Subcommittee on Oversight and Investigations
February 7, 2002
10:00 AM
2322 Rayburn House Office Building

Chairman Greenwood, Congressman Deutsch, and Members of the Subcommittee. Good afternoon, and thank you for the opportunity to address the Subcommittee.

I am the Chairman of the Finance Committee of the Board of Directors of Enron. I have held this position for several years.

I. Introduction

On October 16, 2001, Enron announced that it was taking a $544 million after-tax charge against earnings related to transactions with LJM2, a partnership created and managed by Enron's CFO, Andrew Fastow. On the same day Ken Lay announced at an analysts' meeting that, in connection with the same transactions, it would take a $1.2 billion non-cash reduction to shareholder equity. Two weeks later, in order to learn how these losses had been incurred, the Board of Enron Corp. appointed a Special Investigative Committee. At that time, we committed to make public the results of that investigation. We did so on Saturday, when the Board authorized the release of a 217 page report detailing the Committee's investigations and findings.

I must tell you that I, as a member of the Special Investigative Committee and more generally as an independent member of the Board, have been deeply disturbed by what the investigation revealed. The Report makes clear that those in management on whom we relied to tell us the truth did not do so. The outside experts at Arthur Andersen and at Vinson & Elkins failed us, and their professions, as well. We, too, have been criticized for approving these transactions and for failing in our duties to oversee these relationships. Those criticisms have hit us hard, because I firmly believed at the time-and believe today-that the Board made the business judgment to permit Mr. Fastow to serve in these partnerships for one reason and one reason only: Based upon the information presented to us, and upon the advice of our outside auditors and lawyers, we believed these transactions would be in the best interests of Enron and its shareholders. That this turned out to be untrue has been devastating to all of us.

I volunteered to serve on the Special Investigative Committee because I wanted to find answers to why this occurred. The Committee's Report was an important first step in that process, but it was only a step. This is our next step. Dr. Jaedicke and I are here today, voluntarily, to continue to share with the members of this Subcommittee what we now know about what happened at Enron.

We come here, of course, as independent members of a corporate board of directors. The reality in the modern corporation is that directors cannot, and are not expected to, manage a company on a day to day basis. Rather, to be a director is to direct. As directors, our role was to form general corporate policy and to approve Enron management's strategic goals. We were required to do so on an informed basis, in good faith and in the honest belief that the actions we took were in the best interest of Enron. We then delegated to the company management and its outside advisors the responsibility to carry out our directions. Importantly, an informed decision to delegate responsibility is as much an exercise of business judgment as any other.

The Report makes clear that the directors were acting in good faith when they approved these transactions. It also recognizes that we as a Board held an honest belief that these transactions-although not without risk-were in the best interests of Enron's shareholders. The Report acknowledges that this was our independent business judgment, formed in consultation with outside experts from Arthur Andersen and Vinson Elkins, on which we were-and are-entitled to rely. With the benefit of hindsight, my colleagues on the Special Committee, without my participation, disagree with some of the decisions made by the Board, but they offer no suggestion that the Board did not act honestly and in good faith in approving these structures.

The Report questions whether we acted on an informed basis and suggests that we failed properly to oversee these transactions after they had been approved. I respectfully disagree. It is unfair to suggest we were uninformed simply because it has now become apparent that we were deceived. Our business decision can only be evaluated based upon the facts known to us at the time we made it. I am prepared today to answer questions both about the decisions we made, the controls we put in place, and the information we received, so that you and the public will understand that we sought to fulfill our duty while using what was our best business judgment.

A number of senior Enron employees, we now know, did not tell us the full truth. Our accountants at Arthur Andersen, and our lawyers at Vinson & Elkins, we now know, did not provide good advice to us. The related party arrangements were terribly abused. I feel, however, that the tragedy of Enron's bankruptcy might well have been avoided if the controls we put in place had been followed as we intended, and if the important transactions about which we were not informed had not occurred. But I assure you that my colleagues and I, at the time, did our best to understand the risks and benefits involved in permitting Mr. Fastow to become the general partner of the LJM partnerships.

With that in mind, I would like to turn to a general discussion of three areas. The first is to describe how the Enron Board of Directors went about discharging its obligations to act in the company's best interests. The second summarizes the controls we had put in place-both generally and specifically with regard to these transactions-to contain and measure accurately the risks and rewards of Enron's business activity. Finally, I would like to discuss the specific circumstances in which we approved the LJM structures and-of equal importance-will share with you the important facts that were concealed from us at the time.

II. Discussion

A. Enron's Management Direction

Enron's Board of Directors was composed of 12 independent directors and two inside directors, Kenneth Lay and Jeffrey Skilling. Many had advanced degrees. Others have significant government and regulatory experience. Still others are the heads of major corporate and non-profit organizations. My colleagues on the Board are highly accomplished in their fields, are highly intelligent, and, I believe, highly ethical as well. As a Board, we worked well as a unit to help move Enron forward into a new business environment characterized by increased globalization of investment, rapid regulatory and technological change, and increased sophistication in the capital markets.

To some extent, as now has been learned, by early 2001 Enron's reach had exceeded its grasp. Business decisions that made sense at the time, such as the building of an extensive broadband network, or Enron's entry into developing markets abroad, did not work out. Other broadband companies, such as Level 3 and Qwest, have experienced severe declines in the price of their stock as the demand for bandwidth dried up. Global Crossing, another broadband company, is-like Enron-in bankruptcy. Our initiatives in power and water deregulation abroad were also less productive than we believed they would be. But companies such as AES also have seen significant declines in their stock prices. At the time, however, Enron's expansions were hailed in the media as brilliant initiatives. Over the decade of the 1990's, Enron became the dominant company in providing electricity and gas to customers around the world.

I raise this to make an important point. Enron, as a company, took a number of business and financial risks. These risks were disclosed in our Form 10-Ks. They were also recognized by the analysts and rating agencies who followed the company. To suggest otherwise is to ignore the disclosed, and well-publicized facts about Enron and its business strategy.

B. Enron's Internal Controls

Although the Company took risks, it also took careful steps to monitor and contain those risks. Enron had a significant risk management function called "Risk Assessment Control." Under the leadership of Rick Buy, this department employed over 100 people whose responsibility it was to measure the risks of Enron's trading operations, to assess the valuation of its assets and approve the valuation of contracts and assets, and to assess the credit-worthiness of Enron's trading counterparties-including the LJM entities.

The Finance Committee met regularly five times per year for 1½-2 hours typically the afternoon before each regular Board meeting. Our formal responsibilities were to recommend to the Board Enron's financial policies and to monitor its financial affairs. In that capacity, we received regular reports concerning proposed transactions, various credit ratios, Enron's value at risk modeling-which was an assessment of the unrealized risks of its trading operation-its liquidity, measures of borrowing cost and risk from capital markets, and its balance sheet. The Board's efforts to monitor Enron's risk activities were highly successful.

We also were available to management, when asked, to review possible pending transactions. On several occasions, management informally proposed and later withdrew large investment opportunities from consideration when committee members expressed their disapproval.

Of equal importance, our attention to risk control and the questions asked at presentations to the Board enabled us to identify and ask management to remedy problems within the risk management activities of an Enron retail power subsidiary, EES. As has been discussed in the press, the Board acted to remedy these problems when they were detected. Enron consolidated the risk management functions of the retail unit into that of the larger wholesale division--and disclosed the resulting restatement of results in the Form 10Q for the first Quarter of January 2001.

In addition to the Risk Assessment Control procedures, the Board implemented transaction approval controls. These included both general controls and additional controls specific to the LJM transactions.

Enron's general transaction approval process incorporated written presentations and various levels of required executive approvals. The written presentation was in the form of a Deal Approval Sheet, called a DASH. The DASH set out, in detail, the economic basis of significant transactions by Enron. It required the business unit to set out the merits and risks of any proposed investment, to explain its strategic purpose for Enron, to discuss its funding sources and to set out its projected returns. Depending upon the size of a given transaction, approvals at various levels were required. In the time frame at issue for the LJM transactions, new business in an amount greater than $35 million required Board approval. Below that level, at various breakpoints, approvals were required from the CEO or the business unit heads. Investments of between $25 million and $75 million required the approval of the Office of the Chairman. Investments in existing businesses above a $75 million threshold required the approval of Enron's Board.

C. Special Controls for the LJM Partnerships

Even before the LJM matters were brought to the Board, Enron maintained a code of conduct for its employees, which required annual certification as to their compliance.

In addition to the regular deal approval process and the code of conduct, we imposed specific controls related to the LJM transactions. These controls were extensive and robust. They included a requirement that both the Chief Accounting Officer, Rick Causey, and the Chief Risk Officer, Rick Buy, review and approve the merits of each transaction to be sure the terms were fair to Enron, were negotiated at arms' length, and that the accounting treatment was correct. Under the Code of Conduct, and under the procedures we implemented, each transaction also required a separate approval from the CEO or his delegate before it could proceed. That approval should not have been given to any transaction that was not absolutely fair to Enron and in its best interest. Approval was also required from internal and external legal counsel and from our external auditors, Arthur Andersen. Specific additional disclosure requirements as mandated by the SEC were subject to Andersen's and Vinson & Elkins' review, as well.

An additional structural control we imposed was that transactions with LJM were entirely optional. The business unit heads-whose compensation and incentives were outside Mr. Fastow's control-had every incentive to maximize the value they received in any sale of their assets. Unless they truly believed that a transaction was in the best interest of the company, there was no reason for them to do business with LJM, because it would directly, and adversely, affect their compensation if they failed to maximize Enron's value.

We also required the Office of the Chair to remain in control of Mr. Fastow's participation. This was important because Mr. Fastow explicitly acknowledged that he remained a fiduciary to Enron. In order to ensure that this duty was honored, Messrs. Skilling and Lay were given the authority to require Mr. Fastow to resign at any time from his involvement with LJM. Mr. Skilling also was charged with the responsibility to supervise Mr. Fastow's involvement, to make sure it did not become a disruption to the company and to ensure that his compensation from the LJM transactions was moderate. Mr. Skilling reported to us that he was discharging these obligations; it now appears that he did not do so.

There is no doubt that senior management, our outside accountants, and lawyers who were involved in these transactions understood these requirements. In fact, Enron created an additional and special LJM Deal Approval sheet specifically to verify that each and every LJM transaction complied with the internal controls that the Board had imposed. These requirements, like the regular transaction approval requirements, applied at all times to the LJM transactions, and the responsible people at the Company and Arthur Andersen knew this. We were repeatedly assured by both management and Andersen and Vinson & Elkins that these internal controls were being followed, that the transactions were indeed at arms' length and fair to Enron and that the company was realizing real and legitimate economic benefit from these transactions.

I describe the Risk Management system in detail because it was an important part of how the Board and the Finance Committees evaluated the risks associated with the LJM partnerships. That will become apparent, as I will now turn to the specific LJM transactions that were the subject of the Special Committee's report.

D. Transactions Discussed in the Special Committee Report

1. The Rhythms Net Connection Transaction

Enron had within its portfolio certain highly volatile investments, such as Rhythms NetConnection. Enron, as has been discussed, was required to use mark to market accounting on its "merchant" investments. That combination of volatile investments and mark to market accounting created instability and unpredictability in the Company's income statement. Putting in place hedges to mitigate and stabilize those risks was an important and sound thing to do. I don't think anyone can seriously question that Enron should have taken steps to hedge its risks. Indeed, just this week, I learned that the directors of Ford were sued by a class of shareholders because they failed to put in place hedges on significant and volatile investments in metals Ford used in catalytic converters.

The Special Committee was highly critical of Enron's decision to use forward contracts on its own stock in its hedging activities. I make the following observations.

First, the Report recognizes that at the time these transactions were authorized, Enron had significant unrealized value in forward contracts previously issued on its own stock. These forward contracts were written by Enron in order to hedge the expense of Enron's stock-based incentive compensation plan. In simple terms, Enron wrote forwards at today's prices in order to protect itself against the risk that its stock would appreciate in value and thus make its incentive compensation plan more expensive. The Report does not criticize this decision. I believe that this is a common business practice.

The Report also notes that these forward hedges had been very successful. As a result of the appreciation of Enron's stock price, Enron was now able to purchase Enron stock at a substantial discount to the then existing market price. In fact, the value in these forwards-called the UBS forwards in the presentations made to us-was in the hundreds of millions of dollars. That value was an asset to Enron's shareholders. We were told, both by the company's management and by its accountants, that the most effective way to capture this value was to use this asset to support hedging transactions with a third party.

The Report contends, based on advice from the Special Committee's accounting consultants, Deloitte & Touche, that Enron's decision to use the forward contracts to hedge other risks was improper. It is not specific as to why this is so. It does not specify which accounting rules, in particular, were allegedly violated by this practice. Nor did the Special Committee know whether Deloitte as a firm agreed with its consultants' conclusions. In my view, it is more important to bear in mind what the Board actually knew when it made this decision.

What I knew was this. As a director, I was told that the Company had assets-in the form of forward contracts-that had appreciated significantly in value. I believed it made sense to try to find a way to use that value most effectively for the benefit of the shareholders. I, like the others on the Board, turned to Arthur Andersen for advice concerning whether the transactions being proposed made sense from an accounting perspective. As has been said by Andersen officials in testimony, Arthur Andersen was "very much involved in giving [its] advice as to whether these structures passed the accounting rules." The Report is even more explicit: "There is abundant evidence that Andersen in fact offered Enron advice at every step, from inception through restructuring and ultimately to terminating the Raptors. Enron followed that advice."

As Board members, we fulfill our duty to the shareholders when we act "through one of [our] Committees or through the use of outside Consultants." We relied on Arthur Andersen to assure us that these transactions were appropriate and permissible. They assured us they were. The Rhythms Net hedge also was the subject of a separate fairness opinion by PriceWaterhouse Coopers. The Rhythms Net transaction with LJM, as with all of the hedging transactions that were disclosed to us, were heavily scrutinized by our inside and outside counsel. As a result, until these transactions were restated, we had no reason to believe these transactions were in any way improper or impermissible.

Let me be absolutely clear. I knew that Rhythms Net, and later the Raptor transactions, involved the use of forwards on Enron stock. That fact was also disclosed in Enron's public filings. This matter is set out in Enron's regulatory filings, in disclosures that Arthur Andersen and Vinson & Elkins assured us were both sufficient and proper. What I did not then know is what the accounting consultants to the Special Committee now have said, namely that in their opinion this wasn't permitted under the accounting rules.

Media accounts of the Special Committee report seemed to imply that the Board of Directors knew that the LJM transactions, in particular the Raptor hedges, were undertaken for the purpose of creating fictitious earnings. I could not disagree more.

The transactions that were presented to us -- and many were not -- were presented as valid economic hedges of Enron's risks, using the gains in the Enron stock forward positions. I want to make clear that I never understood, and was not told, that the business purpose of entering into the LJM transactions was to create fictitious earnings. Quite the contrary, I was told that the LJM transactions were being undertaken to hedge the risks and volatility of our assets, and to assist Enron in obtaining additional third-party debt and equity capital on favorable terms to Enron shareholders to support the company's growth.

The Report concludes otherwise, based in part on an unverified handwritten note by the corporate secretary, to the effect that a particular Raptor transaction "does not transfer economic risk but transfers P & L volatility." From that single reference, which is inconsistent with the very document on which it is written, the Report generalizes that the Board knew these hedges did not really shift risk. That note is inconsistent with my recollection of the events at that meeting, and with the minutes of the meeting, prepared by the same secretary, that were approved and ratified by the committee as a whole.

Of equal importance, I am aware of specific representations to the Board that controvert the contention that the Board understood these hedges weren't real hedges. First, in an Audit Committee meeting-in the presence of Arthur Andersen-the Audit Committee was advised that the LJM transactions were not earnings related but were, instead, primarily related to deconsolidations, securitizations or monetizations of assets. Arthur Andersen did not disagree with this statement. Second, as I indicated earlier, every presentation of the LJM and Raptor transactions described them as financial hedges for Enron's risks. If the hedges were imperfect, or if they were impermissible under the accounting rules, no one made the Board aware of that fact.

Finally, I want to emphasize that the particular transactions cited by the Committee, including myself, as evidence of earnings improprieties were transactions that either were not disclosed to the Board or that were, in fact, affirmatively misrepresented to us. I list a few of them here to illustrate the point.

2. Transactions Not Disclosed to the Board

a. Raptor III/New Power

The Report notes that a vehicle called Raptor III was created by Enron management, purportedly to hedge an investment in New Power stock. The Report makes clear that this transaction was never disclosed to the Board by anyone in management, although it was reviewed by Andersen.

I cannot and will not defend this transaction. It seems obvious to me that one cannot hedge an investment in New Power with warrants on the same New Power stock. It is equally obvious to me that the terms of this transaction, which seem to me to fail to properly value the New Power stock being contributed, were grossly unfair to Enron. We did not know that at the time, and neither company management nor Arthur Andersen-which was involved in valuing this transaction-told us the truth about it.

This particular transaction would and should have been avoided by simple adherence to the controls we put into effect. The Board of Directors required Messrs. Causey, Buy and Skilling to determine that each of the LJM transactions were fair to Enron. Of equal significance, given the size of the transaction, this transaction plainly required Board approval before it could be authorized. For reasons I do not understand, these approval requirements were ignored in this instance.

These approval requirements were known to Arthur Andersen. It was a critical part of the internal controls that they implemented at our direction, and that they were required to audit as Enron's internal and external auditors. That Andersen attended any number of subsequent Board and committee meetings, yet failed to raise this control failure, among others, with us, simply is astonishing.

b. Raptor Recapitalization

The credit problems with the Raptor entities which began in late 2000 were not disclosed to the Board. The decision in early 2001 to recapitalize the Raptor structure with an $800 million forward contract on Enron stock was, likewise, concealed from us.

Given its magnitude, and the critical issues it raised, this transaction is one that absolutely required Board approval. The existing risk management mechanisms also should have, but did not, reveal this to the Board. At each Finance Committee meeting, Mr. Buy presented to the Finance Committee a list of the Top 25 credit exposures for Enron. In February of 2001, when the Raptors were allegedly $350 million underwater, neither Raptor nor LJM appeared on the list that Mr. Buy presented to the Finance Committee, nor did he, Mr. Fastow, or Mr. Skilling, all of whom were in attendance at that meeting, raise this mat

As has been disclosed in the press, on February 5, 2001, Arthur Andersen held an internal meeting in which it expressed significant concern about the credit capacity of the Raptor vehicles and the quality of the earnings being attributed to them. Just one week later, however, with full knowledge of the Raptor credit problems, Arthur Andersen assured the Audit Committee that Enron would receive a clean audit opinion on its financials. Andersen also told the Audit Committee that there were no material weaknesses in Enron's internal controls-even though one week earlier its auditors had discussed, but not shared with the Board, the fact that the controls imposed by the Board for these related party transactions were not being followed.

Had the Raptor restructure been presented to the Board, the Board might well have chosen the alternative-to shut down the Raptors-would have by definition avoided the accounting error related to issuance of new equity which accounted for the bulk of the $1.2 billion reduction in shareholders' equity we took in October. I find this to be particularly tragic.

Andersen's failure to disclose its concerns to the Board, as with management's marked disregard for the required internal controls and lack of candor with respect to information owed to us, deprived the Board -- us -- of the ability to deal proactively with this problem. We cannot, I submit, be criticized for failing to address or remedy problems that were concealed from us.

c. Churned Transactions

The Report notes that there was an observable pattern of assets being sold to LJM in one quarter, with earnings being booked, only to be repurchased by Enron in the following quarter. This, too, was concealed from the Board. As best as I can tell, the lists of transactions presented to the Board for their review did not include these "churned" transactions. Of equal importance, I cannot fathom why Messrs. Causey, Buy and Skilling would have authorized such activity to begin with-much less why they would have failed to call it to our attention. Arthur Andersen and our lawyers may have been aware, as well, of these transactions because they either audited or documented them for Enron. They said nothing to the Board either.

Certainly neither I, nor any other outside director, would have permitted this to occur had we been aware of it.

B. The Board was Not Informed of Critical Information

The Report makes clear that important facts about many of these transactions were concealed from, or affirmatively misrepresented to, the Board of Directors. I attribute this to a failure not of controls, but of character. Everyone involved in these transactions-including Arthur Andersen, Vinson & Elkins, Andrew Fastow, Jeff Skilling, Rick Buy, Rick Causey and our internal legal counsel-knew that the Board had imposed extensive procedures to ensure that a critical overarching requirement would be met: Before any transaction could be approved, it had to be demonstrated that the transaction was on terms that were fair to Enron and negotiated at arms' length. Had that single control-much less all of the other controls we had imposed-been adhered to, none of these unfair transactions could have been approved.

As the Committee Report indicates, Andersen, in connection with the 10Q and 10K reports, and Vinson & Elkins, in connection with the Proxy, were required to ensure that our disclosures were truthful, complete and met the SEC requirements in dealing with related parties. As the Report indicates, there is much evidence that they did not fulfill their responsibilities.

Thus, while the Report contends that our controls were inadequate, it is more accurate to say they were ignored by those responsible to implement them. A few examples will suffice to illustrate the point.

1. Chewco

There is no suggestion in the Report that any Board member knew that Chewco was, in fact, an affiliated transaction.

Plainly, however, this fact was known to Vinson & Elkins. They drafted the transaction documents that created Michael Kopper's interest in this transaction. That interest, it is undisputed, was a violation of Enron's Code of Conduct. It was never presented to or authorized by the Board.

Andrew Fastow and Michael Kopper both knew this violated the Code. It appears that this was known to other Enron employees within the legal department as well.

2. Rhythms

The decision to unwind the Rhythms transaction was not disclosed to the Board. Our requirement that all related party transactions be reported to the Audit Committee therefore was violated.

This, too, is a transaction that was grossly unfair on its face-but, as the Special Committee report states, we simply didn't know about it. I am horrified that Mr. Fastow and other employees of Enron apparently have profited, secretly, at Enron's expense as a result of this transaction. I am particularly unhappy that Enron employees were permitted to participate in what clearly seems to be a corporate opportunity.

Importantly, however, this transaction could not have occurred had our Code of Conduct been followed in two important respects. First, the Code of Conduct's requirement that transactions be on terms fair to Enron remained in effect as to all LJM transactions. That was emphasized, repeatedly, by the Board and was incorporated expressly into the LJM approval processes. Under no circumstances should a transaction this unfair ever have been authorized.

Second, we never authorized any other employee to participate in any self-dealing transaction. Thus, Messrs. Kopper, Fastow, Glisan and others all consciously and deliberately violated the Code of Conduct in connection with these events. Mr. Causey, who knew the terms of the unwind, also failed in his obligation to report to us both the existence-and the unfair terms-of this transaction. Mr. Skilling, who was required to monitor the LJM transactions apparently failed, as well, in this obligation.

3. Raptor I

The Report makes clear that this transaction was materially and deliberately misrepresented to the Board. Throughout the Board minutes and in the presentation materials, the Board was assured that the projected return for this transaction was 30%. In fact, as is evident from Deal Approval sheets signed by Ben Glisan, and Scott Sefton, management of the company knew that LJM's projected return was, in fact, a minimum of 76%. Mr. Fastow also must have known these facts, because they were presented to the partners of LJM2 at their annual meeting. Both Mr. Glisan and Mr. Fastow attended the Board meeting where Raptor was presented. Neither of them told us the true rate of return they had projected.

4. Rhythms Restatement

It is also important, I believe, to point out that the restatement of $100 million in earnings from the Rhythms transaction is not the result of a hedge that "didn't work." There has never been any question that-as PriceWaterhouse Coopers assured us-the transaction was authorized on arms' length terms that were fair to Enron. To the contrary, as Arthur Andersen has acknowledged, this transaction had to be restated solely because of an accounting error. None of us could have anticipated that Arthur Andersen, which was heavily involved in structuring this transaction, would make a technical error on a matter of this importance. We relied on them to ensure that this transaction was both permissible under the accounting rules and to be sure that it was structured properly, in compliance with those rules. That they failed in that obligation is a great disappointment to all of us.

III. Conclusion

All transactions with LJM were required to be on terms that were fair to Enron and negotiated at arms' length. Had that requirement been adhered to, none of the unfair transactions criticized in the report could-or should-have occurred.

What happened at Enron has been described as a systemic failure. As it pertains to the Board, I see it instead as a cautionary reminder of the limits of a Director's role. We served as directors of what was then the 7^th largest corporation in America. This was a part-time job. It was necessarily limited by the nature of Enron's enterprise-which was worldwide in scope, employed more than 20,000 people, and engaged in a vast array of trading and development activities. By force of necessity, we could not know personally all of the employees. As we now know, key employees whom we thought we knew proved to disappoint us significantly. Although I am not a lawyer, I have found the following paraphrase to be an accurate description of both the scope-and the limitations-of a corporate director's role:

The very magnitude of the enterprise requires directors to confine their control to the broad policy decisions. That we did this is clear from the record. At the meetings of the Board and its committees, in which all of us participated, these questions were considered and decided on the basis of summaries, reports of management and corporate records. These we were entitled to rely upon. Directors are also, entitled to rely on the honesty and integrity of their subordinates and advisers until something occurs to put them on suspicion that something is wrong.

We did all of this, and more. Despite all that we tried to do, in the face of all the assurances we received, we had no cause for suspicion until it was too late.

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