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KPMG Criticizes Court's Enron Report

Big Four accounting firm KPMG said a critical report by an independent examiner in Enron Corp.'s bankruptcy accusing the firm of being willfully blind to shady transactions was “riddled with flagrant legal and factual errors.”

Harrison Goldin, the examiner for Enron's former wholesale trading unit, concluded in a report filed earlier this month that Enron had potential claims against the accounting firm for negligence. Employees of KPMG audited the LJM partnerships once run by former Enron finance chief Andrew Fastow.

The accounting firm's lawyers argued Thursday in a filing with Enron's bankruptcy court that the “report is riddled with flagrant legal and factual errors, mischaracterizations and omissions.

“These flaws come at the expense of a fair record and to the detriment of KPMG, as well as the parties that might rely on this flawed report,” they argued.

Goldin had said in the report earlier this month that, with regard to KPMG, a fact finder could conclude that the auditor had actual knowledge of Fastow's unauthorized personal benefits from deals he helped set up and “was, at a minimum, willfully blind to the fraudulent nature'' of those transactions.

The LJM partnerships were investment vehicles named after Fastow's wife and two children. His alleged self-dealing with the partnerships is part of the 98-count indictment against Fastow, to which he has pleaded innocent.

The bankruptcy examiner's report accuses KPMG of knowing Fastow received about $40 million for his role as general partner of the LJM partnerships. Goldin says the accounting firm was bound to inform Enron's board of directors of the arrangement.

However, lawyers for KPMG counter that the firm's clients were the partnerships, which were independent of Enron. For that reason, the company would have violated client privilege by informing the Enron board.

The bankruptcy court hired Goldin as an impartial fact finder to determine whether KPMG and another accounting firm, PricewaterhouseCoopers, and several investment banks played a part in Enron's collapse.

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