- The Washington Times - Sunday, January 13, 2002

Enron Corp., with revenue reaching $100 billion and a market capitalization that made the company the seventh-largest energy corporation in the world, had nowhere to go but up. The year 2000 had been great and 2001, well, who knew?
The Houston company's epic fall now threatens Enron officials suspected of hiding staggering company losses to cash out $1 billion in stock options; employees and investors, thousands of whom were laid off and lost their retirement savings; and the Bush administration caught in the middle of what promises to be a raging political firestorm.
Last week, the Justice Department opened a criminal investigation into the Enron debacle to determine if company executives acted improperly or, perhaps, illegally when employees were blocked from selling billions of dollars in plummeting shares from their 401(k) retirement accounts.
The wide-ranging probe, coordinated by the department's criminal division in Washington and involving a task force of prosecutors in San Francisco, New York and several other cities, is expected to focus on concerns that Enron executives concealed growing financial losses from their employees and investors to maintain credit ratings necessary to obtain cash to run the business.
Investigators want to know if Enron executives hid behind complex energy partnerships to keep some $500 million in debt off its books and mask its financial problems so it could continue its cash flow. Enron has admitted overstating its profits by more than $580 million since 1997.
The company also is under investigation by the Labor Department, Securities and Exchange Commission and at least eight congressional committees. Those inquiries have focused on concerns that Enron employees were prohibited from selling company stock from their Enron-heavy 401(k)s as the company's stock plummeted.
Federal investigators believe Enron executives cashed out more than $1 billion in company stock while concealing losses from investors and preventing employees from selling their rapidly dropping stock. An additional 600 employees described as "critical" to Enron's operations received more than $100 million in bonuses.
The company filed for bankruptcy protection on Dec. 2 after a smaller Houston firm, Dynegy Inc., its main rival, backed out of a $8.4 billion deal to buy it. Dynegy pulled its offer after Enron said it would have to revise its earnings back to 1997 and add $2.5 billion in debt, and its credit rating was downgraded to junk status.
Enron, with 20,000 employees, was considered the world's top buyer and seller of natural gas and the largest electricity marketer in the country. It owns 32,000 miles of gas pipelines in North America and 8,000 miles in South America, and 14,000 miles of fiber-optic cable. The company also marketed coal, pulp, paper, plastics, metals and fiber-optic cable.
Last year, its stock traded at $85 per share on the New York Stock Exchange. Friday, it stood at 68 cents.

Reaching the White House
On Tuesday, the White House entered the fray when Rep. Henry A. Waxman, California Democrat, released a letter acknowledging to Congress that Vice President Richard B. Cheney or his aides had met last year on six occasions with Enron representatives including a meeting two months before the company made the largest corporate bankruptcy protection filing in U.S. history.
The letter, written by David S. Addington, the vice president's counsel, said the meetings included five with staff members and one involving Mr. Cheney. They took place while a task force, headed by Mr. Cheney, sought to fashion the Bush administration's national energy policy, and Enron was looking to ensure it had input into the final product.
Mr. Bush last week pledged to aggressively pursue the Enron investigation, even if it focuses on longtime friends and political supporters. He also ordered a separate investigation of pension and corporate disclosure rules that might jeopardize workers' savings. The president said a "wave of bankruptcies" resulting in the loss of pensions and retirement accounts to a number of workers nationwide "is deeply troubling to me."
"Ken Lay is a supporter," Mr. Bush said of Enron Chairman and Chief Executive Kenneth L. Lay. "But what anybody's going to find is that this administration will fully investigate issues, such as the Enron bankruptcy, to make sure we can learn from the past and make sure that workers are protected."
Mr. Bush said he met with Mr. Lay twice early last year, but they did not discuss Enron and they have not spoken since about it.
But Democrats, and some Republicans, already are questioning the administration's ties to Enron. The Addington letter was sent in response to an expected barrage of subpoenas from Mr. Waxman, ranking Democrat on the House Government Reform Committee, one of at least eight Senate and House panels investigating the Enron collapse.
Mr. Waxman said the letter showed that the "access provided to Enron far exceeded the access provided by the White House to other parties interested in energy policy."
Several committees in both houses continued last week to jockey for position to claim jurisdiction in the matter. Some have suggested the inquiry could become the Republicans' "Whitewater" a reference to a failed real estate venture in which former President Clinton was accused of stonewalling investigators.
Senate Democrats have said they want to investigate whether the Bush administration should have acted sooner to protect employees and investors from the Enron collapse. Hearings in the matter before the Senate Governmental Affairs Committee are expected to begin Jan. 24, the day after Congress returns to work.
Governmental Affairs Committee Chairman Sen. Joseph I. Lieberman, Connecticut Democrat, said his panel wants to know why Enron's auditors, Arthur Andersen LLP, allowed the company to overstate its profits for four years "using what appear now to be very questionable accounting practices."
Mr. Lieberman said the committee also will ask why Enron's board of directors allowed financial arrangements "that some claim were intended to hide company holdings from public view." The committee is expected to review accusations that Enron created hidden energy partnerships with entities that assumed the company's debt and thus kept those debts off its books.
The partnerships were run by Andrew Fastow, Enron's former chief financial officer. Mr. Fastow reportedly was paid millions of dollars on top of his Enron salary to manage the partnerships.

Accounting problems
Concerns about the Enron collapse have not been limited to the Houston company.
Although Joseph Berardino, chief executive of Enron's longtime auditing firm, Arthur Andersen, told a House hearing last month his firm notified Enron's audit committee on Nov. 2 of "possible illegal acts within the company," Andersen itself has drawn some unwanted attention.
The auditing company has admitted destroying a "significant but undetermined" number of Enron-related documents. In a statement, the firm said the destruction took place before the SEC had subpoenaed them.
Andersen, one of the Big Five accounting firms, has since asked former U.S. Sen. John C. Danforth "to conduct an immediate and comprehensive review of Andersen's records management policy." The auditing firm said it did not know if an in-house directive to preserve documents demanded by government investigators had been violated.
At the SEC, Enforcement Director Stephen M. Cutler said destruction of documents "is obviously an extremely serious matter," but the loss of the records would "not deter us from pursuit of our investigation and will be included within the scope of our investigation."
Quite a statement by the SEC, which seldom acknowledges that it is even conducting an investigation.
The records are believed to be key to any effort to discover whether officials at Enron or Andersen defrauded investors with misleading information on Enron's finances.
Last week, Rep. Billy Tauzin, Louisiana Republican and chairman of the House Energy and Commerce Committee, criticized Andersen after it admitted destroying Enron documents.
"While Andersen has assured the committee it will work vigorously to retrieve all electronic documents, we may never know if all of the relevant records were recovered," Mr. Tauzin said. "Clearly this is a very serious matter. Anyone who destroyed records simply out of stupidity should be fired; anyone who destroyed records intentionally to subvert our investigation should be prosecuted."
In November, Mr. Tauzin directed committee investigators to probe Enron's accounting practices.
So far, the panel has reviewed thousands of documents, interviewed scores of people and currently has a team of investigators in Houston.

Political heat
As the Democratic drumbeat for an Enron investigation intensifies, Republicans hope the administration's aggressive stance on new inquiries will inoculate Mr. Bush against charges that the White House somehow shared culpability in the scandal. The Republican strategy is to disclose as much information as possible in an effort to undercut Democratic comparisons to the Whitewater scandal.
There is, however, no unanimity in comparing the Enron investigation to the Whitewater scandal.
Former White House special counsel Lanny Davis, who passionately defended the Clintons in the Whitewater probe, last week said he saw no similarities to Whitewater. He told reporters that investigators should "go after the serious stuff," including why Enron managers unloaded their stock at its peak price while preventing employees from selling their falling stock.
White House spokesman Ari Fleischer also discouraged "comparisons to the way business used to be done in the White House." He said, "We do our business a little differently."
Mr. Fleischer, aware that some Democrats are eager to publicly explore links between Enron and the White House, warned against a "fishing expedition."
"If this were to become a politically charged, politically motivated effort to blame one party or to look only at one party, when clearly Enron is a corporation that has given hundreds of thousands of dollars to both parties, then I think people would think that the Congress is not on the right path," he said.
Key to any congressional inquiry is expected to be the fact that Mr. Lay is a longtime friend of Mr. Bush and served as a member of the Bush presidential campaign's Pioneer Club, one of 214 persons who each raised $100,000 for the race. Mr. Lay, also a friend to former President George Bush, was the top campaign contributor to Mr. Bush's 2000 presidential election.
As a member of the Pioneer Club, Mr. Lay sent a letter to several hundred people, many of them Enron executives, urging them to make the maximum contribution to Mr. Bush's campaign. "In no way is this a condition of employment or continued employment at Enron," the letter said. Within three months, Enron executives had donated more than $50,000 to the Bush campaign.
In October 1997, Mr. Bush then Texas governor placed a call to his friend Tom Ridge, the Republican governor of Pennsylvania, to vouch for Enron, which was looking to sell electricity there. The call was made at Mr. Lay's request, who told reporters in Houston that he advised Mr. Bush the call would be "very helpful to Enron."
Enron later won electricity contracts in Pennsylvania.
Several Democrats noted last week that Mr. Lay also gave $25,000 to a leadership committee headed by John Ashcroft, then a Missouri senator and now attorney general, whose office is conducting the Enron probe. Mr. Ashcroft and David Ayres, his chief of staff, have since recused themselves in the investigation "due to the totality of the circumstances of the relationship between Enron and the attorney general."
Justice Department officials said Mr. Ashcroft has not been involved in any aspect of the Enron investigation. They said any action requiring the attention of the attorney general would be handled by Deputy Attorney General Larry B. Thompson.
Mr. Ashcroft's decision to recuse himself won the praise of Sen. Patrick J. Leahy, Vermont Democrat and chairman of the Senate Judiciary Committee, which oversees the Justice Department.
"Attorney General Ashcroft has taken the appropriate step, and I commend him for it," Mr. Leahy said. "I have full confidence in Deputy Attorney General Larry Thompson and his ability to pursue this investigation."

Calling the Cabinet
The White House also disclosed last week that last fall Mr. Lay telephoned Treasury Secretary Paul O'Neill "to advise him about his concern about the obligations of Enron and whether they would be able to meet those obligations." Mr. Lay also told Mr. O'Neill that Enron "was heading to bankruptcy."
In a separate phone call to Commerce Secretary Donald L. Evans, the White House said Mr. Lay worried that Enron might have to default on its obligations "and he was worried about its impact on the energy sector." Mr. Evans told reporters that Mr. Lay said he "would appreciate any support you could give," adding that the Enron chairman was not more specific.
"I did nothing," Mr. Evans said of his response. "It was a no-brainer," adding that he did not tell Mr. Bush because "I didn't think he needed to know."
In one of two conversations with Mr. O'Neill, the Treasury secretary said Mr. Lay discussed Long Term Capital Management, a Connecticut hedge fund whose collapse in 1998 was averted when the Federal Reserve organized a $3.5 billion bailout by large financial institutions. Mr. O'Neill said he thought "it was business as usual," saying he often talks to "big players" in the business world.
Mr. Lay, in a statement, denied any wrongdoing, saying he "felt an obligation" to let Bush administration officials know "what was going on."
Treasury officials said Friday that Enron President Lawrence "Greg" Whalley telephoned the department's undersecretary for domestic finance, Peter Fisher, "six to eight times" in late October and early November as the company was negotiating with its banks for an extension of credit.
Mr. Fisher "inferred he was being asked to encourage the banks to extend credit. He made no such calls," spokeswoman Michele Davis said.
It was the first indication that the company had asked for government intervention as it faced collapse.

Big donor
Since the 1989-90 election cycle, Enron has made nearly $5.8 million in campaign contributions, with 73 percent going to Republicans. The company contributed $113,800 to the Bush campaign, including the use of corporate jets, ranking as the campaign's 12th-largest donor.
Enron's lobbying efforts in a bid to affect national policy exceeded $2 million last year, according to the Center for Public Integrity. Its lobbyists and consultants included Marc Racicot, the incoming head of the Republican National Committee; Jack Quinn, former White House counsel to President Clinton; and Ralph Reed, a former head of the Christian Coalition.
The company also gave $100,000 to Senate Democrats one week before filing for bankruptcy.
In 1997, Time magazine reported that Mr. Clinton scrawled a note to his chief of staff, Thomas F. "Mack" McLarty, concerning Enron's attempt to undertake a $3 billion power-plant project in India. Mr. McLarty later talked with Mr. Lay, and four days before India granted approval of the project, Enron gave $100,000 to the Democratic Party. Mr. McLarty was later hired by Enron.

Enron unravels
On Dec. 2, Enron filed for Chapter 11 bankruptcy protection in New York to keep creditors and lawsuits at bay so the company could try to preserve its trading operation. The company listed 50 pages of creditors in its bankruptcy filing.
Following a disastrous third quarter last year, in which the company lost $618 million, Enron filed a statement with the SEC in October saying its financial reports dating back to 1997 "should not be relied upon."
The statement acknowledged the company overstated net income during that four-year period by $586 million, or 20 percent.
Washington lawyer Robert S. Bennett, who represents Enron, said last week he welcomed the Justice Department probe. Mr. Bennett, who also served as Mr. Clinton's attorney during various scandals, said a federal task force investigation into the company's bankruptcy would "bring light to the facts."
"I am pleased that they are going to centralize the investigation so I can deal with one entity and not multiple entities. This is a company that, if given a chance, can come out of bankruptcy and return some value to shareholders," Mr. Bennett said.
"We want to get to the bottom of this, too. A lot of decent and honorable people work at Enron, and we should wait until the facts are out," he said.
Former Enron Chief Executive Jeffrey K. Skilling, who quit a few months before the company's desperate fall into bankruptcy, also welcomed the investigation, according to Enron spokeswoman Judy Leon. She said Mr. Skilling had no idea, despite Enron's plummeting stock values, the company was on the brink of failure.
Mr. Skilling, Mr. Lay's handpicked successor, resigned abruptly after six months on the job, citing unspecified personal reasons.
A new problem developed for Enron last week when a federal judge in Houston ruled that she had the authority to freeze more than $1 billion in proceeds reportedly gained by Enron executives who sold millions of shares of company stock before the company filed for bankruptcy.
But U.S. District Judge Lee Rosenthal said attorneys for the plaintiffs in a pending lawsuit had not convinced her of the need to freeze those assets.
The pending suit, filed last month on behalf of Amalgamated Bank and other Enron investors, charged 29 current and former Enron executives and board members profited by selling big blocks of stock while deceiving investors about the true state of the company's finances.
More than 60 lawsuits have been filed by employees who were prevented from selling company stock as it plunged to below $1. Those suits are pending in several courts.
The potential complexity of the Enron investigation drew new meaning late Thursday night when U.S. Attorney Michael T. Shelby in Houston announced that his office had recused itself in the Enron matter because "a number of attorneys in the office, including the United States attorney, have family relationships with individuals who are arguably affected by the Enron bankruptcy."
Mr. Shelby said the recusal was taken after "extensive consultation" with Justice Department lawyers in Washington, although he said attorneys from the Houston office who have no Enron relationships "may be assigned to the criminal division task force."
Enron took an important step Friday in getting its once-influential energy trading operation running again, as Swiss-owned investment bank UBS Warburg won a bankruptcy auction to buy a majority stake in the trading division. The bankruptcy judge has scheduled a Thursday hearing on the deal.
Enron was created in 1985 when Houston Natural Gas merged with InterNorth of Omaha, Neb. The deal combined a number of pipeline systems to create what was then the first nationwide natural gas pipeline system. In the next several years, Enron activity exploded, including expansions into Europe and South America, and the company's first electricity trade in 1994, beginning what would be one of its biggest profit centers over the next few years.
By 2000, the company's bright light burned with intensity, with annual revenues reaching $100 billion, more than double the year before. The Energy Financial Group ranked Enron the seventh-largest energy company in the world, based on market capitalization. Market capitalization, figured by multiplying outstanding shares by the stock price, determines the value of a company.
Ensconced in their $200 million, 40-story glass tower headquarters in downtown Houston, Enron executives saw that light begin to dim in early 2001, culminating by year's end into a calamitous slide into bankruptcy.


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