UNITED STATES DISTRICT COURT
DECLARATION OF DOUGLAS B. PAUL IN SUPPORT OF
I, Douglas B. Paul, pursuant to 28 U.S.C. § 1746, do hereby declare as follows:
1. I am an attorney admitted to the Bar of the District of Columbia and the Bar of the State of California (inactive status). I am employed as a Branch Chief by the United States Securities and Exchange Commission ("Commission") in the Division of Enforcement, at the Commission's headquarters office in Washington, D.C.
2. This Declaration is submitted in support of the Commission's Application for an Order to Show Cause and an Order Requiring Obedience to Subpoena directed to Andrew S. Fastow, and is based on my direct participation in the investigation captioned In the Matter of Enron Corp..
3. Fastow is a resident of Houston, Texas. During the period under investigation, Fastow was the Chief Financial Officer of Enron Corp. ("Enron"). On October 24, 2001, Fastow was replaced as CFO and terminated thereafter.
The Commission's Investigation
4. On October 30, 2001, pursuant to Section 21(a) of the Exchange Act, 15 U.S.C. § 78u(a), the Commission issued an Order Directing Private Investigation and Designating Officers to Take Testimony in an investigation entitled In the Matter of Enron Corp. (the "Formal Order").
5. In the Formal Order, the Commission directed that an investigation be conducted to determine, among other things, whether Enron's reports filed with the Commission contained materially false and misleading statements, or omissions of material facts, in violation of the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, and the reporting provisions of the federal securities laws, Sections 13(a), 13(b)(2)(A) and (B), and 13(b)(5) of the Exchange Act, 15 U.S.C. §§ 78m(a), 78m(b)(2)(A) and (B), and 78m(b)(5), and Rules 12b-20, 13a-1, and 13a-13 thereunder, 17 C.F.R. §§ 240.12b-20, 240.13a-1 and 240.13a-13.
6. At all relevant times, Enron Corp., a Houston , Texas-based company whose securities are listed on the NYSE, published and filed annual, quarterly and other reports with the Commission which contained, among other things, its consolidated financial statements. 7. On October 16, 2001, Enron issued an earnings announcement stating that it was going to take a $1.01 billion charge to its third-quarter earnings to record asset impairments, restructuring related charges, and losses associated with certain investments. Enron also announced a total net loss for the quarter of $618 million.
8. Subsequent to this announcement, the company disclosed that it would reduce its shareholder equity by $1.2 billion related to the company's repurchase of 55 million shares of its common stock, which previously had been issued as part of a series of complex hedging transactions involving limited partnerships established by its Chief Financial Officer, Andrew S. Fastow. Following the earnings announcement, and a subsequent revelation that the company would reduce its shareholder equity by $1.2 billion, Enron has been the topic of many news articles that have questioned the proprietary of these transactions with the limited partnerships. Following the earnings announcement, Enron's share price fell precipitously, and on November 8, 2001, Enron filed an 8-K announcing their intention to restate their financial statements for the period 1997 through 2000 and the first two quarters of 2001. The restatement relates in part to the accounting treatment of certain limited partnerships, including some operated by Fastow. On December 2, Enron filed for bankruptcy under Chapter 11 of the Bankruptcy Code.
9. These limited partnerships were operated by Fastow and were set up by him in the summer of 1999. These transactions between the company and the limited partnerships involved company assets and millions of shares of Enron common stock. Very little information regarding the participants and terms of these limited partnerships were disclosed by thecompany, either in required Commission filings or otherwise. Enron's 8-K filed on November 8, 2001 reveal that Fastow received at least $30 million as result of his involvement with these limited partnership transactions with the company.
Issuance of Subpoenas and Noncompliance
10. On October 31, 2001, the SEC staff issued and duly served a subpoena requiring Fastow to produce certain documents by Wednesday, November 7, 2001, and to appear for testimony on Wednesday, November 14, 2001. See Fastow Subpoena (Exhibit A).
11. On November 2, 2001, the SEC staff spoke on the telephone with lawyers from two of the four firms representing Fastow. During the conversation, counsel noted that their client had already produced certain documents to Enron's Special Committee. The SEC staff requested that Fastow produce those same documents as soon as possible. Subsequently, it was agreed that the remainder of Fastow's documents were to be produced by November 7 as required by the subpoena.
12. On November 7, 2001, the SEC staff received the documents (about 500 pages) Fastow produced to the Enron Special Committee. However, Fastow has failed to produce other documents subpoenaed by the Commission.
13. On November 13, 2001, the SEC staff met with three of Fastow's attorneys (David Gerger, Lawrence Iason and Alfred Levitt) in Washington, DC. During this meeting, Fastow's attorneys requested an extension of time for the testimony that was scheduled for the next day. The SEC staff offered to take Fastow's testimony any day before Thanksgiving (including Saturday and Sunday). Prior to concluding the meeting, Fastow's attorneys said thatthey were unsure as to when they could comply with the required production of documents in light of the fact that they needed to review and understand the documents provided to them by their client.
14. On November 15, 2001, the SEC staff spoke with Mr. Gerger via telephone, and all parties agreed that Fastow would either produce the required documents by November 29, or advise the SEC staff whether Fastow would be asserting his Fifth Amendment privilege as to the production of documents.
15. On November 16, 2001, the SEC staff sent Gerger a letter confirming the November 15 conversation. See Letter from Douglas B. Paul to Counsel for Fastow, dated November 16, 2001 (Exhibit B).
16. On November 18, 2001, Fastow's counsel and the SEC staff agreed that Fastow would appear for testimony at the Commission in Washington, D.C. on December 12 and 13.
17. On November 19, 2001, the SEC staff sent a letter to Gerger and Iason confirming December 12 and 13 for Fastow's testimony. The SEC staff requested that counsel notify the SEC staff by November 29 if Fastow intended to assert his Fifth Amendment privilege as to his testimony. See Letter from Douglas B. Paul to Counsel for Fastow, dated November 19, 2001 (Exhibit C).
18. On November 20, 2001, a federal criminal authority contacted Iason about arranging an interview with Fastow regarding his activities relating to Enron.
19. On November 30, 2001, Iason agreed with the federal criminal authority to have Fastow give an interview on December 12, under certain terms and conditions dictated byIason, as long as the SEC staff would relieve Fastow of his obligation to appear for testimony on December 12.
20. From November 30 through December 5, 2001, multiple conversations occurred between the SEC staff and Fastow's counsel. In these conversations, the SEC staff made clear that the SEC staff would participate in the December 12 interview in lieu of Fastow's testimony obligation set for the same date. The SEC staff continued to remind Fastow's counsel that Fastow was still obligated to appear for testimony at the Commission if the interview did not occur.
21. On December 6, 2001, the federal criminal authority cancelled Fastow's interview scheduled for December 12.
22. On December 7, 2001, the SEC staff spoke with Iason and reminded Iason that the cancellation of the interview did not release Fastow of his obligation to appear for testimony with the SEC staff on December 12, 2001.
23. On December 10, 2001, the SEC staff spoke with Fastow's attorneys and again reminded them that Fastow was required to appear for testimony on December 12, and that the SEC staff was going to open the record if he failed to appear.
24. On December 11, 2001, at approximately 4:00 p.m. EST the day before Fastow's testimony, Fastow's counsel sent the SEC staff a letter suggesting that Fastow would not appear for testimony as previously agreed. See Letter from Counsel for Fastow to Douglas B. Paul, dated December 11, 2001 (Exhibit D).
25. On December 11, 2001, at approximately 6:00 p.m. EST, the SEC staff responded to the above letter by sending Fastow's counsel with a letter confirming that Fastow was still under subpoena, and that he was required to appear at 9:30 a.m. the next day. SeeLetter from Douglas B. Paul to Counsel for Fastow, dated December 11, 2001 (Exhibit E).
26. At 9:34 a.m., on December 12, 2001, the SEC staff opened the record for Fastow's testimony. Fastow failed to appear for this testimony as required by the subpoena. See Transcript dated December 12, 2001 (Exhibit F).
I declare under penalty of perjury that the foregoing is true and correct. Executed on December ___, 2001.