Justice Opens Criminal Probe Of Enron
By Kevin Drawbaugh
1-10-2
WASHINGTON (Reuters) - The Justice Department said on Wednesday it had
opened a criminal investigation of Enron Corp., as the controversy over the
energy giant's collapse widened.
Officials declined to say exactly when the criminal probe began. But they
said it was centered in the department's criminal division and that a task
force was being set up to handle the case. Robert Bennett, attorney for
Enron, said, "When this investigation is finished, a lot of the things that
people are reading and hearing will be proven to be not true."
He said he was pleased the Justice Department was centralizing its inquiry.
"It is very difficult to deal with multiple entities ... We have been in
contact with several different prosecutors," Bennett said.
Once the world's largest energy trader, Enron slid in mere weeks last year
from Wall Street stardom to making the largest bankruptcy filing in U.S.
history on Dec. 2. Its downfall, after withdrawal of a rescue takeover bid
by rival Dynegy Inc., threw thousands out of work and devastated investors.
The episode sapped the life savings of many Enron employees whose 401 (k)
retirement plans depended on the company's stock, while top executives
allegedly pocketed fat profits by selling ahead of a dizzying plunge in the
share price.
The White House on Wednesday said it was likely to soon propose new policies
to guard against a repeat of the Enron debacle. White House spokesman Ari
Fleischer, asked about the Justice Department probe, told Reuters it was
important to get to the bottom of the Enron collapse and develop new
policies to protect workers and pensioners.
"It's important for the investigation to proceed to determine what was done
and why it was done. The president also believes it's important to explore
new policies so it (a similar collapse) can never happen again," Fleischer
said. Asked whether new policies would be announced soon, he said, "likely."
ENRON FACES MULTIPLE PROBES
The Houston, Texas-based company, once ranked No. 7 on the Fortune 500 list
of large corporations, is also being probed by five congressional
committees, the market-regulating Securities and Exchange Commission and the
Labor Department.
At the heart of Enron's problems were complex financial partnerships - -
known as special-purpose entities -- set up by Enron executives and used to
keep debt off the company's highly leveraged books. After some deals
involving the partnerships went sour, Enron in October had to take a $1
billion charge against earnings and cut shareholder equity by $1.2 billion.
Those moves drew market attention to the partnerships, triggering a crisis
in investor confidence and credit-rating downgrades that ultimately led to
bankruptcy court.
The SEC said its 10-week-old probe of Enron and its long-time auditor, the
accounting firm Andersen, would not be altered by the Justice Department's
action. "The Justice Department and the SEC frequently run concurrent
investigations," said SEC spokeswoman Christi Harlan.
The decision at Justice to move to a full-fledged criminal investigation
came after weeks of examining whether such a probe was warranted, officials
said.
They were unable to say whether any charges would ever result from the
investigation.
"I'm not assuming they will file charges," Bennett said. "This is a very
preliminary investigation ... To my knowledge there's no evidence of
wrongdoing yet. You have a business failure and you have a lot of
allegations. But allegations are not the same as evidence."
The departmental task force on the case is expected to include federal
prosecutors from Houston, New York and San Francisco. Also on the task force
will be members of the Justice Department's fraud section, officials said.
Enron was a major contributor to the election campaign of President Bush, as
well as many other lawmakers in Washington. The once politically powerful
company also advised the Bush administration on energy policy.
The head of Congress' investigative arm said on Wednesday he would decide
within a month whether to sue the White House over its refusal to name
industry executives the administration met with last year while drafting its
new energy policy.
Shares in Enron closed on Wednesday at 79 cents on the New York Stock
Exchange, off an August 2000 high of $90.56.
*****
Enron Auditor Says Documents Gone
Associated Press
Last Updated: Jan. 10, 2002 at 3:39:49 p.m. WASHINGTON - The firm that
audited the books of collapsed Enron Corp., Arthur Andersen LLP, disclosed
Thursday that its employees had destroyed a ``significant but undetermined''
number of documents related to the company.
Federal law enforcement agencies and congressional investigators are seeking
the documents as part of their inquiries into the failure of the giant
energy-trading company, which left countless investors burned and employees
out of work with billions of dollars of losses in their Enron-heavy
retirement accounts.
Rep. Billy Tauzin, R-La., whose House Energy and Commerce Committee is among
the agencies and panels investigating, called the destruction of documents
``a deeply troubling development.''
``Anyone who destroyed records simply out of stupidity should be fired.
Anyone who destroyed records to try and subvert our investigation should be
prosecuted,'' Tauzin said.
The Big Five accounting firm said in a statement that in recent months,
electronic files and other documents related to its auditing of Enron had
been destroyed or deleted.
Chicago-based Andersen said its company policy ``required in certain
circumstances the destruction of certain types of documents.''
However, the firm said, millions of documents related to Enron still exist,
and it has managed to retrieve some of the deleted electronic files.
Andersen said it is continuing retrieval efforts through electronic backup
files, ``and is continuing in its efforts to fully learn and understand all
the facts related to this issue.''
Andersen has asked John Danforth, the former Missouri attorney general and
U.S. senator, ``to conduct an immediate and comprehensive review of
Andersen's records management policy and to recommend improvements.''
Andersen's auditing work for Enron, which entered last month into the
largest corporate bankruptcy in U.S. history, is being investigated by the
Securities and Exchange Commission.
The surprise announcement by Andersen came in a day punctuated by
revelations from members of the Bush administration concerning Enron.
The White House disclosed that Enron Chairman Kenneth L. Lay reached out to
two of President Bush's Cabinet officers when the energy company was
collapsing. Attorney General John Ashcroft, who received campaign
contributions from Enron executives during his failed 2000 senatorial bid,
said he will recuse himself from the criminal investigation of Enron being
conducted by the Justice Department.
Andersen said that in recent months, people in the firm involved with the
Enron auditing ``disposed of a significant but undetermined number of
electronic and paper documents and correspondence.''
Ken Johnson, a spokesman for Tauzin, said Andersen officials told committee
investigators Thursday that thousands of documents had been destroyed.
*****
http://www.wsws.org
WSWS : News & Analysis : North America
New York Times defends Bush on links to Enron corporate fraud By David Walsh
10 January 2002
True to form, the editors of the New York Times have rushed to the defense
of President Bush against suggestions that his administration could be
implicated in one of the largest corporate frauds in history, which produced
the collapse of Enron Corporation, the energy trading giant.
Bush administration officials, and George W. Bush personally, had the most
intimate ties to top Enron officials, including Chairman and CEO Kenneth
Lay, one of the biggest fundraisers for the Bush 2000 campaign and the
finance chairman of the Bush inaugural. The company filed for Chapter 11
status in December, the largest corporate bankruptcy in US history, leaving
thousands of workers unemployed and with decimated retirement savings, and
devastating thousands more small investors.
Ten congressional committees and federal agencies have announced
investigations into suspected illegal activities at the once high- flying
firm, which at one time ranked seventh on the Fortune 500 list of the
largest companies in the US, and whose stock price, once more than $90, had
fallen to 66 cents a share by January 4. The Senate Governmental Affairs
Committee, chaired by Joseph Lieberman, the Connecticut Democrat, will open
hearings January 24.
A January 4 Times editorial, "The Enron Post-Mortem," noted: "No company has
more generously backed President Bush throughout his political career than
Enron," adding that company Chairman Kenneth Lay, "was among the influential
advisers to Vice President Dick Cheney's secretive energy task force last
spring."
Then the Times arrives at its central theme: "Democrats ... should resist
the temptation to use the Enron saga for cheap political gain.
Talk of a `cancer on the presidency' [a reference to the Watergate scandal]
and of a `Bush Whitewater' is unwarranted at this point, and threatens to
trivialize and unduly politicize an inquiry vital to the health of the
American economy."
One has to rub one's eyes in disbelief. This comes from the newspaper that
helped launch Whitewater—with a notorious article by Jeff Gerth in March
1992—and elevate it into a national scandal. Countless editorials appeared
in the Times over the years portraying Whitewater as of monumental
significance and declaring that every other scandal and misstep of the
Clinton administration somehow flowed from it.
Looked at objectively, Whitewater was small change. The real estate scheme
was liquidated years before Clinton entered the White House and involved a
failed investment, on the Clintons' part, of less than $100,000. It had no
financial or political significance until the American media, led by the
Times, and Clinton's far-right political opponents, seized on it as a
pretext to undermine the Democratic administration.
The collapse of multibillion-dollar Enron, on the other hand, has vast
implications. It is a serious economic blow to tens of thousands of people,
its former workers first of all. As the Washington Post noted, "Enron's
employees were encouraged to invest their 401(k) plans in Enron stock, which
came to make up more than half the assets in the company's retirement
system. Enron's collapse therefore left many of the 4,500 U.S. employees who
were laid off pensionless as well as jobless." A 33-year-old employee of the
firm told senators in December that the value of his Enron stock had fallen
from $1.3 million to $20,000. Charles Prestwood told his questioners, "I'm a
very broke person. I lost everything I had."
Company officials, according to widely reported allegations, forced
employees to hold on to their stock as its value plunged in October and
November. Executives reportedly meanwhile sold their shares and, on the eve
of the declaration of bankruptcy, distributed some $100 million in bonuses
to hundreds of high-level employees.
Enron and the Republican Party
Everything one learns about the operation of this company, to put it
bluntly, stinks to high heaven. And linking the scandal to the Republican
Party and the current White House is not an exercise in partisan
"politicizing," let alone "trivializing." Enron is itself the product of the
policies pursued by the Republican right—and largely supported by the
Democrats—over the past decade and a half, through the deregulation of
energy markets. And the personal ties between Enron and the Bush
administration are so extensive that one can only indicate them in outline
form:
* Kenneth Lay, Enron's chairman, has been George W. Bush's chief financial
supporter and key backer since the latter went into politics. The connection
between Lay and the Bush family goes back to the administration of the elder
George Bush. Lay, known to the current president as "Kenny Boy," was a White
House guest during the first Bush administration, which sponsored the
passage of the 1992 Energy Policy Act. This legislation compelled
established utility companies to open their transmission lines to
electricity distributed through Enron's speculative marketing.
* Lay and Enron together have given $2 million to George W. Bush's election
efforts. In 2000 a company memo "recommended" that employees contribute to
the Bush campaign: low-level managers were urged to give $500 and senior
executives at least $5,000. Lay was listed by the Bush-Cheney campaign in
2000 as one of the "Pioneers" who raised at least $100,000, while Enron gave
$100,000 to the inauguration gala, a contribution matched by Lay and his
wife personally.
* Lay was the only energy company executive to meet alone with Cheney when
the latter was holding his secret discussion last year on a new energy
policy. Cheney has so far rebuffed efforts by the General Accounting Office
to reveal the others participants at those meetings and what they discussed.
* Between 1995 and 2000 Enron donated $4.4 million to presidential and
congressional candidates, more than any other company except UPS and
Lockheed Martin. Enron contributed to the campaigns of 71 of the 100 current
senators and nearly half the 435 members of congress. The investment paid
off. In 2000 Enron secured exemption for its energy derivatives business
under an act regulating commodity trading futures.
* Another major beneficiary of Enron financial generosity has been Senator
Phil Gramm, the Texas Republican right-wing demagogue, who pushed through
the 2000 legislation just cited and whose wife Wendy sits on the company's
board of directors. Wendy Gramm served under the first Bush as chair of the
Commodity Futures Trading Commission at the time it allowed for an exemption
in the trading of energy derivatives, which later became Enron's most
lucrative activity. Gramm resigned from her government position to take a
seat on Enron's board. In November 1998 she sold $276,912 in Enron stock.
* A number of other members of the first Bush administration joined Enron
after Clinton's victory in 1992, including James Baker (who helped
mastermind the hijacking of the Florida vote in 2000) and Commerce Secretary
Robert Mosbacher.
* Numerous officials went directly from Enron to the new administration in
2001, following the installation of George W. Bush. For example, Thomas
White Jr., Bush's secretary of the Army, had been Vice Chairman of Enron
Energy Services; he also served as a member of Enron's Executive Committee
and Chief Executive Officer for Enron Operations Corporation. Bush's top
economic adviser, Lawrence Lindsey, was an Enron consultant. Trade
representative Robert Zoellick, an official in the Reagan administration and
former counselor to Baker when he was secretary of the Treasury, served on
Enron's Advisory council. Chief White House political adviser and dirty
tricks operator, Karl Rove, at one time owned Enron stock worth $250,000.
* In December Bush named former Montana governor Mark Racicot, and a
registered lobbyist for the firm of Bracewell & Patterson where he
personally represented Enron, as chair of the Republican National Committee.
Racicot insisted that he would continue representing Enron and his other
corporate clients—with the blessing of the White House— even while heading
the Republican Party, making him "instantly," in the words of one
commentator, "the most powerful influence peddler in Washington."
There is another sense in which the Enron collapse is connected to the White
House. Both the Houston-based corporation and the Bush administration have
engaged in massive misrepresentation of their financial books. Enron
systematically shifted debts to off-book partnerships set up by company
executives, to disguise the fact that it had relatively few assets. The Bush
administration engaged in financial flimflam on an even larger scale in
pushing through its record tax cut for the wealthy.
If it happened under Clinton?
What if the spectacular collapse of a massive corporate enterprise, operated
by one of the president's closest cronies, had occurred under the previous
administration? Columnist Molly Ivins legitimately asks her readers to
imagine that "Clinton's long-time, all-time biggest campaign contributor, a
guy for whom Clinton has carried water over the years, a guy with
unparalleled `access,' a shaper of policy, a man with a veto on regulatory
appointments affecting his business, with connections at every level of the
administration, a political fixer beyond the wildest dreams of James
Riady—imagine that this guy's worldwide empire has tumbled into bankruptcy
in just three months amid cascading reports of lies, monumental accounting
errors, evasions, iffy financial statements, insider deals, a board of
directors rife with conflicts of interest, top executives bailing out with
millions while regular employees see their life savings shrink to
nothing—imagine all this back in the day of Bill Clinton.... [W] e'd have
four congressional investigations, three special prosecutors, two
impeachment inquiries ... by now."
This seems perfectly obvious, but not to the Times editors. As a corporate
entity, Enron proved to be a criminal conspiracy. It shares this
characteristic with the Bush administration. Indeed Enron's fingerprints are
all over the present regime; its officials have helped draw up policy; its
former officials are running important departments of the US government. In
the face of this, the Times editors caution the Democrats against seeking
"cheap political gain" from the affair. (The Washington Post editorialized
January 6 along the same lines, chastising Democrats who "seem tempted" to
focus "on links between Enron and the Bush administration.")
The attempt by the Times to minimize the political significance of the Enron
disaster and thus render aid and comfort to George W. Bush is consistent
with the rightward turn by what passes today for American liberalism, a
thoroughly rotten and compromised political force.
Throughout the Clinton administration, the Times collaborated with
ultra-right-wing forces in keeping the pot boiling in a series of largely
concocted scandals, which did not lead to criminal charges but disrupted the
administration politically, culminating in Clinton's impeachment and Senate
trial. The Times joined in the witch- hunt over Clinton's affair with Monica
Lewinsky, giving a political cover to Independent Counsel Kenneth Starr, the
congressional Republican leadership and a cabal of right-wing lawyers,
judges and political operatives.
While the Times warns today about "trivializing" the Enron collapse, it
engaged in just such conduct throughout the Whitewater-Lewinsky years,
insisting that the central issue was always the minutiae of Clinton's
financial dealings in the 1980s, or his sexual activity in the 1990s, or
whether he lied about one or the other, and not the right-wing campaign to
stage a political coup d'état and oust an elected president. This campaign
culminated in the theft of the 2000 presidential election and the
installation of Bush in the White House by the Supreme Court.
Having fueled the anti-Clinton fires and having accepted the hijacking of
last year's election with barely a murmur of complaint, the Times editors
have a vested interest in covering up for the regime that has come to power
in part as the result of their own reactionary and cowardly positions.
Moreover, their support for Bush's war in Afghanistan would be further
discredited if they were obliged to admit that it was being run by the
associates of corporate gangsters.
In general, the Times editors react with hostility to anything that might
encourage the growth of political and social opposition to the established
order. Their January 4 editorial begins by referring to the need "to restore
confidence in American capitalism and in the integrity of its financial
markets." A dishonest and ill-fated project. The Times editors know—as well
as anyone, for this is their milieu—that the American corporate and Wall
Street establishments are corrupt to the bone and wracked by crisis. It will
take considerably more than this kind of cynical and hypocritical
editorializing to put that Humpty Dumpty together again.
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