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February 08, 2002 - Image 5

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The Michigan Daily, 2002-02-08

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BUSINESS

The Michigan Daily - Friday, February 8, 2002 - 5

{1

Former Enron
exec testifies to
no wrongdoing

Former Enron Chief Financial Officer Andrew Fastow Is sworn in on Capitol Hill yesterday before subcommittee hearings on Enron began.
Kopper incuded In Enron.scand2

The Washington Post

Around the corner from Enron founder Kenneth L.
Lay's $7 million penthouse apartment, Michael J.
Kopper has almost completed work on his own Hous-
ton dream home, a gleaming, modernist house that
appears to be made of pale, pearly marble.
There is no grass yet, though there is evidence,
small bushes, that the landscapers have begun their
work. The house itself looks finished, save for the
brown paper that covers the huge front windows
and the plywood protecting the front door. There is
a three-car garage and a slate driveway, and every-
thing about the house seems sharp-edged and
sleek, which makes it stand out in this neighbor-
hood of large, stately brick-and-stucco homes.
When he closed on the property in January 2001
- taking out a mortgage in excess of $1 million,
according to public records - Kopper was a man-
aging director in Enron's Global Equity Markets
Group, earning millions through his work with
then-chief financial officer Andrew S. Fastow. He
was not, however, one of the high-flying Enron
executives cashing in on stockoptions to make
dizzying amounts of cash. In fact, he wasn't even
well known inside the company. Lay has told
investigators he did not know Kopper at all.
Yesterday, though, Kopper was to join some of
Enron's biggest names - Fastow, Lay and former
CEO Jeffrey K. Skilling, among others - when he

was to appear under subpoena before a congressional
committee just days after a report prepared by a spe-
cial committee of Enron's board portrayed him as one
of the major players in the company's collapse.
Kopper has engaged the international law firm
Dechert to represent him, and declined interview
requests through both his attorneys and his assis-
tant at LJM2 Capital Management LP, an Enron-
related limited partnership where Kopper served as
general partner until he was removed last month.
Edward B. Horahan III, a financial services and
securities litigation lawyer based in Dechert's
Washington office, said Wednesday that Kopper
planned to appear before the House Energy and
Commerce Committee and that he intended to
invoke his Fifth Amendment rights.
According to the Enron report, Kopper was paid $2
million in management "fees" as general partner of
Chewco, a limited partnership set up by Fastow.
Kopper, the report said, earned another $10 mil-
lion when Enron repurchased Chewco. That wind-
fall came from a $125,000 investment made by
Kopper and William Dodson, a man who is
described in the report as Kopper's domestic part-
ner and who has shared residences with him since
1997, according to public records.
Kopper brought Dodson into the deals in
December 1997, when he transferred his owner-
ship interest in a limited partner of Chewco's
called "Big River Funding LLC" to Dodson, thus

WASHINGTON (AP) - Former
Enron executive Jeff Skilling testified
yesterday under tough questioning by
lawmakers that he was unable to
recall key events surrounding the off-
the-books partnership arrangements
that sent the energy trading company
into bankruptcy.
He said he knew of no wrongdo-
ing.
Skilling, the former chief executive
officer, said he didn't recall longtime
colleague Andrew Fastow - who
collected $30
million for run-
ning the partner-
ships - telling a
board of directors
meeting that
Skilling would
approve all the
4 RM partnerships.
AP PHOTO "You never
heard" that state-
ment? asked Rep. SKILLING
Billy Tauzin (R-
d "I was in.and out of the meeting"
and "I don't recall if I was there
specifically at the time Andy" made
he had the comments, said Skilling.
er." He said the board meeting in West
of the Palm Beach, Fla., took place under
- to difficult conditions because the elec-
Place," tric power had gone out and "the
w and room was dark."
Enron When he resigned his post in
accord- August, "I did not believe the compa-
ny was in any financial peril,"
s, "... Skilling said in his first public testi-
xpense mony on the Enron disaster.
impton And the company's financial state-
scribes ments, "as far as I knew, accurately
fiduci- reflected" Enron's condition, Skilling
Enron's told the House Commerce oversight
ct. and investigations subcommittee.
couple Skilling said he had no knowledge
olsover that the partnerships run by his long-
orhood time colleague Andrew Fastow were
designed to conceal losses.
novated "It was my understanding that the
om the purpose of the transactions was to
ea, and provide a real hedge" - locking in
herron profits from technology investments,
lower." the former CEO said.
d civic Skilling's testimony came as Fas-
Center tow and three other current and for-
[son's a mer Enron executives exercised their
)odson Fifth Amendment right not to testify
at the House hearing.

giving the appearance, the report says, "that1
no formal interest in Chewco's limited partn
Kopper also is cited as having been one
six Enron employees - including Fastow
participate in a deal named "Southamptonl
after the neighborhood where both Fasto
Kopper own homes. That deal also drained
of cash while lining the investors' pockets,a
ing to the report.
"Michael Kopper," the report read
enriched himself substantially at Enron's e
by virtue of his roles in Chewco, Southai
Place, and possibly LJM2." The report de
these transactions as "inconsistent with his
ary duties to Enron," "unauthorized" by E
board and in violation of its Code of Condu
Neighbors had no idea that the low-key
who live in a well-kept bungalow on B
Street in the upscale Southampton neighb
had anything to do with Enron.
The house - which was extensively ret
three years ago - is walking distance fr
home where Fastow lives with his wife, L
just one block over from the home of S
Watkins, now known as the Enron "whistlebl
They paid their dues to the neighborhoo
club, and made contributions to the local
for AIDS. They both drove BMWs - Dod
Z3 sports car, Kopper's a 328is coupe. D
worked for Continental Airlines.

In contrast to Skilling's testimony,
Enron's new chief operating officer,
Jeffrey McMahon, said earlier yes-
terday that he was transferred to a
new job shortly after he complained
to Skilling about the obscure partner-
ships in a 30-minute meeting in
March 2000. McMahon was treasur-
er at the time of the meeting.
"His parting words to me were he
understood all my concerns and he
would remedy the situation," McMa-
hon told the subcommittee. McMa-
hon said Skilling called shortly after
the meeting and offered him a job
elsewhere in the company.
McMahon was named Enron's
president and chief operating officer
last week.
His testimony followed the refusal
-by Fastow and ex-executive Michael
Kopper to testify. The two are at the
center of the partnerships which kept
hundreds of millions of dollars in
Enron debt off the company's books.
"On the advice of my counsel I
respectfully declinewto answer the
questions," said Fastow.
After telling the committee that
would be his answer to all questions
posed by the panel, Fastow was dis-
missed.
Kopper also invoked the constitu-
tional protection against self-incrimi-
nation. Kopper saw an investment of
$125,000 become $10.5 million in
less than three years.
After Kopper departed, two current
Enron executives, Richard Buy and
Richard Causey, also declined to
answer questions. Both had knowl-
edge of the partnerships that Fastow
and Kopper ran.
McMahon and ex-Enron attor-
ney Jordan Mintz testified they
were concerned about conflicts of
interest arising out of Fastow's
financial interests in the partner-
ships while he was Enron's chief
financial officer.
Mintz suggested that the close
relationship between Skilling and
Fastow was an obstacle to bringing
the partnerships under control.
According to McMahon, Fastow
said "everything Mr. Skilling says, I
hear about."
According to Mintz, Skilling
ignored Mintz's repeated requests to
meet about the partnerships.

Consumer spending
slow despite discounts

Dr. Bill Gates

Judges to consider refining
the Microsoft antitrust case

NEW YORK (AP) - Deep dis-
counting lured consumers into the
nation's stores last month, offering
struggling retailers a brief respite from
a sluggish sales trend.
But while analysts said they see the
sales gains announced yesterday as
encouraging, they don't believe con-
sumers are ready to splurge.
Discounters, like Wal-Mart Stores
Inc., wholesale clubs and other moder-
ate-price stores, continued to outper-
form the rest of the retail industry in
January. Department stores and appar-
el chains still struggled, though most
sales declines weren't as deep as Wall
Street expected, with the notable
exceptions of May Department Stores
Inc. and Gap Inc.
"This may be a signal that the end of
the recession is near. The weakness
wasn't as bad in some areas as we have
seen," said Michael Niemira, vice pres-
ident of Bank of Tokyo-Mitsubishi Ltd.
But he cautioned that January is not
representative of spending trends
because it is a time when merchants
clear out inventory to make room for
spring goods.
The bank's index measuring the
sales of 80 stores rose 5.1 percent in
January, better than the 3 percent
Niemira had projected. The gain was
the strongest monthly showing since
January 2000, when the index rose 5.7
percent.
"Consumers came out in response to
the great values in the stores, but are
they willing to pay regular price for
spring? It is tough to say," said Richard

Jaffe, an analyst at UBS Warburg.
The January results came as the
Labor Department reported that new
claims for state unemployment insur-
ance dropped by 15,000 last week to a
seasonally adjusted 376,000. Jobless
claims slowly have been declining
since peaking Oct. 20 at 507,000.
"There is still a lot of negative news
out there;' Niemira said. Most notably,
there haven't been any job gains, he said.
Niemira expects sales at stores open
at least a year, known as a same-store
sales, to be up about 2.5 percent to 3
percent during the next few months,
more in line with the retail sales trend of
2001. Same-store sales are considered
the best indicator of a retailer's health.
Wal-Mart, which posted an 8.3 per-
cent gain in same-store sales, beat Wall
Street estimates of a 6.2 percent gain.
Rival Target Corp. reported a better-
than-expected 5.8 percent gain.
Analysts believe the two will contin-
ue to profit from the problems of
Kmart Corp., which filed for bank-
ruptcy Jan. 22. Kmart did not report
January sales, but will be reporting
monthly operating statements with the
bankruptcy court.
J.C. Penney Co. Inc. also posted a
better-than-expected 5.9 percent gain
in same-store sales in its department
store division.
The Limited Inc. posted same-store
sales gains of 6 percent, after analysts
predicted a 2.4 percent decline. Saks
Inc. recorded a 1.7 percent gain, dra-
matically better than the 5 percent
decline expected.
U s

The Washington Post
Microsoft Corp. and the Department of Justice
are weighing the possibility of modifying the con-
troversial settlement they reached last year in the
long-running antitrust case.
In a joint filing to a federal judge, lawyers for
the two parties said that in light of roughly 30,000
opinions about the proposed deal received during
a legally mandated public-comment period, they
might propose changes, although they did not
commit to doing so. If any are made, they will be
submitted to the court by Feb. 27.
Microsoft spokesman Jim Desler cautioned that
any modifications would be "refinements" rather
than wholesale changes to the agreement.
Of the 30,000 public comments received, the
Justice Department said that roughly 7,500 were
in favor of the settlement, roughly 15,000 opposed
and roughly 7,000 expressing no clear opinion.

The department said that 2,900 of the com-
ments were substantive critiques of the agreement,
with 45 of those being in-depth analyses. Another
2,800 were form letters or e-mails:
The filing comes as a U.S. District Court judge
is deciding how to proceed in determining whether
to approve the proposed settlement. Under federal
law, she must decide whether the agreement -
which has been attacked by Microsoft rivals, con-
sumer groups and many antitrust scholars as being
inadequate - is in the public interest.
Judge Colleen Kollar-Kotelly had recently
asked the two sides whether they planned to
amend the agreement and for advice on how
to proceed.
Microsoft and the Justice Department urged her
to hold a one-day hearing in which only the com-
pany, federal prosecutors and representatives of
nine states who joined in the agreement would
present arguments and answer questions.

AP PHOTOI
Bill Gates receives a doctor's hat from Professor Henrik
Alfredsson during a ceremony at the Swedish Royal
Institute of Technology in Stockholm yesterday. Gates was
promoted honorary doctor by the institute.

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