Billions still hidden in Enron pyramid David Teather in New York Wednesday January 30, 2002 The Guardian
Enron, the failed energy firm, was yesterday likened to a pyramid-selling scam and was said to be possibly hiding billions of dollars of debts that have yet to come to light. Robert McCullough, a forensic accountant who will testify before Congress today, said an examination of just one of the many offshore entities used to mask Enron's debts had found $2.7bn in unreported losses. Professor McCullough, of Portland State University, told the Today programme on BBC Radio 4 that he had been surprised by the sheer magnitude of losses. The discoveries will make the task for Enron's new chief executive all the more difficult. The company yesterday confirmed that it has hired Stephen Cooper, a corporate recovery expert, as interim chief executive and chief restructuring officer. Mr Cooper has in the past helped to restructure struggling companies including Polaroid and Federated Department Stores, which owns Macy's and Bloomingdales. Mr McCullough said his initial findings had confirmed all the worst fears of the whistle-blowing Enron executive who had warned the company could "implode in a wave of accounting scandals". The venture studied by Mr McCullough was dubbed Whitewing, which housed investments in Eastern Euro pean and Brazilian utilities that had gone bad. Whitewing used money from insurance companies and mutual funds to buy the bad assets and place them into an offshore company called Condor. "Some $4.7bn of investments - failing investments, as it turned out - were housed within Condor, taken off the books so that investors would never be able to see the full impact," Mr McCullough said. "Our close review indicated that there were probably unrealised losses of $2.7bn in this one set of investments alone" He said there is probably far worse still to come out. "Our review of the single Whitewing group surprised us by the sheer magnitude of the guarantees and investments hid den behind it. We're hearing about 4,000 of these entities." Enron's spectacular collapse was triggered after it announced a $1.2bn reduction in asset value after taking some of the offshore entities on to its books - prompted by an outside investigation. It recorded losses of more than $600m and admitted it had overstated profits by a similar amount in the previous four years. In further developments, the House energy and commerce committee piled further pressure on to Arthur Andersen, the accountants which audited Enron. The committee has written to Andersen demanding new information including a list of names of the members of staff that took part in the shredding of key Enron-related documents. Hearings into the collapse continued yesterday. Lawrence Whalley, the company's president and chief operating officer stood down yesterday and will take up a position with investment bank UBS Warburg, which has bought Enron's energy trading arm.
