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Financial Collapse of Enron Corp
Subcommittee on Oversight and Investigations
Joseph C. Dilg Esq.
Good morning Mr. Chairman and members of the Committee. My name is Joe Dilg. I am the Managing Partner of Vinson & Elkins L.L.P. Vinson & Elkins, founded in 1917, is now an international law firm of approximately 850 lawyers. My partner Ron Astin is with me to assist in answering the Committee's questions. From 1991 until December 2001, I served as the Vinson & Elkins partner primarily responsible for coordinating the firm's relationship with Enron. In this role, I coordinated much of the legal work performed by Vinson & Elkins for Enron through all of our offices. Although Mr. Astin and I each personally worked on many Enron matters, we were directly involved in only part of Vinson & Elkins' work for Enron. This statement, as well as the testimony that Mr. Astin and I will provide, is based solely upon our individual personal knowledge and best recollection of the events. We cannot purport to know and thus be able to speak to all of the knowledge and information possessed by all lawyers at our firm. Since Enron's bankruptcy, there have been reports and statements that inaccurately describe the role Vinson & Elkins played and the advice we gave. We look forward to responding to questions as fully as possible because we are confident a full exploration of the facts will show that our firm fully met its professional obligations. First, let me say that the lawyers of Vinson & Elkins are greatly saddened by the financial collapse of Enron. Many outstanding and decent people who worked at Enron and their families have been greatly harmed. Likewise, many Enron investors have unfortunately lost a great deal of money. Many cities like Houston will be harmed by the loss of the very significant business and civic contributions of Enron and its employees. Our work for Enron consisted of a large number of specific projects for which we were selected by Enron's legal department. In the Enron bankruptcy filings, Enron listed more than 400 law firms as having represented Enron. Enron was a significant client for a number of major law firms. Enron's legal affairs were directed by a highly sophisticated in-house legal department consisting of approximately 250 attorneys. Enron recruited and employed experienced, highly capable, and well qualified attorneys, many of whom had previously practiced in large law firms. Pursuant to Enron corporate policy, Vinson & Elkins and other outside attorneys were employed by and directed to interface with Enron's legal department, not Enron's executives. Despite our sadness over the collapse of Enron, we remain proud to have served as Enron's counsel in many matters. Our representation of Enron provided interesting and challenging legal work on highly visible matters, and it was a pleasure to work with their very able in-house counsel. In representing Enron, our lawyers worked closely with many of the world's leading investment banking firms, commercial banks, and law firms. We provided Enron with quality legal services, and we fully met our professional and ethical obligations in rendering those services. Much of the Committee's attention and the media's coverage of the relationship between Enron and Vinson & Elkins has focused on a preliminary review conducted by Vinson & Elkins into allegations made by an Enron Vice President, Ms. Sherron Watkins, in a letter and supplemental materials delivered to Mr. Kenneth Lay in August of 2001. We are pleased to have an opportunity to discuss that matter. Ms. Watkins raised serious issues. Contrary to some public reports and the implication of some previous statements made in hearings conducted by this Committee, Vinson & Elkins did not advise Enron that there were no problems. Our written report pointed out significant issues, including the credit problem in the Raptor vehicles, the aggressiveness of the accounting, conflicts of interest, litigation risks, and the risk of credibility-harming media attention. The report did conclude that no further investigation was necessary because the appropriate senior level officers of Enron were fully aware of the primary concerns Ms. Watkins wanted Mr. Lay to address -- and had in fact already addressed them. Mr. Fastow had resigned from his position with the LJM partnerships, eliminating the conflict of interest problems raised by Ms. Watkins and earlier by Mr. McMahon. Prior to the delivery of our final written report, the Company terminated the Raptor entities which were the primary focus of Ms. Watkins' concerns. The Company reported in its earnings release for the third quarter of 2001 a loss of more than $500 million attributable to the termination. The bankruptcy of Enron in December of 2001, approximately six weeks after we delivered our written report, has been the subject of numerous published analyses which have made clear that Enron faced very significant business challenges. Enron had made major and highly publicized investments in the broadband, water, international infrastructure, and retail electric businesses, all of which had resulted in significant illiquid capital investments and large losses for the company. The price of Enron's common stock had already declined approximately 60 percent from August 2000 to August 2001, when Mr. Skilling's resignation created even more uncertainty about the company. At the same time, Enron's online trading through Enron Online and the related dependency on trade credit from its counter-parties was experiencing explosive growth. In hindsight, there appears to be a consensus that these events, coupled with impending maturities of a significant amount of debt and the turmoil in the financial markets created by the tragic events of September 11, 2001, placed Enron in an extremely vulnerable position in the fall of 2001. No one can deny, however, that the adverse publicity associated with the related party transactions and the accounting errors related to the November restatement announcements contributed to the loss of confidence Enron experienced in energy trading and financial markets. This confidence was critical to the continued success of Enron's trading operations, which accounted for a significant portion of Enron's business. With regard to the related party transactions, it is important to consider the role of legal counsel. If a transaction is not illegal and it has been approved by the appropriate levels of a corporation's management, lawyers, whether corporate counsel or with an outside firm, may appropriately provide the requisite legal advice and opinions about legal issues relevant to the transactions. In doing so, lawyers are not approving the business judgment of their clients. Likewise, lawyers are not responsible for the accounting treatment of the transactions. In conclusion, I want to make it very clear that we are confident that Vinson & Elkins fully met its professional responsibilities in connection with our representation of Enron. We are pleased to assist in the Committee's deliberations and are happy to answer your questions, within the constraints of our professional responsibilities to our clients.
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