Posted on 04/06/2002 11:04:34 AM PST by rdavis84
Law firm Kirkland & Ellis drawn into Enron probe
Ties to controversial partnerships eyed
By Ellen Joan Pollock and Kathryn Kranhold April 2, '02—
As lawyers and investigators attempt to unravel the tangle of controversial partnerships set up by Enron Corp. executives, their attention is being drawn to a thus far untapped repository of secrets: Kirkland & Ellis. THE CHICAGO LAW FIRM was retained by former Enron Chief Financial Officer Andrew Fastow to represent at least some of the partnerships that contributed to the collapse of Enron late last year and that are being investigated by federal prosecutors and regulators for improprieties and possible illegalities.
Now, the law firm is being besieged with requests for information from Enron’s creditors, a congressional committee and other parties. Some documents tucked away in Kirkland & Ellis’s offices may provide clues about the partnerships’ structures and how they were used to bolster Enron’s financial results.
But it could be a while before investigators get Kirkland & Ellis’s files. The firm is being cautious about complying with document requests. It has hired two law firms and a Washington lobbyist to negotiate with government agencies, Enron creditors and even one of the partnerships it once represented. And the law firm also has consulted with experts on legal ethics.
At the heart of its concern is the extent to which the documents are protected by the attorney-client privilege, the guarantee of confidentiality afforded clients of law firms. A client can waive that privilege, but Kirkland & Ellis may confront situations in which more than one person or entity claims the privilege to certain documents.
“We have to work out these client-confidentiality issues with lots of parties who want documents from us,” says Laurence A. Urgenson, a Kirkland & Ellis partner. He says the firm’s counsel is helping it figure out “how do we cooperate ... with government investigations consistent with our obligation to maintain client confidences.” Geoffrey C. Hazard Jr., a professor of legal ethics at the University of Pennsylvania, says whether Kirkland & Ellis has legal or ethical problems could “depend on what they knew.” If its lawyers had no indication that anything was improper, they would likely have no problem.
If lawyers think something is amiss, they “have a duty to make further inquiries,” Mr. Hazard explains. Then, he says, a lawyer must decide whether the client’s story “is reasonable. The lawyer should understand that if later on this is shown to be a story they had no business believing … that they had to be putting their head in the sand, then they’re going to be in trouble.” If lawyers learn that a deal is fraudulent, Mr. Hazard says, they would have a “duty to withdraw” as counsel.
In a prepared statement, Kirkland & Ellis said it “takes its ethical obligations seriously,” and that “we are confident that the firm acted properly and complied with its legal and ethical duties. Any suggestion to the contrary is not based on the merits of the firm’s work, but an effort by interested parties to shift blame and extend liability where none exists under established law.”
Kirkland & Ellis, with 850 lawyers, has four offices in the U.S. and one in London. The firm represents many blue-chip clients, including General Motors Corp., and is the home of former Whitewater prosecutor Kenneth Starr, a partner in the firm’s Washington office. It has retained Munger, Tolles & Olson, a law firm based in Los Angeles, to handle attorney-client and other issues; and Foley & Lardner, a Milwaukee firm, to represent it in the Securities and Exchange Commission investigation of Enron. In addition, the firm has hired lobbyist Steve Ricchetti, once an aide to former President Bill Clinton, to help it deal with Congress.
An issue potentially complicating Kirkland & Ellis’s attorney-client-privilege decisions is some of the people the firm has worked with have been reluctant to cooperate with investigators. For example, Mr. Fastow declined to testify before a congressional committee, citing his right to avoid self-incrimination. A representative for Mr. Fastow declined to comment on his client’s relationship with the law firm.
One party caught in the middle of the confidentiality problem is Bettina Whyte, of Jay Alix & Associates, a corporate turnaround firm. She recently became general partner of LJM2, one of the controversial partnerships, after the limited partners ousted former Enron executive Michael Kopper. Mr. Kopper had succeeded Mr. Fastow as general partner. Kirkland & Ellis gave advice to the general partners and LJM2. Now Ms. Whyte’s lawyers are talking with Kirkland & Ellis’s lawyers about which documents she is entitled to.
Kirkland & Ellis “represented several different parties,” Ms. Whyte says. “As a result, they are in a quandary, I think, about whose documents are really whose.” Mr. Urgenson, of Kirkland & Ellis, says Mr. Fastow’s and Mr. Kopper’s “status as individual clients is unclear.”
Enron’s creditors’ committee also has subpoenaed Kirkland & Ellis, which creditors said in a bankruptcy-court filing “is believed to maintain original data, not otherwise available to the Committee, regarding [Enron’s] various ‘Special Purpose Entities,’ partnerships, management corporations and/or joint ventures among other things, that facilitated the off-balance-sheet treatment of certain of [Enron’s] liabilities.”
Munger Tolles has told creditors Kirkland & Ellis will begin turning over documents in April on a “rolling basis,” according to a lawyer for creditors. The problem, the lawyer says, is “they’re trying to sort out who their client is” so they can get approval to waive the privilege.
House Energy and Commerce Committee investigators also want to talk with Kirkland & Ellis; they expect to set up a meeting with the firm’s representatives soon. “There’s still an awful lot of unanswered questions about these partnerships, and we’re hoping that Kirkland & Ellis, or their representatives, can help us to fill in the blanks,” says Ken Johnson, the committee spokesman.
Mr. Fastow, Enron’s ex-finance chief, became acquainted with the law firm while working for Continental Illinois bank, a Kirkland & Ellis client, before joining Enron in 1990. Michael T. Edsall, 43 years old, a corporate partner in the firm’s Washington office, was responsible for much of the partnership work and was one of at least five Kirkland lawyers who handled it. Mr. Urgenson says the legal work accounted for an insignificant portion of the firm’s revenue.
The firm and LJM2 parted ways at the end of last year. Citing confidentiality rules, Mr. Urgenson declined to explain why.
Kirkland & Ellis first became involved with the controversial partnerships in late 1997, when it represented Chewco Investments LP. Mr. Edsall helped create Chewco and prepare documents to establish the partnership’s financial structure, according to interviews with Enron staffers for a report commissioned by Enron’s board.
The idea was that Chewco would be an independent third party that would purchase from Enron an interest in a partnership dubbed JEDI, or Joint Energy Development Investments. Chewco’s independence was key because Enron wanted to avoid having to account for JEDI’s debt on its balance sheet. But that independence was contingent on Chewco having outside investors put in equity equal to 3% of the partnership’s total capital. The outside investors were actually paper entities created by an Enron official. These entities borrowed their equity investment from Barclays PLC, and Enron, in effect, guaranteed about half the loan amount by depositing money into a reserve account Barclays could draw on. The establishment of that account meant Chewco didn’t have enough true outside equity to be treated as independent. According to interviews for the Enron board’s report, Mr. Edsall was part of the discussions about the loan.
Because it was determined ultimately that Chewco wasn’t independent, Enron announced in November that it had inflated its earnings by about $400 million between 1997 and 2000.
Mr. Edsall and other Kirkland & Ellis lawyers also represented the LJM1 and LJM2 partnerships, which Mr. Fastow established in 1999. One of their purposes was to help Enron remove assets from its books, often with the caveat that Enron would repurchase them later.
For example, in December 1999, Enron sold a 75% interest in a Polish power plant to LJM2. Enron had hoped to sell the plant to an independent party by the end of 1999 to get it off its books. But the company ran out of time and settled on LJM2 as a “temporary holder.” On March 29, 2000, Enron and another Enron-related entity, Whitewing, repurchased the plant from LJM2, giving the partnership a 25% rate of return, according to board’s report. Kirkland & Ellis represented LJM2 in the negotiations. According to the report for the Enron board, the Dec. 17, 1999, investment summary provided “strong assurance” that Enron would repurchase the asset.
Mr. Urgenson declined to discuss specifics of the firm’s involvement in Chewco and LJM deals, citing client confidentiality. He noted that the controversies surrounding the Chewco deal involve Enron’s accounting issues and that Kirkland & Ellis represented Chewco, not Enron.
It has retained Munger, Tolles & Olson, a law firm based in Los Angeles, to handle attorney-client and other issues; and Foley & Lardner, a Milwaukee firm, to represent it in the Securities and Exchange Commission investigation of Enron.
Price of Political Life Is Increasingly Tallied in Lawyers' Fees
By Ruth Marcus----Washington Post Staff Writer
Monday, August 11, 1997; Page A06
<<<>>>>>> In one graphic example of the lawyerization of political life, former RNC chairman Haley Barbour was accompanied by seven attorneys when he testified before the Senate Governmental Affairs Committee last month. They included his lawyers at Williams & Connolly and the RNC's outside lawyers from Foley & Lardner. Grebe estimated the cost for that appearance alone was $1,000 an hour – which doesn't account for his time, which he donates, or the costs of the RNC's in-house lawyers."
From The Washington Post ------- (More) --- Bankruptcy Isn't Cheap, Judging by the Bills From Enron Lawyers
Enron: Facing The Music
http://cagle.slate.msn.com/mondo/MondoEnron.asp
I'd love to see a group of these big law firms legally destroyed over the Enron scam.
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