the increasing complexity of financial instruments used in our economy. Our economy flourishes
when each individual is able to make individual decisions based on complete and accurate information.
Individual investors making the most informed decisions possible will allocate resources in our
economy where they will have the greatest return. It is the foundation of a successful market economy
and a necessity for the peace of mind of millions of employees whose life savings are the foundation for
their dreams and aspirations.

Search | Email | Treasury Home Page | Sitemap

hittp://www.treas.gov/press/releases/po924.htm 01/16/2002
01200000001182


Ridge, the administration signed on the pro-life John Ashcroft and Tommy Thompson - who have brought us
where we are today.

The farcical failures of these two cabinet secretaries are not merely those of public relations - though Mr.
Thompson often comes across as a Chamber of Commerce glad- hander who doesn’t know his pants are on fire,
and Mr. Ashcroft often shakes as if he’s not just seen great Caesar's ghost but perhaps John Mitchell's as well.
Both have a history of letting politics override public policy that dates to the start of the administration. They've
scen no reason to reverse their partisan priorities even at a time when the patriotic duty of effectively fighting
terror should be their No. 1 concern.

Pre-Sept. 11, Mr. Thompson, in defiance of science, heartily lent his credibility to the Bush administration's
stem cell “compromise” by going along with its overstatement of the viability and diversity of the stem cell lines
it would deliver to researchers. Post-Sept. 11, he destroyed his credibility by understating the severity of the
anthrax threat, also in defiance of science, Now he maintains that the $1.5 billion the administration is
requesting to plug the many holes in our public health system - almost all of it earmarked for stockpiling
pharmaceuticals, not shoring up local hospitals - is adequate for fighting bioterrorism. This, too, is in defiance of
all expert estimates, including that of the one physician in the Senate, the Republican Bill Frist.

It should also be on Mr. Thompson's conscience that for the first two weeks of the anthrax crisis he kept the
federal government's house physician - David Satcher, the surgeon general and a much-needed honest broker of
public health - locked away, presumably because Dr. Satcher, a Clinton appointee, became persona non grata in
the Bush administration for issuing a June report on teenage sexuality that angered the religious right. Only after
Mr. Ridge arrived on the scene was the surgeon gencral liberated from the gulag.

As for Mr. Ashcroft, he has gone so far as to turn away firsthand information about domestic terrorism for
political reasons. Planned Parenthood, which has been on the front lines of anthrax scares for years and has by
grim necessity marshaled the medical and security expertise to combat them, has sought a meeting with the
attorney general since he took office but has never been granted one. This was true not only before Sept. 11 but,
says Ann Glazier, Planned Parenthood’s director of security, remains true - even though her organization, long
targeted by such home-grown Talibans as the Army of God, has a decade's worth of leads on "the convergence
of international and domestic terrorism.”

Ms, Glazier found the sight of Mr. Ashcroft and other federal Keystone Kops offering a $1 million reward for
anthrax terrorists a laughable indication of how little grasp they have of the enemy. "Religious extremists don't
respond to money,” she points out. Such is the state of the F,B.1,, she adds, that one agent told a clinic to hold
onto a suspect letter for a couple of days "because we have so many here we're afraid we're going to lose it”
(perhaps among the Timothy McVeigh documents).

If either the attomey general or the secretary of health and human services inspired anything like the confidence
that, say, Mayor Giuliani does, there wouldn't have been a need to draft Mr. Ridge. Even so, he’s mainly a P.R.
gimmick - a man who should have been in the administration in the first place reduced to serving as a fig leaf
for lightweights, As director of homeland security, he’s allegedly charged with supervising nearly 50
government agencies - so far with roughly a dozen staff members. When asked to define Mr. Ridge's
responsibilities, Ari Fleischer said on Wednesday that it was "a very busy coordination job," but so far Mr,
Ridge is mainly sowing still more confusion.

The one specific duty that he has claimed - in an interview with Tom Brokaw - was that he'd be the one "making
the phone call" to the president to shoot down any commercial airliner turned into a flying bomb by hijackers.

That presumably comes as news to Donald Rumsfeld, who made no provision for any homeland security czar in
the Air Force chain of command he publicly codified days after Mr. Ridge's appointment.

Since the administration tightly metes out the news from Afghanistan, we can only hope that the war there is

° 01290

01200000000645


company.

In an interview in late August, Mr. Lay said he did not know some details about the deals involving Mr. Fastow.
In response to one question about them, he said, "You're getting way over my head."

Mr. Palmer of Enron disputed any suggestion that Mr. Lay did not have a grasp of the investments at issue,
saying Mr. Lay was handicapped in talking about them because of the S.E.C. investigation. "There is not a
whole lot we can say, or should say, about them," Mr. Palmer said. He also said the company expected to
generate about $3 billion in cash through asset sales by the end of next year,

Ina conference call on Tuesday, analysts pressed Mr. Lay and other top Enron executives to reveal more
information about the LJM write- down and its other partnerships. Instead, they offered only vague explanations
of the deal, leaving Wall Street worried that more write-offs might be coming.

David Fleischer, a Goldman, Sachs analyst and a longtime supporter of the company, was among those who
came away concerned. "If Enron is unable to clarify its off- balance-sheet transactions and restore confidence in
the very near term by assuring investors that no more surprises are forthcoming that would affect the balance
sheet or liquidity position, then the company will likely lose access to the capital markets,” he wrote in a
research note after the call.

To try to reassure investors, Enron said late Thursday that EnronOnlinc, its Internet-based trading exchange,
executed more than 8,400 trades that day, a higher-than-normal volume.

"We know we have our work cut out for us if we are to rebuild our credibility with the investment community -
and we're working on that," Mr. Lay said in a statement. "But in the meantime, the best evidence of our strength
is the willingness of customers to bring their business to Enron."

But those reassurances apparently are no longer enough for Wall Street. Enron's stock tumbled almost 6 percent
Friday, to its lowest levels in six years.

Now analysts are scrambling to figure out the extent of Enron's off- balance-sheet debt and to assess the risk that
the company will have to issue new shares to make good on its partnership guarantees,

Carol Coale, an analyst at Prudential Securities in Houston, calculates that Enron may have close to $9 billion in
off-balance-sheet debt. She said that Enron had for two years been trying to sell about $6 billion in foreign
assets - including properties in Latin America and a power plant in India embroiled in a dispute with the state
government - and she worries about those prospects for sale in light of Enron's problems and the souring
economy.

"As Enron is forced to sell assets to keep the ratings agencics off their backs, they may have to write those assets
down,” Ms. Coale said. On Wednesday, she downgraded her rating on Enron to "sell" from "neutral."

"The bottom line is, it's really difficult to recommend an investment when management does not disclose the
facts,” Ms. Coale said.

Short-sellers, who attacked Enron's accounting even before the company disclosed the write-off, say the
company’s problems may run even deeper than analysts fear. Enron may have used the partnerships not just to
finance money-losing investments but to hide losses in its core trading business, they say.

"The company stil! isn't disclosing enough to know whether the core business, the trading business, is
profitable," said Mark Roberts, director of research at Off Wall Street, which recommended shorting Enron's
stock on May 7, when it stood at $59.43. "The issue remains: why are they doing these transactions? Our theory
has been that the core operations aren't that profitable."

James Chanos, a leading short- seller who has bet that Enron's stock will fall, said, "Is Enron booking gains
° 01285

01200000000640


15

case, neither the gain nor the loss on the imbedded hedge is a tax event; so the treatment (or non-
treatment) is entirely symmetric. One of the basic principles of good tax policy is neutrality, in
the sense that tax concerns should not provide incentives to make a particular choice among
economically equivalent transactions. In this case, however, there is a clear tax incentive to
purchase both electricity and imbedded risk management from a single supplier, rather than
purchasing electricity from one source and risk management from another.

01876

01200000000532


Revesz, Paul

ss od

From: Farrell, Paula

Sent: Monday, January 14, 2002 6:02 PM

To: Atkins, Preston Jr

Ce: Revesz, Paul; Oster, Karen

‘Subject: FW: National Journal's CongressDally - Thursday, January 10, 2002
——Onginal Message—-—

From: Knack, Elizabeth

Sent: Thursday, January 10, 2002 3:35 PM

To: Ellis, Dina; Farrell, Paula; Hart, Susan; O'Brien, Michael

Subject: FW: National Journal's CongressDaily - Thursday, January 10,
2002

——Onginal Message—---

From: cp-del@nationaljournal.com [mailto:cp-del@nationaljournal.com]
Sent: Thursday, January 10, 2002 6:21 PM

Subject: National Journal's CongressDaily - Thursday, January 10, 2002

National Journal's CongressDaily
Issue date: January 10, 2002

WHITE HOUSE
White House Urges Nonpartisan Investigation Of Enron

The White House today had tough words for congressional
investigators readying probes into the bankruptcy of former
energy giant Enron, warming lawmakers to steer clear of
"partisan" activities targeting Republicans and urging them to
focus instead on the circumstances surrounding the company's
failure. "I think people need to remember that the American
people are sick and tired of partisan witch hunts and endless
investigations," White House Press Secretary Ari Fleischer said
today. “Enron gave hundreds of thousands of dollars to
Democrats," he noted, "If Congress instead focuses on
partisanship and focuses on blame of one party, then Congress
will not serve the country well," Fleischer said, calling Enron's
fall an opportunity for legislators to devise new policies to
avoid repeat acts by other companies. Fleischer refused to say
specifically whether it would be proper for Congress to look into
direct contacts between Enron and administration officials, Enron
‘Chairman and CEO Kenneth Lay and his company together have been
among President Bush's most generous benefactors, but Lay and
Enron have also donated significant sums to other Republicans and
to Democrats.

Fleischer revealed that Lay contacted both Treasury Secretary
ONeill and Commerce Secretary Evans last fall about Enron's
financial situation, Neither O'Neill nor Evans told the president

01055

01200000001727


WSi.com Page 6 of 6

emergencies won't subside.”

Write to Michael Schroeder at mike.schrocderdwsj.com® and Greg Ip at greg.ip@wsj.com”

URL for this Article:
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Hyperlinks in this Article:

(1) http://interactive.wsj.com/pages/enronpage. him

(2) https www.hearings com/clienUwholesalelogin.asp?ID=97&HID=4527

(3) http:/www.realplayer.com

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01225

01200000000581


‘The letter will also be available at www.gao.gov. If you have any questions, please
call me at (202) 512-7455 or Director Ronald Malfi at (202) 612-6722. Senior Analyst
Shelia James, Senior Attorney Peter lannicelli, and Assistant General Counsel Robert
Cramer made key contributions to this letter.

Sincerely yours,

Phill

Robert H. Hast
Managing Director
Office of Special Investigations

(600898)

5 GAO4D1-1020R Communications Between FERC and Enron

01116

01200000001788


Nickoloff, Peter

pl eel

From: Schultheiss, Heidfynne

Sent: Monday, October 29, 2001 10:03 AM
To: Carleton, Norman, Nickoloff, Peter
Subject: Plumbing Mystery of Deals by Enron
October 28, 2001

Plumbing Mystery of Deals by Enron

AT the heart of the sudden collapse in investor confidence in the Enron Corporation are unusual trades it
entered into with partnerships led by its chief financial officer, Andrew S. Fastow, beginning in the summer of
1999, Because they were transactions among related parties, the company was required to disclose them, but the
disclosures raised as many questions as they answered. Following are some questions that investors are asking,
and the currently available answers.

Q. Why did Enron cnter into the deals?

A. Enron's first disclosures, in 1999, gave no reason. In later reports, it said it was seeking to "hedge certain
merchant investments and other assets,” by which it apparently meant investments in technology and
telecommunications companies.

Q. How did those investments do?

A, It looks as if they plunged in value, although there is no clear disclosure on that.

Q. Why can't that be discerned?

A. The company never said just what the investments were. And the transactions with the partnerships were

complicated, involving a variety of derivative securities, Enron stock and various promissory notes. Enron's
financial disclosures do not provide enough information to understand the arrangements completely.

Q. Why were they so complicated?

A. One reason may have been to use accounting rules to its advantage. One accounting rule dictates that
companies may not record profits or losscs on transactions in their own stock. If a company sells its shares at
$10 each and then buys them back - whether for $1 or $50 - there is no gain or loss. But shareholder equity does
go up or down on the balance sheet - in that case reflecting how much extra cash the company took in, or paid
out, on the transactions. Enron's transactions appear to have been structured to fall under that rule.

Q. Who made money from these transactions?

A. Enron reported some profits along the way from the deals, although not all of the profits were spelled out in
its quarterly filings. And it appears that the partnerships distributed money to investors,

Q. If the deals began in 1999, why all the uproar now?

A. Many investors and analysts were not curious about them when everything seemed to be going well. As long
as Enron was exceeding its forecasted profits each quarter, they were willing to assume that what was not being

disclosed was not really important.
° 01280

01200000000635


© — msybirvel on Ios} pase
Publisher--Steve Hull, 202-739-8475 (shull@njde.com)
Editor—-Louis Peck, 202-739-8481 (Ipeck@injdc.com)

Executive Editor--Keith White

Senior Managing Editor/A.M, Edition—Robert Ourlian
Senior Editor—Charlie Mitchell

Associate Editor--Greta Wodele

Assistant Editor--Chuck Jordan

Reporters--Pamela Barnett, Lisa Caruso, Geoff Earle, Keith
Koffler, Brody Mullins, Stephen J. Norton, Mark Wegner
Special Correspondents—Jerry Hagstrom, Julic Rovner

Subscription price: $2,649 a year. Subscription and e-mail
transmission information: 202-266-7230 (cngdatly@njde.com).

Revesz, Paul
From: Russell Bernstein (b)(6)

Sent: Monday, January 14, 2002 4:06 PM
To: Paul.Revesz@do.treas.gov
Subject: Fwd:2001 Darwin Awards

Pacicot

>From: "Ricardo Nuila"

>To: (b)(6)

>Subject: Fwd:2001 Darwin Awards

>Date: 14 Jan 2002 20:33:47 -0000

>

>On Fri, 11 Jan 2002 16:11:07 -0600 "Renaud, Lindsay” wrote:

> >THis is too good not to pass on...

>>

> >> -—--Original Message——-

> >> From: Bhatia, Randy

> >> Sent: Friday, January 11, 2002 10:11 AM

> >> To: Renaud, Lindsay

> >> Subject: FW: Fw: 2001 Darwin Awards

>>>

> >> you've probably seen this, but still humorous...

>>>

> >> 2001 THE DARWIN AWARDS

> >> It's that time again! The awards this year are classic, These

> >> awards are given each year to bestow upon (the remains of) that individual, who through single-
minded self-sacrifice, has done the most to remove undesirable elements from the human gene pool.

° 01081

01200000001753


At the same time, much of what we can learn from history is already catalogued in prior

reports. Reports from committees or commissions that have studied in-depth the

shortcomings of our profession. The 1978 report of the Cohen Commission, the 1985

Price Waterhouse report regarding challenges and ities for the accounting —-———
profession, the 1987 Treadway Committee report, the 1996 report of the GAO on the -
profession and the O'Malley Panel Report issued in August 2000. Ail of these reports

include some excellent recommendations including many that our profession has yet to
implement.

So what are the solutions?
itm

First, we as a profession need to recommit ourselves to serving the public. And on this
point, words alone won't do, Too many times in the past the Big Five accounting firms
and the professional trade organization have failed to walk the talk, Actions are needed.
The time for talking has long ago come to an end. Just ask those Enron employees who
got layed off in the past couple of weeks, just before Christmas. Our words ring hallow
with them, as well they should.

Recently, the CEO of Andersen and the CEO's of the other Big Five accounting firms
called for changes as a result of the Enron debacle, I couldn't agree more. The CEO's
said the FASB needs to fix the problem of SPE’s. But these are the same firms that a
dozen years ago fought the SEC's efforts to establish and strengthen these rules. ul
would add that the “fix” should include not just SPE’s, but also of the hundreds of
billions of dollars of off-balance sheet debt structured as leases or other forms of
structured financings. ]

These CEO's also said we need to establish a more effective oversight system than
currently exists among a group of organizations such as the AICPA, SECPS, PEEC,
QCIC and POB. | couldn't agree more as this is a group that sounds and acts more like
alphabet soup, than an effective regulator. But these are the same firms and CEO’s that
refused to sign on to a strong new charter for the POB during the past year, instead
rejecting the recommendations of the O’Malley Panel and SEC and holding out for a
weaker POB, A POB that has NO disciplinary powers or powers to set auditing standards
that will protect the public. A POB that is MANY times weaker than a framework for
self-regulation recently adopted in the UK by the profession and regulators. Weaker than
the SEC supervised self-regulatory organization proposed some fifteen years ago by the
then CEO of Pricewaterhouse.

The accounting firms also called for improvements in the effectiveness of audits. But 2
year and a half after the O’Malley Pane! issued its recommendations, the Auditing

Standards Board (ASB) has yet to adopt a single new statement on auditing standards,
implementing the most critical recommendations. And when the ASB recently exposed

; 01314

01200000000670


December 2001—

ERisk

Who watches the watchmen?

As Enron's experience testifies, killer risks can slip through even a
sophisticated ERM programme. Tightening the net involves looking again at
the roles of risk management and internal audit. Alan McNee investigates

he Common factor in se

eral of the worst rise marr

agement deosters of

recent yeors has been
that serious problers of institutions
have sipped through the risk man.
agement safety net.

In some Comes. this was because
vortous people ond groups within
an organization assumed the risk in
question was someone eke's
fesponsibity, In others, it was
becouse the lalat fk wos token by
people Ngher up in the organko-
fion than the risk monogers thot
should nave called a halt to them.
{i's easy for a chief rsk officer to
stop a rky practice being canied
‘out by © junior trader: less so when
IPs the chief executive otticer who:
is doing ith

This highlights the sue of now risk
management reictes to other
reas of management ond to cor-
porte govemance, The chiet risk
officer (CRO), if such o role exists in
the company, may hove overall
responsibly for identitying. mecs-
\ing and managing ‘ik, but It’s
increasingly apparent that this
fesponsiilty may be shored by
other individuals end groups within
banks ond other institutions. Internat
cusit, compliance. the legal de-
portment, ivformason technology
and the board of directors are ot
responsible for risk, and in some
orecs. Nave the power to deckle
which ritks wil be held on to and
which ones wil be laid off

So where should the boundaries
of enterprise tisk manegement
(ERM) be drawn? What ore the

respectve responsibities ond pow-

Oudit group on the omer - ond how
Clearly delineoted are these two
creas in practice? What the reia~
fiorwhip of the risk manager to the
firm's lage! Counsel, the Mt group
‘ond the compliance deportment?

Perhaps most important, what i
the relationship of the rk manager
to the senior otficers of the com-
pony: the chief financial officer, the
chiet executive, the chairman and
the board? If the most senior peo-

If the most senior people in

the company decide to take
unacceptable risks, how far can
the risk management function be
expected to go in advising

them against it?"

pie in the company decide to take
unocceptoble risks, either collec-
Svely oF individually. how for con
the isk manogement function be
expected to go in advising them
against It, of evan trying to prevent
mem? That last question is given
particuler resonance by recent
events at Enron

intemal audit & perhass the inter
fal function whose operations most
Obviousy impinge on risk monage-
ment. Bul eres also 0 widely
occepled dividing ine between
the two functions. Amoki Schider,
eascutive director of supervision ot

De Nederlandsche Bonk (ihe can
Nol Bonk of the Netheriands). is
chairman of the Base Committee's
accounting task force. He eapkoins
the committee's view of the cfstine~
tion between risk manogement
ond intemat audit os follows: “The
tak management group has the
day-to-day control of the mein risks
that the bank faces such as credit,
markel. country, operational and

eaticnsdity tik, It ensures thet there are

potcles for deaiing with risk ond it
communicates this to the board,
usualy through the chiel Snancial
officer (CFO),

“terol oudt & quite seporcte
from that. Our prefered position
would be that it reports to the CEO.
\ts role is to Oversee the whole inter.
nal control structure. ond so it nos
to review the risk management
function, among other things."

The role of the intemal oucit tunc-
fion in monitoring the bonik’s inter-
nal capil & one ares where these
two distinc! functions inevllobly un
up ogoinst @och other, Tne
eccounting task force's report
mokes cleor that intemal aucit
Needs to review independently the
way the bank's rik management
systems monitor the bank's copital
levels. Schitcter says the boord of
governos wil set copitc requre-
ments for internat purpases based
‘on. among other things, policies
Grafted by fhe fis managernent
grOUp ond typicelly prewanted to
the board by the CFO.

“They are also based on tongets
for reciting shareholder value and
retum on equity.” he notes.

01433

01200000000789


asked ot board level about contra!
over large transactions.

But it was not energy price risk
management that wes to ring the
company down. there were more
fundamental problems developing
in its business stategy. comorata-
level financial engineering and
shotegic investments.

Ni wos clear from the mic-1?%05
that not afl of Enron's investments
ond new morkels were going to
pay off. The mast notorious single
investment wos its 65 per cent stoke
In india’s Dabho! Power Project.
which began conswuction in
December 1996 but led 4 o run
ring bottle with the project's ony
customer. o state ullily, in the kote
1990s. Other physical osvats thot
were part of Enran’s stratagic vision
fumed out to offer ite in the way
‘Of profit of cashfow - and not only
in the power markets. Enron's foray
into the word water ond woste
management industry, via pur
chases such as Wessex Water in the
UK, offered pedestian retuins while
sucting up valvatle capital

Indeed. by the kate 19%Mls there
was 0 danger that Enron woukl De
S897 G5 GN Gwkward Conglomera-
tion of vee businesses: a collec:
tion of physical assets that offerect
retums that varied torn pedestrian
to boss-noking: 0 profitable energy
trading and rise management bud
ness that made money and cHerect
exciting, but not exponenfial,
growth: and an kvestmant porto.
fo of entirely specuintive Gnd copi-
tol-nungry bright kieas, Meanwhile,
Ihe core energy wading ond tisk
management busines Mat held
the company together was crili-
coly dependent upon Enron's cory
finuing management credibility
ond creditworthiness

To make fs dreoms real, anc
meet its selfinficted earings anc
shore price forgets. the company
inew thot it had to recycle the
capital fled up In mundane assats
Into more exciting Fwestments in
new commodity markets, #lecta-
nic trading infrastructures. and
expensive humon skit,

So. Tke many other mojor Compo-
rations in the 1990s, Eton began to
take many of its aisets ond lobities
Off its raponed balance sneet. It did
$0 uting o series of speciol purpose
entities ond limited partnerships
thet enabled Enran to gain finane-
ing in various nowel ways, The com-
pony was open about the fact that
# wed off-bolonce sheet vehicles
to cecess capital and to hedge risk
But Mako knew thet if It followed
certain accounting rules if woukd
not have fo reveal many detal
ebout thease “stuctured financings’.
of the complicated transactions
that they spawned.

Heanmtile, the growing morket
capitalisation of the energy giont
was fuming Into a noney trap, With
the Intermet boom in fut swing,
Enon shores started fo be
described a5 on ‘intent play’, os
the company stressed its inwest
ments in the broadband industry
thet would support the "New
Economy’. ond its development of
onlina wading By 2000, Enron
‘Onine had become establkhed as
© leading web-based service thot
offered tracers in energy and other
markets information, tronsaction
services and trading ‘ools, The
conpety was oto ining fo
become a marke-moker ond price
tisk management provider in bard
width froding In the some way thet
ithad become dorrinant in natural
905 Gs thot industy dereguiated. It

-— ERisk.com

Fetrrmary 2001: Jeff Shilling. one of the architects of the
Company's Prantgy. tnkes over as chief executive oMicer

March 2001: Fartave runs x story, ‘Is Baron Overpeiced?” tat

some analysts’ concems to a wider sunfience and makes f
clear how little credh analyses sem 9 understand sheer the
financial engineering and true level of earnings success 0 the
coenparyy. Story quotes one analyst as saying thar if Eneon Goes noe
cet Its earnings expectations, is sick price “could implode”.
‘Meat analysts stB8 rete Enron strongly, but ane dheppeinted when &
Gea! under which Enron would have diseibeted Blockbuster movies
‘over the Tentenet falls apart.

April DIOL: Cracks begie ve appear in confidesce about Emen as it
‘Gsclowes that it ts owed S570 muilinn by the buethrapt Califernian
power utility POE Enron CEO Jeff Skilling berames irate with «
hedge fired anadyat for siking critical qaewinms abet the valse of
‘assets hat seeure Enron's off-balance sheet feancing vebicles
‘Some analysts ave becoming concerned that Enron CFO Andy
Factrw uflers 2 conflict af interest erm hie pernceml wiaice in xoene
of the off-boatsace sheet vebicles that Ereen ux depihryed.

Atgust 14: Jeff Skilling renigyw as Envee CHO afer only vie
months ia the job, ching personal peasas; chairman Kenseth Lay
rererrex the CEO job thai he'd ball bette Sholting wok ower, foe
however long & rmyht take to find a nuccesmr Stock at $42 03.

‘Awgust 20611 Enron’s stock fais below $49, as analysts fer ever
worse tings abowt the degree of betring the-soones Mnanolal
engineering and the ‘qpsalry’ of reported earrings,

Octuber 16, 2001: Exes adrrits in an earings export that it will
ave to write off $1.01 bilhon on inveseeents, and soene rrillises ax
a senilt of cormples fieancing parmersipa set op bry Fasten aad
appeoved by the bound. Os October 22, Esrus acknowledges the
SEC is ireestigating its off-balance sheet activities.

‘October 13, 161: Estos CEO Lay holds a conference call that
sndermmines Error’ coediblity silt further Analysts are deemayed
by the offhand way in which the comparry mentions an additions!
$1.2 hittin equity writedaws, i adéition to the $1.61 invertrent
wweiaderwn, a8 a rent of terminating invesdreerst parerstips thor,
bad bees set up by Pamow,

‘Deroder 23, DHL: Moody's pats the raring of Emons dete co
worch. By now, many of Eeros’s counmerpanies in its cose enceay
sand ober rearkss are reassessing Its credirwurtbisess At exactly
‘he time that it has become clear that Envon's value lis in ite eee
‘exergy markers and \ts tmding relationships, those cempanerss of
‘De company are being corroded by the growing cred and
corporate gorvermanee scandal. The liguiity tap is closing et

‘Detuber 24, DOP: Fastow takes "karve of absence”.
‘October 25, 2001: Ensen says that it @ drowing on a bilbos-dallar
crodit ine in an amerept to reamume ‘he iarkets © wil nox ran car of
money

‘Oetaber 31, 1001: SEC investigation becuenes a formal enquiry a6
Eiwee's sinek peice hits a ninewpear tow of around SE.

01200000000782


10

Appendix 1
List of Interviewees

Bank of America

JP Morgan Chase & Co.

Inve:
Goldman Sachs Inc.
Lehman Brothers Inc.

Morgan Stanley Dean Witter

Others:
Blackbird Holdings, Inc.
Enron Energy Services, Inc.

International Swaps and Derivatives Association

01871

01200000000527


fies totaling $39 billon which pn.
marty conuist of $2.4 béfion of debt
in Oxprey Trust ond $915 milion of
abt in Matin Water Trust”.*

This ind of contingent funding
was foble fo be particviaty dom
aging in the case of Enron, oe-
cone ratings Mogens were aso
present in many of Enron's whole
sole energy treading contracts.
Indeed, investors and creditors
knew that the whole of the cosh
fow from Erron’s countemparty-
based butinestas were cantingant
upon confidence in both Enron's
short-term Fquidity and the continu.
ence of its investment grade credit
rating.

Structured financings aren't only
© question of iquicity, but also of
trust. Anaiysts know that # such
Ge0k ore not sructred appropri
otely, they can atlow companies to
retain economic rks that ore not
reported elsewhere, Thee & a
Conger, therefore. simply in the
Impanetatiity of complicated off
balance sheet financing.

Enron's on-bolonce sheet levels
of deb! did not look especialy
unhealthy in spring 2001, and the
rotios of debtto-equity ond so on
of the compony were considerably
below the ratios that ® had once
endured o: a heavily indebled
pipeline company. Bul os the share
price fel, and uncertainty about
the loves of of-bakence sheet com.
mitments increcsed, the crecipiity
of Ereon's top executes become
increasingly vital.

The trap closes

Much of Enron's strategic vition
Degan to fall apart wilh Ihe burst.
ing of Me dolcom bybole and the
trovais of the global telecommun!
cofions Industry, but Mere wos a

-——ERisk.com

“In Kane 2000, LIM2 [one of the private investment partnerships formed in 1999 to make off-
balance sheet transactions with Enroc) deck fibre optic cabte fram Enron for a
purchase price of $100 million. LJM2 paid Enron $30 million in cash and the balance in sm
ineerest-bescing nece for $70 million. Enrom recognised $67 million in pre-tax earnings in 2000
related to the asset sale. Pursuant to a marketing agreement with LIM2, Enron was campensatod
for marketing the fibre to others and providing operation snd maintenance services to LIM2 with
respect (0 the fibre, LJM2 sold 2 portion of the fibre to industry participants for $40 million,
which resulted in Eeron recognising agency fee revenue of $20.3 million. LIM2 sold the
remaining dark fitee for $113 million in December 2000 to am SPE (special purpose entity] that
‘was formed to acgaire the fibee. In December 2000, LIM? used # portioe of the proceeds to pay
fin fall the note and accrued interest owed to Enron. At the time of LIM2's sale of the fibre to the
SPE, Enron entered into a derivative contract which served as credit suppart for the benefit of
soene of the debt holders of'a third-perty investor im the SPE. This credit sapport provided the
Jender with a specified rate of return. As 2 result, Enron's credix exposure under the $70million
note was replaced with $61 million in remaining exposure under the derivative contract. LIM2
camed $2.4 million on its resale of the fibre”

Envon, restatement of accounts, sve itp.//www.entom.cony/corm/ sec

doleyed reaction in the equity ma
kets to the significance of ab this. in
Api 2001! Rowaver. the comeany
started to cut hundreds of jobs trom
its broadband unit. end as the cuts
continued they underined how
fong Enron might howe to wait tor
payback on Its expensive invest
mants

Trrough earty 2031 the price of
Fron’s shares tock a tumble but
few at the hedge funds that hod
stated to vel Enron's stock short
thought that the energy glant was
eaiy to go bust, Surely. mast ana-
lyst thought, its profitable core
energy ond Wading sericas bus
ness would support the shores at
round $30 o shore or some such?

The sottaning up of confidence in
Enron wos under way, however, It's
cleor with hingkight that cn impor
font moment wos when anatysts’
uncertainty began to be voiced fh
mainstream pubscafons such os
Fortune in Merch 200!

The quastions began to be asked
with renewed force when Jeff
Sailing. appointed as CEO in
February, resigned just tix months

later. Skiling’s August departure
razed questions about Enron's
management structure. Much
wore. it gave crecibilly to analys*s
whe had been wondaring out loud
for some months about the propri-
tty of how Enron nod structured Ps
off-balance sheet vehicles. Worst of
cA the perion at the centre of
some of the mast pointed questions
wos Enron's chiel financic! officer
Andrew Fostow, who had overseen
* of-bolonce see octvaes

Oddly, Fastow and other execu-
tives hod taken personal stakes in
some of the inwesiment partner
shies thet formed the counterpar-
ties to Enron's of-bolonce sheet
deats* Thot meont thet, os Enron
moved into a crucio’ stage of crisis
management in late 2091. Fastow
‘ond other key executives couks not
credibly reasure the market bout
the ste. stuctue ond pumpase of
Enron's fobiities ond particulary its
off-balance sheet machine. Setting
aside Enron's oucltors, these execu
tives were alo the only rect quar
antors of Enron's reported earnings
since the late 1990s

1423 —-s

01200000000784


"They haven't done anything trading-wise that gives me any indication they are closing their books down," he
said.

Still, some executives at other companies said they were looking more carcfully at transactions with Enron,
especially long-term contracts, They also said risk-management and credit officers were calling each other
regularly to discuss the situation.

Mark Palmer, an Enron spokesman, said on Friday that no energy- trading company had stopped doing business
with Enron, He declined to say whether any of the company’s trading partners had suspended or altered credit
terms. He said the company was continuing to see normal volumes of business.

But the crisis that Enron will face if its credit rating is downgraded is just a symptom of the bigger problem the
company must confront. For years, the details of Enron's finances have been a mystery even to the Wall Strect
analysts whose job it is to follow the company, and to the investors who own its stock and bonds. When Enron’s
profits were soaring and it was creating lucrative new markets, sharcholders did not seem to care about the
impenetrability of its financial statements.

Now they do. Yet the company seems incapable of offering straight answers to the questions investors ask.

To others in the industry, the opaqueness of the company's financial statements parallels Enron's efforts to keep
its energy-trading business lightly regulated and free of disclosure requirements. Though they do not expect
Enron to crumble like Long-Term Capital Management, they say that, like the giant hedge fund, Enron uses a lot
of debt, regulatory oversight is limited and outsiders have a difficult time figuring out its finances.

The most pressing concerns are a series of partnerships and trusts Enron created to move some of its assets and
debt off its balance shect. With names like Marlin and Osprey, the partnerships have at Icast $3.3 billion in
bonds outstanding, backed by assets like a stake in Azurix, Enron's water company subsidiary. Enron has
promised that if the partnerships’ debts exceed the value of their assets, Enron will issue enough new shares to
make up the difference.

DEALS with partnerships formed by Mr. Fastow, who was chief financial officer when they were organized, led
to the $1.2 billion write-off in shareholders’ equity that Enron announced last week. The company has offered
only skimpy details of its transactions with those partnerships.

Enron ended its relationships with those partnerships in the last quarter, after being criticized by sharcholders. In
the process, it wrote off a promissory note that it had carried on its books, reducing its shareholders’ equity by
$1.2 billion. But, because of complex accounting rules, the transaction was not apparent in Enron's quarterly
eamings report.

‘The transaction disturbs investors because it suggests that Enron may have found a way to hide losses, throwing
the accuracy of its financial statements into question. When Enron released third-quarter earnings on Oct, 16, it
reported a loss from $1 billion in write-offs on failed investments. The earnings statement did not mention the
additional $1.2 billion equity write-down. But the company said its core business had been solidly profitable,
and its shares rose.

In a conference call with analysts after the announcement, Mr. Lay, Enron's chairman, also disclosed the
reduction in shareholder equity. The reference was a brief one, however, and some listeners did not catch it.
Those analysts were angered when they found out the next day what Enron had done, and many were confused
by the accounting procedure. Enron's stock began to slide, and investors clamored for more information about
the write-off. But so far, the company’s efforts to clear up the situation have further unnerved investors.

Mr. Lay has met with investors during the last two weeks to try to explain the deals, but some on Wall Street say
they have come away with doubts about Mr. Lay's grasp of the situation. They say that the two people at Enron
who appear to have been most knowledgeable about the deals - Mr, Skilling and Mr. Fastow - have both left the

° 01284

01200000000639


page 2

We appreciate the opportunity to convey this report to you.

Sincerely,

a fe eeeee

* Alani ‘Gréenspan', Ly [Pau H. O'Neill
Chairman Secretary
Board of Governors of the Federal Reserve Department of the Treasury
es E. Newsome ey L.
Chairman Chairman
Commodity Futures Trading Commission Securities and Exchange Commission

01860

01200000000516


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01200000001129


ULE 24 eeu 1619 Pr ENRLN IU bee's w eeree

~ e . Kenneth L. Lay
\ iS Chairman end
ie Y > (Chey Executive Officer
%, Enron Corp.
P.O, Bor 1188
24 October 2000 Houston, TX 77251-1188
(713) 853-6773
Fax (728) 8535313
KigyGenren.com
The Honorable Phil Gramm
Chairman
Senate Banking Committee
534 Dirksen Senate Office Building

Washington, D.C. 20510
Dear Phil:

‘As you are aware, the House overwhelmingly passed H.R. 4541, the Commodity Futures
Modernization Act of 2000, by a vote of 377-4, demonstrating broad consensus for the
very difficult compromise underlying the bill. This important legislation now requires
your leadership in order to pass the Senate, allowing the hard work and compromise to be
rewarded during this Congress.

volumes since November 1999. Prompt adoption of H.R. 4541 will assure that Enron
can continue to grow our businesses and provide innovative service to Our Customers
without the risk and cost of legal uncertainty that now exists.

Based on our recent telephone conversation, I know that you have concerns with respect
to bank product and securities law issues raised by the bill. We do not have views on
these provisions except for our concer that prompt passage of the legislation will not be
possible unless the issues are adequately resolved. However, we are confident in the
ability of you and your staff and we hope that these issues will be resolved in this
Congress.

1 appreciate your attention to this important matter and would be pleased to respond to
any questions that you might have.

Sincerely,
for

Natural gas. Electricity. Endless possibilities.

01200000001435


look into its financial dealings. Republicans on the House Energy
and Commerce Committee received just $3,500 from the company in
the firat six months of 2001. That is less, for example, than the
Western Peanut Growers Association and 314 other political
organizations handed out.

Enron's contributions to congressional leadership PACs and so-
called nonfederal 527 accounts also slowed in 2001. In November
2001, Enron contributed $5,000 to Lott's leadership PAC and
$2,500 to House Rules Chairman Dreier's leadership PAC, Earlier
in the year, Enron contributed $2,500 each to the leadership PACs
of Hastert, Armey, Taugin and Chief Deputy Majority Whip Roy
Blunt, R-Mo. The company also made a $5,000 contribution in
September to the moderate New Democrat Network and a $10,000
contribution mid-year to the conservative GOPAC, which assists
nonfederal Gop candidates. - by Brody Mullins and Charlie
Mitchell

WHITE HOUSE
Bush Returns To Domestic Issues, Signs Brownfields Bill

Calling it the most important environmental legislation
produced by Congress last year, President Bush today signed the
Small Business Liability Relief and Brownfields Revitalization
Act at an appearance in Conshohocken, Pa. The legislation
provides funding for brownfields cleanup while Protecting small
businesses from certain types of liability related to the sites.
Because cleaning up brownfields can provide new areaa for
development, Bush touted the legislation as a type of jobs bill
that could also help provide a solution for urban sprawl. Bush
said this bill - and the education legislation he signed earlier
this week - marks an increase in his focus on domestic issues,
even as he continues to wage the fight against terrorism.

The president noted hie FY03 budget will call for Congress to
more than double EPA spending on brownfields revitalization, from
$98 million to $200 million. The budget also includes $25 million
for urban development and brownfields cleanup by HUD, the White
House said today. The president was introduced with lavish praise
by EPA Administrator Whitman, who called Bush “one of America's
greatest environmentalists,." Bush returned the compliment, saying
Whitman is “going to go down aa one of the best selections* he
made for his Cabinet. Barlier this year, Whitman's future with
the administration appeared somewhat clouded when Bush reversed a
campaign position and said he would not seek mandatory limite on
carbon dioxide emissions, even though Whitman had assured
European officials he would. Meanwhile, Bush Thursday signed the
two remaining FYO2 appropriations bill, the Labor-HHS spending
bill and the Foreign Operations appropriations bill, OMB
officials said, - by Keith Koffler

AGRICULTURE
Rejection Of Farm Group's Cuba Trip Spure Travel Debate
Washington's Cuba watchers were busy thie week assessing the
Treasury Department's rejection of an application by a high-
profile group organized by the Parm Foundation, an Illinois think
tank, to travel to the igland. at issue were questions about
whether the agency's rejection of the application last week was a
bureaucratic snafu or an indication the Bush administration le
tightening up on farm groups going to Cuba. The move resulted in
adverse publicity for the Bush administration in rural areas,
where the issue of expanding Cuba trade is hot, The rejection of
the Farm Foundation's application puzzled farm leaders because
Agriculture Secretary Veneman, Agriculture Deputy Secretary James
Moseley and Undersecretary for Farm and Foreign Agricultural
Services J.8. Penn all served on the Parm Foundation board before
resigning to take their USDA positions. Veneman told reporters
last year that her contacts with the farm Foundation were her

> 01035

01200000001707


http://www4,ambest .com/BestDayNews/LoadStory.asp?BSN947235

GE Employers Reinsurance Corp. has named Nicholas D. Gassman as
vice president of eales for its specialty insurance group.
http: //www4,.ambest .com/BestDayNews/LoadStory. asp?BSN=47250

SCPIE Holdings Inc. hae named Edward G. Marley vice

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http: //www4.ambest .com/BestDayNews/LoadStory.asp?BSN=47236

Note: All articles marked "Free" are valid only for the day of the
newsletter's release. Subsequent to that date, full

text of previously published articles is available to BestWire subscribers
or on an individually purchased bas.
Previously issued presa releases are available at A.M. Best's worldwide
Web site.

http: //wew4.ambest .com/press/

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4

01200000001 107


Nickoloff, Peter

From: Carleton, Norman

Sent: Wednesday, November 07, 2001 3:11 PM
To: ‘Schultheiss, Heidtynne; Nickoloff, Peter
Subject: Dow Jones Newswires: Liquidity Concerns Continue To Dog Enron Bond Holders

November 7, 2001

Liquidity Concerns Continue To Dog Enron Bond Holders

Dow Jones Newswires

(This article was originally published Tuesday)

By Michael C. Barr
Of DOW JONES NEWSWIRES

NEW YORK — Wary investors in bonds of embattled Enron Corp. (ENE) continue to have cause to
worry.

The company’s bonds are being quoted on a dollar basis in the 70s, according to Harold Rivkin,
principal, H. Rivkin & Co., a distressed bond brokerage, Princeton, N.J.

“It's an investment grade name but the market is treating the bonds as if they were junk or a
distressed credit,” said Rivkin, Distressed investors focus on the debt of companies perceived as in
or near default.

"Some of Enron's debt is trading as if the company were rated single-8," added Tom Haag, senior
analyst in charge of distressed securities, Lutheran Brotherhood, Minneapolis, Minn.

The Houston-based energy company has suffered from a big loss of investor confidence following
the company’s recent announcement of a $618 million third quarter loss and the disclosure of a $1.2
billion erosion of investor equity related to partnership transactions undertaken with the company's
former chief financial officer, Andrew Fastow.

While Enron was able last week to obtain $1 billion in new credit lines from JP Morgan and Salomon
Smith Barney, it was necessary for the company to provide security support in assets of its Northern
Natural Gas Co. and Transwestern Pipeline Co. In addition, the company has about $1 billion in cash
on hand.

Debt Downgraded
Nevertheless, Fitch on Monday downgraded Enron's senior unsecured debt to triple-B-minus from

triple-B-plus. It's now just a notch above junk bond status. Last week, Standard & Poor's Corp.
lowered its credit rating on Enron to triple-B, while Moody's Investors Service lowered its rating to

Baa2.
” 01302

01200000000657


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.

01204

01200000000560


Nickoloff, Peter

From: Carleton, Norman

Sent: Wednesday, November 07, 2001 3:07 PM

To: Schulthelss, Heidilynne; Nickoloff, Peter

Subject: WSJ: Dynegy In Talks To Put About $2B Into Enron Now

November 7, 2001

WSJ: Dynegy In Talks To Put About $2B Into Enron Now

Dow Jones Newswires

By Robin Sidel
Of The Wall Street Journal

NEW YORK -- Dynegy Inc. (DYN) is in advanced discussions to infuse about $2 billion into Enron
Corp. (ENE) in a transaction that may lead to a full-blown merger between the two companies,
sources familiar with the matter told The Wall Street Journal.

A formal transaction could be unveiled as early as Thursday, these people said. The situation is very
fluid and is subject to change, these people noted.

(This report and related background will be available at the Journals' Web site, WSJ.com.)

Enron has been rocked by last month's disclosure of a $1.2 billion reduction in its equity base partly
tied to financial dealings with company partnerships headed by Enron's former chief financial officer.
Last month, it reported a third-quarter loss of $618 million. The Securities and Exchange Commission
has launched a formal investigation into the matter. Last week, Enron secured $1 billion in new credit
lines, using gas-pipeline assets as collateral.

Enron needs the infusion in part because its previously announced plans to raise cash through the
sale of power assets is going more slowly than expected. Mostly, though, it needs to restore its
credibility with Wall Street at a time when its access to the financing markets is drying up.

Enron shares recently traded down $1.57, or 16%, at $8.10.

-Robin Sidel; The Wall Street Journal; 212-274-7991
Enron, Houston, declined to comment. Dynegy could not be reached for comment.

Shares of Enron recently were down 87 cents, or 9%, to $8.80. Dynegy was down $2.18, or 6%, to
$33.82.

News of the Dynegy discussions was first reported on CNBC.

-Robin Sidel, The Wall Street Journal; 212-274-7991
” 01300

01200000000655


Hart, Susan SD

From: Michael Sondow [msondow@icilu.org}

Sent: Tuesday, January 15, 2002 8:31 PM

To: Hague list

Subject: [Hague-ur-commercial4aw] Self-regulation Part I: The Enron Coverup
treo GATS ot

The investigations Of Enron initiated by the US Treasury Dept, Justice
Dept., and various Congressional Committees are coverups. Here is part
of the true story:

01200000001019


resigned in August, of the change in business strategy that turned Enron from a gas-pipeline company into a an
energy trading powerhouse that developed a large Wall Street following. Its stock price peaked in the summer of
2000 at $90.75.

According to a person close to the company, while Mr. McMahon, Mr. Fastow's successor, was Enron's
treasurer, he told Mr. Skilling, who at the time was the chief operating officer, that he thought the partnerships
involving Mr. Fastow presented a conflict of interest. After that discussion, Mr, McMahon moved to a different
job at the company, this person said.

Shares of Enron traded as low as $15.51 yesterday afternoon, the lowest price for the stock since carly 1995,
before recovering. In after- hours trading, they fell to $16.14.

One of the factors that hurt the stock yesterday was a decision by M. Carol Coale, an analyst at Prudential
Securities, to drop her rating to "sell" from "hold." She had lowered the rating to “hold” from "buy" on Monday.

“After the S.E.C. inquiry was announced,” she said in an interview yesterday evening, “Enron should have
addressed it by delivering a scapegoat, as a gesture to the Street. Now they are replacing him today, The timing
is a little late, but I think it will be received positively by the Street.”

But she said that investor sentiment might work the other way. "People could fear that if you remove Fastow
from the management team, you'll never get any answers.”

° 01293

01200000000648


"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 | 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.

01197

01200000000553


eSpeed: Building Scalable and Liquid Markets for the Online Trading Community

Sizing up the Competition

eSpeed is in an unenviable position, one in which it competes with a variety of market participants, including
interdealer brokers, dealers, futures exchanges, and fixed-income trading systems. (For more information
sce TowerGroup Research Note 025:23S, “Online Bond Trading: Only the Strong Will Survive.") Its
efforts to expand its business beyond traditional financial products—to include trading in energy, bandwidth,
and derivatives—places it in direct competition with firms that may have greater depth of expericnce in
these markets. TowerGroup believes that eSpeed will encounter considerable resistance entering new
markets because it has not established any past expertise in trading these products as it has in bond and
futures markets,

Interdealer Brokers. IDB systems bring together the dealer community in a central location to trade a
variety of fixed-income products directly with each other. eSpecd provides the electronic brokering
component of Cantor Fitzgerald's [DB business, while Cantor Fitzgerald operates, the voice-brokening
segment. eSpeed has achieved success in the IDB market with first-mover advantage leading all electronic
IDBs in the trading of US Treasuries. In this sector, eSpeed competes with such international firms as
BrokerTec Global, Garban-Intercapital, MTS $.p-A, and Instinet Fixed Income Markets. BrokerTec and
Garban-Intereapital are the most formidable competitors in this space with their presence in the US
‘Treasury market, 2 market eSpeed depends on heavily for the majority of its transaction volume.

(For more information see TowerGroup Research Note 024:255, “Online Bond Trading for

Professionals; Building Electronic Pools of Liquidity.")

Futures Exchanges, In this space, eSpeed’s futures platform, the Cantor Exchange (CX) competes
primarily with well-established exchanges such as the Chicago Board of Trade (CBOT). However,
BrokerTec Global, an electronic interdealer broker in the Treasury market, will go head-to-head with both
since its announcement in June 2001 that it received regulatory approval by the Commodity Futures Trading
Commission (CFTC) to become a Futures Exchange and a Clearing Corporation. BrokerTec’s 14-member
consortium of Wall Street firms includes J.P. Morgan Chase, Merrill Lynch, and Goldman Sachs to mention a
few. The consortium members account for a substantial portion of the volume in the futures market, which
means if they bring their liquidity to the new BrokerTec exchange, BrokerTec Futures Exchange (BTEX) ,
the other electronic furures exchanges will feel some pressure.

In addition to competitive threats, the Cantor Exchange, a joint venture with the New York Board of Trade
(NYBOT), has other problems, namely that it has not developed the type of following that was anticipated.
The failure of the exchange has taken eSpeed by surprise, The CX’s volumes have dropped steadily since
its launch. The number of contracts traded totaled just 188,031 in 2000, a 57.7% decline from the 444,155
contracts traded in 1999. Continuing the downward trend, in the first quarter 20001, contracts traded totaled
just 26,031 on the CX, on pace for a lower transaction volume than 2000, The CX quarterly volume totals
are only a fraction of the over 40 million financial futures and options contracts traded by the CBOT in the
first quarter of this year.

eSpeed has addressed the steady decline in volume by entering into an agreement with EasyScreen to
provide access to multiple global derivatives exchanges as well as its plans to move into new vertical
markets such as energy futures. In addition, eSpeed has yet to determine how it will incorporate its April
2001 purchase of the Wagner patent into the CX. The patent applics to futures trading systems, in which
transactions are completed automatically by a computer matching bids and offers on a first-come, first-serve
basis. This is a different method of execution than that currently employed by the CX, which features
eSpeed’s Interactive Matching technology. TowerGroup believes it is too late for eSpeed to rebuild its
reputation in the electronic futures market duc to the prolonged demise of the CX.

10
©2001 TowerGroup, Needham, MA USA
May not be reproduced by any means without express pamssion, All nghts reserved.

01215

01200000000571


John Urquhart, director, received
$493,914 in 2000 for consulting services
to Enron.

Lord John Wakeham, director, received
$72,000 in 2000 for his advice on Enron's
European operations

Herbert Winokur, director, was affiliated

with the privately owned Enron supplier
National Tank which made $370,294 in
sales to Enron in 2000

"Best practice is no consulting fees to any
directors," said editor at the research body
The Corporate Library, Nell Minnow.

In addition, the Enron document revealed that
Enron used a travel agency which is 50%
owned by the sister of its chairman and chief
executive, Ken Lay.

Sharon Lay's travel agency sold travel services

worth $517,200 in 2000."
ceweweneceeceeeseneensseecssssn sr eeesesasessnatenneeneee
http://www. enron.com/corp/pressroom/board. htm]

ENRON Board of Directors:

Norman P. Blake, Jr-

Former CEO and Secretary General, United States Olympic Committee

Wendy L. Gramm
Former Chairman, U.S. Commodity Putures Trading Commission

Robert K. Jaedicke
Professor (Emeritus) of Accounting and Former Dean,
Graduate School of Business, Stanford University

Paulo V. Ferraz Pereira
Former President and CEO,
State Bank of Rio de Janeiro, Brazil

William C. Powers, Jr.
Dean of the University of Texas School of Law

John Wakeham
Former U.K. Secretary of State for Energy

Hague-jur-commercial-law mailing list
Hague-jur-commercial-lawélists.essential.org

http://liste.essential.org/mailman/list info/hague-jur-commercial-law

01200000001030


Whip Nickles, Republican Policy Committee Chairman Larry Craig of
Idaho, Majority Leader Daschle or Majority Whip Reid. Likewise,
House Speaker Hastert received just $3,500 from Enron for his
personal re-election effort and House Minority Leader Gephardt
took in $1,000.

At the same time, Enron earned a spot in the top 50 political
contributors in 1999 and 2000 for the first time by giving $1.1
million to national Republican Party accounts. In addition,
Houston-based Enron was the 12th largest contributor to Bush's
presidential campaign, with $114,000. The discrepancy is the
result of a fundraising strategy that called for Enron to focus
‘on writing large checks to national and state party accounts -
while giving far less money directly to the re-election efforts
of individual members of Congress. In 1999-2000, Enson and its
executives gave $1.7 million in soft money donations to the
political parties and just $300,000 directly to candidates,

‘Asa result, Enron's contributions to key members of Congress
have been relatively sparse. In the last election cycle, Enron
contributed just $137,$00 in regulated, hard dollars to the
hundreds of lawmakers who sit on a range of congressional
committees that plan to investigate the company, including the
House Government Reform, House Energy and Commerce, House
Financial Services, Senate Governmental Affairs, Senate Energy
and Natural Resources, Senate Commerce and Senate Banking
committees. That is far less money than scores of other
organizations contributed. The $27,000 that Enron gave to the
Republican members of the House Energy and Commerce Committee,
for example, fel! behind 114 other organizations. Rep. WJ,
(Billy) Tauzin, R-La., who last year took over the Energy and
Commerce chairmanship, alone gave more moncy to committee
Republicans than Enron in 1999 and 2000.

In the first half of 2001, Enron's contributions to
influential members of Congress slumped further, According to
Enron's most recent financial disclosure for the period from
January to June 2001, the company did not contribute to the
personal re-election efforts of Hastert, Gephardt, Lott or
Daschle. At the same time, the company contributed just $12,000
to the members of the seven congressional panels that plan to
look into its financial dealings, Republicans on the House Energy
and Commerce Committee received just $3,500 from the company in
the first six months of 2001, That is less, for example, than the
Western Peanut Growers Association and 314 other political
organizations handed out,

Enron's contributions to congressional leadership PACs and so-
called nonfederal 527 accounts also slowed in 2001. In November
2001, Enron contributed $5,000 to Lott's leadership PAC and
$2,500 to House Rules Chairman Dreier's leadership PAC. Earlier
in the year, Enron contributed $2,500 each to the leadership PACs
of Hastert, Armey, Tauzin and Chief Deputy Majority Whip Roy
Blunt, R-Mo. The company also made a $5,000 contribution in
September to the moderate New Democrat Network and a $10,000
contribution mid-year to the conservative GOPAC, which assists
nonfederal GOP candidates. - by Brody Mullins and Charlie
Mitchell

=

10

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01200000001736


when it has real profits, but hiding the losses when deals go against it?" Mr. Palmer of Enron said the company
stood by its reported energy-trading profits.

Even traders at other energy companies say they do not have a clear picture of Enron's positions, Enron
maintains that it is in no danger of being wiped out by a sharp move in electricity or gas prices because it keeps
its trading book balanced - meaning the energy it has agreed to sell is offset, in roughly equivalent amounts, by
energy it has agreed to buy,

"With these guys, they tell us - and all you've got is their word - that they're hedged,” said Mr. Verleger, the
economist.

IN fact, Enron has lobbied forcefully over the years to limit regulation and disclosure of its trading operations.
Last year, the company successfully lobbied Congress to effectively ensure that its Internet- trading platform
would be exempted from regulation by the Commodity Futures Trading Commission,

Enron and other power traders do file limited information in reports to the Fedcral Energy Regulatory
Commission, the agency that oversees wholesale clectricity and natural gas markets. But the commission does
not keep track of specific transactions and prices.

Large-scale energy trading has existed for only about a half-dozen years. Enron pioneered the business, and now
dominates it, accounting for about one-quarter of all trading in the United States.

Before Congress and federal regulators opened up the market for wholesale electricity, a process that began in
earnest a decade ago, the power business was a simpler affair. Utilities were given areas of monopoly service,
and their rates - and ability to deliver enough electricity - were overseen by state regulators, But with the move
to deregulate the business, independent and unregulated generators and traders have flourished, providing an
ever-growing portion of the nation’s power.

Beginning in the 1980's, the sale and transportation of natural gas was also deregulated, spurring Enron, which
used to be primarily a gas-pipeline company, to move into the trading business.

The company’s shift to trading gas and electricity accelerated in the mid-1990's, with the ascension of Mr.
Skilling, who became chief executive in February, just six months before his unexpected resignation.
Underscoring the change in direction, in securities filings this year Enron described its principal business as
"security brokers, dealers and flotation.” Before, it had said it was in the business of “wholesale-petroleum and
petroleum products."

For most of its ascent, Enron reported outstanding profit figures and Wall Street accepted them with pleasure. A
year ago, when it disclosed the first transactions with partnerships led by Mr. Fastow, the company’s former
chief financial officer, analysts who asked questions were told that the deals were routine and were being
disclosed only because of Mr. Fastow's involvement.

Enron does not appear to face an immediate cash crunch. But the bank credit lines that it drew on last week to
pay off its short-term debt will have to be renegotiated next spring. The controversial partnerships do not have
to pay their debts until the following year - unless Enron loses its investment-grade credit rating before that.

ENRON will also need to maintain its large trading positions, which could suffer if participants in those markets
grow more nervous about Enron's credit. When Long-Term Capital was stumbling in 1998, some Wall Street
rivals sold the securities they thought Long-Term owned, trying to force Long-Term to sell its positions quickly
and at a loss. Something similar in energy markets might be possible. If so, Enron might find, as Long-Term
did, that positions that should offsct cach other do not.

Enron's new chief financial officer may yet persuade investors that in fact the company’s profits are real, and that
its condition is better than the short-sellers believe. As questions are answered, confidence, and the share price,

° 01286

01200000000641


are going to have to work out,” said National Association of
Manufacturers Employment Policy Director Neil Trautwein at a
briefing on the group's labor agenda for the coming year. But
anticipating an Enron-generated backlash, Trautwein cautioned
against legislation to restrict employee ownership of company
stock, "I think this points out that people could use some
additional help, but limits are the wrong way to go," Trautwein
said. "Getting the federal government to come in say what you can
invest in is a bad idea.”

The torrent of revelations concerning the failed energy giant
and its connections to the Bush administration and Capitol Hill
continued today, with confirmation that top Enron officials
sought help from the federal government in obtaining relief from
the firm's bankers. The Associated Press reported that a Treasury
Department spokeswoman confirmed that Peter Fisher,
undersecretary for domestic finance, spoke with Enron President
Lawrence (Greg) Whalley six or eight times in late October and
carly November. Also today, CNN reported that the Senate
Governmental Affairs Permanent Subcommittee on Investigations
will send out 51 subpoenas today for information on the company’s
collapse.

On employee ownership of company stock, many federal officials
and advocates are increasingly concerned over the effect of
company failures on employees, who have fewer resources and
options to recover their life's savings, "We are concemed about
the vulnerability workers have with their investments," AFL-CIO
Legislative Director Bil] Sanwel said today, adding it was a key
priority for labor groups this year. A spokesman for Senate
Health, Education, Labor and Pensions Chairman Kennedy said the
committee would hold a hearing in early February to address the
401(k) issues raised by Enron, “We realize that there's a larger
problem out there that needs to be addressed,” the spokesman
said. House Education and the Workforce Chairman Bochner has also
said he will explore the issue. A spokesman for Boehner said a
bill Boehner passed in the House last year that would make it
easier for companies to give retirement investment advice to
employees would address some of the concerns being raised about
Enron. Sens. Jon Corzine, D-N.J., and Barbara Boxer, D-Calif,
introduced a bill recently to prevent employees from owning more
that 20 percent of their company’s stock, an approach opposed by
NAM. - by April Fulton

2

FINANCE
Gaps Shown In Company's Political Contributions

Although Enron Corp. and its top brass pumped millions of
dollars to the Republican Party and President Bush over the
years, the embattled energy concem gave few contributions to the
members of Congress who may investigate the fate of the firm and
its executives, according to a CongressDaily analysis of
fundraising documents. In the 1999-2000 election cycle, for
example, Enron did not contribute a single dollar directly to the
Republican and Democratic leaders of the House and Senate panels
that plan to lead the investigation into Enron's high-profile
collapse. The company gave $1,000 to the personal re-election
efforts of Senate Minority Leader Lott - but no money to Minority

9

01063

01200000001735


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
secking 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. [ts
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

01200

01200000000556


ERisk.com -

checks and balances you should
have in cn organisation.” the same
6 tue of the relofionship between
tek managers and intemal oudor:
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what & the right role for intemal
Oudit In overseeing the fak mon-
ogement function so as to give Ihe
board and its cudit committee the
assrance they need?” she says

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the markets as o whole will be able
fo se@ what is going on. The more
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have asembled.

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some of the spectacular mk man

te company cheare to ignore
boric prudential stoncdarcts.

But this kind of orgoniotionot
confict is not unique to Enron.
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companies run up against siva-
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highetk. becouse these are sane
toned ot the highest level Tony
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says that, for example. To CEO
Gacides fo punue o cenain stat-
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(ks - which hopetuly they wil of
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tor ditficulty, Some of these state. In many cases it is the combined
ments to contradict the ‘
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make a company vulnerable to

monager to o Imited role, Bur os
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shocks from a particular event’

agement at Caxton Comoration in

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oF in procice. becouse there's no
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concentrations at group level that
make a company os o whole vul-
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yeors, The most recent excmpie ls
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ONG report Mek throughout the Com-
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achieving true ERM ocross its
divene octwities,

Despite ail ts, Enron hos just fled
tor Chapter 11 bonivuptcy protec:
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investigation, atter disclosing mit
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invesiment portnershins Mat were
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01435 ee

01200000000791


participants. As | pointed out earlier, analyst's conflicts have essentially rendered their
research worthless. Research that lacked depth and reality in the past.

Ata hearing regarding the Enron matter in the House of Congress on December 12°,
subcommittee Chairman Baker pointed out on that day, there were still 13 analysts
following Enron. He aptly noted that of the 13, 2 had recommendations of strong buy, 1
had a recommendation of strong sell, and the other 10 were somewhere in between. With
al] of the uncertainty surrounding Enron, | wonder how anyone can come up with a
strong buy recommendation? And we should all be aware of the fact, that when analysts
say recommend or buy, they really don't mean that. Strong buys mean buy, buys mean
hold, and holds mean get out of it. You don't have to worry about what a sale or strong
sale mean because they are as rare today as a $7 Chevy. Accordingly, what we really
need is new rules for analysts that replace this opaque system of misleading guidance
with a system the average American investor can understand and decipher without a
translator.

If analysts desire to become part of the solution, they will also have to find a way to
restrict and disclose all conflicts in a very substantive fashion. Situations such as the one
recently discussed in the New Yorker where a CSFB analyst downgraded an entire
industry group and then was terminated does not provide investors with confidence this
will happen.

The rating agencies also swung and missed on a timely downgrade of Enron’s credit
ratings. This was the second strike this year as the same thing happened earlier with
Pacific Gas & Electric. The agencies say if they downgrade the debt the result will be a
negative impact on the companies that will worsen their situation. Excuse me folks, but
that is exactly what I thought we had the rating agencies for. The Enron debt was trading
for something like 50 cents on the dollar by the time the downgrade from the ratings
agencies materialized, If they are going to tell us the patient is dead only when they can
no longer feel a pulse, | fail to see what value they bring to investors and the markets.
Perhaps the SEC and Congress need to take a closer look at the practice of these
organizations.

And investors also must learn that if they are going to invest, they must do their
homework. Investing without studying and learning about the company or mutual fund
you are going to invest in is like taking a test without going to class or reading the book.
The results are never good and there is only one person to blame. And its not the teacher!
Enron is a classic example of this as many investors, including some of the countries
largest institutional investors such as Alliance Capital, Fidelity and Janus, invested in
Enron despite the fact they made disclosures no one could understand, about complex
business transactions that involved a seemingly endless web of potential conflicts.

Closing:
On September 2 of this year, the New York Times wrote:

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WSJ.com Page 3 of 6

‘The market for credit derivatives, which barely existed five years ago, has grown to an estimated $360
billion, according to the Office of the Comptroller of the Currency, And it says the nominal value of
derivatives on the books of commercial banks soared to $51.3 trillion at the end of September from $6.8
trillion in 1990, with nearly $20 trillion of that growth coming since 1998,

Behind the Times

Federal oversight hasn't kept up. The Commodity Futures Trading Commission regulates futures and,
along with the Securities and Exchange Commission, options traded on exchanges, but not derivatives
traded off-exchange, or "over the counter.” The latter term describes trades that are privately negotiated
between large financial institutions or corporations, How such derivatives are regulated depends on what
kind of firm sells them. For example, bank regulators such as the Federal Reserve can scrutinize
commercial banks’ activity, while the SEC can examine that of brokers who conduct business in the U.S,

Enron -- which started trading natural gas, then expanded to electricity, metals and more-exotic
derivatives -- fell through the cracks of this regulatory framework. As a publicly traded company, Enron
routinely provided the SEC with general information about its finances. But it wasn't obliged to give the
agency any detailed information about its OTC trading activities. In fact, the CFTC’s only peek into
Enron's vast trading operation was through a tiny registered futures affiliate, Enron Trading Services
Inc,

EnronOnline, the electronic marketplace Enron launched in late 1999, also fell outside federal
jurisdiction. The exchange came to control a quarter of all wholesale energy trades among U.S. utilities,
independent power producers and other market players. In many ways, the Web-based trading system
resembled its heavily regulated counterparts, such as the New York Mercantile Exchange.

But Enron and its imitators didn't fit regulations written for the likes of conventional markets such as the
Nymex. Those exchanges bring many traders together and cater to a broad range of investors, both large
and small, But Enron's marketplace was limited to big, sophisticated players.

Moreover, Enron jealously guarded its independence. While some companies voluntarily discuss their
derivatives trading with the CFTC, Enron regularly failed to do so, say people familiar with the agency.

Enron spokesman Mark Palmer says the company’s unregulated status was appropriate. "With a decp
bilateral market of sophisticated buyers and sellers, that regulation was not needed," he said. Though
Enron did some trading for its own account, Mr. Palmer disputes suggestions that his firm was similar to
a hedge fund, adding that most of the $19 billion in derivatives contracts on its balance sheet were
commitments to deliver, or take delivery of, natural gas or electricity.

In the roaring 1990s, with the deregulation movement at its zenith, few in
Washington dared even to suggest more regulatory oversight of derivatives. One
of the few who did was Brooksley Born, who President Clinton named to head the
CFTC in 1996. Her comments in speeches and in a discussion paper about the
need for more oversight and regulation of OTC derivatives triggered an uproar
among derivatives dealers -- from J.P, Morgan & Co, to Enron. They quickly
complained to Congress and other regulators that the uncertainty Ms. Born was
creating could destabilize their markets.

The industry complaints got a sympathetic hearing from many politicians and
regulators -- particularly at the Fed and the SEC — who saw Ms, Born's campaign

hitp://interactive.wsj.com/archive/retrieve.cgi?id=SB 1008202066979356000.djmé&template=..._ 12/13/01

01200000000578


Reestablishing the public's trust and confidence in the numbers must also include a
renewed effort on the part of the standards setters to provide timely guidance in the form
of high quality accounting standards, And by high quality accounting standards, | mean
standards that will result in the financial statements reflecting the actual economics of the
underlying business transactions.

We have what is acknowledged around the world as being the best accounting standard
setter — the Financial Accounting Standards Board or FASB. But the Board today often
comes under tremendous pressure from business, the accounting firms and Congress to
compromise its conceptual framework and adopt standards that give management more
ability to be less transparent about the actual results they have achieved. You only have
to look to Statement No. 123 on stock options, No. 133 on derivatives and most recently
Nos. 141 and 142 on business combinations for classic examples of such behavior.

And in light of the Enron matter, we have already seen some critics use this opportunity
to attack the Board’s efforts to move toward more fair value measures. Instead, they
would rather have the balance sheet show a number the company paid for an asset, a
value that provides investors absolutely no information as to what the real values of
assets and liabilities are in today’s world. These people have short-term memories and
have conveniently “forgot” about the under-reported losses that occurred in the S&L
debacle. or the losses on derivatives that “surprised” investors of companies such as
Proctor & Gambles, Gibson Greetings, and Bankers Trust when their truc value and
exposures became known. Or how about the Fortune 500 companies where
approximately ten percent of them had to report an impact of greater than $50 million in
their financial statements, some even in the billions, when they were required to report
their derivatives at their fair value this year. The question is not whether we should use
fair value reporting, but rather a matter of adopting standards and guidance that ensure
the values reported are reasonable. And last year the SEC staff made just such a request
to the accounting profession.

Yet the Board has taken way to long to develop standards that are sorely needed to
protect the public. For example, the Commission asked the FASB to address the issue of
whether certain transactions result in a liability or equity in the mid-70"s. Investors are
still waiting for an answer. In 1982 the FASB undertook the project on consolidations,
which includes the issue of SPE's. An issue the staff of the SEC has repeatedly urged the
FASB to act on during the past three years. Today investors are stil] waiting for an
answer. In 1970's the Cohen Commission recommended the FASB adopt a standard that
would require a footnote describing and discussing items in financial statements that
effect the comparability of the statements from one period to another, a standard that
would have gone a long way towards fixing the current “pro forma earnings” problem.
Yet investor's today, after almost twenty-five years, are still waiting for guidance, If the
SEC and investors are to look first to the private sector to set standards, then they have
the right to expect timely action on the part of the standard setters.

12 01319

01200000000675


Bochner also will investigate. Separately, the Senate Banking
Committee has scheduled a Feb. 12 oversight hearing into the
accounting and investor protection aspects of Enron Corp.'s
collapse. Several former SEC chairmen are scheduled to testify,
including Arthur Levitt, who served from 1993-2000.

Meanwhile, labor issues are expected to tint the debate as
Congress revives efforts to pass an economic stimulus proposal,
with a political battle expected over balancing unemployment and
healthcare benefits with tax cuts. “I don't know how they can go
home and continually face these laidoff workers," said Bill
Samuel, AFL-CIO legislative director, who said labor groups would
continue to push for benefits, ergonomics regulation, and an
increase in the minimum wage. The Labor Department has yet to
announce a position on ergonomics, but several sources said it
will not issue a new regulation, as labor supporters had hoped.
Labor supporters are also outraged by President Bush's recess
appointment of Eugene Scalia to be Labor Department solicitor,
citing his views against ergonomics, but business groups praised
him as a well-qualified candidate. - by April Fulton

—

JUDICIARY
Bipartisan Immigration Bill To See Early Senate Action

Congressional efforts to liberalize U.S. immigration policy,
which were off to a promising start carly in 2001, appeared
effectively doomed immediately following the Sept. 11 attacks at
the hands of foreign terrorists - some of whom had been living
illegally in the United States for years. However, by the end of
last year, it had become clear that the event also had presented
an opening for lawmakers of various ideological stripes to
reframe their arguments in a way that was mutually beneficial.

The result was legislation sponsored in the Senate by Judiciary
Immigration Subcommittee Chairman Edward Kennedy, D-Mass., and
Immigration Subcommittee ranking member Sam Brownback, R-Kan., as
well as Sens, Dianne Feinstein, D-Calif. and Jon Kyl, R-Aniz.,

which married enhanced border security with family friendly
immigration reform, and earned the support of advocacy groups

working both isswes. That bill stalled in the Senate late last

year, but is expected to be the Senate's first order of business

this session in the category of immigration, a Kennedy

spokeswoman said today.

Both chambers were poised in December to unanimously approve a
legislative preconference agreement hammered out among House and
Senate lawmakers. The House border security measure, introduced
by Judiciary Chairman Sensenbrenner and Judiciary Immigration
Subcommittee Chairman George Gekas, R-Pa., was approved by
unanimous consent at the end of the session. But its companion
measure was blocked in the Senate by Appropriations Chairman
Byrd, who was perturbed by the White House's rejection of his
request for border contro! funding carlier in the year. But while
that left border security as unfinished business in the Senate,

House GOP leadership took 2 short cut it likely will have to
answer for this year: Bowing to pressure from a band of socially
conservative Republicans, House GOP leaders agreed to omit from
the immigration package compromise 245(i) extension language
which would enable immigrants already residing in the country to

20

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01200000001 131


rectified one way or the other, even if it requires changes in
WTO rules." The Associated Press reported that EU Trade
Commissioner Pascal Lamy said he was pleased and called for
“rapid proposals* from Washington to rectify the tax laws. “Now
it ig up to the United States to comply with the WTO's findings
to settle this matter once and for all," Lamy said.

The FSC case goes back several years. In Pebruary 2000, the
WTO Appellate Body upheld a ruling that the FSC provisions of tax
law violated WTO subsidy rules. In response, Congress approved
the Extraterritorial Income Exclusion Act of 2000, but the
European Union won a WTO ruling last August that the revised law
still conferred a ‘prohibited export subsidy" and failed to
withdraw the PSC "subsidy," as the earlier ruling directed. It
was that ruling that was affirmed in today’s WTO appeals ruling.
Under an EU-U.S. agreement reached in September 2000, the dispute
now will go back to a WTO arbitrator to decide on the exact
amount of possible countermeasures. The arbitrator's report is
expected by the end of March, according to an EU statement. - by
Bruce Stokes and Geoff Earle

EMPLOYMENT
Hill's Labor Agenda For 2002 Tinted By Enron Debacle

When Congress returns to work next week, legislators, staffers
and lobbyists will find the Washington labor agenda transformed
by investigations into employee 401(k) and pension investment
Pregrams brought on by the Enron scandal. But they also face
questions about reviving an economic stimulus package,
ergonomics, and a renewed call to increase the minimum wage.
Enron "will dominate the conversation for the coming months,"
predicted Ann Combs, assistant secretary for the Pension and
Welfare Benefits Administration, which handles employee benefit
issues for the Labor Department, in a telephone interview with
CongressDaily. The pension administration launched an
investigation in November into how Enron employees lost most of
their savings intended for retirement when Enron stock plummeted
last year, and whether the companies’ investment trustees
fulfilled their duties to employees,

Also, Labor Secretary Chao recently was chosen to work with
Treasury Secretary O'Neill and Commerce Secretary Evans to look
at needed modifications in retirement lawa in the wake of the
Enron debacle. The group met for the first time Friday, and,
while there is no deadline for sending recommendations to
Congress, Combs said, "Everyone appreciates the urgency of the
situation.” Senate Health, Sducation, Labor and Pensions Chairman
Kennedy will hold a hearing on the Enron retirement investment
igaue next month, and House Education and the Workforce Chairman
Boehner aleo will investigate. Separately, the Senate Banking
Committee has scheduled a Feb. 12 oversight hearing into the
accounting and investor protection aspects of Enron Corp.'s
collapse. Several former SEC chairmen are acheduled to testify,
including Arthur Levitt, who served from 1993-2000.

Meanwhile, labor issues are expected to tint the debate as
Congress revives efforts to pass an economic stimulua proposal,
with a political battle expected over balancing unemployment and
healthcare benefits with tax cuts. "I don't know how they can go
home and continually face these laidoff workers," said Bill
Samuel, AFL-CIO legislative director, who said labor groups would
continue to push for benefite, ergonomics regulation, and an
increase in the minimum wage. The Labor Department has yet to
announce a position on ergonomics, but several sources said it
will not issue a new regulation, as labor supporters had hoped.
Labor supporters are also outraged by President Bush's recess
appointment of Eugene Scalia to be Labor Department solicitor,
citing his views against ergonomics, but business groups praised
him as a well-qualified candidate. - by April Fulton

01026

01200000001698


Fisher, Peter

From: Bridgewater Daily Observations [Bridgewater_Dally_Observations@bwater.com]
Sent: Friday, November 30, 2001 8:30 AM
Subject: Bridgewater Daily Observations, "Rationality Retuming To Credit Markets”

bwernt 1001 pet

Rationality returning to credit markets:

As we have discussed, the recent selloff in bonds and eurodollars seemed
unjustly magnified in light of the sketchy evidence that the economy is
accelerating and the strong evidence that inflation is falling. But this
market action makes more sense in light of the news that Enron has
apparently been liquidating substantial long positions in two-year notes and
deferred euros (i.e., longer than one year forward). Given the apparent
size of their positions, they were most likely hedging fixed rate debts back
to floating rates, reducing their effective interest rate by synthetically
shifting the maturity of their debt to the lower yields on the short end of
the yield curve. They probably had big gains in the positions, which would
have provided a source of badly needed cash. But that is just our guess.

Complete report at www.bwater.com then click on client access, or if you
have already downloaded an order ID from the Bridgewater website you will be
able to read the enclosed file. If you need help accessing the website and
downloading an order ID please call Joe Quinn at (203) 291-7397 or reply to
this email.

<<bwam113001.pdf>>

01200000001465


Nickoloff, Peter

From: Schultheiss, Heidilynne

Sent: Monday, October 29, 2001 3:57 PM

To: Carleton, Norman; Nickoloff, Peter

Subject: Enron Ousts Finance Chief as $.E.C. Looks at Dealings
October 25, 2001

Enron Ousts Finance Chief as S.E.C. Looks at Dealings
By FLOYD NORRIS

The Enron Corporation, its stock battered by a sudden loss of investor confidence, yesterday ousted its chief
financial officer, Andrew S. Fastow, whose involvement in complicated transactions with Enron has drawn the
scrutiny of the Securities and Exchange Commission,

“In my continued discussions with the financial community, it became clear to me that restoring investor
confidence would require us to replace Andy as C.F.O.," Kenneth L. Lay, Enron's chairman and chief executive,
said in a statement announcing the change. Only one day before, Mr. Lay had told investors in a conference call
that he and the Enron board "continuc to have the highest faith and confidence in Andy."

The company said that Mr. Fastow had taken a leave of absence, but it also named his successor, Jeffrey
McMahon, the head of Enron's industrial markets group and a former corporate treasurer.

Enron said none of the officials were available for interviews last night.

The move came after the close of trading on the New York Stock Exchange, where Enron's shares fell $3.38, to
$16.41. The price has been cut in half since Oct. 16, when Enron reported its third-quarter earnings. A $1.2
billion reduction in shareholder equity brought on by ending some relationships with partnerships that Mr.
Fastow had headed was not disclosed in the earnings news release. Mr, Lay briefly mentioned it in the
conference call that followed, but some analysts thought he was referring to a separate $1 billion write-off that
was disclosed in the cammings document, and were angered when they later leamed about it.

On Tuesday, when both Mr. Fastow and Mr. Lay discussed the company with analysts on the conference call,
neither was willing to discuss details of the transactions between Enron and the partnerships formerly controlled
by Mr, Fastow. Mr. Lay cited the S.E.C. inquiry in declining to discuss the details of the transactions,

The fact the transactions took place has been known for a year, but Enron's disclosures have been widely
criticized for being impossible to understand.

By structuring the deals as involving forward commitments to deliver Enron stock, it appears that Enron was
able to assure that losses on them would not lead to reported losses, but instead to reductions of shareholder
equity that had no effect on the income statement, That is one of the issues the S.B.C., whose inquiries were
disclosed Monday by the company, is expected to address,

Concems have also grown this week over whether Enron will face losses from complicated financing strategies
that kept billions of dollars of debts off its balance sheet but left the company responsible for paying - either in
cash or with stock - if things went wrong. On Tuesday, Mr. Fastow assured investors that the company "expects
to continue to have sufficient liquidity to meet normal obligations,” and said it had bank credit lines that were
more than adequate.

Mr. Fastow was viewed as one of the architects, with Jeffrey K, Skilling, the former Enron chief executive who

. 01292

01200000000647


One of the reasons the Board is kept so busy, is the ability of those who design, structure
and engineer financial transactions, to get around the rules. The advent of the SPE's in
the early to mid 80's is a product of such efforts. Much of the off balance shect lease
financing can also be attributed to financial engineering. A design and engineering
process the accounting firms play a key role in and which results in less, rather than
more, transparency for their real client, the investing public, Each of the accounting
firms work closely with investment bankers and clients to structure off-balance sheet
transactions and products that can make Wall Street and the firms millions, but in the
Enron debacle have cost investors billions. While I firmly believe an accounting firm
should work closely with companies it audits to ensure they get the accounting answers
right, working with them to remove things from the eyes of investors is just plain wrong.
T urge audit committees and the Auditing Standards Board to take the necessary steps to
Stop this practice immediately,

And speaking of standard-setters, let me mention the Emerging Issues Task Force or
EITF. This is a group of professionals from the accounting firms and industry who meet
in Norwalk Connecticut about every other month to discuss and provide guidance on
emerging accounting issues. The group does not include representatives of the public or
users of financial statements, such as investors. While the new International Accounting
Standards Board must approve all standards adopted by its equivalent of the EITF ina
public process, the approval of the FASB is not required for any EITF standards. The
Board can override an answer the EITF approves, but has formally done so only once
since the formation of the EITF in 1983.

The EITF does not have a charter or mission to come up with an answer that provides the
greatest transparency and highest quality financial reporting. And all too often, the group
arrives at exceedingly complex answers that are difficult at best to implement in the field,
driven by business interests of special interest groups, industry members and accounting
firms that are often lobbied by their clients, That is what happened when the EITF dealt
with the issue of SPE's in 1990 and the members initially voted not to do anything. An
impassioned plea for help by the SEC staff resulted in a final watered down rule that
quite frankly does not adequately address the issue.

Today some believe the EITF’s most important role is to serve when needed as an
amnesty program, by constantly giving a “byeTM to those who in the past have failed to
follow the spirit and intent of the rules, a view I also share. The EITF’s most recent
deliberations on the accounting for elimination of the effects of derivative transactions in
consolidation is a glaring example of such standard setting.

Too bad the Enron investors and workers won't get a similar “bye” on their losses. It is
time for the Board of Trustees of the FASB, to undertake to have an independent review
performed of the EITF, and ensure it is adequately serving the public’s interest.

Enhanced Disclosures

Both current SEC Chairman Pitt and former Chairman Levitt have rightly called for
enhanced disclosures regarding financial measures that would provide investors greater

13 o1 320

01200000000676


EnronOnline - Press Room Page 1 of |

Enron Pipelines Launch Capacity Bidding Open Season

Enron Press Room
Crvon hese Retin EnronOnline
FOR IMMEDIATE RELEASE: Monday, June 12, 2000
Rasescch
Legal & Privecy HOUSTON: Enron announced today that its interstate natural gas pipelines will begin offering ca

EnronOniine,

Transwestern Pipeline Company will be the first of the Enron pipelines to offer capacity for biddin
open season conducted on EnronOniline, the global internet-based commosities transaction sys

Natural Gas Company, Northem Border Pipeline Company and Florida Gas Transmission Comp
to offer services on the new e-commerce plationn in the near future.

“The use of EnronOnline to market interstate transportation capacity represents a major step for
pipelines look for new ways to use e-commerce to better serve our customers,” stated Stan Hort
and Chief Executive Officer of Enron Gas Pipeline Group. “This innovative approach to marketin
capacity clearly benefits both interstate pipelines and customers. We now have expanded custo
through the industry's leading e-commerce platiorm, EnronOnline, while customers receive more

and greater flexibility in purchasing capacity"

Transwestem wil initially offer 20,000 Dekatherms per day of firm capacity for the month of July
open season will be conducted through @ sealed bid process to begin June 22 at 8:00 a.m, Cent
close June 26 at 2:00 p.m. Central Time. All bidders will be notified of acceptance or rejection of
4:00 p.m. Central Time the same day. Transwestem will observe all underlying procedures for a
capacity as specified in its FERC Gas Tarif

‘Since its debut last November, EnronOnéne, an internet-based transaction system, has rapidly b
commodity-trading platform of choice, offering real-time prices for natural gas, power, coal, weat
petrochemicals, pulp and paper, emissions credits, bandwidth and other commodities in the Ame
and Asia, The new e-commerce platform has completed more than 140,000 transactions with
transaction value exceeding $65 billion.

Enron is one of the world’s leading electricity, natural gas and communications companies, The
which owns approximately $37 biliian in energy and communications assets, produces electricity
985, Gevelops, constructs and operates energy facilities workdwide, delivers physical commoditie
financial and risk management services to customers around the work, and is developing an int
network platform to facilitate online business. Enron's intemet address is www_enron.com and th
traded under the ticker symbol, "ENE."

(Customers wanting information about Transwestem’s upcoming open season on EnronOnine, s
‘Steve Harris, Vice President, Transwestern Commercial Group at (713) 853-1796. Media inquire
directed to Gina Taylor at (713) 853-7681

® Bock to top

01398

http://www.enrononline.com/docs/marketing/PressRoom/M7 I 10/ 12/4/01
01200000000754


Page 4 of 4

Indeed, TradeSpark is powered by eSpeed's technology and pays eSpeed a commission on each
transaction, Mr, Noviello explained. "So that business has seen enormous growth since the fall of
Enron," he said.

But despite a more upbeat mood and a strong sense of having delivered on an important pledge to
their lost friends’ families, everyone at Cantor is ready to leave 2001 behind, employees said.

“Last week, to top it all off, I got hit by a cab,” Mr. Marber said. "Right on 39th Street. A lot of
bumps and bruises, nothing worse. But I remember thinking, as I picked myself up: ‘Please, I just
want this year to end'"

hetp://www.nytimes.com

GRAPHIC: Photos: Howard W. Lutnick, left, the chairman of Cantor Fitzgerald, had good news to
share last week: a profitable fourth quarter. At right, Philip Marber, left, and Joseph C. Noviello,
executives who have been instrumental in the firm's recovery. (Justin Lane for The New York Times
left Librado Romero/The New York Times above )

Chart: "Back To Before"

The stock of eSpeed, an electronic trading firm almost wholly owned by Cantor Fitzgerald, has risen
close to its pre-Sept. 11 level in recent months on reports that it would be profitable in the fourth
quarter. But the stock is still far short of its March 2000 peak of almost $83 a share.

Graph tracks the daily closing price of eSpeed shares from Sept. 10 through January.
(Source: Bloomberg Financial Markets)

O1/16/2002

01200000001412


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01200000000757


eSpeed: Building Scalable and Liquid Markets for the Online Trading Community

parent company bestowed its proprietary electronic transaction processing software, network distribution
systems, and related contractual rights on eSpeed. In return, Cantor Fitzgerald received majority equity
ownership of eSpeed as well as technology and electronic trading support. eSpecd received approximately
$139.6 million in proceeds from the initial public offering (IPO), which helped expand its market coverage
through strategic partnerships, acquisitions, and new investments in technology. Despite its independent
status, eSpeed still depends heavily on its parent for voice-broker support, trade volume, and the closing

of major investment deals such as the TradeSpark and Freedom International Brokerage transactions

(see Exhibit 1).

‘The Evolution of Electronic Trading at Cantor Fitzgerald

OME © cantor — Mage ©,-25peed! eSeed

Fitzgerald enters P
Cantor creates the The Cantor into strategic ‘UAT
Fitzgerald first Cantor Fitzgerald business :
introduces interactive Exchange spine off partnerships,
screen- electronic launches
based wholesale August «Speedin aeaataaam
trading. marketplace 1998.
mets a sem
Treasuries, December issues
Sroche 1999, acdiional
investment oSpeed second
in launches public
its IPO,
technology. raising «AMPs, Offering
196 gagmarch
millon. QSawnBrk — Frising
about $50
million,
Source ToavrCinons
eSpeed’s Technology

The initial investment made by Cantor Fitzgerald in 1996 produced a scalable electronic trading engine for
trading financial and nonfinancial products electronically in real time through a global distribution network.
To protect its proprietary technology and intellectual property, the firm has applied for and received patents
and now it licenses that technology to eSpeed for use in the eSpeed system. Some of the patents in question
cover a data processing system, the method for electronically trading fixed-income instraments, anda
system for shared remote access of multiple application programs by one or more computers.

A core component to Speed's auction and transaction engines is its Interactive Matching technology, which
is a proprietary rules-based method that provides incentives to participants by allowing the last successful

4
(©2001 TowarGroup, Neecham, MA USA
May not be reproduced by any means without express permission. A rights reserved.

01209

01200000000565


Prom: Michael Sondow [msondoweiciiu,org)

Sent: Saturday, December 01, 2001 7:36 PK

To: Hague Convention list

Subject: (Hague-jur-commercial-law] Where does the criminality stop?

http://www. corpwatch. org/trac/issues/wto/featured/2001/tclarke.html
Enron: Washington's Number One Behind-the-Scenes GATS Negotiator
By Tony Clarke

Special to CorpWatch

October 25, 2001

"Enron's connections with the Bush Administration make it one of the
most powerful corporate players in Washington today."

hetp://wew. quardian.co.uk/business/story/0, 3604, 609926, 00. html

"R derivative need not be a complex financial instrument. It need
not be a dangerous one. But in the hands of criminals and

cretins it is often both. Whether Enron's management were one

or the other - or both - will doubtless become clear over the
years that it will take for litigation to work through its course.”

wee esac eeescaeeec serene sseseecsssssseeneeeeeeessessaesscssceeee
hetp://www. guardian. co.uk/business/story/0,3604,609926,00-html

“The company, which has said it will file for
bankruptcy next week, axed 1,100 jobs at its
London energy trading centre on Priday,
leaving just 250 staff.

Many left the building feeling robbed, not only
of their salaries but also of the year-end
bonuses they had expected to receive.

Making matters worse from their point of view
were revelations that many Enron directors

had enjoyed a wide range of lucrative company
perks, including consultancy work or favourable
purchasing agreements from affiliated

companies.

“Directors who have side consulting
arrangements are not considered, under
governance guidelines, to have the necessary
independence from management," said director
of the Center for Corporate Governance at the
University of Delaware, Charlea Elson.

Detailed disclosures
In a statement published earlier this year,

Enron gave details of extra earnings by its
directors.

01200000001029


po93l Page lof 3

7 TREASURY NEWS

FROM THE OFFICE OF PUBLIC AFFAIRS

FOR IMMEDIATE RELEASE
January 17, 2002
PO-931

TREASURY SECRETARY PAUL O'NEILL REMARKS TO THE
U.S. SAVINGS BONDS VOLUNTEER COMMITTEE

Thank you Richard, and thank you for hosting this year's luncheon and meeting of the U.S. Savings
Bonds Volunteer Committee. Before I make the formal presentations we have for you, I'd like to thank
you, your 2001 committee and Banco Popular for helping make last year a tremendous year for the

savings bond program.

Richard, as private sector CEOs you and I always looked at the bottom line to let the numbers tell the
story. So, let's take a quick look at the numbers you and your committee posted. Bond sales in fiscal
year 2001, totaled $6.6 billion -- up an impressive 30 percent from a year earlier. Your efforts to
encourage Americans to take a look at the value of our newest savings bond, the inflation-indexed I
Bond also made their mark. For the first time, I Bonds accounted for more than half of all bond sales.

I know that this success was the result of your personal commitment, not only as chair, but also as a
member of the committee over several years to encourage Americans to plan for and save for their
future. Your efforts to reach out to the Hispanic community with this important message are particularly
gratifying. This dovetails with your efforts to reach out to the under-served and un-banked to bring them
into the financial mainstream.

So, it is with great pleasure that I present you with Treasury's Gold Medal of Merit as a token of our
appreciation. I'd also like to present this special Citation that commemorates our thanks for your service.

As L ask Vance Coffman to join me at the podium, I'd like to remind you that his and Lockheed-Martin’s
support over the years are hard to beat. Vance is no stranger to the committee having headed up the
savings bond effort among his colleagues in the Aerospace industry. And in doing so he demonstrated
his and his company’s leadership by consistently earning the program's highest honors for participation.
So as I present you with this certificate appointing you Chair of the 2002 U.S. Savings Bonds Volunteer
Committee, I want to thank you in advance for the energy and leadership you and your team will bring
to our effort this year.

What you, the Savings Bond Volunteers, do is a crucial part of educating Americans of every age and
background on the importance of retirement savings. In the broader context of saving, I'd like to make a

few comments on the security of the nation’s retirement system. The pension system has evolved in
recent years into one that increasingly emphasizes two of the country's quintessential values, personal

hitp://www.treas.gov/press/releases/po93 1.htm 01/18/2002

01200000001178


counterparty is unable to liquidate a position in a security due to transfer restrictions under
federal securities laws. Although such counterparties typically meet the statutory criteria for
ECPs, one interviewee suggested that the growing number of “dot-com” millionaires in the late
1990s could potentially have gencrated interest in the development of equity derivatives products
for holders of restricted securities that own net assets of between $1 million and $5 million.

Several of the interviewees noted, however, that firms generally do not recommend the
use of swap agreements to hedge positions in individual equity securities because of tax
considerations.’ Under the Intemal Revenue Code, they said, entering into a swap agreement to
hedge an appreciated financial position, such as equity that has risen in value since being
acquired, may be deemed a constructive sale, If substantially all the economic risk of the
underlying financial position is eliminated, the holder is required to recognize any gains for tax
purposes. Consequently, the commercial and investment banks interviewed indicated that they
typically advise persons seeking to hedge partially or reduce exposure to an equity position to
enter into OTC options contracts, based on their view that the use of such contracts may not
always trigger a taxable event. They also indicated that this strategy does not raise CEA issues,
since options on securities are considered “securities” under the federal securities laws and are
not subject to the CEA.

Synthetic Exposure. The interviewees also noted that OTC equity derivatives could be
used to gain exposure to a security in lieu of purchasing or selling the security directly, It might
be advantageous to use an equity derivative for this purpose, in their view, if greater leverage
could be obtained (as compared to a traditional margin account), or if the cost of executing,
clearing or settling trades in the underlying security or securities were comparatively expensive,
as in the case of the component stocks of a security index or securities in certain non-U.S.
markets.

Several interviewees questioned, however, whether retail investors would be able to use
retai! swaps for these purposes. Some interviewees expressed the view that swap dealers were
unlikely to permit retail investors to obtain significantly greater leverage using a swap agreement
than by purchasing or selling the underlying security or a standardized derivative instrument ih a
traditional margin account, largely because of credit concerns, For example, some of the
commercial and investment banks interviewed indicated that they typically require their
customers to collateralize the derivative contract with the securities they are seeking to hedge.

Some interviewees opined that, in light of the relative cost of negotiating and entering
into swap agreements,® individually-tailored swap agreements might not be cost effective for all

* ‘The discussion of tax issues in this section of the Report reflects the comments of interviewees, and no

inference should be drawn concerning whether the Treasury Department agrees or disagrees with the
opinions or analyses of tax issues expressed by the interviewees, A discussion written by Treasury
Department staff of tax issues of relevance to retail swaps can be found in Appendix 3.

* See discussion in Part IIB below.

01865

01200000000521


In addition, generally accepted accounting principles, the rules that accountants must follow in auditing public
companies, allow considerable flexibility in evaluating what a business has done. Some lawmakers question
whether those rules give accounting firms too much latitude.

"Does the Enron debacle (and cases like it) rest on activity that is allowable under generally accepted
accounting principles and standards, or that constitutes clear violations of those principles and standards, or
some combination thereof?" Rep. John D, Dingell (D-Mich.), ranking minority member of the House
Commerce Committee, asked the SEC last month.

Auditing problems are not new. The late 1990s saw a wave of "restatements," in which many major companies,
including Rite-Aid Corp., Sunbeam Corp., Waste Management Inc. and Cendant Corp., were forced to admit
that profits reported earlier had been vastly overstated.

Some cases involved fraud, which auditors said they are ill-prepared to detect, Critics have said that auditors
should do more extensive checks of contracts, deliveries and other aspects of a company's operation. But
accountants warn that would make routine audits far more expensive. They say that in fierce competition for
clients, the lowest cost auditor often wins,

01200000001501


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Enron: Washington's Number One Behind-the-Scenes
GATS Negotiator

By Tony Clarke
Special to CorpWatch
October 25, 2001

So, what do Enron Corporation and the General

Agreement on Trade in Services (GATS) have in

common? After all, Enron is primarily a giant energy
corporation specializing in everything from natural

gas pipelines to electricity. And the GATS is a new

body of rules at the World Trade Organization

(WTO) which is designed to liberalize cross border
trade-in-servi. . Why, then, ia Enron auch a big player in

the GATS
negotiations at the WTO?

Well, for one thing, Enron is not just another energy
corporation. It has

recently reorganized to become one of the largest, multi-
sector, private

service providers in the world. While specializing in energy
services,

Enron's product lines now include a broad range of services
from

transportation to electronic commerce. Since Enron markets
its services

on a global basis, the GATS rules being negotiated at the
WTO provide

the power tools that can be used to knock down any barriers
that may

exist to profitable cross border trade-in-services.

For these reasons, Enron has positioned itself to be a
leading player in the

major big business lobby machines driving the GATS
negotiations. But, on

top of this, Enron has enormous economic and political
clout, even as it

currently faces serious troubles. Enron is still a player
despite a Securities

and Exchange Commission investigation into transactions by
its former

Chief Financial Officer. The free fall in ite stock prices
and billion dollar

losses Enron has incurred, are set against 4 backdrop of

skyrocketing

multi-billion dollar revenues in the last two years. More
importantly,

Enron's connections with the Bush Administration make it one
of the most

powerful corporate players in Washington today. And these
connections

make it an even more influential player in the WTO's service
negotiations.

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into the GATS negotiations, has reportedly been the

recipient of a $50,000

Secretary of State,
on the
international

U.S. deputy
of State for
businesses; and
Lay

becomes

GATS round will

hand on the global
company’s track
human rights
corporation

may in fact

with U.S.
overseas. In India,
Dhabol Power
exerted

provided Enron
bidding process.

construction of the

‘advisory fee’ from Enron. James Baker, former U.S.

and Robert Mosbacher, former Secretary of Commerce, are both
Enron payroll as advisors on overseas projects and
negotiations. Enron's Board includes Charles Walker, former
Treasury Secretary; John Wakwham, former British Secretary
Energy, who specializes in providing advice on European
Prank Wisner, former U.S. Ambassador to India. With CEO Ken
already serving as Bush's number one energy advisor, it

increasingly clear that the U.S. negotiating pogition in the

ge a long way to reflect Enron's interests.

Who Pays the Price?

In all likelihood, the GATS will also strengthen Enron's
atage. While this may bode well for ite shareholders, the
record already leaves something to be desired in terms of
and the environment in communities and countries where the
operates. If Enron gets its way in the GATS, these problems
escalate.

For instance, Enron uses ite political clout internationally
embassies and even the CIA to win lucrative contracts

Enron eventually won the $2.8 billion contract to build the
Plant in 1995 after then U.S. Ambassador, Frank Wisner,
enormous pressure on the Indian government and the CIA
with strategic intelligence on its competitors and the
Later, when local villagers protested against the

Dhabol
project which threatened the environment and their

livelihood, Enron paid

protesters.

Dabhol

state forces for security which resulted in a crackdown on

According to Human Rights Watch, "Enron's local entity, the

01200000001026


WSJ.com Page 5 of 6

bankruptcy legislation.

The reforms opposed by Enron and other derivatives traders were killed. Rep. Baker's proposed hedge-
fund disclosure law died in the House Banking Committee. No one introduced any legislation to give the
SEC or CFTC more authority over derivatives.

Some of Enron's political muscle comes from well-connected members of its team. In 1993, Enron
named Wendy Lee Gramm, a former CFTC chairwoman and wife of Texas Sen, Phil Gramm, to its
board. The collapse has put Ms. Gramm, who is chairwoman of the board's audit committee, in the
hotseat. One of Enron's key outside lobbyists is Ken Raisler, a former CFTC general counsel and now a
law partner at Sullivan & Cromwell in New York. Late last year, Enron hired Linda Robertson, a senior
Clinton administration Treasury official, to head its Washington office.

During the last election, Enron made political contributions of $2.4 million, more than double the next-
most-generous energy and natural-resource company. Republicans got 72% of Enron's contributions.
For the same period, House and Senate agriculture-committee members, who oversee commodities
trading, and other key lawmakers received $50,338, up from $38,256 in the previous election cycle.

All of this gave Enron unmistakable clout, In the fall of 1998, after the LTCM debacle, when Ms. Bom
was gaining support for her effort to press for derivatives regulation, Enron lawyer Mr, Raisler met with
one of Ms. Born's supporters, CFTC Commissioner John Tull. Mr. Raisler asserted that Treasury wanted
Mr, Tull to oppose Ms. Born's initiatives. Mr. Tull told Ms. Born about the mecting and that he was
withdrawing his support at Treasury's request, according to people with knowledge of the meeting.

Mr. Raisler confirms he met with Mr. Tull. "I don't remember what we discussed other than that, I, on
behalf of my clients, said we were dismayed at how Brooksley was handling herself during that period,"
he says. Mr. Tull, who has retired to his Arkansas rice farm, didn't return phone calls, Ms, Born said she
couldn't confirm or deny the incident,

In late 2000, Enron won sweeping legislative guarantees against future regulation of its trading
businesses, People involved in negotiating the Commodity Futures Modernization Act say that Enron
representatives were fanatical about preventing any hint of derivatives regulation. Its refusal to budge
put it at odds with some moderate members of its own lobbying coalition, including Goldman Sachs and
Morgan Stanley. Mr. Raisler denied that there was any such split.

Enron was so forceful in pushing for energy and metals commodities to be exempted from oversight that
the exemption provision was sometimes referred to by Capitol Hill staff as the "Enron Point.” That and
other Enron-friendly provisions made it into the bill.

Enron's Mr. Palmer says, "We were never shy about our views" on leaving OTC derivatives trading
unregulated, but he added that many other market participants felt the same way. “Enron,” he adds, "is a
bit of a lightning rod.”

Michael Greenberger, former director of the CFTC’s trading and markets division, blames Congress for

giving derivatives dealers a blank check to operate “opaque and nontransparent to the government as a
whole."

So little is known about the operations of Enron and other derivatives players that its hard to predict the

economic impact of their missteps. "You don't know the leverage of these things. They're playing with
fire," adds Mr. Greenberger, now a professor at the University of Maryland law school. "One of these

http://interactive.wsj.com/archive/retrieve.cgi?id=SB 1008202066979356000.djm&template=... 12/13/01

01224

01200000000580


reported today that Guinn Thursday told Abraham that "I was
damned disappointed in his decision and he was to expect my
veto.”

If Guinn sends the issue to Congress, as expected, the two
chambers must act in 90 days to allow the waste plan to move
forward, or else it would be dead. Ensign would join 2 Democratic
leadership opposed to the dump. Guinn said lawyers hired by the
state are researching whether Senate Majority Leader Daschle, an
avowed opponent of storing nuclear waste at Yucca, has the
authority to pigeonhole the issue - an issue that could end up in
court, the Sun reported, However, if it comes to a vote, Senate
Majority Whip Reid fears senators would back Bush. "Right now,
the odds are we can't get 51 votes," Reid said at a Las Vegas
news conference, the Las Vegas Review-Journal reported. Even if
the program won congressional approval, it then must receive
adequate funding. Reid now is chairman of the Senate Energy and
Water Appropriations Subcommittee, where money for the waste
program would need to win approval,

Meanwhile, both Democratic and Republican politicians in
Nevada said the fallout from the issue could hurt the GOP in the
state, the Review-Joumal reported today. "Overall, this is bad
news for the Republican Party," said Clark County Commissioner
Myma Williams, a Democrat. Independent sources expected some
adverse impact on the GOP. "This might have happened if Al Gore
had been elected president, but the fact of the matter is, it 1s
happening on George W..'s watch,” Ted Jelen, University of Nevada
political science chairman, told the newspaper.

=

ECONOMY
Ford Cuts 35,000 Jobs, Closes 5 Plants, Drops 4 Vehicles

Ford Motor Co. plans to cut 35,000 jobs worldwide, close five
plants and eliminate four vehicles in a massive restructuring
that its chief executive called a "painful, but necessary" effort
to return the world's second biggest automaker to profitability,
the Associated Press reported. "We strayed from what got us to
the top of the mountain, and it cost us greatly,” chief executive
William Clay Ford Jr. said today from company headquarters in
announcing the plan. The job cuts amount to about 10 percent of
its overall work force and include 22,000 in North America. The
plants to be closed are in Edison, NJ., and Oakville, Ontario,
by 2004; Brook Park, Ohio, near Cleveland in either 2003 or 2004;
Hazelwood, Mo., near St. Louis by an undetermined date; and
Vulcan Forge in Dearborn, Mich., as soon as possible. Vehicles to
be dropped are the Ford Escort, Mercury Cougar, Mercury Villager
and Lincoln Continental. Ford said it was taking a $4.1 billion,
one-time charge against earnings to pay for its plan. The plan
also includes the suspension of bonuses for company managers and
the climination of 401(k) matching contributions for employees,
Ford employs approximately 345,000 people worldwide, including
170,000 in North America, On Wall Street today, at 2 p.m., the
NASDAQ had fallen 23 points to 2,023.32 and the Dow Jones
Industrial Average slid $1 points to 10,016.59. In moming
trading on the New York Stock Exchange, Ford shares were up 9
cents at $15.38,

Meanwhile, wholesale prices, led by a sharp drop in energy

3

01067

01200000001739


Gross, Jared

From: Gross, Jared

Sent: Thursday, January 10, 2002 11:53 AM
To: Fisher, Peter

Subject: POTUS Remarks (less Middle East Q&A)

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. I 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.

Q When was the last time you talked to either Mr. Lay or any other Enron official, about the -- about anything?
And did discussions involve the financial problems of the company?

THE PRESIDENT: I have never discussed, with Mr. Lay, the financial problems of the company. The last time
that I saw Mr. Lay was at my mother’s fundraising event to -- for literacy, in Houston. That would have been
last spring. I do know that Mr. Lay came to the White House in -- early in my administration, along with, | think
20 other business leaders, to discuss the state of the economy, It was just kind of a general discussion. | have not
met with him personally.

Q -- to inoculate and your administration politically from the fallout?

THE PRESIDENT: Well, first of all, Ken Lay is a supporter. And I got to know Ken Lay when he was the head
of the -- what they call the Governor's Business Council in Texas. He was a supporter of Ann Richards in my

run in 1994, And she had named him the head of the Governor's Business Council. And I decided to leave him
in place, just for the sake of continuity. And that's when I first got to know Ken, and worked with Ken, and he

supported my candidacy,

This is -- what anybody's going to find, if -- is that this administration will fully investigate issues such as the
1

01200000001545


Postal Service should be a high priority of Congress?" 55 percent
agreed and 42 percent disagreed. When asked whether respondents
favored “legislation that will give the U.S. Postal Service the
flexibility and tools it needs to reform and improve its
operations,” 73 percent agreed and only 19 percent disagreed. The
poll of 1,005 adults was conducted from last Thursday through
Sunday by Opinion Research Corp. The DMA and other groups have
been working with the Postal Service for several years to pass
compromise legislation that changes the way the USPS is
structured and operates.

POLITICS
NRCC Hires Three New Campaign Strategists

Gearing up for this November's midterm elections, the National
Republican Congressional Committee announced today it has hired
three new campaign strategists, including a deputy political
director. The committee hired Scott Douglas, formerly a regional
field director for the Bush presidential campaign and a deputy
chief of staff at FEMA. Douglae worked at the NRCC from 1994-95,
serving as deputy executive director, The committee also hired
Ted Christian and Andrea Horton as two new field representatives
to track regional House races. Christian formerly served as
executive director of the New Jersey Republican Party. Horton, a
consultant with the Texas firm Olsen, Delisi & Shuvalov, has
served in the press shop of Texas Attorney General John Cornyn.

THE PINAL WORD

“ [T]hat piece of garbage ."

- Las Vegas Mayor Oscar Goodman, quoted in the Las Vegas
Review-Journal today, characterizing Energy Secretary Abraham
following Abraham's official designation of a site at Yucca
Mountain, Nev., 90 miles from Las Vegas, as the nation's nuclear
waste repository. Goodman said he would marshal mayors from
cities at nuclear waste shipping points across the nation to help
fight the waste plan,

oe
CongressDaily ia published daily, Monday through Friday, by
National Journal Group Inc. Copyright 2002 by National Journal
Inc., 2501 M St., NW, #300, Washington, D.c. 20005,
Retransmission, redistribution or reproduction of CongresaDaily
ig prohibited without the express, written permission of National
Journal Group Ine.

To read CongressDaily on the Web, contact 1-800-207-8001 or
njcire@njdc.com for your username and pagsword.

President--John Fox Sullivan, 202-739-8468 (jaullivangnjde.com)
Publisher--Steve Hull, 202-739-8475 (shull@njdc.com)
Editor--Louis Peck, 202-739-8481 (lpeckenjde.com}

Executive Editor--Keith White

Senior Managing Editor/A.M. Edition--Robert Ourlian
Senior Sditor--Charlie Mitchell

Associate Editor--Greta wodele

Assistant Editor--Chuck Jordan

Reporters--Pamela Barnett, Lisa Caruso, Geoff Earle, Keith
Koffler, Brody Mullins, Stephen J, Norton, Mark Wegner
Special Correspondents--Jerry Hagstrom, Julie Rovner

Subscription price: $2,649 a year. Subscription and e-mail
8

01040

01200000001712


To investigate these topics, the agencies interviewed representatives of derivatives dealers
{including commercial and investment banks and a non-financial firm), a derivatives trading
system, and a trade association on August | and 2, 2001, in New York. Institutions were selected
based on the nature and scope of their derivatives activities and their interest in expressing views

on the questions posed. Appendices | and 2 of this Report contain a list of interviewed
institutions and a copy of interview questions.

Part Il of this Report consists of a summary of what the agencies learned from these
interviews. Part Ill sets forth the agencies’ conclusions and recommendations. Appendix 3 has
been prepared by Treasury Department staff in order to address tax issues associated with retail
swap agreements. Staff of the Federal Deposit Insurance Corporation, the Federal Reserve Bank
of New York, and the Office of the Comptroller of the Currency worked with the agencies during
the study and participated in the preparation of this Report.

Il. SUMMARY OF INTERVIEWS

In general, the interviewees stated that they are satisfied with Congress’s clarification of
the applicability of the CEA to derivatives activity in the CFMA. Therefore, most interviewees
are not currently advocating legislative action or a regulatory framework with respect to retail
swaps, since they have no current interest in entering into this business, They indicated that there
does not appear to be either any demand for retail swaps at present or any financial incentive for
firms to offer retail swaps, in light of the array of alternative products currently available.

Two of the interviewees expressed an interest in retail swaps. One firm expressed an
interest in providing energy derivatives as a hedging vehicle for smal! businesses and individuals
that do not meet the requirements to be ECPs and indicated a belief that there is demand for such
aproduct. Another firm indicated a philosophical belief that current law is too restrictive and
that swaps should be available to non-ECPs.

A. Potential Uses of Retail Swaps

Among the potential uses for swap agreements by non-ECPs that the interviewees
identified in the course of the study are the following.

1, Equities

The interviewees gencrally observed that equity derivatives may be used for two
purposes: to hedge an existing position in an individual equity security or to create synthetic
exposure to one or more individual securities or security indices,

Hedging. OTC equity derivatives are frequently used to hedge exposure to adverse price

movements in a security, typically when the counterparty has a concentrated position in the
security that it does not wish to Kquidate, perhaps duc to tax consequences, or when the

01864

01200000000520


for each of the last four years since a collapse in commodity
prices in 1998, the Associated Press reported, Last year, farmers
received $21.1 billion in federal assistance, including $9.1
billion in supplemental payments. - by Jerry Hagstrom

= ===.

ENVIRONMENT

Abraham Chooses Yucca Mountain As Burial Site For Nuclear Waste
Energy Abraham today chose Yucca Mountain in Nevada

to be the nation’s burial site for thousands of tons of high-

level nuclear waste, the Associated Press reported. Abraham

concluded the site 80 miles northwest of Las Vegas was

“scientifically sound and suitable” as a repository for highly

radioactive used reactor fuel now kept at commercial reactors in

31 states, a department spokesman said. A final administration

decision will be up to President Bush, who has championed the

need for a central disposal site for the waste and is expected to

seek a federal license for the site in the coming months. In

anticipation of the announcement, House Energy and Commerce

member Edward Markey, D-Mass., said in a statement, "Sadly,

today’s decision by Secretary Abraham to select Yucca Mountain to

be the nation’s permanent waste repository is based on politics,

not sound science."

=F ee

DEFENSE
Bush Signs FY02 Defense Appropriations Bill

President Bush this afternoon signed the FY02 Defense
appropriations bill containing $317 billion for defense
operations and $20 billion for anti-terrorism activities and
recovery from Sept. 11's terrorist attacks, White House Press
Secretary Ari Fleischer said the bill "gives our military the
money they need to fight the war now." The anti-terrorism package
provided less for the Pentagon than Bush wanted, but more for
domestic security and New York, Virginia and other communities
where the terrorists struck.

ee

ENVIRONMENT
Administration To Propose Spending Increase For Cleaning
Brownfields

‘The Bush administration will propose doubling spending next
year on cleaning up abandoned industrial sites in urban areas,
EPA Administrator Whitman said today, Whitman said the
administration's FYO3 budget proposal will seek $102 million more
than the $98 million Congress appropriated this year for cleaning
up so-called brownfields. "This is something Congress was trying
to get for 10 years," Whitman told the Associated Press. "The
president made a commitment and we're trying to get it done.”
Congress in December approved a five-year program awarding up to
$250 million a year to state and local governments and Indian
tribes for cleaning up some 450,000 polluted industrial sites.
President Bush plans to sign that legislation Friday.

===.

LOBBYING

01060

01200000001732


eSpeed: Building Scalable and Liquid Markets for the Online Trading Community

continually evolving to include new products and management tools, Through its suite of products, eSpeed
has demonstrated that it can deliver across numerous verticals and horizontals, although its sucocss in these
markets remains unclear.

eSpeed is the leading IDB electronic trading platform for US Treasuries. Its top position not only provides a
great deal of credibility but also enables a wider range of customers access to its platform, which enhances

their familiarity with the systems. eSpeed uses this strategy to leverage additional platforms that trade other
financial products by offering a single platform for integration of trading across product lines.

As c-commerce market participants continue to launch new trading platforms, eSpeed is positioned to
leverage its success in bond trading to other markets. cSpeed’s technology has proven that it works for the
US Treasury market. A considerable number of clectronic trading firms have been ineffective at providing
their clients both with a successful technology and market liquidity. Speed must ensure it has the market
liquidity and expertise to operate in cach new market it enters to avoid failure,

Challenges Facing eSpeed

Although the Cantor Fitzgerald relationship with ¢Speed has resulted in the founding of the company and
brought the firm’s liquidity to the Speed system as well as transaction revenue and capital for strategic
investments and partnerships, the arrangement docs put limitations on eSpeed’s current and furure business.
The agreements between the two companies curtail cSpeed’s ability to initiate strategic alliances and
acquisitions, which could affect its ability to succeed, especially if market participants are not willing to
work so closely with a company that has such strong ties to a large IDB such as Cantor Fitzgerald. If the
firm begins to have financial problems or loses clients because of a better opportunity or technology, this
would negatively impact eSpeed’s revenue performance and the liquidity available to markets in which
eSpeed participates.

By viewing the list of strategic alliances, investments, and product offerings, market observers may get the
impression that eSpeed is spread a bit thin, Yet these are areas of much-needed growth and expansion,
since a significant portion of eSpeed’s revenue model involves building marketplaces for private label clients
and generating service and licensing fees from those agreements. eSpeed needs to take advantage of its
reputation in the Treasury market and expand its strategic alliances into sectors of current and anticipated
product coverage.

‘The inability of eSpeed to generate activity on the Cantor Exchange, its first mover or flagship product
launched in September 1998, bas been a disappointment to the company. The lack of liquidity on this
system has generated many questions about what happened to this eSpeed offspring. Currently, there is
fo indication that Speed plans to discontinue trading on the CX in spite of its negligible volumes, Instead
Speed is putting its confidence in its recent technology investments and product expansion plans, which it
expects will rejuvenate the exchange. Although it sounds attractive, if the exchange has consistently lost
liquidity in its nearly three years of operation, there is nothing to make firms that have been avoiding the
system begin using it now, The CX had a chance to make a difference in the futures market and it has
proved unsuccessful—without liquidity it cannot survive the current influx of ‘competition.

Speed's volumes, and ultimately its profits, depend heavily on transaction revenue derived from dealings

in the US Treasury market. In the first quarter of 2001, eSpeed’s US Treasury securities transactions
accounted for just over 50% of all of eSpeed’s trading volume, As the US government continues to pay
down the outstanding Treasury debt through its Buyback program launched in March 2000, cSpeed
continues to depend on a shrinking market, The firm's heavy reliance on this one product could signal future
problems. Future market stability and a reduced need for the Fed to move interest rates will bring not only

3
(62001 TowerGroup, Nesdham, MA USA
May not be reproduced by any means without express permission. All fights reserved.

01218

01200000000574


EnronOnline - Press Room Page | of I

Enron Launches Australian Power on EnronOnline

Faron inventor Relations FOR IMMEDIATE RELEASE: Thursday, March 23, 2000

Presentations

Revearch SYONeEY: Enron announced today the launch of Australian power as the newest commodity ava
. EnronOniine is an intemet-based transaction system for wholesale electric power a

Legal & Priuncy pabhaleathe EnronOniine users can transact business directly with Enron as principal.

EnronOnline provides real-time prices for power, natural gas, coal, weather products, petrochem
and paper, emissions credits and other commodities in the Americas, Europe and Asia, Since N
EnronOniine has completed over 50,000 transactions.

“This is a significant step for Enron Australia, which builds upon our exdsting trading operations,”
Quilkey, managing director of Enron Austraiia. “EnronOniine offers users a new level of price dis
energy-related products around the world. We already have a strong interest in the service from
based counterparties.

“Enron Australia has been operating in Australia since July 1998 and has developed a leading p
Gelivering risk-management products to the Australian market. With this service, Australian elect
be added to the extensive selection of traded products available through EnronOnline. Clearty, t
Gepth and liquidity to the local market,”

Registered users will be able to instantaneously conduct transactions with Enron and see real-timn
worldwide commodities through the Internet. EnronOnline is free of charge to users and avaliabl

www.EnronOniine.com. Users who are not pre-registered will need to complete the online passw
application and ragistration forms in order to be able to view prices and transact online.

Enron is one of the world’s leading electricity, natural gas and communications companies. The
which owns approximatety $34 billion in energy and communication assets, produces electricity
gas, develops, constructs and operates energy facilities worldwide, delivers physical commoditie
financial and risk management services to customers around the world, and is developing an int
network platform to facilitate online business. Enron's internet address is www.enron.com and th
traded under the ticker symbol "ENE.

For additional information please contact:
John Ambler

713-646-6423

@® Beck to top

01397

‘www.enronontine.com/docs/marketing/PressRoom/M7 1 12/ 12/4/01
01200000000753

http:



Hispanic Caucus' immigration task force. "The president really
took an important step . one that he deserves to be congratulated
for." The question, he added, is whether Bush will be a vocal
advocate for such things as 245(i) reinstatement and an immigrant
food stamp program, or whether he will aettle for the political
mileage he expects to earn with immigrants rights groups simply
by proposing the programs. The prominence the subject of
immigration reform is given in Bush's upcoming State of the union
address this month could provide a clue to his intentions,
remarked one observer.

“The administration ia key," agreed Dan Stein, executive
direction of the U.S. Federation for American Immigration Reform,
& group that essentially wants a moratorium on U.S. immigration.
But he added: "It's hard to get a sense of the administration's
position. President Bueh is starting to sound like a Democrat."
That strategy "won't work, he said, because Democrats will always
seek to "play Santa Claus" and one-up the president, But at the
very least, Bush's pledge on food stampa allows him to
distinguish himself from advocates of greater restrictions, such
as Rep. Tom Tancredo, R-Colo., who chairs the congressional
Immigration Reform Caucus. Tancredo, who was among those who
helped pressure Republican leadere to remove 245 {i} provisions
from the House version of the border security bill last year,
last week accused Bush of "stealling] a page from the Democratic
playbook,* with his food stamp proposal. "His attempt to expand
our political base through surrendering to the Hispanic vote is
usually the Democrats' job. Votes can't be bought with welfare,"
Tancredo said. by Pamela Barnett

JUDICIARY
High Court Ends Six-Year Fight Over Prozac Drug Patent

A six-year court fight over rights to the lucrative anti-
depression drug Prozac ended today when the Supreme Court refused
to consider reinstating drug maker Eli Lilly Co.'s patent, the
Associated Press reported. Generic versions of Prozac went on the
market shortly after a federal appeals court invalidated a Lilly
patent last year. That patent would have protected Lilly's
monopoly until December 2003 and brought in an estimated $4
billion in sales for the company. Lilly sued generic drug
manufacturers for patent infringement in 1996, when the rivals
first sought PDA approval to make a generic form of Prozac. Barr
Laboratories Inc. and other generic drug makers claimed Lilly had
improperly double-patented Prozac to extend its exclusive control
over the drug, and the appeals court agreed. The Supreme Court
did not comment in rejecting Lilly's appeal of that ruling.
Prozac had worldwide sales of §2.6 billion in 2000, the last full
year that Lilly had exclusive rights to it. It was one of the
company's best-selling drugs, accounting for about one-quarter of
the company's sales.

The high court today also turned down a chance to get limits
on how far the government can go to protect endangered species.
The case the court refused to review involves shrimp found mainly
in California, but it would have affected government efforts to
protect all dying wildlife. An association of California builders
challenged the constitutionality of the Endangered Species Act
and the way the government handled the classification of shrimp.
The builders group questioned the need for protection for the
shrimp, which are not sold commercially. Paul Clement, acting
solicitor general, defended the shrimp classification.
“Individual species are part of an interdependent web," Clement
wrote. "The significance of a particular species cannot always be
easily determined at a given point in time."

Finally, a man fired after secretly helping the FBI
investigate an anthrax threat lost his case today. The court
turned down a chance to decide if First Amendment free speech
rights cover a public employee's cooperation with law

4

01028

01200000001700


Campaign Gifts, Lobbying Built Enron's Power In
Washington

By Dan Morgan and Juliet Eilperin
Washington Post Staff Writers
Tuesday, December 25, 2001; Page AOI

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 bankruptey, 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 tur 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.

01196

01200000000552


il

Appendix 2
List of Interview Questions

What do you see as the potential uses of retail swaps?
Are you willing to offer retail swaps (or currently doing so)? If not, why not?

What types of underlying assets?

What type of contracts?

In what notional amounts?

What types of retail customers? Individuals? Small businesses? Other?

What arc the risks involved in offering these products? How would you (do you)
manage those risks?

What is the appropriate regulatory structure to address customer protection issues that
may arise in connection with the offering of retail swaps?

Is there a need for regulation to protect customers?
Should the regulatory structure differ depending on whether the entity
offering/booking the swaps is otherwise regulated?

* Should the regulatory structure differ depending on whether the market for the
underlying asset is subject to regulation?

What other matters (for example, tax and other regulatory issues) are necessary or
appropriate for a study of retail swaps to address?

01872

01200000000528


TABLE OF CONTENTS

Il, Summary of Interviews.....
A. Potential Uses of Retail Swaps
B. Extent to Which Institutions Are Willing to Offer Swap Agreements to Persons
Other than ECPS.......ccsssssccssssssssssosessssnereessunnessssnneessunovessssnsessscanysnnesnsessnnnrsesseenseaseeoeeessnd 6
C. Appropriate Regulatory Structure to Address Customer Protection Issues that
May Arise in Connection with the he Otfering 0 of fSwep. Agreements t to Persons

Ill. Conclusions and Recommendations for Legislative Action ........ssccsssssessessvesnrssesenrensnersessonenens

Appendix |, List of Interviewees....

Appendix 2. List of Interview Questions ........:sscressssscrrsseersrssessossnresnssenssnasontsnesnncetessanssancensenecee 11

Appendix 3. The Taxation of Over-the-Counter Derivatives in the Hands of Retail
CRSOOUIRETS ..s0ceccessssecesevvcoressancorsescconsensnreseconeriseonsssecensscacconvovnerreevvenerrivvennevesersevesererece 12

01861

01200000000517


ey - Press Room Page 2 of 2

ra network platiorm to facilitate online business. The stock is traded under the ticker symbol, "ENE.
: For additional information please cantact:

Claudia Johnson

503-833-4435

Gaudia_johnson@enron,net

@® Bexx to top

&

01423

http://ww.enrononline.com/docs/marketing/PressRoom/M7 14 12/4/01
01200000000779


Frank G. Foster
Manager
Mobil Corporation

Thomas Mo
Senior Financial Associate
Mobil Corporation

John Scelfo
Assistant Treasurer
Mobil Corporation

Jan Shand
Financial Associate
Mobil Corporation

Derek R. Smith
Financial Associate

Mobil Corporation

Richard A. Beech
Sr. Vice President
Morgan Stanley Dean Witter

John H. Komoroske
Congressional and State Liaison
NASD

Stephen E. Storch o
Director, Government Relations
NASD

Dean Furbush
Chief Economist and Senior
NASD Regulation, Inc,

James V. Jordan
Vice President
National Economic Research Association

Stephen A. Sherrod
Senior Investment Officer
National Credit Union Administration

Namit Sharma
National Economic Research Associates

Carrie Baffes
Special Projects Manager
National Futures Association

Kathryn Camp
Associate General Counsel
National Futures Association

Page?

Daniel J. Roth
General Counsel
National Futures Association

Karen Wuertz
Vice President, Planning and Development
National Futures Association

Robert J. Mackay
Vice President
NERA

Namit Samit
NERA

Harry Day
Counsel, Regulation
New York Stock Exchange

‘Susan Milligan
Counsel, Government Relations
New York Stock Exchange

Jyoti Vohra
Director, Strategy & Planning
New York Stock Exchange

Howard Wiener
Attomey-Advisor
Office of Associate Chief Counsel

Eric Bruskin
Manager, Economic & Financial Research
Office of Federal Housing Enterprise Oversight

‘Nancy Hunt
Senior Policy Analyst
Office of Federal Housing Enterprise Oversight

Richard Jones
Sr. Secondary Mortgage Specialist
Office of Federal Housing Enterprise Oversight

Deirdre Kvartunas
Senior Market Risk Specialist
Office of Federal Housing Enterprise Oversight

Patrick J, Lawler
Director and Chief Economist

Office of Federal Housing Enterprise Oversight
Thomas Loeffler

Director
Office of Federal Housing Enterprise Oversight

01365

01200000000721


Nickoloff, Peter

From: Schultheiss, Heidilynne

Sent: Wednesday, Octoder 31, 2001 9:37 AM

To: Carleton, Norman; Nickoloff, Peter

Subject: NY Times OpEd: Repeal of AMT and Benefit to Enron

October 31,2001 The One-Eyed Man sy pau KRUGMAN somewhere I read that to really understand
legislation you have to look for the clause giving special consideration to one-eyed bearded men with a limp -
that is, you have to look for the provision that turns a bill ostensibly serving a public purpose into a giveaway
for some special interest. Most of the commentary about the "stimulus" bill passed by the House last week
focuses on the huge benefits it lavishes on giant corporations. But that doesn't tell us much about the specific
interests being served. What's good for corporate America is good for General Motors; it would be hard to
devise a bill that consists mainly of corporate giveaways without giving a lot of money to the biggest
companies, To understand what the bill is really about, you have to look at the big payoffs to not-so-big
companies. One piece of the bill is custom- designed to benefit a small group of multinational financial firms.
Another is clearly there for the sake of certain health insurers. But the most remarkable thing is how much of the
benefit from repeal of the alternative minimum tax - a measure that is also included in the Bush administration's
supposed stimulus plan, and which seems to be one of the administration's key priorities - goes to companies
that are not all that big. For example, it's not too surprising that calculations by Citizens for Tax Justice show
General Motors, with its 380,000 workers, getting a check for $800 million. But it’s quite amazing that TXU
(formerly Dallas Power and Light), a company with only 16,000 employees, would get a check for $600 million.
And there are a number of medium-sized companies that, like TXU, are in line for surprisingly big benefits.
These companies include ChevronTexaco, Enron, Phillips Petroleum, IMC Global and CMS Energy. What do
they have in common? Well, they tend to be in the energy or mining businesses; and they tend to be based in or
near Texas, In other words, the one-eyed bearded man with a limp looks a lot like Dick Cheney. There is almost
certainly a lot of overlap between the companies that would derive large benefits from alternative minimum tax
repeal and those that would have received large subsidies under the energy plan devised by Mr. Cheney's task
force. You may remember that the administration, in apparent defiance of the law, refused to make the records
of that task force's meetings available to Congress; that's one of those issues that seems to have been dropped
after Sept. 11. And I guess it's superfluous to point out that the big winners in all this seem to be companies that
gave large, one-sided donations to the Republican Party in the last election. (This is not to suggest that
Democrats are any less susceptible to the influence of money.) To me, the story of the Bush administration is
starting to look like the plot of "Victor/ Victoria." First we had a candidate who was supposed to be a moderate,
Then we learned, or thought we learned, that this was a mask; he was really a hard-line conservative who
pretended to be a moderate in order to gain office. But the latest economic proposals from the administration,
like the Cheney energy plan, don't look as if they came from serious free-marketeers, They don't make sense in
terms of cither demand-side or supply-side economics, but they do give a lot of money to certain companies. So
maybe ideology was just another mask for someone who was really the candidate of corporations - not
corporations in general, but a small group of companies with a quite specific set of business interests - and who
is only pretending to be a hard- line conservative who pretended to be a moderate in order to gain office. It's an
interesting and all too plausible picture. But it's a picture that most people will never see on their TV, and that
many people would refuse to accept no matter how strong the evidence. That, of course, is what makes the
whole thing possible. In the land of the blind, the one- eyed bearded man with a limp is king. In last
Wednesday's column I said the "original" war bonds were issued during World War II. In fact, war bonds were

also issued during the Civil War and World War I, I don't think this affects the argument. Copyright 2001
The New York Times Company

° 01299

01200000000654


Fisher, Peter

SL

From: Roseboro, Brian

Sent: Wednesday, January 16, 2002 10:17 AM
To: Fisher, Peter

Subject: BLOOMBERG headlines on your speech

BLOOMBERG headlines on your speech:

Treasury's Fisher says accounting rules must be improved

Fisher says standards haven't kept pace with evolving markets
Fisher says companies must improve disclosure standards
Fisher predicts more "financial catastrophes” without changes
Fisher says private companies must lead efforts to make changes
Fisher says any wrong doing will be punished in Enron case

end

01200000001502


CORRECTION

Wednesday, December 26, 2001; Page A02

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

01201

01200000000557


“niteno! oud takes note of the
board's decisions. sees fo # Mot
‘ey ore adhered to in proctice.
ond reports fo the boord ony devi-

@fions from this.”

in @ pepert! publithed in August
this yeor, the accounting task force
looked ot the issue of internal ovdit
in boris, Gnd he relationship of
bonking supervisors to auditors,
Among otner recommendations
‘ond findings. the repert made sev-
erat key poinks thot ore directly rel-
evant 80 the relationship between
internet audit ond rk manage:

ment:

© Every cctivity and every entity of
within the

tme bank should fof
scape of the intemal audit;

@ interno! Gud? shoud regularly
comy out on independent review of
the risk management syste dewel-
oped by the bank to reicte ek to
fhe bank's capital level ond to the
method estabéshed for monitoring
comptionce with internal capitol
policies ond
@ A bank's thk mecognition and
Capital ossessment processes ciffer
from the tik monogement process,
which typically focuses more an the
review of business sirctegies devel
oped to maximise the risk/reword
trade-off within the diferent recs
of the bank,

Deborah Cheswarth is mar
ager in the prudential standards
ivision of UK financial reguictor ne

~ERisk.com -

Financial Services Authority and the
FSA's representotive on the Basie
Committee's accounting task
force, She echoes Schider's com
ments on the clear distinction
between risk monagement ond
oud! ond Ine latter's role in over:
ageing he whole control sructure.
However, the alto notes thet the
diferent layers of contol function
can add up to 6 potenfaly contus
ing picture, “The Bade Committee
oper on intemal audit righty soys
that intemot audit has guardian
responsibility. but there are aio
oreas where other departments
hove smier guardian functions.”
she says. “So there are cortairty
issues obout how many levels of

rpacng PU Rab

rus sayy he bak’ ik
management structure has five
chief risk officers in each main

directly to the CRO, as well as
having & “dotted line’ to the
business line, There ure also five
‘(matitutional risk areas ~
portfolio management,

‘operational risk, market risic, (group and reports to the audit that are critical to the whale
compliance and risk support committee om the board. As for organisation. So oversight of
services (waiich includes credit _its relationship to the risk that kind of operational risk falls
risk review) — whose directors fenction, Truslow to me as well as to the
partner closely with the risk says: “It's a question of checks operations and IT groupe”
managers of the business units. aad) balances. They check ‘AS for the grey areas of risk,

‘The aim, says Trusiow, is to whether our procedures and ‘where it is not immediately clear
get away from the idea that policies are adequate. There who is responaitie for a particular
responsibility for risk resides needs to be clear, independent risk, Truslow says: “!
only with risk managers, and 6 oversight, but we also work very and standing back is important. T
avoid risk managers being seen closely with internal audit, The could write detailed policies on
tus the ‘risk police’, who ae risk management group will be bow each risk should be dealt
there to look for infringements proactive in crnfting pobicies and with and by whom, brat the reality
of guidelines. “The risk pulting procedures into place, is that we make judgement calls
managers set the boundaries, but while the audit group will then every day, Operational risk is
we try to discourage the ides come in after the fact to check soencthing that’s aways been
that they ‘own’ all the risk in that they're working.” faced, but in the past it was dealt
each area,” he says. “The ‘On the tricky issue of ‘with in a somewhat
basiness unit managers own the responsibility for operational manner. We now sec it as a major
‘risks in their organisation and tisk, Truskow says the op risk component of our job and as
there is a strong partnership entailed in something. thst needs to be
between the risk management transactions is the remit of the addressed in a much more
‘group and the people rumning people ramming each business consistent and defined way. But
‘the business, As risk managers, unit. But when it comes to ‘the fect is that there are many
‘we also want to be eagaged with
‘the ramming of the business.”

‘The internal audit fanctiom at
Wachovia reports through the
‘CFO. It's part of the finance

01200000000790



major economic speech, Daschle said; "As part of our
consideration of fast track, Senate Democrats are proposing to
expand Trade Adjustment Assistance. We believe that we should
expand assistance to all workers who are hurt by global
production shifts.”

The Senate TAA measure is similar to a House bill introduced
by Democratic Reps, Anna Eshoo of California and Ken Bentsen of
Texas, who were among the leading advocates of a more generous
worker assistance package in exchange for their support of trade
negotiating legislation. Ultimately, they failed and the House
passed its version of trade negotiating authority by one vote,
and without the support of traditionally trade-fnendly Democrats
like Eshoo, If the Senate adds the trade adjustment assistance
language to its trade negotiating authority bill, the issue
likely will become a bargaining chip in the conference with the
House and could boost House Democratic support for a final bill,
several sources said, - by Bara Vaida

AGRICULTURE
Farm Bureau Re-Elects Stallman, Pushes For Farm Bill

RENO, Nev. - Delegates to the American Farm Bureau Federation
convention today unanimously re-elected Bob Stallman, a Texas
tice producer, for a second term as president. The election
appears to affirm support for the hardline positon Stallman took
last year favoring quick passage of a new farm bill, a stand some
Republican senators saw as siding with Democrats, A Farm Bureau
lobbyist noted the delegates also kept the same farm bill policy
proposals they adopted last year. ‘The group also passed an
increase in the dues the state bureaus pay to the national
office. Dave Meacham, vice president of the Nevada Farm Bureau
said he supported the increase because "You all know we have
[Senate Majority Whip] Harry Reid. We've got to have another
lobbyist or two back in Washington to paddle him."

Ata news conference Wednesday, Stallman pointed out delegates
reaffirmed Farm Bureau's support for maintaining direct Freedom
to Farm payments, raising loan rates, establishing a
countercyclical income support program for farmers, and re-
establishing the Northeast Dairy Compact as well as creating a
Southern dairy compact. Stallman also said delegates support a
prohibition on packer ownership of animals to be slaughtered and
added that meat with a U.S, label should come from "animals bom,
raised and slaughtered in the United States.” Stallman said the
decline in the U.S. sheep industry also shows the need for a new
lamb promotion program. Stallman said he thinks the Farm Bureau's
policies are "good with respect to going into a [World Trade
Organization} round" because the United States should not
“unilaterally disarm" and should not "reduce our domestic
supports below where our cap is until we go into negotiations."

Meanwhile, farm earnings will drop nearly 20 percent this year
without a boost in government payments to grain and cotton
operations, the Agriculture Department said today. In its first
economic forecast for 2002, USDA estimated net farm income at
$40.6 billion, down from $49.3 billion in 2001, That assumes that
Congress will not provide farmers with another round of
supplemental assistance this year, something lawmakers have done

5

01059

01200000001731


perspective, swap dealers may need to standardize retail swaps significantly. Standardization
could facilitate the swap dealer's management of exposure and enable it to take advantage of
economies of scale in marketing and distribution. On the other hand, one firm suggested that the
principal advantage of swap agreements over existing standardized or exchange-traded
instruments is their flexibility, in that they could be structured to meet specific customer
objectives. Accordingly, it appears that one challenge for firms in determining the feasibility of
offering retail swaps is the potential tension between the desire to mitigate infrastructure costs by
standardizing terms of retail swaps and the need to offer products that would meet the financial
objectives of specific retail customers.

Creditworthiness. Three interviewees specifically noted that swap dealers would have to
consider the ability to monitor the creditworthiness of non-ECPs in developing a viable retail
swap product for retail customers, particularly in light of the expected size and profitability of
retail transactions. Several of the commercial and investment banks interviewed indicated that,
in the context of their existing swap business with ECPs, they employ extensive risk
management practices to control their credit exposure to counterparties. These practices usually
include, among other things, extensive analysis and monitoring of the counterparty’s financial

status by a credit committee or similar body, in light of particular transactions being
contemplated.

Sales Practices and Appropriateness. Two of the firms interviewed specifically noted
that derivatives firms would need to develop adequate sales practice procedures to assess the
appropriateness of swaps for retail customers to protect themselves against the risk of private
litigation or, where applicable, regulatory enforcement proceedings. Many of the commercial
and investment banks interviewed indicated that they currently have highly detailed procedures
for ensuring the appropriateness of equity options offered to certain ECP clients, such as private
banking clients, In evaluating the appropriateness of individual transactions for their existing
ECP clients, the commercial and investment banks interviewed indicated that they often produce
multiple drafts of term sheets, engage in frequent discussions with the client, and consult with
various departments within the firm to ensure thorough analysis.

One firm expressed the view that it would be very difficult, in light of the extensive
procedures it currently employs in transactions with ECPs to justify recommending a swap
transaction to a retail customer.

Legal Uncertainty. Two interviewees remarked that legal uncertainty was an impediment
for the development of retail swaps with respect to energy products. Given the lack of interest in
offering other types of retail swaps, however, it does not appear that most institutions have felt
the need to analyze comprehensively CEA issues as they might apply to retail swaps.

In this connection, most interviewees strongly advised against taking legislative action
regarding the application of the CEA to retail swaps. As discussed in greater detail in Part 11,C
below, these interviewees believe that legislative action with respect to retail swap transactions,
in the absence of evidence of demonstrablc retail demand or institutional interest in offering most
of these instruments, does not appear justified.

01868

01200000000524


Ideally, counterparties should be able to terminate all of their transactions with Enron, and work out a net
sum, to be paid from one party to the other, representing a gain or loss across all of the defaulted deals.
At least, that's how the industry would like it to work,

Kimberley Summe, genera! counsel with Isda in New York, says that industry documentation makes
specific provision for cross-product netting, pointing out that all varieties of derivative are recognised and
provided for under industry-standard documentation known as the master agreement. But getting the
bankruptcy courts to keep up with changes in the derivatives industry hasn! been @ simple matter, and
some lawyers have been warning their clients for years that cross-product netting may not be
enforceable, no matter how much the industry wants it to be.

One lawyer ~ who asked not to be named because she didn't want to “be seen giving ammunition to the
bankruptcy court" = says there's no guarantee that bankruptcy lawyers in the Enron case will recognise
the arguments of the derivatives industry.

“The US bankruptcy code imposes restrictions on all of the things that are essential to the derivatives
market — like demanding payment, collateral and netting — but over the years provisions have been added
for different derivatives instruments, People have been trading for the last 10 years on the assumption
that those provisions will work. Everyone expects them to, but it hasn't been tested,” she says.

Bafikruptcy law is careful about the allowances made for preferential treatment - the general idea being,
says the lawyer, that the goal is to preserve the value of the bankrupt company, and then to divide its
assets among creditors. Derivatives market practice, including netting, could place some creditors ahead
of others in the queue. The industry has argued that this is essential for the safe functioning of the
financial system, and US lawmakers have tended to agree ~ but the latest legislation that would enshrine
the rights of derivatives market participants to net across a range of products Ifas not been passed in its
entirety. As things stand, there’s a danger that Enron's trustees will see attempts to net across Gerivative
products as a dilution of Enron’s value, argues the lawyer.

Most significantly, there's no definite pravision for credit default sweps under the existing legisiation, “Ave
they swaps at all?” she asks. "If not, they don't fit into any protected category. People could be sitting
there with a useless default swap from Enron - at the same time, they could have other obligations which
they have to pay in.”

Isda isn't keen on the suggestion that cross-product netting might not work. “The master agreement is
intended to cover all types of contracts,” says Summe. “Counterparties should be able to net across
product types.” She concedes that Isda has been trying hard to get netting legislation passed “because
we need an update of the definitions,” but notes that although Isda produces the industry's legal
documents, it does not offer legal opinions. Anyone wanting to know whether cross-product netting willl
work “would get a better idea from a kaw firm”.

01432

01200000000788


President Calls for Review of Pension Regulations and Corporate Disclosure Rules Page | of 3

hite Lheinse Gickse print, Se

President George Wi Bush

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

The Oval Office
9:42 A.M. EST

THE PRESIDENT: Thank you all for coming. I 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.

T'll be glad to answer a few questions,

Q When was the last time you talked to either Mr. Lay or any other Enron official, about the --
about anything? And did discussions involve the financial problems of the company?

THE PRESIDENT: I have never discussed, with Mr. Lay, the financial problems of the

company. The last time that I saw Mr. Lay was at my mother’s fundraising event to -- for literacy,
in Houston. That would have been last spring. I do know that Mr. Lay came to the White House in
-- early in my administration, along with, I think 20 other business leaders, to discuss the state of
the economy. It was just kind of a general discussion. I have not met with him personally.

Q -- to inoculate and your administration politically from the fallout?
THE PRESIDENT: Well, first of all, Ken Lay is a supporter. And I got to know Ken Lay when he was
the head of the -- what they call the Governor's Business Council in Texas. He was a supporter of

Ann Richards in my run in 1994. And she had named him the head of the Governor's Business
Council. And I decided to leave him in place, just for the sake of continuity. And that's when I first

hitp:/www_whitehouse.gov/news/releases/2002/01/print’200201 10-1 hums 01/15/2002

01200000001183


eSpeed: Building Scalable and Liquid Markets for the Online Trading Comenunity

TowerGroup believes that eSpeed is embarking on a very ambitious endeavor. Some factions in the market
have sought electronic trading systems that support multiple products, capable of tying them into related
strategy, but no such system has emerged, To date, it is clear that the electronic trading models that best
support US Treasuries are different from the best systems for corporate bonds, futures, and municipals.
Whether any system can effectively integrate multiple products remains to be seen. If these systems are
able to attract liquidity, eSpeed will be in a position to lead this effort and become the preeminent provider
of electronic trading systems in the world, However, failure to attract liquidity may compromise eSpeed’s
credibility to further expand its business opportunities beyond the US Treasury market, which is shrinking in
the wake of US debt reduction.

Taxonomy

Enterprise

Client Process Distribution Channel

Business Drivers

© Electronic trading of financial securities, such as equities, fixed income, and foreign exchange, is gaining
ground and will only increase in the future as straight-through processing and other industry protocols
are developed,

Electronic trading perpetuates a more efficient, cost-effective, and liquid marketplace, which benefits all
market participants including issuers, financial services institutions, and investors,

Implications

© Dealers” cost of doing business and pursuit of liquidity will drive them to embrace new ways of trading
financial and nonfinancial products even if it means working with those they view as competition—i.c.,
circumstances will force them to engage in “coopetition.”

* As global futures and equities exchanges begin consolidating and converging to electronic trading, proven
technologies will help make these types of transitions less volatile.

Action Items

Financial services institutions and venture capital firms need to be more selective regarding the
e-commerce companies that they are funding, learning from past mistakes of the e-commerce debacle

2
(C2001 TowerGroup, Needham, MA LISA
May not be reproduced by any means without express permission. AB rights reserved.

01207

01200000000563


BestDay_News'

Wednesday, January 16, ‘2002 3:49 AM
MELISSA, PEDRI@¢o.treas.gov
BestDay for January 16, 2002

BESTDAYNEWS E-MAIL EDITION

To view the complete, latest on-line edition of this newsletter
in your Web browser, please visit: http://www. bestdaynews.com

(Full access to all news items available to BestWeek or BestWire
subscribers only. All readers can access Best's Review and
Best's Reports links. To subscribe to BestWeek or RestWire,
click on a news item and respond to the on-line invitation, call
(908) 439-2200 ext. $742 or mailto: customer _service@ambest .com)

- oo =RDVERTISEMENT=<=

JPMorgan Investor Services

Chase Investor Services is now JPMorgan Investor Services. It
results from the merger between the holding companies of The
Chase Manhattan Corporation and J.P. Morgan & Co. Incorporated,
forming J.P. Morgan Chase & Co. effective December 31, 2000.
JPMorgan Investor Serv ‘S provides customized business
solutions to the world's leading institutional investors. We
hold in trust and custody more than $6 trillion in assets,
including $2.3 trillion in global custody assets.

http: //www3 .ambest .com/admanager/A.asp?Command-GetAdd&adid=2001

sunesassssessssssssesesenssssescsssesess
NEWS FOR WEDNESDAY, JANUARY 16, 2002

Seeeeenseeeesseseesseessesesessesscessss
TOP OF THE NEWS

France's Scor Warns of 2001 Loss,

But Looks to Strong 2002

By Brendan Noonan

Prench reinsurer Scor (NYSE:SCO) forecast a loss of 250 million
euro ($1 = 1.13 euro} for 2001, citing a sharp deterioration in
fourth-quarter results, and said it would exit program business
in the United States and health reinsurance in all markets
except France,

http: //wew4.ambest .com/BestDayNews /LoadStory.asp?BSN=47179

Odyssey Re Reports Enron Exposure

And Losses From Sept. 11 Terrorism

By John Hillman

Odyssey Re Holdings Corp. (NYSE:ORH) said it would add
additional provisions in its fourth-quarter results for $19.5
million in after-tax net losses related to the bankruptcy of
energy-trading giant Enron Corp. and 4 strengthening of
provisions for losses arising from the terrorism of Sept. 11.
http: //wews.ambest .com/BestDayNews/LoadStory.asp?BSN=47175

Twelve Agencies in Mississippi Merge
By Fran Matso Lysiak

01200000001110


President Calls for Review of Pension Regulations and Corporate Disclosure Rules Page 3 of 3

with making the region more secure,

Mr, Arafat must renounce terror, and must reject those in the region that would disrupt the peace
process by the use of terrorist means.

Q What can you do about pensioners -- what can you do about pensioners now? Isn't that horse
already out of the barn at Enron?

THE PRESIDENT: Our group Is meeting, and they will bring recommendations here, They'll look at
-- fully investigate what went on. My concern, of course, is for the shareholders of Enron. But my
-- I have great concern for the stories -- for those I read about in the stories who put their life
savings aside, and for whatever reason, based upon some rule or regulation, got trapped in this
awful bankruptcy and have lost life savings.

And one of the things this group is going to do is take a good hard look at it.
Thank you ail.

END 9:50 A.M. EST

Return to this article at:
http: //www.whitehouse.gov/news/releases/2002/01/20020110-1.htm!

Click to Print
this document

http://www. whitehouse. gov/news’releases/2002/01/prin’200201 10-1 html 01/15/2002
01200000001185


private gain, and that employees shall act impartially and not give preferential
treatment to any private organization or individual. The Office of Government Ethics
has promulgated Standards of Ethical Conduct to which all executive branch
employees are required to adhere,” These standards repeat that employees shall not
use public office for private gain, shall act impartially, and shall not give preferential
treatment to any private organization or individual." Moreover, FERC has issued
regulations that supplement the Office of Government Ethics’ standards. In general,
FERC employees with decisionmaking responsibilities are prohibited from having off-
the-record (i.e., ex parte) communications relevant to the merits (Le, capable of
affecting the outcome of or influencing a decision) of a contested on-the-record
proceeding. However, FERC’s regulations specifically exclude from their definition
of prohibited off-the-record communications, any relevant communications with
respect to general background or broad policy discussions involving an industry
FERC regulates, where the discussion occurs outside the context of any particular
proceeding and does not affect the specific merits of the proceeding. Significantly,
the regulations state that it is FERC's policy to encourage the public, including those
subject to regulation by FERC, to submit suggestions, comments, or proposals
concerning substantial prospective regulatory policy issues. This policy is intended
to serve as a means of advising FERC of potential significant issues and problems
that may come before it during its activities.

Regardless of who initiated the discussion concerning open access, it does not appear
that any of the criminal statutes summarized above were violated. All three statutes
require that money or a “thing of value” be offered or solicited in return for something
else. The only thing that may have been sought or offered here was Mr. Lay's political
support for Mr. Hébert continuing as Chairman. Although the courts interpret the
term thing of value broadly to include both tangibles and intangibles, our review of
case law found no support for the proposition that mere political support may be
considered a thing of value for purposes of the relevant criminal statutes.

Moreover, under the plain language of each of the above-referenced criminal statutes,
the offer of a thing of value must be tied to an expectation of a corresponding action
by the other party, That is, there must be an expected quid pro quo, a specific intent
to give or receive something of value in exchange for an official act. Here, there is no
evidence that such an exchange was contemplated, and Mr. Lay specifically said that
he did not tie his support to Mr. Hébert changing his position on access. When

Mr. Hébert asked for Mr. Lay's endorsement, it was not unreasonable for Mr. Lay to
ascertain whether the Chairman would take a position that would be to Enron's
advantage. Mr. Lay wanted the Chairman to take a position in favor of making open
access mandatory. According to Mr. Hébert, when he said that he would not support
mandatory open access, Mr. Lay said that he would not support Mr, Hébert
continuing as Chairman. In fact, after Messrs. Lay and Hébert discussed open access,
neither party was willing to budge from his own position, and neither party offered to
use his influence for the benefit of the other. Thus, there was no exchange or offer to
exchange something of value for some action or influence by the recipient.

"SCR § 2636,101 et seq.
“5. CPR $8 2635.101(b)(7), (8), and 2695.70.

3 GAO-01-1020R Communications Between FERC and Enron

01114

01200000001786


SEC Fails to Grant No-Action Relief

on “Auditor Conflict” Shareholder Proposal
nema"

e Shareholder proposal at Disney

e Requests board to ensure that the external
audit firm provides only audit services

e Similar proposals at at least 20 other
companies

e Calls for rotation of auditors

Audit Committee Activity & Independence

In year 2000
1,700 large US companies

Audit Cttee. Full Board
e Avg. Size 3.5 9.5
e Avg.Indp 85% 61%
e Meetings 3.5 7.5
(source IRRC)

meow

01332 °

01200000000688


However, S&P also rated six transactions called credit-linked notes (CLNs) says Khakee, and the loss
potential here is far greater ~ they represent $2.7 billion in direct exposure to Enron. CLNs use a similar
structure to synthetic CDOs: a special-purpose vehicle (SPV) issues notes to investors, accepting thea
funds in retum, and then transacts a credit default swap with the firm that is holding the debt. The big
difference is that @ single name backs the CLN, rather than a pool of different names. “With these CLNs,
the invstor is buying exposure to a pool of one,” says Khakee.

Enron also transacted three structured credit deals of its own that were rated by S&P, issuing a total of $3
billion in notional value, says Khakee. “In these deals, Enron is the counterparty - they were one
counterparty in a credit default swap and the counterparties on the other side of the deal are facing risk
from Enron not because the company is part of their portfolio, but because the deal will have to be
terminated.”

For investors in Enron's own structured credit, it is unclear whal happens next. Khakee suggests that the
counterparty will need to seek a replacement value for the terminated default swap, and will potentially
have a claim against Enron equal to the net difference between the value of the swap when first
transacted and the current market value of a replacement ~ they will mark the deal to market, and accept
either a net gain of loss.

Fitch's Lench, however, says that's not necessarily the case. “It depends on the structure,” he says. "My
understanding is that, on day one of the transaction, in order to de-fink the rating of the notes from Enron,
investors’ funds would be used to buy sovereign debt. In the event of Enron's bankruptcy, those bonds
would be liquidated to repay the investors.”

The uncertainty about close-out procedures for Enron's structured credit deals redoubles when attention
switches to the company’s derivatives activities, which covered the whole gamut of assets from
commodities and currencies to interest rates, credit and equity, One area that could have been stickiest
was Enron’s role as a credit derivative dealer — traders admit that the energy company was a major
player in the market, standing alongside some banks in terms of the volume of its deals and appetite for
credit risk. Add to that the number of transactions in which other counterparties were buying or selling
their own exposure to Enron — contracts now triggered by Enron's default ~ and you have the biggest
event ever to hit the credit derivatives market.

“It's by far the largest default of any US corporate and it's been the largest trigger since Conseco
triggered,” says Greg Rosen, director and default swap trader with CSFB in New York. “Enron was also a
very large seller of protection — definitely a net seller — and we estimate that between $3 and $4 billion
was sold to the market.”

Firms that have been trading Enron credit risk via the cefault swap market have been going back through
their documentation to check the terms of their transactions and settle the deals — CSFB inchuded. “It's
certainly been time-consuming,” says Rosen, noting that there could be anywhere up to $8 billion in
swaps with Enron as the underlying credit. Nevertheless, he says: “It's been very positive in terms of
reassuring people that the products work as advertised. We expect the trades to settle in a timely and
orderly manner,”

Those firm that had Enron as 2 counterparty, meanwhile, have had to find new protection — which Rosen
expects fo result in @ large lability for Enron. “Everyone's lost the protection they thought they had, and
gone out to find new protection. Spreads are likely to have widened since their original transaction, so
they'll have a claim against Enron based on the difference between the original and the replacement,” he
says

But what about firms that have a multitude of different derivatives transactions with Enron? The energy
giant's presence in a range of derivative markets, and its well-documented appetite for risk means that
many counterparties will need to replace not just a default swap, but & whole basket of different
transactions, from electricity swaps to forwards to interest-rate swaps and default swaps.

01431

01200000000787


“But something else is weighing on stocks. That is the creeping realization
among investors that the momentous carnings reported by many companies in
recent years may have been digitally remastered to include a lot of hype,
embroidery and fluff.

This is significant. Investors coming around to this view will be less inclined
to trust forecasts that company executives make, Having lost faith in a
company’s numbers, investors wil! be unable to place a fair value on its stock.
In the dark on valuations, many investors will shun the shares.

An extreme reaction? Not at all. It is precisely the payback that companies
deserve for embellishing their earnings.”

But our capital markets are too important to our country and the investing public to allow
this damage to continue. When we sce investors lose their confidence in the numbers,
they lose confidence in the markets. Then they flee to safer havens as we have seen them
do this year when for the first time in over a decade, cash has been drawn out of the
equity markets. And as that occurred, the air has been taken out of our economy and the
economic boom I spoke of at the beginning, has tumed into an economic drought with
millions of Americans having lost their jobs and livelihoods.

Our profession has an important role to play in fixing what is wrong. Events of the last
few years and in particular the last few weeks have cast a long shadow over us. We must
chose whether to step out from under it by taking quick and responsible actions or remain
within the shadow for a long time.

Warren Bennis once said “Leaders are people who do the right things. Managers are
people who do things right.” Today, we need to find leaders who have that rare vision
and foresight that will once again ensure serving the public interests is our number one
priority. Leader's who are willing to take quick action, not just speak words.

And we need to deliver to our customer, the investing public, the product we have so
proudly advertised in the past. Today the public has come to question the integrity of
what we do, just as they have wondered about the tires on their cars. We can no longer
afford to let this lack of trust and confidences erode our credibility. We must act
immediately, before they seek another product, to restore their faith.

I8 01325

01200000000681


From: Farrell, Paula

Sent: Monday, January 14, 2002 6:02 PM

To: Atkins, Preston Jr

Ce: Revesz, Paul; Oster, Karen

Subject: FW: National Journal's CongressDaily - Friday, January 11, 2002

setetee Original Meseage-----

From: Knack, Elizabeth

Sent: Friday, January 11, 2002 3:28 BM

To: Cummings, Leslie; Bllig, Dina; Farrell, Paula; Hart, Susan

Subject: PW: National Journal's CongresaDaily - Priday, January 11, 2002

v

> From: cp-del@national journal , com[SMTP:CP-DEL@NATIONALJOURNAL. COM]
> Sent: Friday, January 11, 2002 6:24:22 PM

> Subject: National Journal's CongressDaily - Priday, January 11, 2002
>» Auto forwarded by a Rule

>

National Journal's CongressDaily

Issue date: January 11, 2002

FINANCE
Enron Spectacle Widens, Fuels Concern Over Retirees

As the Enron bankruptcy scandal raises questions over the Bush
administration's prior knowledge of the company's problems,
parallel inquiries are delving inte the company's actions on
retirees and may prompt action this year on how firma handle
employee retirement plans, business leaders acknowledged today.
"These are tough issues that the Congress and the private sector
are going to have to work out," said National Association of
Manufacturers Employment Policy Director Neil Trautwein at a
briefing on the group's labor agenda for the coming year. But
anticipating an Enron-generated backlash, Trautwein cautioned
against legislation to restrict employee ownership of company
stock. *I think this points out that people could use some
additional help, but limita are the wrong way to go," Trautwein
said. “Getting the federal government to come in say what you can
invest in is a bad idea."

The torrent of revelations concerning the failed energy giant
and its connections to the Bush administration and Capitol Hill
continued today, with confirmation that top Enron officials
sought help from the federal government in obtaining relief from
the firm's bankers. The Associated Press reported that a Treasury
Department spokeswoman confirmed that Peter Fisher,
undersecretary for domestic finance, spoke with Enron President
Lawrence (Greg) Whalley six or eight times in late Octeber and
early November. Also today, CNN reported that the Senate
Governmental Affairs Permanent Subcommittee on Investigations
will send out 51 subpoenas today for information on the company's
collapse.

On employee ownership of company stock, many federal officials
and advocates are increasingly concerned over the effect of
company failures on employees, who have fewer resources and
options to recover their life's savings. "We are concerned about
the vulnerability workers have with their investmenta," AFL-CIO
Legislative Director Bill Samuel said today, adding it was a key

: 01033

01200000001705


Page 2 or4

In addition, some employees have been unable to go to work at all since Sept. 11 because of the
emotional trauma they experienced, one executive said. "We know that the greater impact of this will
come three to six months down the road," this executive said. "You have to wonder where some of
these people will be then."

But although all the Cantor employees still wrestle with the grief of having lost hundreds of close
friends and colleagues -- one who was critically injured died not long ago, bringing fresh pain -- some
say their days now include a little more laughter, a bit of optimism, a sense of having weathered the
very worst of a continuing storm.

“We smile,” one executive said. "We laugh. We're here together. We have a purpose.”

The people who have joined the firm since Sept. 11, almost exclusively in the stock-trading
operations, “have gotten a chance to get acclimated," said Philip Marber, the senior managing
director who used to lose sleep worrying over how to recreate the well-oiled trading desk he lost. "A
little more chemistry is starting to occur, It's kind of jelling a little bit - which is what we were
hoping would happen.”

‘The surviving families seem more content with Mr. Lutnick, whose tearful televised promises to help
were met with angry suspicion by early October. The company's new charity fund has distributed
nearly $9 million in gifts -- Mr. Lutnick and other partners recently offered a $5 million matching
grant to help the fund raise $10 million more -- and Cantor has paid roughly $45 million in promised
bonuses and other benefits to the families since November.

Mr. Lutnick is not bitter about the reaction, he said

“Tt was a moment in time," he said. "They're sad it happened, I'm sad it happened. But it's past, it's
over,"

In recent months, as he pulled out of a media spotlight that had blistered him in the weeks
immediately after the attacks, he mailed 1,300 to 1,400 handwritten notes to the families of his lost
employees.

A private partnership, Cantor is not required to disclose profits. But it is also the majority owner of
eSpeed, a publicly traded electronic trading network, which must keep investors informed about
important trends. Here, too, Mr, Lutnick, as the chairman and chief executive, has room to boast

"A few weeks ago, I had the incredible pleasure of announcing that eSpeed would be profitable for
the first time, in the fourth quarter of 2001," he said. Forecasting profit of a penny to a nickel a share,
Mr. Lutnick added: "We're not going to just make ‘earnings per share,’ which you can do with some
accounting games, but we are going to make actual money."

‘The eSpeed stock, suspended from Nasdaq trading for 18 days after Sept 11, rallied after Mr.
Lutnick's announcement. It closed yesterday at $8.35 a share, not far from its Sept. 10 closing price
of $8.69, but nowhere near its peak of almost $83 a share in March 2000, or even its initial offering
price two years ago of $22

"There are not many e-commerce companies left standing, let alone ones that have met their

01/16/2002

01200000001410


Cc Appropriate Regulatory Structure to Address Customer Protection Issues
that May Arise in Connection with the Offering of Swap Agreements to
Persons Other than ECPs

The interviewees generally believed that it is premature to consider the appropriate
regulatory structure to address customer protection issues that may arise in connection with the
offering of retail swaps in the absence of demonstrable demand for a retail swaps product. There
was a general reluctance among most of the interviewees to address CEA issues legislatively so
soon after the enactment of the CFMA, which served to resolve many of the legal issues about
which swap market participants had been concerned.

One interviewee noted that creating a regulatory regime for a product that does not as yet
exist could have the effect of channeling business into artificial regulatory structures that are
unnecessary and do not address the needs of the market place. Another interviewee cautioned
that unnecessary legislative or regulatory activity to create such a product might stimulate
artificial interest in a product that could, in tum, give rise to abusive marketing or sales practices
by unregulated entities,

As noted above, one interviewee indicated that there is interest in offering retail swaps
with respect to energy products, for example, to small businesses that do not meet the ECP
criteria of the CFMA. With respect to the appropriate manner to address CEA issues for such
products, the interviewee did not advocate a legislative solution, nor did it propose the
development of a new regulatory regime for these products. Two other interviewees observed
that firms interested in offering retail swaps would generally prefer to seek regulatory relief for
such products on an case-by-case basis instead of reopening the CFMA for debate in light of the
considerations discussed above.

Some firms suggested that there was no need for a specialized regulatory structure to
address public policy issues. Likewise, several interviewees expressed concer that a specialized
regulatory framework for retail swaps might affect traditional products -- such as contracts that
offer price or interest-rate protection in connection with an agreement to provide the underlying
commodity or loan -- that are offered subject to existing federal and state regulation, One firm
identified the following issues for consideration by policymakers in determining the need for
regulation and the appropriate regulatory structure for retail swap products:

« whether there exists, or is any need for, a special federal or state regulatory
framework for the underlying instrument, and the extent to which unregulated
swaps activity might affect regulated markets for the underlying instrument
(e.g., price discovery mechanisms in securities markets);

« whether federal law would preempt the application of state laws to retail swap
products;

e whether the party offering a retail swap product is a regulated entity subject to
adequate regulation; and

01869

01200000000525


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01331



po9l7 Page | of 1

TREASURY NEWS

FROM THE OFFICE OF PUBLIC AFFAIRS

FOR IMMEDIATE RELEASE
January 11, 2002
PO-917

TASK FORCE STATEMENT ON REVIEW OF
RETIREMENT BENEFIT RULES AND PROTECTION

Today, Treasury Secretary Paul O'Neill, Labor Secretary Elaine Chao, and Commerce Secretary Don
Evans met to respond to the President's directive that they explore the rules, regulations and laws that
govern pension plans and investment programs, such as 401(k)s, and determine whether changes should
be made to further protect employees’ retirement savings. They directed staff to immediately begin
analyzing the effectiveness of retirement security protections

"We will take the necessary steps to ensure appropriate protection for the retirement nest eggs of
millions of Americans," stated Treasury Secretary Paul O'Neill,

“We need to fully protect workers who depend on pensions and 401(k) plans for their retirement,” stated
Labor Secretary Elaine Chao.

“Our number one priority is the security of the retirement savings of America's workers,” stated
Commerce Secretary Don Evans.

Search | Email | Treasury Home Page | Sitemap

http://www. treas.gov/press/releases/po917.htm 01/15/2002

01200000001186


Regulatory Reform?
(Se AORN tnd ca |
e What’s the goal?
Stamping out fraud / incompetence?
e What’s the best mechanism?
Internal
External

Regulatory Reform?
Pe SS 5 AGN A PRR es aarti

e Audit Committees

Liability issues

Market for directors
» External Auditors

Conflicts of interest

Economies of effort
» Enhanced Disclosure

Time and effort

Improved transparency / improved valuations

01336 sw

01200000000692


chambers must act in 90 days to allow the waste plan to move
forward, or else it would be dead. Ensign would join a Democratic
leadership opposed to the dump. Guinn said lawyers hired by the
state are researching whether Senate Majority Leader Daschle, an
avowed opponent of storing nuclear waste at Yucca, hae the
authority to pigeonhole the issue - an issue that could end up in
court, the Sun reported. However, if it comes to a vote, Senate
Majority Whip Reid fears senators would back Bush. "Right now,
the odds are we can't get 51 votes," Reid said at a Las Vegas
news conference, the Las Vegas Review-Journal reporte: Even if
the program won congressional approval, it then must receive
adequate funding. Reid now is chairman of the Senate Energy and
Water Appropriations Subcommittee, where money for the waste
program would need to win approval.

Meanwhile, both Democratic and Republican politicians in
Nevada said the fallout from the issue could hurt the GOP in the
state, the Review-Journal reported today. "Overall, this is bad
news for the Republican Party,* said Clark County Commissioner
Myrna Williams, a Democrat. Independent sources expected some
adverse impact on the GOP. "This might have happened if Al Gore
had been elected president, but the fact of the matter is, it is
happening cn George W.'s watch," Ted Jelen, University of Nevada
political science chairman, told the newapaper.

ECONOMY
Ford Cuts 35,000 Jobs, Closes 5 Plants, Drops 4 Vehicles

Ford Motor Co. plans to cut 35,000 jobs worldwide, close five
plants and eliminate four vehicles in a massive restructuring
that ita chief executive called a “painful, but neces " effort
to return the world's second biggest automaker to profitability,
the Associated Press reported. "We strayed from what got us to
the top of the mountain, and it cost us greatly," chief executive
William Clay Ford Jr. said today from company headquarters in
announcing the plan. The job cuts amount to about 10 percent of
ite overall work force and include 22,000 in North America. The
plants to be closed are in Edison, N.J., and Oakville, Ontario,
by 2004; Brook Park, Ohio, near Cleveland in either 2003 or 2004;
Hazelwood, Mo., near St. Louia by an undetermined date; and
Vulcan Forge in Dearborn, Mich., as soon as possible. Vehicles to
be dropped are the Ford Escort, Mercury Cougar, Mercury Villager
and Lincoln Continental. Ford said it was taking a $4.1 billion,
one-time charge against earnings to pay for its plan. The plan
also includes the suspension of bonuses for company managers and
the ¢limination of 401(k) matching contributions for employees.
Ford employs approximately 345,000 people worldwide, including
170,000 in North America. On Wall Street today, at 2 p.m., the
NASDAQ had fallen 23 pointe to 2,023.32 and the Dow Jon
Industrial Average slid 51 points to 10,016.59. In morning
trading on the New York Steck Exchange, Ford shares were up 9
centa at $15.38.

Meanwhile, wholesale prices, led by a sharp drop in energy
costs, fell by 0.7 percent in December, helping to make 2001 the
tamest year for inflation at the producer level since 1986. The
Labor Department's producer price index, which measuree price
pressures before they reach consumers, fell by 1.8 percent for
all of last year, the biggest annual decline since 1986, when
wholesale prices dropped by 2.3 percent, the government reported
today. That marked a big improvement from the 3.6 percent
increase in wholesale prices registered in 2000.

Federal R rve Chairman Greenspan said today that there were
acattered hopeful signs that the recession could be ending, but
he warned that the American economy still faces “significant
risks." Greenspan, making hie first public comments on the
economy since the Fed last cut interest rates on Dec. 11, said
there are “tentative indications® that the economic slump could
be drawing to a close, but he said those signals at present are

5 01037

01200000001709



Fisher, Peter

ee — e—eeeeeOeOeOeOeOeOeEeOSOSOSOEeOeSEOSOEOeEeEeEeEeEeEeEeEeeeeeeeEeEEeEeEeEeEeEeEee

From: David Gilmore [fxa@fxa.com)

Sent: Thursday, Novernber 29, 2001 11:36 AM

To: fxa@fxa.com

Subject: FXA Alert. Jpn investment trusts, not city banks with main Enron exposure

Seems mkt rumor mill turned the very real Jpn investment trust exposure to
Enron corporate paper into Jpn banks with not very real Bnron exposure.
Hearing that investment trusts have bought dlr/yen to unwind hedges put in

place when the Enron bonds were purchased. Involves about two to three
institutions.

01200000001464


Page | of 4

Bitsberger, Timothy

From: Lori. Santamorena@@bpd.treas.gov
Sent: Thursday, January 03, 2002 8:24 AM
To: Brian.Roseborog)do.treas.gov; Timothy Bitsbergen@do.treas.gov

Subject: fyi- Cantor Fitzgerald

fyi- you may have already read this.

Lori

Copyright 2002 The New York Times Company
The New York Times

January 3, 2002, Thursday, Late Edition - Final

SECTION: Section C; Page 1; Column 4, Business/Financial Desk
LENGTH: 1424 words

HEADLINE: Horrible Year Ends on Up Note At Cantor,
Financial Health for the Firm And More Smiles for the Staff

BYLINE: By DIANA B. HENRIQUES

BODY:
‘As Howard W. Lutnick, the chairman of Cantor Fitzgerald, headed to Florida last weekend to see out
the worst year of his life, he found himself, beyond all expectations, with good news to share

"T have told my families" -- as Mr. Lutnick affectionately calls the survivors of the colleagues he lost
on Sept, 11 -- "that Cantor will be profitable in the fourth quarter,” he said With a faint trace of his
old swagger, he added: "We will be highly profitable -- not barely profitable, but highly profitable."
The achievement would have been merely satisfying for the Wall Street bond-trading firm in a normal
year. But "normal" and "Cantor" parted company on the day the terrorist attacks destroyed the firm's
headquarters at the top of the World Trade Center and killed 658 of the 960 people working there,
including Mr. Lutnick’s brother, Gary. Since then, simply surviving might have been news enough for
Cantor, which has promised 25 percent of any future profits to the families of those who were lost
Instead, Mr. Lutnick said in an interview, Cantor ended 2001 profitable enough to pay for the first of
10 years of promised he! al! th imsurance for the families, with cash left over to distribute in mid-
February as the first installment on a $100,000 minimum gift pledged to each family.

‘The company bank accounts have been easier to repair than the people. Mr. Lutnick says he thinks of
each surviving employee as "a miracle." Nevertheless, there have been layoffs as the company has

01/16/2002

01200000001409


EnronOnline - Press Room Page | of |

Enron Completes One Million Transactions on EnronOnl!

Enron Press Room
Enron lrewsios Relations FOR IMMEDIATE RELEASE: May 23, 2001

Presentations

Resmerch Houston: Enron Corp. announced today that it has completed its one mifionth transaction on En
aa the world's largest web-based e-commerce platform for commodities.

Legal & Privacy

“EnronOnline has become the benchmark for the way energy and other commodity industries do
has brought transparent, real-time pricing to our customers and provides them with reliable deliv
clicks of a mouse,” said Jeff Skilling, prasident and CEO, “This is a great day for Enron employe
worked hard to make EnronOnline # reality.”

As an online extension of its successful wholesale energy business, EnronOnline began transac
988 and electricity on Nov. 29, 1999. Since that time, the company hes extended the platform to
approximately 1,500 wholesale commodity products ranging trom energy-related commodities to
matals, forest products, plastics, petrochemicals, and weather and credit derivatives.

Approximately 60 percent of all Enron transactions are now conducted online, and the cost of pr
transactions has been reduced by 75 percent. To date, the notional value of all transactions on E
exceeds $590 billion,

“In just 18 months, EnronOniine has added tremendous scale to our wholesale business, integra
strengths in credit and risk management and logistics,” said Skilling. “With the power of the Inter
believe the potential for extending our business mode! to new markets is limitless.”

Enron is one of the world’s leading electricity, natural gas and communications companies. The
revenues of $101 billion in 2000, markets electricity and natural gas, delivers physical commodit
financial risk management services to custorners around the world. Fortune magazine has name
“America's Most Innovative Company” for six consecutive years. Enron’s Intamet address is ww
The stock Is traded under the ticker symbol "ENE."

For additional information please contact:
Eric Thode

(713) 853-9053

01395

http://www.enrononline.com/docs/marketing/PressRoom/05_23_01/ 12/4/01

01200000000751


Mr. Grubman said that Marlin owed almost $1 billion on debt that was guaranteed by Enron but had no assets
other than the Azurix stake. Noting that Enron had paid about $300 million to buy a third of Azurix from public
shareholders and had since taken write-downs on its investment in Azurix, Mr. Grubman asked why the
company was not setting up reserves to cover its exposure on that debt, which under a complicated arrangement
could end up being satisfied through the issuance of Enron shares.

Mr. Lay said that no action was needed but declined to address details. Eventually he cut off Mr. Grubman, “I
know you're trying to drive the stock price down, and you've done a pretty good job of it,” Mr. Lay said. "But
let's move on to the next question.”

Mr. Fastow said the company was having no problem issuing commercial paper and had $1.85 billion in such
debt outstanding. He said it was backed by $3.35 billion in bank lines of credit, of which $1.75 billion will
expire next May if it is not renewed.

Mr. Lay said he was sorry about "the misunderstanding" that resulted when his brief mention of the $1.2 billion
reduction in sharcholder equity in a conference call last week was not noticed by some analysts. That reduction
would have been apparent if the company had released its balance sheet with the earnings report, but it did not.
He said the company would consider releasing balance shects with camnings reports in the future, but made no
promises.

The large reduction in shareholder equity did not affect reported earnings, and so was not in the eamings release,
But it raised concems that some of the sophisticated financing techniques used by the company might be
effectively keeping losses off the earnings statement. The S.E.C. is expected to look into whether the accounting
for that transaction was correct.

After one questioner on the cal] said it would be easier to understand Enron if it released financial statements for
the special purpose vehicles that were set up to enter into such transactions as Marlin, Mr. Lay said the company
“will look into providing" such statements.

» 01295

01200000000650


Publisher--Steve Hull, 202-739-8475 (shull@njdc.com)
Editor—Louis Peck, 202-739-8481 (Ipeck(@injdc.com)

Executive Editor--Keith White

Senior Managing Editor/A.M. Edition—Robert Ourlian

Senior Editor-~-Charlie Mitchell

Associate Editor--Greta Wodele

Assistant Editor--Chuck Jordan

Reporters—Pamela Bamett, Lisa Caruso, Geoff Earle, Keith
Koffler, Brody Mullins, Stephen J. Norton, Mark Wegner
Special Correspondents-—Jerry Hagstrom, Julie Rovner
Subscription price: $2,649 a year. Subscription and e-mail
transmission information: 202-266-7230 (cngdaily@njdc.com).

===

CDENDIT

Revesz, Paul

From: Farrell, Paula

Sent: Monday, January 14, 2002 6:02 PM

To: Atkins, Preston Jr

Ce: Revesz, Paul, Oster, Karen

Subject: FW: National Journal's CongressDaily - Friday, January 11, 2002

Original Message----~

From: Knack, Elizabeth

Sent: Friday, January 11, 2002 3:28 PM

To: Cummings, Leslie; Ellis, Dina; Farrell, Paula; Hart, Susan

Subject: FW: National Joumal's CongressDaily - Friday, January 11, 2002

> From: cp-del@nationaljournal.com{SMTP:CP-DEL@NATIONALJOURNAL.COM]
> Sent: Friday, January 11, 2002 6:24:22 PM

> Subject: National Journal's CongressDaily - Friday, January 11, 2002

> Auto forwarded by a Rule

>

National Journal's CongressDaily
Issue date; January 11, 2002

FINANCE
Enron Spectacle Widens, Fuels Concern Over Retirees
As the Enron bankruptcy scandal raises questions over the Bush
administration's prior knowledge of the company’s problems,
parallel inquiries are delving into the company’s actions on
retirees and may prompt action this year on how firms handle
employee retirement plans, business leaders acknowledged today.
“These are tough issues that the Congress and the private sector 01062

01200000001734


Nickoloff, Peter

From: Carleton, Norman

Sent: Wednesday, November 07, 2001 3:09 PM

To: Schultheiss, Heidilynne; Nickoloff, Peter

Subject: DJ: Former Enron CEO Testifies Before SEC Tuesday - Exec

November 7, 2001

Former Enron CEO Testifies Before SEC Tuesday - Exec

By JASON LEOPOLD

Of DOW JONES NEWSWIRES
(This article was originally published Tuesday.)

LOS ANGELES — Jeff Skilling, the former chief executive of embattled energy company Enron Corp.
(ENE), canceled an appearance in Los Angeles Tuesday because he was testifying before the U.S.
Securities and Exchange Commission in Washington D.C., according to Ross DeVol, executive of
the office of the chairman of the Milken Institute, which was sponsoring a conference where Skilling
was scheduled to speak.

DeVol said he spoke to Skilling on the telephone Monday, and Skilling said he was canceling his
appearance in Los Angeles because he was subpoenaed by the SEC last week to testify Tuesday.

“| spoke with Jeff briefly, and he said he had to testify before the SEC in Washington, but he didn't
say specifically what for," DeVol said.

Skilling was unavailable for comment. Enron spokesman Mark Palmer said he was under the
impression Skilling was in Houston Tuesday and not testifying before the SEC, but that he received
the information “third hand."

An SEC spokesman said the agency could not confirm or deny Skilling's appearance before the
commission. As a matter of policy, the SEC does not comment on investigations.

Enron shares have declined more than 70% since mid-October, when the company disclosed a $1.2
billion reduction in shareholder equity that resulted from the unwinding of a partnership headed by its
former chief financial officer, Andrew Fastow.

The SEC launched an inquiry two weeks ago into the partnership, according to Enron, and last week,
Enron said the inquiry had become a formal investigation.

An Enron spokesman said the SEC investigation is focusing on “third party and related party
transactions."

-By Jason Leopold, Dow Jones Newswires; 323-658-3874; jason.leopold@dowjones.com
. 01301

01200000000656


Fisher, Peter

From: David Gilmore [fxa@fxa.com]

Sent: Thursday, November 29, 2001 10:55 AM

To: fxa@fxa.com

Subject: FXA Alert. Rumor 2 large Jpn banks with large Enron exposure

From FPXA On-line found on www.fxa.com, Reuters FXAPX1, Telerate 57001.

[25,.45/10,45] DLR/YSN FIRM ON RUMORS TWO LARGE JPN BANKS HAVE DECENT
EXPOSURE TO ENRON, KEEP IN MIND THAT JPN BANKS ARE REPORTING RECORD LOSSES
AND
LOAN WRITE OFFS...NOT POSITION OF STRENGTH. BUT FOR THE RECORD THEY HAVE
ALSO
REPORTED CAP/ASSET RATIOS AROUND 11% ON AVG, WELL ABOVE 8% BIS REQUIREMENT.
THAT SAID RVEN HAYAMI NOTED RECENTLY THAT IF JPN BANKS USED SAME STANDARDS
AS US
BANKS IN DEFINING CAPITAL THEY WOULD BE BELOW 8%.

01200000001463


13

from the cxisting exposure. For example, an airline hedging the cost of jet fuel may do so with a
mix of instruments that produces tax consequences for the airline that are taken into account at
times that are different from the times when the airline takes its fuel expenses into account for
tax purposes. Under the special hedging provisions, a taxpayer may reasonably match the timing
of the tax results of the hedge to the timing of the deduction for the fuel expenses,

By also matching the tax character of gains or losses from business hedges with the tax
character of the existing exposure, the tax system ensures that both are taxed not only at the same
time but also at the same rate. Indeed, in the absence of a provision preventing hedges from

producing capital gains and losses, some hedging losses would become temporarily or even
permanently nondeductible,

To qualify for this treatment, however, a number of conditions must be satisfied: First,
the existing exposure that is hedged must be in the context of a trade or business. Hedges
reducing exposure related to personal consumption, including those for household energy usage,
are therefore not accorded this treatment.

In addition, only certain types of exposures fall under these provisions. For the hedge to
receive the special tax treatment, the existing exposure must be an ordinary item. For example, it
may depend on the price of ordinary property, that is, property that does not produce capital gain
or loss for tax purposes. Business inventory is perhaps the most obvious example of ordinary
property. Capital assets, including stocks and other personal property, fall outside of this
category. A tax hedge may also be used to protect against adverse movements in the cost of
borrowing or the price underlying other ordinary business expenses. Excluded, however, from
the category of permitted exposures are cash flows, whether dividends or business profits.

There is no reason, in principle, why retail customers could not rely on the tax hedge
provisions to facilitate business hedging activities that employ OTC derivatives. The
requirement that a tax hedge must be in the context of a trade or business, however, excludes
significant classes of potential retail customers. For these customers, even if the hedged
exposure results in taxable income or deduction, the inapplicability of the tax hedge regime
makes possible a mismatch between the timing of the tax consequences of the hedge and the
timing of the tax consequences of the hedged exposure.

Non-Deductibility of Payments Pursuant to OTC Derivatives

Hedging outside the context of a trade or business raises another fundamental difficulty.
Under current law, non-business retai! customers would find that gains with respect to the
hedging instrument are generally taxable at the rates applicable to ordinary income,’ but losses
are, at best, only partly deductible. For example, the hedging losses may be subject to the
limitations on the deductibility of capital losses or to the total ban on deductions for expenditures
for personal consumption. This asymmetric treatment might discourage retail customers from
using OTC derivatives to manage risk outside the context of a trade or business.

“ Many hedges would produce short-term capital gains and losses.

01874

01200000000530


Pedri, ‘Melissa

BesiDay_News@ambest.com
Thursday, January 17, 2002 3:50 AM
MELISSA PEDRI@do.treas.gov
BestDay for January 17, 2002

BESTDAYNEWS E-MAIL EDITION

To view the complete, latest on-line edition of this newsletter
in your Web browser, please visit: http://www. bestdaynews.com

(Full access to all news items available to BestWeek or BestWire
subscribers only. All readere can accegs Best's Review and
Best's Reports links. To subscribe to BestWeek or BestWire,
click on a newe item and respond to the on-line invitation, call
(908) 439-2200 ext. 5742 or mailto: customer_servicegambest .com)

= ADVERTISEMENT=:

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hold in trust and custody more than $6 trillion in assets,
including $2.3 trillion in global custody assets.

http: //www3.ambest .com/admanager/A.asp?Command=GetAdd&adid=2001

NEWS FOR THURSDAY, JANUARY 17, 2002

TOP OP THE NEWS

Lack of Competition

Hampers Texas Med-Mal Market

By David Pilla

Dwindling competition is sapping the medical liability insurance
market in Texas, a situation that mirrors what is going on in
other parts of the United States.

http: //www4.ambest .com/BestDayNews/LoadStory .asp?7BSN=47227

Regulators May Decide on Exclusion

Por Personal Property Lines Jan. 18

By Dennis Kelly

State insurance commissioners expect to decide Jan. 18 whether
to allow terrorism exclusions for personal property lines, as
most have for commercial lines, said John Morrison, Montana
insurance commissioner.

http://www. ambest .com/BestDayNews /LoadStory.asp?BSN=47247

Health Plans: 2% Rate Increase

For Medicare+Choice in 2003 Is Not Enough

By Fran Matso Lysiak

Free Article: Officials with the American Association of Health
Plans say it's up to Congress and the Sush Administration to

1

01200000001 104


raised and slaughtered in the United States." Stallman said the
decline in the U.S. sheep industry also shows the need for a new
lamb promotion program. Stallman said he thinks the Farm Bureau's
policies are "good with respect to going inte a [World Trade
Organization] round" because the United States should not
“unilaterally disarm" and should not "reduce our domestic
Supports below where our cap is until we go into negotiations."

Meanwhile, farm earnings will drop nearly 20 percent this year
without a boost in government payments to grain and cotton
operations, the Agriculture Department said today. In its first
economic forecast for 2002, USDA estimated net farm income at
$40.6 billion, down from $49.3 billion in 2001. That assumes that
Congress will not provide farmers with another round of
supplemental assistance thie year, something lawmakers have done
for each of the last four years since a collapse in commodity
prices in 1998, the Associated Preas reported. Last year, farmere
received $21.1 billion in federal assistance, including $9.1
billion in lemental payments. - by Jerry Hagstrom

ENVIRONMENT
Abraham Chooses Yucca Mountain As Burial Site For Nuclear Waste
Energy Secretary Abraham today chose Yucca Mountain in Nevada
to be the nation's burial site for thousands of tons of high-
level nuclear waste, the Associated Press reported. Abraham
concluded the site 60 miles northwest of Las Vegaa was
"scientifically sound and suitable* as a repository for highly
radioactive used reactor fuel now kept at commercial reactors in
31 states, a department spokesman said. A final administration
decision will be up to President Bush, who has championed the
need for a central disposal site for the waste and is expected to
seek a federal license for the site in the coming months. In
anticipation of the announcement, House Energy and Commerce
member Edward Markey, D-Mase., said in a statement, "Sadly,
today's decision by Secretary Abraham to select Yucca Mountain to
be the nation's permanent waste repository is based on politics,
not sound science."

DEFENSE
Bush Signs PY02 Defense Appropriations Bill

President Bush this afterncon signed the FY02 Defense
appropriations bill containing $317 billion for defense
operations and $20 billion for anti-terrorigm activities and
recovery from Sept. 11's terrorist attacke. White House Presa
Secretary Ari Fleischer said the bill “gives our military the
money they need to fight the war now." The anti-terrorism package
provided less for the Pentagon than Bush wanted, but more for
domestic security and New York, Virginia and other communities
where the terrorists struck.

ENVIRONMENT
Administration To Propose Spending Increase For Cleaning
Brownfields

The Bush administration will propose doubling spending next
year on cleaning up abandoned industrial sites in urban areas,
EPA Administrator Whitman said today. Whitman said the
administration's F¥03 budget proposal will seek $102 million more
than the $98 million Congress appropriated this year for cleaning
up so-called brownfields, "This is something Congress was trying
to get for 10 years," Whitman told the Associated Press. "The
president made a commitment and we're trying to get it done."
Congresa in December approved a five-year program awarding up to
$250 million a year to state and local governments and Indian
tribes for cleaning up some 450,000 polluted industrial sites.
President Bush plans to sign that legislation Priday.

5

01046

01200000001718


Enron Board and Audit Committee
SRSA TRS A Se cn a eee: |
14 member Board
Chairman Lay
CEO/President Skilling
3 non-employees with business links
9 independent (few other board seats)
Met 9 times
e 6 member Audit Committee
1 with business link
Met 5 times

The Audit Committee
TERE I ee OS RU ate sk: |

¢ Recommends

The appointment of the independent auditors 10 the Board of Directors,
« Reviews

‘The scope of und fees related to the audit,

Accounting policies and reporting practices,

Internal auditing and imternal controls,

‘Compliance with Enron's policies regarding business condwct

« The Audit Committee
Met and held discussions with management
Independent suxditors,
Consolidated financial statements were prepared in accordance with GAAP

Reviewed and discussed the audited consolidated financtal stasements with
management and the independent auditors.

01333 —C,

01200000000689


It supported the 1992 Energy Policy Act, which opened the utility companies’ wires to clectricity
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 oi] 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 committce 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 cconomics, 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-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.

01198

01200000000554


Nickoloff, Peter

From: Schultheiss, Heidilynne

Sent: Monday, October 29, 2001 10:01 AM
To: Carleton, Norman; Nickoloff, Peter
Subject: Enron Seeks Additional Financing
October 29, 2001

Enron Seeks Additional Financing

By RICHARD A. OPPEL Jr.

DALLAS, Oct, 28 - The Enron Corporation, still struggling to reassure investors it can weather a financial crisis
over complicated transactions involving its former chief financial officer, is secking $1 billion to $2 billion in
additional financing from banks, an industry official said today.

Last week, Enron, the nation's largest energy-trading concer, used about $3 billion in available credit lines and
spent about $2 billion to pay off commercial paper. Now, by obtaining even more financing, Enron is hoping to
convince investors and other energy-trading firms that it will not face a cash squeeze that could lead trading
partners to refuse to extend credit or do business with it,

Enron's board, which has been holding mectings by telephone over the last two weeks to monitor the company's
financial situation, held another meeting this aflemoon. "The board is meeting frequently and will announce any
actions when appropriate,” an Enron spokesman said_

Two weeks ago, Enron disclosed that its shareholder equity had been reduced by $1.2 billion because of deals
with investment partnerships involving its former chief financial officer, Andrew S. Fastow, who was ousted
last week. The company also disclosed about $1 billion in scparate write- offs, and it said last week that the
Securities and Exchange Commission had made an inquiry into its financial accounting.

Enron hopes to maintain its investment-grade credit rating, which is crucial to ensuring that other energy traders
continue to do business with it. Lately, Enron's bonds have been trading at prices more like junk bonds, and two
major credit-rating agencies are considering whether to downgrade the company’s rating.

13

01279

01200000000634


SEC Auditor Independence Requirements
(Feb. 2001)

NDE 2 Te a |
e Emphasis on independence
e Fee disclosure

Audit

Non-audit

Information systems

IRRC Analysis of Audit Fees
| RES GY SO ES Pes ete 22+ 0:5 |

Companiey Revenue ‘Rodi Fees Targa Fees
Paid Pond
F $36 milion Average ESEZRETI $291,599
mail = $100 mi [Average $177,708 er
100 weal = $500 rll Average $307,907 3760,.377
500 sesl <3) bil [Average $a, 350 ESESERIO
1b < $3 bl [Average 5794, 137 3,534, Fas
Soa < $5 WI [Average 31270879, $4,205,020
iS bal= $10 bil Average $2,277,512 $7,009.54
10 bal = $50 tel Average $4,346,172 $16, 068.018
iso bal = $100 bil Aversge $15,066.357 S57.46.04
ESioo bi Average S15 S90 8D AIO.

‘Source: IRRC analysis fue 1,070 ooempusies.

0132

9 4

01200000000685


also blanketed Capitol Hill and the White House with protest
letters, And in December, House Energy and Commerce Chairman
Tauzin fired a letter off to the Fed and Treasury, asking whether
they had fully considered the implications of the proposal -
including whether banks’ real estate brokerage transactions would
become subject to federal privacy rules.

But the ABA is returning fire, "As an industry, most bankers
haven't exactly been banging their shoes on the table over real
estate brokerage powers,” said ABA President Jim Smith in a memo
Wednesday to his member company CEOs. "Some of you have written
your members of Congress and have encouraged your employees to
write, Many haven't. Predicting the future is a tricky business."
Smith continued: "The banker who knows what's going to happen
down the road is the lucky fellow who always buys low and sells
high, has never made a loan that wasn't repaid, and always wins
the Superbowl pools. The rest of us have to hedge our bets. And
we're running out of time to do that." Should the NAR succeed in
passing legislation to block national banks from offering real
estate brokerage and property management services, "that option
will be closed - permanently - meaning one less way to remain
competitive," Smith added.

A form letter supplied by the ABA urges legislators to oppose
the NAR-backed bills. The letter says: "The NAR is telling
Congress that lending and real estate brokerage don't mix. That's
pretty ironic, because many real estate brokerages already
provide one-stop shopping, including mortgage lending and
insurance, It seems to me that the only purpose of these bills is
to protect NAR members from the kind of healthy, vigorous
competition that consumers deserve. In one fell swoop, [the
pending bills] would limit the choices available to consumers,
protect one industry over another, and discriminate against banks
and their employees who simply want to compete on an equal
footing and serve their customers in the best possible way."

House Financial Services Chairman Oxley has taken pains to remain
publicly neutral on the issue. At a May hearing on the subject,
he acknowledged the concerns of the rule's detractors, but also

emphasized the importance of industry competition. - by Pamela
Barnett

a=

TRADE
Aid For Displaced Workers May Become Bargaining Chip
House Democrats who were unsuccessful in expanding trade
adjustment assistance last year are looking to the expected
conference on the bill to renew presidential trade negotiating
authority as a second chance to accomplish their goal, according
to industry and congressional sources, National Journal's
Technology Daily reported. The TAA program provides economic
assistance for displaced workers and companies, but it expired at
the end of 2001, Late last year, the Senate Finance Committee
approved a bill to extend and reform the program, and that
proposal could be included in trade negotiating authority
legislation, formerly known as fast track, during the debate
expected to take place this year in the Senate. Majority Leader
Daschle last Friday said he expects to have that debate early
this year, although he did not commit to a specific date. In that

4

01058

01200000001730


eSpeed: Buikjing Scalable and Liquid Markets for the Online Trading Community

Exbibe 3
Strategic Partnerships Are Key to eSpeed’s Business Model

Speed
Private Label

& Scrwwn Boric

aeons, "

Source: TowerGromp

The majority of eSpeed’s strategic alliances are derived from its relationships with clicnts to whom it
provides a technology solution for trading in a specific product or market via the cSpeed system, Some of its
partnerships include online brokerages Charles Schwab and Scottrade, Others include e-commerce firms
looking to build or enhance their systems like Federal Home Loan Bank (FHLB) and Visible Markets,
Speed benefits from revenue derived from the transaction volume, licensing agreements fees, and the
added liquidity to the eSpeed platform.

In addition, strategic technology investments entered into by eSpeed with TreasuryConnect, EasyScreen, and
Electronic Trading Systems Corporation (ETS) provide eSpeed with the opportunity to ‘enhance its market
coverage as well as increase the chances of future licensing agreements. For instance, EasyScreen, a
software designer for electronic trading, provides authorized eSpeed clients with access directly from the
eSpeed platform to nine global derivatives exchanges, including London International Financial Futures and
Options Exchange (LIFFE), the Chicago Board of Trade/Eurex trading system a/c/c, Chicago Mercantile
Exchange (CME), and the Australian Derivatives Exchange. EasyScreen ts also creating an interface
between its front-end trading software and the CX. For these EasyScreen services and exchange connec-
tions, eSpeed pays licensing and support fees and in return receives added derivative users and traffic to its
CX. Besides generating revenue, EasyScreen gains global market exposure to eSpeed’s global client base.

‘The Cantor Fitzgerald/eSpeed Relationship. Through the Cantor Fitzgerald/eSpeed owner-subsidiary
relationship, the companics entered into several services agreements under which fall provisions for the
services and fees each party will provide the other. eSpeed supplies the electronic trading system and is
responsible for providing clectronic brokerage services and general technology support to its parent. In

6
©2001 TowerGroup, Neadham, MA USA
May not be reproduced by any means without express permission, All rights rasarved.

01211

01200000000567


http: //www4.ambest .com/BestDayNews/LoadStory.asp?BSN=47172

RATING ACTION

Free Article: A.M. Best Co. has withdrawn the financial strength

rating of A- (Excellent) for Folksam International, Sweden, and
assigned it an NR-5 (not formally followed) .
http: //www4.ambest .com/BestDayNews/LoadStory.asp?BSN=47176

Pree Article: A.M. Best Co. has affirmed the A- (Excellent)
financial strength rating of Iron Trades Insurance Co. Ltd.
{ITIC}, London, and has removed the under review status applied
on Sept. 21, 2001, to reflect A.M. Best's concerns on the OBE
Group's potential loss exposure incurred following the World
Trade Center disaster and its implications for the group's
European subsidiaries.

http: //wew4.ambest .com/BestDayNews/LoadStory.asp?BSNe947165

Free Article: A.M. Best Co. has affirmed the A- (Excellent)
financial strength rating of QBE International Insurance Ltd,
http: //wew4 .ambest .com/BestDayNews/LoadStory asp?BSN=47143

Free Article: A.M. Best Co. has affirmed the A- (Excellent)
financial strength rating of QBE Reinsurance Europe.
http: //www4.ambest .com/BestDayNews/LoadStory.asp?BSN=47144

Pree Article: A.M. Best Co. has downgraded the financial
strength rating of Scor, Paris, to A (Excellent) from A+
(Superior) and has removed the rating from under review.
http: //wwwé.ambest .com/BestDayNews/LoadStory.asp?BSN=47142

STATE REGULATION

Information about a consumer's income, credit history and
physical and mental health will now be protected under rules
established by the Florida Department of Insurance.

http: //www4,ambest .com/BestDayNews/LoadStory.asp?BSN94$7182

WASHINGTON

President Bush has signed a bill into law that gives lawsuit
protection to #mall businesses and small contributors to
Superfund sites, as well as money to help clean up
“brownfields.*

http://www. ambest .com/BestDayNews/LoadStory.asp?BSN=47173

WORKERS’ COMPENSATION

Small businesses have always made up the bulk of policyholders
with the New York State Insurance Fund. But that's changing
because large businesses are having trouble getting workers!
compensation coverage that includes terrorism, said the fund's
chief executive officer.

http: //www4.ambest .com/BestDayNews /LoadStory. asp?BSN=47169

3

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14

Under Federal tax law, most OTC derivatives contracts entered by retail customers are
“notional principal contracts” (“NPCs”), which are defined as a “financial instrument that
provides for the payment of amounts by one party to another at specified intervals calculated by
reference to a specified index upon a notional Principal amount in exchange for specified
consideration or a promise to pay similar amounts.” This definition includes many common
OTC derivatives designed to hedge exposure to energy prices. Under these derivatives, payments
are calculated based on an index derived from energy prices.

Among the cash flows pursuant to NPCs are periodic payments. These payments could,
under a typical NPC, flow either from the retail customer to the dealer or from the dealer to the
retail] customer. Again considering the example of a contract to hedge exposure to energy prices,
payments might flow to the retail customer after any month in which actual prices rose above a
threshold level specified in the contract, Should prices instead fall below a threshold level, the
retail customer would have to make the monthly payment. For those entering such OTC
derivatives contracts in the course of a trade or business, payments received would be included in
income, and subject to tax at the ordinary rate, Payments made pursuant to the contract would be
deductible as a normal business expense.

For those wishing to hedge outside of the context of a trade or business, however, the
symmetry would break down. Payments received from the dealer would be included in income
and taxed at ordinary rates. On the other hand, payments made to the dealer might not be
deductible.’ The prospect of taxation of payments from the dealer, with no potential offset in the
form of deductible payments to the dealer, would reduce the attractiveness of retail OTC
derivatives products.

Also of concer from a tax policy perspective is the fact that the asymmetry, which
effectively “whipsaws” taxpayers, is effectively climinated if the hedge is imbedded into an
energy sales contract. Once again considering the case of the household energy contract, the
asymmetry disappears if an energy supplier contracts with a customer to provide electricity at a
fixed rate during a specific period of time. Economically, this arrangement is not different from
spot purchases combined with a hedge because the gains and losses on the imbedded hedge are
reflected in the fixed price paid for the electricity, When the spot price is low and the fixed price
exceeds the spot price, there is in effect a loss on this imbedded hedge. When the spot price is
high, the situation is reversed and the imbedded hedge economically produces a gain. In this

5 Treas. Reg. § 1.446-3(c)(1)(i).

* In addition, hedging outside a trade or business context docs not constitute a tax hedge; thus the retail
custorner is unable to reasonably match for tax purposes the timing of gain and loss from the existing
exposure with gain and loss from the hedging instrument.

? Even if such payments were deductible, individual income taxpayers are subject to a 2 percent floor on
miscellaneous deductions. Unless the amount of such payments, coupled with other miscellancous

deductions such as unreimbursed employee expenses, exceeds 2 percent of adjusted gross income, no
deduction is permitted.

01875

01200000000531


being executed more effectively than the war here - even as Mr. Rumsfeld and his generals now tell us that the
Taliban, once expected to implode in days, are proving Viet- Cong-like in their intractability. The Wall Street
Journal also reported this week that "instead of a thankful Afghan population, popular support for the Taliban
appears to be solidifying and anger with the U.S. growing.”

Maybe we're losing that battle for Afghan hearts and minds in part because the Bush State Department appointee
in charge of the propaganda effort is a C.E.O. (from Madison Avenue) chosen not for her expertise in policy or
politics but for her salesmanship on behalf of domestic products like Head & Shoulders shampoo. If we can't
effectively fight anthrax, I guess it's reassuring to know we can always win the war on dandruff.

ight 2001 The New York Ti an.

. 01291

01200000000646


million loan, the Associated Press reported, The deal is expected
to be signed and the money made available by the end of the week,
the airline said. America West is one of only two airlines to
apply for part of the $10 billion in loan guarantees approved by
Congr to help airlines following the Sept. 11 terrorist
attacks. The loan guarante: eseentially make the government a
co-signer on the company's loan. In America West's case, the
government would agree to pay back up to $380 million if the
airline defaults. The Air Transportation Stabilization Board
approved the federal aid Dec. 28, with the condition America West
provide assurances it would keep down labor costs and give the
government the option of buying a third of the airline's stock at
a fixed price. Under terms of the America West deal, the
government has until 2012 to purchase nearly 18.7 million shares
at $3 apiece. So, for example, if the price rose to $8 a share,
the government could sell it and make a profit of about $94
million.

POLITICAL ROUNDUP

California. In his firet major campaign appearance of the 2002
election cycle, Rep. Gary Condit, D-Calif., reminded voters
during a Friday candidate forum of his bipartisan style of
legislating and of his seven terme representing the Central
Valley's 18th Dietrict. "I have been effective on your behalf.
And I'm going to ask you something. I've helped you. I'm asking
you to help me in March," Condit said, according to the Los
Angeles Times. Condit, politically damaged by his relationship
with missing federal intern Chandra Levy, faces opposition in the
March 5 open primary from five Democrats and four Republicans.
Reconfigured after redistricting, the 14th District is reliably
Democratic, but a Condit victory in the primary could beost cop
state Sen. Dick Monteith in the general election. Assemblyman
Dennis Cardoza, Condit's strongest Democratic opponent, did not
attend the forum, choosing to keep a previously scheduled
campaign event. According to the Times, no one raised the issue
of Condit's relationship with Levy until the end of the 90-minute
forum, when Republican Modesto City Councilman Bill Conrad raised
the issue, drawing boos from an audience of about 150.

Michigan. Michigan Democratic Party officials are launching
another effort to alter the first-in-the-nation status given by
party rules to New Hampshire and Iowa in the presidential
nominating process. State party leaders aborted an earlier
effort, led by Sen. Carl Levin, to avoid a national convention
floor fight in 2000. But in a dan, 9 letter to Democratic
National Committee members, state Democratic Chairman Mark
Brewer, National Committeewoman Debbie Dingell and Levin said
they will propose an amendment to change rules for the 2004
cycle, the Detroit Newa reported, Brewer, a member of the DNC's
Rules and Bylaws Committee, will ask the panel to adopt the
Michigan amendment Saturday. He is likely to fail, but Brewer and
Dingell have pledged to carry the fight to the full DNC. "It's
worth noting that the Republican Party's rules confer no special
status to the New Hampshire and Iowa contests," their letter
said. "We would find it both irenic and embarrassing that on this
question, it is our party that enshrines anti-democratic
privilege in ita rules."

Ohio. Ohio Republicans are considering the elimination of
Democratic Rep. James Traficant's Youngstown-based 17th District,
a source told the Associated Press, The state loses one of ita 19
seats through reapportionment and Democrate are expected to lose
at least one seat. Republicans control redistricting and have
considered proposals affecting Democratic Reps. Sherrod S5rown,
Dennis Kucinich and Tom Sawyer. Traficant, who has pleaded
innocent to racketeering, bribery and conspiracy charges, is out
of favor with House Democrats for supporting House Speaker
Hastert, but enjoys 4 loyal following within his district. Ohio

7

01031

01200000001703


line - Press Room Page 2 of 2

Enron is 2 leading participant in the liberalized UK and Nordic energy markets and is the leading
in the rapidly eralizing continental European markets. Natural gas and electricity marketing bu
supported by power stations developed, owned andlor operated by Enron in Italy, Poland,

Spain
the UK. including the world's largest privately-owned CCGT combined heat and power plant, the
Teesside station in the UK.

® Beck to top

01421

http://www.cnrononline.com/docs/marketing/PressRoom/M14078/ 12/4/01

01200000000777


John H. Treanor
Banking Advisor
U.S. General Accounting Office

Cecile O, Trop
Assistant Director
U.S. General Accounting Office

Orice Williams
Assistant Director
U.S. General Accounting Office

Philip F, Bartholomew
Chief Economist, Democratic Staff
U.S. House of Representatives

Alton B. Harris
Partner
Ungaretti & Harris

John Juliano
University of Chicago

Steven Manaster
Dean and Professor of Finance
University of Colorade at Boulder

Don M, Chance
Associate Director - Financial Risk Mat.
Virginia Tech

David Meiselman
Professor Emeritus
Virginia Tech

Richard E. Sorensen
Dean
Virginia Tech

Andrew C. Thompson
Finance Professor
Virginia Tech

Richard Hoge
Attomey
Weil, Cootshal & Manges

Michele Tracger

Associate

Weil, Gotshal & Manges LLP
Stephen P. Dickson

Controller
Wisconsin Gas Company

Page 11

Vijaysekar Kalavakonda
Financial Markets Consultant
World Bank

Rodney Lester
World Bank

01369

01200000000725


cycle, the Detroit News reported. Brewer, a member of the DNC's
Rules and Bylaws Committee, will ask the panel to adopt the
Michigan amendment Saturday. He is likely to fail, but Brewer and
Dingell have pledged to carry the fight to the full DNC. "It's

worth noting that the Republican Party's rules confer no special
status to the New Hampshire and Iowa contests,” their letter

said. "We would find it both ironic and embarrassing that on this
question, it is our party that enshrines anti-democratic

privilege in its rules."

Ohio, Ohio Republicans are considering the ¢limination of
Demoeratic Rep. James Traficant’s Youngstown-based 17th District,
a source told the Associated Press. The state loses one of its 19
seats through reapportionment and Democrats are expected to lose
at Jeast one seat. Republicans control redistricting and have
considered proposals affecting Democratic Reps, Sherrod Brown,
Dennis Kucinich and Tom Sawyer. Traficant, who has pleaded
innocent to racketeering, bribery and conspiracy charges, is out
of favor with House Democrats for supporting House Speaker
Hastert, but enjoys a loyal following within his district. Ohio
state Rep. Gary Cates, a Republican who chairs the Elections and
Ethics Subcommittee, today told CongressDaily he did not know
whether Traficant’s district would be eliminated, but said GOP
Gov. Bob Taft and party leaders could unveil a plan Wednesday.
While Republicans control the process, some Democratic votes will
be needed to enact a law in time for the state's Feb. 21 filing
deadline and May 7 primary. Traficant goes on tral Feb. 4. A
spokesman said Traficant plans to seek re-election, but would
study redistricting maps before deciding where to run.

THE FINAL WORD

“Lasked the president, "What was so exciting? I didn't think
it was that big of a garne."

- Sen. Tom Harkin, D-lowa, quoted by the Quad-City Times of
Davenport, Iowa, at the John Deere & Co. Harvester Works plant in
East Moline, Ill., where President Bush spoke the morning after
he fainted while eating pretzels and watching football. Bush was
watching the NFL playoff game between the Baltimore Ravens and
the Miami Dolphins, Baltimore won the game, 20-3.

a

ee
CongressDaily is published daily, Monday through Friday, by
National Joumal Group Inc. Copyright 2002 by National Journal
Inc., 1501 M St., NW, #300, Washington, D.C, 20005.
Retransmission, redistribution or reproduction of CongressDaily
is prohibited without the express, written permission of National
Journal Group Inc,

To read CongressDaily on the Web, contact 1-800-207-8001 or
njcire@njde.com for your username and password.

President-John Fox Sullivan, 202-739-8468 (jsullivan@injdc.com)
6

01080

01200000001752


ay ae - Press Room Page 2 of 2
,

and has completed over 685,000 transactions with a total notional value exceeding $420 bifion.
f
A Enron is one of the world's leading electricity, natural gas and communications companies. The
revenues of $101 billion in 2000, markets electricity and natural gas, delivers physical commodit
financial and risk management services to customers around the world, and has developed an in
network platform to facilitate online business. Fortune magazine has named Enron “America’s M

Company” for six consecutive years. Enron’s Internet address is www.enron.com, The stock is tr
the ticker symbol “ENE.”

® Back totop

01393

12/4/01
01200000000749

http://www. cnrononline.convdocs/marketing/PressRoom/02_27_01/


costs, fell by 0.7 percent in December, helping to make 2001 the
tamest year for inflation at the producer level since 1986. The
Labor Department's producer price index, which measures price
pressures before they reach consumers, fell by 1.8 percent for
all of last year, the biggest annual decline since 1986, when
wholesale prices dropped by 2.3 percent, the government reported
today, That marked a big improvement from the 3.6 percent
increase in wholesale prices registered in 2000.

Federal Reserve Chairman Greenspan said today that there were
scattered hopeful signs that the recession could be ending, but
he warmed that the American economy still faces "significant
risks.” Greenspan, making his first public comments on the
economy since the Fed last cut interest rates on Dec. 11, said
there are "tentative indications" that the economic slump could
be drawing to a close, but he said those signals at present are
far from conclusive.

ee

HOUSE RACES
Sessions’ Old District Site Of A Spirited Texas Showdown

Texas redistricting put more Republicans into GOP Rep. Pete
Sessions’ Sth District, but his decision to abandon the
previously marginal district for a safer seat has Democrats
closely watching a competitive GOP primary. "You're going to have
cither a no-name Republican or a guy with a lot of money,” said
Texas Democratic consultant Ed Martin. Republicans enjoy a 61-39
percent advantage in the new Sth District, which had picked up
GOP-leaning voters in Dallas County but still has Democratic
voters in 10 mostly rural counties between Dallas and Houston.
Instead of running in the reconfigured Sth District, Sessions has
filed for the more Republican and compact Dallas-based 32nd
District - one of two new seats Republicans will pick up through
redistricting. Five Republicans have filed to run in the March 12
primary, but the race appears to be between millionaire attormey
Phil Sudan, who unsuccessfully challenged Democratic Rep, Ken
Bentsen in 2000, and businessman Jeb Hensarling, a top political
aide to GOP Sen, Phil Gramm who has never run for political
office.

Hensarling, a businessman who once served as National
Republican Senatorial Committee executive director, claims strong
ties to the district, solid GOP credentials and support from
Gramm and other party leaders. Neither candidate begins the race
with high visibility and Hensarling acknowledges that Sudan's
personal wealth could be an advantage in the short primary
season. Sudan spent a cumulative $3 million in the 2000 race
against Bentsen, who represents a Houston-based district, Sudan
filed to run for the Dallas-based 5th District in time for the
Jan. 2 deadline after a potential) GOP primary rival opted to run
elsewhere. Hensarling - campaigning on domestic security, the
economy, education and rural development - quipped he would be
happy to introduce Sudan to the district. "Once he gets here, I'm
certainly happy to give him a roadmap to Houston," he said.

But Sudan said voters are concerned about philosophy and
record, not geography. "I won a contested Republican primary. I
defeated a so-called Republican moderate," Sudan said of his 2000
primary, Sudan is campaigning on tax reform and security issues,

“4

01068

01200000001740


JOINT REPORT ON RETAIL SWAPS

As Required by Section 105(c) of the
Commodity Futures Modernization Act of 2000

1. INTRODUCTION

The Commodity Futures Modernization Act of 2000 (“CFMA”) requires the Board of
Govemors of the Federal Reserve System (“Board”), the Secretary of the Treasury (“Treasury”),
the Commodity Futures Trading Commission (“CFTC”), and the Securities and Exchange
Commission (“SEC”) to conduct a study of i: issues involving the offering of swap agreements to
persons other than cligible contract participants.’ This Report responds to the CFMA’s
requirement that the agencies submit to Congress by December 21, 2001, the findings and
conclusions of the study and their recommendations on whether any legislative action is
necessary and appropriate.

A primary purpose of the CFMA was to create a clear legal foundation and regulatory
framework for many types of over-the-counter (“OTC”) derivatives transactions entered on a
principal-to-principal basis between “eligible contract Participants” (“ECPs”) as defined in
Section 1a(12) of the Commodity Exchange Act (“CEA”). Parties that do not qualify as ECPs
include individuals who do not have total assets in excess of $10 million (or $5 million if they
enter swap agreements for risk management) and non-financial entities that do not have total
assets in excess of $10 million (or nct worth in excess of $1 million if they enter swap
agreements in the ordinary conduct of business or for risk management). For purposes of this
study, non-ECPs are “retail customers,” and swaps offered to them are “retail swaps.”

Since its enactment, the CFMA has excluded OTC swap agreements and other specified
derivatives transactions between domestic and foreign financial institutions, broker/dealers,
insurance companies, commodities firms, and other ECPs from most of the CEA. The CFMA’s
limitation of this exclusion to ECPs was consistent with the recommendation of the President's
Working Group on Financial Markets that OTC swap agreements between institutional
counterparties generally should not be subject to the CEA?

The CFMA did not address the legal or regulatory status of swap agreements with retail
customers, with the exception of clarifications to a provision of the CEA known as the Treasury
Amendment, which excluded certain transactions in foreign currency, government securities, and

' Commodity Futures Modernization Act of 2000, Pub. L. No. 106-554 ~ Appendix E, §105(c), 114 Stat.
2763-365 (2000),

* 7ULS.C, §la(12).

> President's Working Group on Financial Markets, Report on Over-the-Counter Derivatives Markets
and the Commodity Exchange Act (November 1999).

01862

01200000000518


SEC Audit Committee Rule

(Jan. 2000)
RE A ET Tc A |

* Require that companies’ independent auditors review
the financial information included in the companies’
Quarterly Reports

e Require that companies include reports of their audit
committees in their proxy statements;!*

+ (@) reviewed and discussed the audited financial statements with
management;

+ (ii) discussed with the independent auditors the matters required to
be discussed by Statement on Auditing Standards No. 61,!¢

SEC Audit Committee Rule
ATT NT TARE RR maT |

- Statement by the AC whether the audited financial
statements be included in the company's Annual
Report on Form 10-K.

- Disclose whether their Board of Directors has
adopted a written charter for the audit committee,

. Disclose whether the audit committee members are
"independent" as defined in the applicable listing
standards,'? (disclose additional information about
directors not considered independent).

01327 ;

01200000000683


eSpeed Building Scalable and Liquid Markets for the Online Trading Community

Pahibit 7
eSpeed’s Vertical Markets

System Name | Primary. | Prodi
Cantor Global US Treasury and
Exchange (CX) agency futures
eSpeed Global US Treasuries, Euro
and Japanese
government debt,
agencies,
municipals, mbs,
repos, interest rate
Swaps, emerging
market debt, futures
and options
Freedom Canada Canadian BMO Nesbitt Launched in June
International government bonds, | Bums, CIBC World | 2001
Brokers corporates, Markets, Merrit
agencies, Lynch Canada,
provincials, repos, RBC Dominion
interest rate swaps, | Securities, Scotia
foreign exchange, Capital Markets,
futures and options | and TD Securities
TradeSpark L.P, | US Natural gas, Axia Energy, Coral
electricity Energy, Dominion,
TXU Energy
Trading, and
Williams Energy
Marketing and
Trading

“TawerGroup estimates
"Includes boch fully electronic and voice electronic volusne

Energy Trading Platforms, The energy trading market has become a major ¢-trading sector in the last
year and a half with new participants entering and exiting the market regularly. eSpeed is no exception, with
its launch of TradeSpark in October 2000, a multidealer online trading venue for natural gas and electricity.
In Tradespark, cSpeed has ventured into the commodity vertical, trading nonfinancial products and partnering

"
C2001 TowerGroup, Needham, MA USA
May not be reproduced by ary means without express permission, All rights reserved.

01216

01200000000572


Prom: Michael Sondow [msondow#iciiu.org]

Sent: Saturday, December 01, 2001 8:00 PM

To: Hague Convention list

Subject: (Hague-jur-commercial-law] Enron & Int'l Trade {cont'd}

http://www.corpwatch.org/trac/issues/wto/featured/2001/tclarke. html

“Enron's strategy on the GATS negotiations is to develop new

trade rules to consolidate internationally what it
has accomplished on

energy deregulation in the U.S. To pry open new
markets for energy and

related services in other countries, Enron's plan is
to ensure that GATS

rules are established through the WTO that can be
used to accelerate the

deregulation, and where necessary the privatization,
of these services.

Once again, Enron has equipped itself for this
mission. The current U.5,

Trade Representative, Robert Zoellick, who is
responsible for U.S. input

into the GATS negotiations, has reportedly been the
recipient of a $50,000

‘advisory fee' from Enron. James Baker, former U.S.
Secretary of State,

and Robert Mosbacher, former Secretary of Commerce,
are both on the

Enron payroll as advisors on overseas projects and
international

negotiations. Enron‘s Board includes Charles Walker,
former U.S. deputy

Treasury Secretary; John Wakwham, former British
Secretary of State for

Energy, who specializes in providing advice on
and
Prank Wiener, former U.S. Ambassador to India."

European business

Hague-jur-commercial-law mailing list
Hague-jur-commercial-law#liets.essential.org
http: //lists.essential.org/mailman/listinfo/hague-jur-commercial-law

01200000001031


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01200000000772


Some Textbook Red Flags (KPMG)

e Inappropriate “tone at the top”
e Unrealistic growth goals

2 Overly complex organizational structure or
transactions

e High turnover of senior management
e Unusually rapid growth
e Inexperienced management

Related Party Transactions 1999

@ The effect of the transactions was
(i) Enron and the third-party amended certain forward
contracts to purchase shares of Enron common stock,
resulting in Enron having forward contracts to purchase
Enron common shares at the market price on that day,
(ii) LIM received 6.8 million shares of Enron common
stock,
(iii) Enron received a note receivable and certain financial
instruments hedging an investment held by Enron.
Enron recorded the assets received and equity issued at
estimated fair value.

01334 8

01200000000690


eSpeed: Building Scalable and Liquid Markets for the Online Trading Community

‘Treasury trading volumes down but also ¢Speed’s volume and revenue. In addition, Speed's market
competitors may begin to excel in this market and clients may opt for their services instead. This is precisely
why eSpeed needs to continue to expand its product scope and strategic alliances to bring liquidity to the
system for the financial products that will someday drive its markets.

Conclusion

‘The advent of electronic trading has given technology and financial services firms the opportunity to profit
from their proprietary trading technology, eSpeed is no different, benefiting from a substantial investment
in technology by its parent firm, which proceeded to create an e-trading technology solution that it now
customizes for market participants.

As evidenced by the recent economic downturn, the need for potential c-trading participants to invest in
proven trading technology solutions is even more important than ever, since capital for such investments
is harder to come by. eSpeed’s technology, scalable marketplace, and strategic investments are key
components to the firm's success to date. ¢Speed needs to seize this opportunity to generate business
through its private label offering and through market alliances.

¢Speed’s accomplishments in the fixed-income ¢-trading marketplace should not obscure the fact that it is
faced with many challenges that may ultimately affect its future success. eSpeed will have to build liquidity
in its horizontal markets as dealers and investors alike retreat from the diminishing US Treasury market in
search of a new benchmark, Issues surrounding the lack of activity on the Cantor Exchange must be
addressed, whether through expansion into vertical markets, strategic alliances with the dealer community,
of its closing. The firm needs to continue to promote its eSpeed Software Solutions and benefit from its
intellectual property rights by increasing licensing and servicing fee revenue, The binding Cantor Fitzgerald
relationship should be reevaluated in order to make it easier for Speed to build relationships and alliances
without its parent firm's consent or involvement. Cantor Fitzgerald's ability to maintain its end of the
partnership agreement directly impacts whether or not Speed can and will achieve its goals for product
expansion and financial growth,

14
(©2001 TowerGroun, Needham, MA USA
May not be reproduced by any means witout express permission. All nghts reserved.

01219

01200000000575