Enron Internal Document Indicates
Lay Had Role in Controversial Deals

An internal Enron Corp. document indicates for the first time that former Chairman and Chief Executive Kenneth Lay had a direct role approving deals with at least one of the company's controversial executive-run partnerships.

The document is a deal-approval sheet from June 2000 that appears to be signed by Mr. Lay, who is expected to appear before a Senate hearing Tuesday, for a transaction between Enron and the LJM2 Co-Investment LP. LJM2 was a partnership that was formed in 1999 by then Enron Chief Financial Officer Andrew Fastow, who also ran and partly owned the partnership.

Enron used LJM2 and other executive-run partnerships to produce hundreds of millions of dollars of earnings and keep like amounts of debt off of its balance sheet. Rising concerns about the propriety of these partnerships, which are the subject of numerous federal investigations, sparked a collapse in investor confidence late last year that forced Enron to seek bankruptcy-law protection in December.

In interviews in recent months Mr. Lay and his wife have said that the former CEO wasn't fully informed about the operations of the executive-run partnerships. Monday, a spokeswoman for Mr. Lay said that upon advice of his attorney, he declined to comment. Mr. Lay is scheduled to appear before the Senate Commerce Committee this morning, where he is expected to invoke his constitutional right not to provide testimony that might prove to be self-incriminating.

The deal-approval sheet covered a transaction in which Enron sold access to its nationwide fiber-optic network to LJM2 for nearly $91 million. Because of the potential for conflicts of interest due to Mr. Fastow's dual role as Enron executive and LJM2 operator, Enron had set up an internal review procedure that required the signed approval of senior company officers not involved in the partnership arrangement.

According to a recently released report by a special committee of Enron's board, this approval responsibility fell to former company President Jeffrey Skilling, Chief Accounting Officer Richard Causey and Chief Risk Officer Richard Buy. According to this document, Mr. Lay wasn't directly involved in approving individual LJM-related transactions. The recent special committee report said "it does not appear that Lay had, or was intended to have, any managerial role in connection with LJM."

The approval sheet for the fiber-optics deal, known as Project Backbone, carries a number of signatures, including Mr. Causey's and Mr. Buy's. On a last "executive" approval line, the names of Mr. Skilling and Enron's then-Vice Chairman Joseph Sutton are typed in. However, the signature clearly appears to be that of Mr. Lay. Congressional investigators say they also believe it is Mr. Lay's signature.

It isn't clear why Mr. Lay would have been involved in approving the Backbone transaction. But it does indicate that he was more involved in the specific activities of the LJM transactions than previously believed.

Another deal-approval sheet from July 2000 for a project known as Margaux involving the $10 million sale of Enron holdings in European power plants to LJM2 carries the signature of Mr. Skilling. In testimony before a House subcommittee last week, Mr. Skilling said he didn't recall whether he had signed any deal-approval sheets for the LJM-related partnerships.

Congressional investigators say they are also exploring whether the deal-approval sheets are accurate in claiming that all Enron employees working for LJM had received the required waiver from company conflict-of-interest policies. While Mr. Fastow is known to have received such a waiver, it isn't clear whether other Enron employees working for LJM also did.

Write to John R. Emshwiller at john.emshwiller@wsj.com², Tom Hamburger at tom.hamburger@wsj.com³ and Rebecca Smith at rebecca.smith@wsj.com⁴

Updated February 12, 2002 12:24 a.m. EST