Enron Creditors Ask Court to Freeze $4 Million Sought by Law Firm

- Enron's creditors have asked a U.S. bankruptcy judge to freeze nearly $4 million sought by law firm Andrews Kurth for work it performed for the bankrupt company last year.

The problem is work that the Houston firm did before Enron filed for bankruptcy two years ago.

The creditors intend to sue Andrews Kurth for more than the $5 million worth of legal work the firm did for Enron in 2001 before the energy company filed for bankruptcy. A report by an independent bankruptcy examiner that was released last month concluded Andrews Kurth committed malpractice by facilitating deals that allowed Enron to hide billions in debts.

Until the pending litigation is settled, the creditors say, $5 million worth of payments due the law firm for post-bankruptcy work should be held by the court to equal the law firm's potential liability.

After Enron filed for bankruptcy, Andrews Kurth was retained primarily to assist Enron's other bankruptcy law firms with corporate and tax law as well as the completion of asset sales. For this work, Andrews Kurth has billed Enron and its creditors in excess of $20 million, much of which has already been paid.

The work at issue before Enron's bankruptcy involves so-called FAS-140 transactions, in which Enron would take a certain asset, such as broadband Internet fiber, and "sell" it to an especially created entity. That entity would "buy" the asset with funds loaned by a third party, usually an investment bank. For all practical purposes, however, Enron retained control over the asset.

Enron booked the money it received from these sales as income. The bankruptcy examiner, Neal Batson, concluded that these should be more properly called bank loans. Enron used these transactions to hide its debts.

Batson found that Andrews Kurth provided legal advice for 28 of these transactions and delivered 24 "true sale" opinions that auditors required to sign off on them.

Batson said Andrews Kurth knew full well that Enron had no intention of relinquishing control of the assets it was selling and that the deals were designed to manipulate financial statements.

Officials with Andrews Kurth have called their work for Enron "professionally unimpeachable."