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Financial adviser fired over Enron advice

Financial adviser fired over Enron advice


NEW YORK (CNN) -- A UBS PaineWebber financial adviser who urged his clients to sell Enron stock at the same time his brokerage firm was rating it as a "strong buy" last August was fired for violating company policy, according to the company.

In a letter to the House Government Reform Committee, Mark Sutton, the president of UBS PaineWebber's private client group, said Chung Wu was dismissed after he sent an e-mail to more than 10 clients recommending the sale.

Company policy dictated that any e-mail sent to 10 or more people was considered sales literature that had to be reviewed by a supervisor, which Wu failed to do, according to Sutton's letter. Also, policy dictated that financial advisers "disclose any inconsistent PaineWebber research opinions when making a recommendation," the letter said.

"It became apparent Mr. Wu had violated firm policies in sending his early morning e-mail and that his employment was in jeopardy as a result," Sutton wrote.

UBS PaineWebber had previously disclosed Wu's firing in a filing with the Securities and Exchange Commission. Sutton's letter -- in response to written questions from the committee -- was released Tuesday and provides more detail on his termination.

Wu allegedly sent the e-mail, a copy of which was released by the House committee, on August 21, 2001, a week after former Enron CEO Jeffrey Skilling resigned. The once high-flying energy trader came under increasing scrutiny after Skilling's surprise departure.

'Off the table'

In the e-mail, Wu recommended to his clients that they take some of their Enron investments "off the table," pointing to a "deteriorating" financial situation and noting recent stock drops. Wu wrote that Enron's last quarterly report "indicates liquidity problems and decline in trading margin."

At the time, a UBS PaineWebber subsidiary, Emery Financial Group, provided stock option administration service and financial advice to Enron employees. Two Enron employees responsible for administering Enron's stock option plan alerted UBS officials about the e-mail, and Wu was fired the same day.

The committee also released the e-mail exchange between the Enron employees and UBS officials.

"Please handle this situation," Aaron Brown, one of the Enron employees, wrote in reference to the Wu e-mail. "This is extremely disturbing to me." He did not indicate why he found the e-mail disturbing.

In response, Patrick Mendenhall, a UBS branch manager, wrote, "I will take full responsibility and will remedy the situation."

"The financial advisor has been terminated," he wrote.

Enron's collapse has raised questions about the role of ratings from financial analysts, which many investors use to base their buying and selling decisions. Many analysts continued to be bullish on Enron right up until the company's severe financial problems became public, triggering a collapse in its stock price.

The House Government Reform Committee is one of a number of congressional panels taking a look at Enron's collapse, which is also being investigated by the Justice Department and the SEC.



 
 
 
 







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