- The Washington Times - Thursday, February 7, 2002

Leading congressional investigators have concluded that Enron Corp. executives violated securities laws in creating off-the-book partnerships that deceived investors by hiding the company's debt and inflating its assets.
"We have found substantial evidence of illegal activity," said House Energy and Commerce Committee Chairman Billy Tauzin, the lead congressional committee investigating the Enron debacle. It was the first time he has explicitly charged that securities fraud was at the root of Enron's collapse.
Mr. Tauzin, a Louisiana Republican, cited "fictitious gains" Enron reported on transactions with two off-book entities LJM2 and Raptor when the value of the partnerships' assets was actually declining. The company essentially manufactured "illusory" profits that inflated the company's reported earnings by over $1 billion in 1999, 2000 and 2001, he said.
In the complicated Raptor transactions, which purportedly were designed to hedge risky investments, "Enron was doing business with an entity whose only asset was Enron shares that Enron had contributed," he said.
"This was not a hedging transaction. Enron was merely issuing shares and calling the issuance earnings. This clearly violated existing law and the most basic norms of corporate behavior," Mr. Tauzin said.
Enron's disclosure of its gross overstatement of earnings and understatement of debt last fall precipitated the collapse of the company and its stock, causing $60 billion in losses for investors and company employees and leading to dozens of investigations and lawsuits.
The Securities and Exchange Commission, which pursues civil violations of the securities laws, has not taken action since opening an investigation of Enron and its auditor Arthur Andersen last fall. The Justice Department opened a criminal investigation of the firms last month.
Mr. Tauzin suggested that oversight and enforcement by the SEC was lax, particularly because it did not spot the serious problems with Enron's financial statements in routine reviews conducted in 1997 and scheduled but later postponed in 2001.
"Before we rush to impose new laws and regulations in the wake of this scandal, we will want to be sure we are actually enforcing existing law," he said.
Mr. Tauzin's statement comes as key Enron executives are scheduled to testify today before his committee, including former Chief Financial Officer Andrew Fastow, who designed and provided seed funding for key partnerships, and former Chief Executive Officer Jeffrey Skilling, who was Mr. Fastow's boss.
Mr. Fastow and his deputy Michael Kopper, who earned tens of millions of dollars from the questionable transactions, are expected to invoke their Fifth Amendment right against self-incrimination.
Investigators say a family foundation run by Mr. Fastow turned a $25,000 investment in his Southampton Place partnership into a $4.5 million windfall, while a $125,000 investment by Mr. Kopper in the Chewco partnership ballooned to $10.5 million in three years.
"I think he's in deep trouble," Mr. Tauzin said of Mr. Fastow.
But the chairman said Mr. Skilling is anxious to present his case to the committee.
Mr. Tauzin also charged that Andersen "violated numerous accounting rules" and shares the responsibility for misleading investors.
Enron's board of directors, finance committee and audit committee also were negligent, he said, particularly in waiving conflict-of-interest rules to allow the Fastow transactions.
Mr. Tauzin told reporters he intends to grill Mr. Skilling on why his signature was absent from many of the partnership deals, though he had voted to approve them as a member of the board.
William Powers, the chairman of a special investigative committee set up by the Enron board, also singled out the Raptor deals in testimony this week.
"Enron was essentially hedging with itself," he said. "While there are questions about who understood what concerning many of these very complex transactions, there's no question that virtually everyone, from the board of directors on down, understood that the company was seeking to offset its investment losses with its own stock. That is not the way it is supposed to work."
In an interview with the Powers committee, Mr. Skilling said he had no detailed understanding of the Raptor deals and had little to do with the LJM transactions.


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