With the announcement yesterday of Houston-based Vinson & Elkins’ $30 million settlement of one of the myriad of lawsuits pending against the firm as a result of its representation of Enron, the WSJ’s Peter Lattman notes this BusinessWeek Online article that reviews some of the evidence that the plaintiffs in the main Enron class action securities fraud lawsuit are marshalling against VE:
[P]laintiffs’ lawyers are preparing to unleash a new volley of evidence on June 13 to support allegations that V&E should be liable for some of the $40 billion in investor losses resulting from the energy giant’s collapse. [. . .]
[D]ocuments and transcripts reviewed by BusinessWeek indicate that V&E attorneys had doubts about the legitimacy of Enron’s business practices. Sometimes they even made light of the company’s aggressive accounting. At the end of 1997, as Enron scrambled to complete a series of deals aimed partly at burnishing its financials, it dumped a pile of paperwork on V&E. On Christmas Eve, Dilg sent an e-mail to buck up his beleaguered troops. It contained a poem, which read in part: “no sooner than you could say ‘mark to market’/Our client’s year end financials began to sparkle.” That passage referred to Enron’s use of mark-to-market accounting, which allowed it to recognize the entire revenues from a 20-year gas contract, say, in the first year.
In a 1999 voicemail that was forwarded to Dilg, V&E partner Boyd Carano expressed concern after learning that the now-notorious entity known as LJM, which was buying part of Enron’s interest in a Brazilian power plant, was actually controlled by the company’s chief financial officer, Andrew Fastow. “Basically, this is a fund that he set up in order to do these deals with Enron, where Enron pays him a 13 and then 25% return in order to get stuff off the balance sheet,” he said. “Frankly, I don’t approve.”
In another voicemail, Carano told fellow V&E partner Mark Spradling that he had not been able to speak directly to Enron Chief Accounting Officer Richard Causey to get assurances that Enron had not secretly guaranteed Fastow’s LJM investments. Instead, Carano had been forced to rely on the assurances of Kent Castleman, a lower-ranking employee. In his response to Carano’s concerns, Spradling said: “I think the problem is that anything we do either calls into question the truthfulness of Kent Castleman or imbues this whole issue with our view that there may be fraud going on here” . . .
Given Sherron Watkins’ highly-publicized testimony in the Lay-Skilling trial criticizing VE and publicity surrounding the firm’s involvement in the the San Diego pension fund debacle, it has not been a pleasant past few months for VE.
Moreover, the plaintiff’s firms in the main Enron class action securities fraud lawsuit probably consider the $30 million that VE is paying to settle the Enron estate’s lawsuit as the equivalent of a nominal “slip and fall” settlement payment. Thus, that settlement amount may not have much to do with the price of extracting VE from that even more troubling lawsuit.
As Lay and Skilling discovered, the societal morality play regarding Enron makes it enormously difficult to defend in a jury trial against allegations of wrongdoing involving the company. It’s even harder when the defendent is a law firm, which juries generally don’t mind hammering.
VE remains in a tough spot, so stay tuned.
