April 06, 2006
The Attorneys Speak: V&E at the Enron Trial
Posted by Christine Hurt

As the rest of the Enron-watching world awaits Skilling to take the stand, I'm still digesting recent testimony of the former general counsel of Enron, Jim Derrick, and the Vinson & Elkins attorney, Max Hendrick III, who was tasked by Derrick with investigating Sherron Watkins' claims.  Prior to Jim Derrick's joining the GC office of Enron, Derrick had worked at V&E, and in fact had worked closely with Hendrick.  Although testifying on behalf of Lay and Skilling may seem unwise due to V&E's PR goal of distancing itself from Enron, whatever is good for Lay and Skilling here is good for V&E down the street (or hallway).  V&E is still a defendant in the ongoing civil investor lawsuit against Enron.

Direct examination of Hendrick sought to set the stage that Lay's response to Watkins' memo was to hire V&E to investigate the claims, and the claims turned out to be mere rumours.  This seems a dangerous strategy, when any fool with a newspaper can tell now that her allegations were more truth than rumour.  Cross-examination tried to show how cursory Hendrick's investigation was, with Hendrick acknowledging (benefitting himself and his employer) that he was told only to interview certain executives.  He was not told to investigate the actual transactions or look at any documents.  He was also not told to investigate a wide-range of people, including persons involved in the Raptor transactions.  He had a job to do, and he did it.  Notably, Hendrick was not a transactional attorney and was not in the department at V&E that put together transactions for Enron.  Instead, he is a litigator and defends corporate boards and officers against shareholder suits.  So, he may have perceived his task as finding out if certain persons had knowledge that would subject them to suit, not finding out if there was something wrong actually going on at Enron.  Hendrick also was a partner at the time, not a first-year associate who wouldn't know a red flag if it slapped him in the face.

Notably, the prosecution focused in part on the fact that V&E, who received $35-40M a year in fees from Enron, was a defendant in the investor lawsuits and so had an interest in seeing Enron's key officers acquitted.  Hendrick conceded that V&E was a defendant, but stated that the amount at risk was not "significant."  Hmmm.  On re-direct, Lay's attorney (through questioning) reminded the jury that all it took for investors to file a lawsuit against Enron was a filing fee.  Well, that's not quite accurate.  Re-cross, anyone?  Someone should remind the jury, since we're bringing all this up anyway, that V&E has survived the big motion to dismiss.  So, in securities law land, investors have had to produce a lot more than a mere filing fee.  Of course, that does not make V&E guilty, but it does mean that the lawsuit is not as frivolous or insignificant as some would have us believe.

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Comments (5)

1. Posted by Michael Guttentag on April 6, 2006 @ 15:14 | Permalink

Very interesting. You observe that: “Hendrick conceded that V&E was a defendant, but stated that the amount at risk was not "significant."” Do you think this is something that the V&E insurance carriers have a different perspective on?

2. Posted by Christine on April 6, 2006 @ 15:44 | Permalink

I'm not sure what it means! From what I've heard, V&E is in a self-insurance pool with other law firms (ALAS?). I've never thought about it before, but ALAS is an unfortunate acronym for malpractice insurance.

3. Posted by John on April 6, 2006 @ 15:46 | Permalink

Have you read the V&E memo? It's available online somewhere. Having read it, I would say that your statement "He had a job to do, and he did it" is patently false. It's clear from the memo that V&E, which had been told to do a preliminary examination in order to determine whether a broader investigation was appropriate, instead chose to ignore numerous red flags on the theory that these indicators did not, by themselves, prove wrong-doing by Enron.

4. Posted by Christine on April 6, 2006 @ 15:58 | Permalink

I've read the Powers report, which may have incorporated the memo. But, I want to be clear that I'm not saying that Hendrick had a job to do, and he did it. I was summarizing his responses to cross-x. I find it difficult to believe that a senior attorney, even if that attorney was a litigator and not a transactional attorney, would not have seen red flags. And, even if your corporate liaison chose to ignore the flags that you presented, you would have written a cya memo outlining those red flags.

5. Posted by John on April 7, 2006 @ 8:37 | Permalink

My point here was not really to criticize Christine, who I assumed was working from the testimony and not the original memo, but simply to make the point that V&E's work fell far short.

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