Two more accounting firms under fire over Enron's Cayman Islands partnerships

Wednesday, December 10, 2003

NEW YORK, USA: According to a report released last week by Enron bankruptcy examiner, Harrison J. Goldin, auditors at KPMG and PricewaterhouseCoopers turned a blind eye to problems at Enron on deals they helped set up in the Cayman Islands.

Mr. Goldin was told to investigate those financial institutions involved in Enron's special-purpose entities that another Enron examiner, Neal Batson, could not look into because of conflicts of interest. 

Mr. Batson's reports in July and late November accused a slew of financial firms of knowingly aiding and abetting Enron's fraud and concluded their claims against the bankrupt Enron should be subordinated. 

In September, Enron sued six of its former banks, saying they gave bad financial advice that ultimately led to Enron's implosion. 

In his 466-page report, Mr. Goldin detailed a variety of special-purpose entities set up by Enron to hide a mountain of debt and artificially boost earnings. 

Mr. Goldin looked at the involvement of both KPMG and PricewaterhouseCoopers in relation to two Enron special-purpose entities set up in the Cayman Islands: LJM Cayman LP and LJM2 Co-Investment LP. Andrew Fastow, Enron's former chief financial officer, used these partnerships to distort Enron's financial statements, according to an earlier report by Mr. Batson, and he improperly reaped "personal benefits" from Enron's dealings with them. 

KPMG, Mr. Goldin wrote, was negligent in its LJM audits, knew that Mr. Fastow was reaping benefits and "provided substantial assistance to Mr. Fastow in his breaches of his fiduciary duty to Enron," which caused Enron to suffer damages. 

PricewaterhouseCoopers issued two fairness opinions about LJM and other transactions in 1999 and 2000, Mr. Goldin's report said. He concluded that the firm "committed professional malpractice and was grossly negligent in preparing and providing these opinions," which caused Enron to "sustain significant monetary damages." 

It is not known at this time to what extent, if at all, the Cayman offices of the two accounting firms were involved in the audit processes criticised by Mr Goldin. 

However, these latest revelations come at a time when allegations have recently surfaced concerning a possible conflict of interest on the part of KPMG as past auditors of another insolvent Cayman company, National Warranty Insurance. Partners of KPMG in Cayman were subsequently appointed by the Cayman court as liquidators of the company, which went into bankruptcy leaving a million customers in the US without the extended vehicle warranty cover they had paid for.

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