Enron's fall stirs outrage in Congress

Hearings to be held on how system failed to detect collapse

`Where was the SEC?'

Company prepares to file for Chapter 11, warns customers


NEW YORK - As lawmakers expressed outrage over how a company could collapse so quickly with so little warning, Enron Corp. sought protection from some of its creditors in Europe yesterday and warned traders on its online unit.

With business a sliver of its level just weeks ago, the once a giant energy trading company was desperately looking for ways to restructure, most likely in a bankruptcy filing within days.

The ripples were felt from Houston, where edgy employees at the company's headquarters ran a gantlet of photographers and braced themselves for anticipated layoffs, to Brazil and India, where jockeying began over control of Enron properties.

Financial companies, trading partners and governments rushed to calculate how much they were owed by Enron and what their losses might be.

In London, the accounting firm PricewaterhouseCoopers was appointed the administrator for Enron Europe and some of its operating units. Led by banks and energy trading firms, U.S. companies said they might lose more than $1 billion in the wake of Enron's tumble.

Tensions mounted between Enron and Dynegy Inc., which withdrew its offer for the company Wednesday. Litigation appeared likely over Dynegy's decision to walk away as well as its plan to take one of Enron's most prized assets, the Northern Natural Gas pipeline, under a previous agreement.

In Washington, lawmakers announced plans to investigate Enron's collapse. Rep. Billy Tauzin, the Louisiana Republican who is chairs the House Energy and Commerce Committee, ordered an investigation and hearings that probably would begin early next year. His Senate counterpart, Democrat Jeff Bingaman of New Mexico, did the same.

"Where was the SEC? Where was Enron's audit committee? Where were the accountants? Where were the analysts? Where were the institutional investors? Where was common sense?" asked Rep. John Dingell of Michigan, the ranking Democrat on the commerce committee, the Houston Chronicle reported.

Enron, which had ranked as the world's largest trader of electricity, natural gas and other commodities, is expected to file for bankruptcy court protection by next week - unless creditors force it into court before then.

The company says options other than a court reorganization are being considered, but it did not say what those are. Investors have factored in a bankruptcy filing, pushing Enron's stock, which peaked at $90 last year, down 25 more cents yesterday, to 36 cents.

Moody's Investors Service said that it continues to consider a downgrade of Dynegy's credit rating because of potential liabilities from litigation with Enron. Shares of Dynegy closed at $33.65, down 8.4 percent, or $3.08.

"It remains uncertain whether or not the company will face legal challenges from Enron," Moody's said, adding that it "will continue to monitor any potential consequences of the merger termination and any subsequent impact on Dynegy's capital structure and liquidity."

Just a few weeks ago, Enron's Internet-based trading platform, EnronOnline, was the most powerful force in world energy markets, but yesterday it warned: "While transactions may be available, customers entering into transactions should carefully evaluate their positions and Enron's current credit status before transacting."

Traders were exiting contracts with Enron and managing Enron credit exposure. The online unit did about 850 trades, compared with more than 5,000 daily before the financial crisis that turned Enron into a penny stock and potentially the nation's largest bankruptcy.

Enron's U.S. advisers, including lawyers from Weil Gotshal & Manges, a leading bankruptcy-law firm, and executives from the Blackstone Group, an investment firm specializing in restructuring, met with Enron creditors to discuss a prepackaged bankruptcy filing, according to executives close to the talks.

Such a filing, in which creditors and management agree to a restructuring plan in advance, would identify what assets Enron still has that could be used to partly repay lenders and other creditors.

Aside from its core energy-trading business, Enron has a number of tangible assets, including natural gas pipelines and power plants.

Enron stopped short of saying it would sue Dynegy. But executives close to the company say lawyers have been preparing documents for a possible lawsuit that would seek damages of more than $350 million, the merger's breakup fee.

Several banks disclosed exposures of several hundred million dollars. In New York, the $112 billion state Common Retirement Fund lost roughly $50 million to $60 million from Enron's decline.

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