Enron Letter Questions Winokur’s Role

Two members of the House of Representatives raised concerns Friday over the dual role of Harvard Corporation member Herbert S. “Pug” Winokur Jr. ’64-’65—who is both an Enron investigator and Enron board member.

Two members of the House Energy and Commerce Committee—Rep. John D. Dingell (D-Mich.) and Rep. Peter Deutsch (D-Fla.), who is the ranking member of the Subcommittee on Oversight and Investigations—said Winokur may “hinder” Congressional investigations into Enron’s demise.

The letter, addressed to William C. Powers, who is head of Enron’s special committee, details Winokur’s possible involvement in approving Enron affiliates which contributed to the company’s downfall.

These affiliates, such as LJM investments, were set up to help hide Enron’s high costs.

The letter then points to Winokur’s role as chair of the board of directors for Azurix Corp., a failed water company set up by Enron.

According to the letter, Enron bought 22,500 shares of Azurix stock from Winokur for $184,275—twice the market value.

Yet Winokur is on an Enron committee in charge of all internal investigations at the company, including dealings with the Securities and Exchange Commission (SEC).

“Mr. Winokur is essentially investigating his own actions and approving or disapproving the resulting report,” Dingell and Deutsch wrote.

“You can understand why disinterested observers might conclude that the report’s independence, or at least the appearance of independence, has been compromised,” their letter said.

On the heels of the letter, the Enron special committee on which Winokur sits released its 217-page report on Enron.

The report blames most of Enron’s collapse on “self-enrichment by employees, inadequately designed controls, poor implementation, inattentive oversight, simple (and not so simple) accounting mistakes, and overreaching in a culture that appears to have encouraged pushing the limits.”

The report is highly critical of Enron, faulting its three leading executives—Andrew Fastow, Jeffrey Skilling and Kenneth Lay—for having “withheld from the board important information about” the company’s potentially fraudulent deals.

A spokesperson for Dingell declined to comment to The Crimson until Powers testifies before the Senate subcommittee today.


Last Thursday, HarvardWatch—a monitoring group revived last year by members of the Progressive Student Labor Movement (PSLM)—released a report calling for the University to investigate its investments in Enron.

The report focuses on Highfields, a hedge fund that manages some of Harvard’s $18 billion endowment and profited from Enron’s collapse.

Highfields, an investment firm started by Richard Grubman and former Harvard Management Company (HMC) investor Jonathan S. Jacobson, received an initial investment of $500 million from the University.

The HarvardWatch report cites SEC filings that show Highfields placed put options on 1.2 million shares of Enron stock during the second quarter—April through June—of 2001 and continued to buy more put options throughout the third quarter.

A put option is a bet that a stock will decline in value. If the stock rises or remains at the same price, the buyer loses the money spent to buy the puts.

But for each dollar the stock drops in value, the buyer makes a dollar. With Enron stock now virtually worthless, Highfields could have profited greatly from Enron’s collapse, members of Harv ardWatch said.

“Our most recent estimate is that Highfields gained $33 to $104 million,” said HarvardWatch and PSLM member Molly E. McOwen ’02.

The HarvardWatch report calls for the University to launch an investigation into whether Winokur—who worked with Jacobson for two years as a director of HMC—leaked information to Jacobson about Enron’s impending demise.

Pending an investigation, the report asks that Winokur be suspended from the Corporation.

HarvardWatch staged a protest outside the Harvard Faculty Club yesterday, chanting, “We don’t need no Enron thug, Harvard give the boot to Pug.”

According to its report, HarvardWatch estimates that University money composes $2 billion of the approximately $5 billon Highfields invests. This assumption would mean that Harvard would come out $12 to $40 million ahead following Enron’s collapse.

But the report acknowledges the figures are all “estimated.”

And an HMC source who refused to be identified said that Harvard invests close to $1 billion with Highfields—not the $2 billion HarvardWatch had claimed.

If true, this would cut in half HarvardWatch’s estimate of the University’s potential gain.

The University’s potential earnings from Enron’s collapse also could have been negated by the money HMC lost on investments in Enron.

Documents filed with the SEC yesterday show that HMC lost at least $10 million and as much as $18 million due to Enron’s collapse.

The HarvardWatch report’s claims of possible insider trading are unrealistic, said Samuel L. Hayes, who is Schiff professor of investment banking at Harvard Business School professor.

Winokur could not be reached for comment yesterday.

—Staff writer Joseph P. Flood can be reached at flood@fas.harvard.edu.