Man Without Qualities


Monday, February 18, 2002


A Simple Mistake?

Newsweek is apparently reporting that a memo by Max Hendrick III, of Vinson & Elkins, Enron's outside law firm, describes how Enron's chief accounting officer, Richard Causey, characterized one of its controversial off-the-books partnerships. The Newsweek article reads in part as follows (quoting from the internal Vincent & Elkins memo):

"’Causey pointed out that an unfortunate error will require an adjustment to the third quarter [financial] statements’ during an August 31 interview, the memo says. ‘Causey characterizes this as a simple mistake that now requires correction.’ That ‘simple mistake’ forced a $1.2 billion reduction of Enron's net worth.”

It is interesting that in an apparently confidential interview with Enron’s lawyers, a setting in which one might think the incentive for Mr. Causey to dissemble was rather low, he characterized the Enron accounting for what appears to be a representative “bad” partnership transactions as a “simple mistake”. That characterization will not make things easier for a prosecutor or civil plaintiff.

Or, in the case of a civil plaintiff, will it? The future may hold some surprises in exactly what plaintiffs argue in the inevitable legal actions to come.

To the extent plaintiffs are expecting to benefit from insurance maintained by Enron, Arthur Andersen or anyone else, consider this: It is generally not possible to insure oneself from liability for one's own actual, intentional fraud.

So, are Mr. Lerach and other civil plaintiffs going to be arguing that Enron's financial statements were prepared with actual, intentional fraud? Will they be happy if the government prosecutors weigh in with such claims?

And just what was the agenda of whoever it was who leaked the apparently confidential internal Vinson & Elkins memo to Newsweek?







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