Big, politically connected Texas law firm has forged close ties with Enron

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Posted 6:09AM on Monday, January 28, 2002

HOUSTON - Vinson & Elkins' reputation took 80 years to polish and one client to smudge. The largest law firm in Houston and the most profitable in Texas, Vinson & Elkins has been stung by accusations it showed poor judgment -- or worse -- in work for Enron Corp. An Enron insider claims Vinson & Elkins blessed partnership deals that hid the energy trading company's shaky financial situation until it collapsed into bankruptcy. Outside lawyers say the firm violated ethical standards by reviewing the accusations itself instead of demanding an impartial, outside review. V&E has worked for Enron since the energy company's founding in the mid-1980s and Enron is now its biggest client, accounting for $35 million of its $450 million in billings last year. Vinson & Elkins' work for Enron might not have attracted much attention but for an Enron executive's letter written in August to chairman Kenneth Lay. The executive, Sherron Watkins, fretted that Enron could "implode in a wave of accounting scandals," and urged the company to hire a law firm to investigate murky accounting and partnership deals that helped keep billions in debt off Enron's books. "Can't use V&E due to conflict -- they provided some true sale opinions on some of the deals," Watkins wrote. Lawyers write true sale opinions on the legality of transactions. Enron ignored Watkins' plea and turned back to Vinson & Elkins. In October, V&E partner Max Hendrick III wrote to Enron's general counsel James Derrick Jr., a former V&E partner, that Watkins' charges could prove embarrassing but merited no further investigation. Lawyers who specialize in suing other lawyers say Vinson & Elkins left itself open to attack by angry shareholders and ex-employees by not insisting that another firm be hired to investigate Watkins' claims. "When you've got someone asking you to review your own conduct, there's a bias," said Sean Jez, who represents shareholders suing Enron officers and directors. A legal malpractice specialist, Valorie Davenport, said big law firms fight over clients Enron's size and tend to gloss over problems to get and keep that business. Vinson & Elkins won't say what role it played in approving the controversial Enron partnerships. Watkins, the Enron executive who raised the accusation against the law firm, doesn't have documentary proof but "reliable sources communicated to her that the work was done," said her lawyer, Philip Hilder. A spokesman for Vinson & Elkins, Joe Householder, said the firm couldn't discuss its work for Enron because it still represents the company. "We are fully confident that everything we've done for Enron is to the highest professional and ethical standards," he said. Founded in 1917, the firm specialized in working with banks to provide legal advice and financing to Texas' then-young oil industry, and it grew rapidly as the energy sector boomed. "They did very good work, much of it humdrum work, like checking land titles. Attention to detail," said Harold Hyman, a retired Rice University history professor who wrote a book about the firm. Vinson & Elkins partners, who once included former Texas Gov. John Connally, grew rich. But the firm also developed a progressive reputation for doing pro bono work on civil-liberties cases and for hiring female, black and Jewish partners in the 1970s, before many other Texas law firms did. The law firm has forged close ties with many Texas politicians, especially President Bush. Two of its partners and a third who recently left were among the "pioneers" who raised at least $100,000 for Bush's presidential campaign. White House counsel Alberto Gonzalez -- sometimes mentioned as a possible Bush nominee to the Supreme Court -- is a former Vinson & Elkins attorney.