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Univ. of Toledo College of Law

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Monday, January 26, 2009

Former Enron Inhouse Counsel Settle SEC Charges

On January 20, 2009, the U.S. District Court in Houston entered final judgments in the SEC's civil action against Jordan H. Mintz, a former Enron Vice President and General Counsel of Enron's Global Finance group, and Rex R. Rogers, Enron's former Vice President and Associate General Counsel. The SEC had earlier charged Mintz and Rogers with participating in a fraudulent scheme not to disclose Enron's related-party transactions with partnerships controlled by its Chief Financial Officer, Andrew Fastow, and compensation Fastow had received through those transactions. As part of the alleged scheme, Rogers further failed to disclose Enron's related-party transactions involving insider stock sales by its Chairman, Kenneth Lay.

In settlement of this action, Mintz and Rogers neither admitted nor denied the allegations of the Commission's complaint. Among other things, the complaint alleged the following: In 1999, Enron sold an interest in a troubled power project in Cuiaba, Brazil to a related party called LJM1, a partnership controlled by Fastow, to deconsolidate the project and recognize related earnings. Under accounting rules, deconsolidation and earnings recognition were inappropriate because Enron did not transfer the risks and rewards of ownership in light of a secret side agreement promising that LJM1 would not lose money on Cuiaba. Satisfying the side agreement, Mintz helped Enron repurchase Cuiaba from LJM1 in 2001. Mintz then delayed signing and closing of the Cuiaba buyback in an effort to avoid reporting related-party transactions in Enron's 2000 Proxy Statement and 2001 Second Quarter Form 10-Q. Moreover, Mintz and Rogers failed to disclose in Enron's 2000 Proxy Statement millions of dollars Fastow received through related-party transactions between LJM and Enron. Rogers further failed to disclose in Enron's 2000 Proxy Statement at least $16 million in insider stock sales by Chairman Kenneth Lay to repay his Enron line of credit during 2000, and aided and abetted Lay's failure to disclose in SEC Form 4 filings an additional $70 million in insider stock sales by Lay during 2001.

Mintz and Rogers also consented to the entry of an Administrative Order, pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice, suspending each attorney from appearing or practicing before the Commission for a period of two years.

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