Former Enron employee Leslie Lawner urged a group at the law school Thursday to pay attention to questionable ethics in corporate executives, an oversight she says cost her job and retirement fund.
"Toward the end, all the signs were there, but I bought the company line and drank the Kool-Aid," said Lawner, who worked for Houston energy company for 14 years. "If nothing else, don't just blindly drink the Kool-Aid."
Lawner was one of eight panelists brought together by the Business Law Society to discuss the ramifications of the Enron bankruptcy case, addressing how it could affect other Fortune 500 companies, accounting standards, deregulation and company executives.
Joni Young, a UNM associate accounting professor, outlined some of the company's actions that allowed it to keep outstanding debt off public balance sheets and declare major financial gains that did not exist. She said the company used special purpose entities absorb its debt so that it could provide a better balance sheet that would please investors, employees and loan institutions.
Special purpose entities are independent companies that some corporations set up to improve their credit and are legal as long as investors backing the new company provide 3 percent of the company's revenue to prove that they are at risk for loss.
Young said that in Enron's case, the company also had top-level executives involved in the special purpose entities, which is legal but is subject to greater scrutiny. She added that the problem with Enron's use of such entities was that many did not live up to the 3 percent new investment rule, which is illegal.
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"It appears they manipulated partnerships to manipulate balance sheets," she said. "It is really more significant that they used this method to achieve better balance sheets rather than what it was intended to do - reduce risk in investing."
Her speech prompted frustrated audience members to raise questions about the morality of utilizing special purpose entities, which Young said are the industry standard and replaced the use of leases to shield risk in the 1980s.
"There really isn't a good reason, but this is just a new twist on an old theme," she said. "The problem with imposing new rules at this point is that executives are looking for any way to legally get around the rules, technically observing them but violating the spirit of the law."
Lawner says she hopes Enron's energy ties do not kill a move toward deregulation, while Nathalie Martin, a UNM associate law professor, hopes it does not hurt bankruptcy law, which she says protects the economy by avoiding the liquidation of assets. She added that Enron is still running with 75 percent of its employees and should survive thanks to filing the biggest bankruptcy case in history.
Norman Bay, a UNM visiting assistant law professor, provided a likely outline for prosecution of the case, warning it could take up to a year before the public learned the developments of the investigation. He says he expects the government to carry out a typical white-collar crime investigation.
Bay said the prosecutors would begin by following the paper trail of transactions. He then expects FBI agents to interview between 500 and 1,000 Enron employees, as well as people from the company's accounting firm Arthur Andersen and law firm Vinson & Elkins.
Prosecutors are then expected to use broad grand jury powers to lock in testimony and try to extract more information under oath from witnesses, while also subpoenaing all of what is left of communication generated by Enron executives, Bay said.
"Hard drives with files that may have been deleted would be taken to labs for possible reconstruction and everything would be done to seize any information that could tie high level employees to crimes," he said.
The government may then negotiate immunity for lower-level employees in exchange for information on top executives, while seeking to divide and conquer upper level company executives by making a deal with one to provide information on others, Bay said.
He expects the investigation to conclude with aggressive court orders seeking tax forms and bank records to decipher employee transactions.
Panelists said the company executives, along with its accountants and lawyers, could be liable for the following crimes:
l financial fraud for submitting false accounting statements;
l denying knowledge of illegal action;
l wire fraud for e-mails encouraging investing in the company when they knew it was floundering;
l insider trading for selling shares when they knew the company was in trouble but forcing lower level employees to keep their stocks;
l conspiracy for collaborating to commit illegal activity;
l obstruction of justice by destroying documents or lying under oath;
l money laundering for defrauding lending agencies by publishing bank statements they knew concealed debt.
Bay said he expects the government to go for tax evasion and obstruction of justice charges that are easier to prosecute because they don't require proving intent to defraud others. He added that the sentencing for crimes could range from four to 20 years, depending on the verdict.
Tim Canova, a UNM associate law professor, says he fears that the questionable business practices are more the industry norm than people would like to think.
"This will go down as a big warning sign where the traffic light is yellow and we kept going through the intersection," Canova said. "I expect to see other Enrons in the future."
