Enron Prosecutors Share Lessons Learned with Guangdong

UNCLAS GUANGZHOU 032265

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV KPAO CH
SUBJECT: Enron Prosecutors Share Lessons Learned with Guangdong
Audiences



1. (U) SUMMARY AND COMMENT: In two days of meetings and roundtables
with Guangdong officials, legal experts, students, and media,
Department of Justice prosecutors John Hueston and Robb Addison
discussed their involvement in the Enron case and highlighted the
differences between the U.S. and Chinese judicial systems. Their
interlocutors were particularly interested in such issues as
evidence collection, intra-agency cooperation, and victim
compensation, noting that the lessons of Enron are relevant in
China's current economic and legal environment. END SUMMARY AND
COMMENT.


2. (U) Hueston and Addison visited Guangzhou as part of a
PAS-sponsored China-wide visit. In Guangzhou, they met with the
Guangzhou and Guangdong bar associations, Guangdong Procuratorate,
Guangdong office of the China Banking and Regulatory Commission
(CBRC),local reporters, and Zhongshan University law and business
students. In addition, the Consul General hosted a dinner at his
residence that included five prominent local lawyers and a judge
from the Foshan Intermediate People's Court. The judge, Lai Zining,
is currently presiding over a case of alleged earnings misstatements
and corruption by a large Foshan-based firm named Kelong.

HOW TO SPOT THE WARNING SIGNS
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3. (U) In their presentations, Hueston and Addison described how
some of Enron's leaders misled investors and profited from stock
sales. They highlighted the warning signs that should have alerted
analysts and regulators that Enron was on weak financial footing,
including a vague and unproven business model, sudden earnings prior
to quarterly statements, and the unexpected resignation of the CEO.
They noted that new legislation -- the Sarbanes-Oxley Act -- has
strengthened financial reporting requirements and increased funding
for regulatory agencies.

REGULATORS AND PROSECUTORS INTERESTED IN U.S. SYSTEM
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4. (U) Officials from the Guangdong CBRC peppered Hueston and
Addison with questions about the complicity of banks in Enron's
illegal activities and what kinds of techniques they used for
evidence collection. Officials were also interested in the civil
cases brought by ex-Enron employees and the criminal sentences for
those Enron leaders found guilty. Chinese prosecutors from the
Guangdong Procuratorate asked how the various U.S. investigative
agencies, including the police, FBI, and Security and Exchange
Commission (SEC),coordinated with DOJ. They asked for information
on such aspects of U.S. law as the Fifth Amendment, plea bargains,
and grand juries.

STUDENTS TURN OUT IN FORCE
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5. (U) Between two hundred and three hundred students from Zhongshan
University's schools of law and business showed up for a lively
evening presentation with the prosecutors. The students focused on
the effect of the Enron case on U.S. policy and asked about
restitution for foreign investors of U.S. companies. Hueston and
Addison said they were proud to have been part of this landmark
case, and encouraged the students to pursue careers that benefit
China.

GOLDBERG