Enron Corp. - University of California | Office of The President

INVOLVEMENT OF VINSON & ELKINS
800. The apparent complicity of Vinson & Elkins in the scheme to defraud Enron investors
has received extensive media coverage.
Vinson & Elkins may have to fight for its reputation because of its close ties to
Enron, which has become embroiled in a financial scandal that has culminated in the
nation's largest-ever bankruptcy filing.... [T]he Enron scandal is creeping into the
vaunted halls of Vinson & Elkins.
From a start in the early 1970s, Enron grew in importance on Vinson &
Elkins's client list. By the late 1990s, as Enron muscled its way to an energy trading
powerhouse, it became Vinson & Elkins's largest client, accounting for more than
7 percent of the firm's revenues, and helping fuel growth in the firm's securities,
corporate and project finance practices. The ties between the firm and Enron were
close, and the link was cemented as about 20 Vinson & Elkins lawyers, including
recently retired general counsel James V. Derrick, left the firm over the years and
accepted jobs in Enron's legal department.
The Recorder, 3/14/02.
Near the end of Sherron Watkins' extraordinary August memo to her boss,
Kenneth Lay, outlining concerns about Enron's accounting practices, she cautions
against having the company's regular outside counsel Vinson & Elkins investigate
the issues she raised.
"Can't use V&E due to conflict," she wrote, "they provided some 'true sale'
opinions on some of the deals."
But Enron did tap Houston-based V&E to handle the investigation. The
result was a nine-page letter to Enron's general counsel (and former V&E partner)
James Derrick Jr., on Oct. 15 from partner Max Hendrick that, in effect, brushed
Watkins' concerns aside....
The letter is striking for the narrowness of the investigation, the key people
who were not interviewed, and for the way in which it fails to fully probe
bombshell allegations ....
* * *
If V&E downplayed the substance of Watkins' allegations, it clearly realized
that Enron's accounting might not stand up well to public scrutiny and could be
portrayed very poorly in the press or in shareholder actions. V&E precisely identified
the areas in which the company's accounting was most suspect, including the use of
Enron stock to capitalize the partnerships, and the recognition of earnings through
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