The Story of ENRON
"The story of Enron is the story of unmitigated pride and arrogance."
Sightings from The Catbird Seat
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STATEMENT OF SENATOR BYRON DORGAN AT HEARING ON
THE COLLAPSE OF ENRON
WASHINGTON - 12.18.01 - Following is the text of opening remarks by U.S. Senator Byron Dorgan (D-ND), at the hearing before the Senate Commerce Committee and its Subcommittee on Consumer Affairs, which held the first of a series of hearings today looking into the collapse of the Enron Corporation. Dorgan, Chairman of the Subcommittee on Consumer Affairs, presided at the hearing.
TEXT OF REMARKS
The meltdown and bankruptcy of the Enron Corporation in just several months time raises many serious and troubling issues.
This hearing will begin to explore some of them. This will be the first of several hearings on this matter.
Mr. Ken Lay, the Chief Executive Officer of Enron did not accept our invitation to testify at this hearing. However, we have been informed this morning that Mr. Lay has committed to appear before our committee and present testimony at our second hearing which will be held February 4.
We also intend to request, at that hearing, the attendance of Mr. Skilling and Mr. Fastow, former top executives at Enron, and others who can help explain what happened.
I have spent many hours in recent days reading and learning about the events that preceded the collapse of the one of the world's largest corporations.
Frankly, the more I have learned, the more troubled I have become. This is not your average businesses failure. This is a tragedy for many, including the workers and investors who, it appears to me, have been cheated out of billions of dollars.
This is about an energy company that morphed into a trading company involved in hedge funds and derivatives. It took on substantial risk, created secret off-the-books partnerships and, in effect, cooked the books under the nose of their accountants and investors.
At a time when executives, board members and other insiders were selling over $1 billion in stock and profiting handsomely, employees and investors were being set up to take a financial beating.
Was this just bad luck, incompetence, greed, or were there some criminal or illegal actions, as has been suggested by the accounting firm that reviewed Enron's books?
Where were the Board of Directors while this was happening? How much did they profit from all of this? Were they brain dead, or just kept in the dark?
What about the accounting firm? Were they duped or incompetent? How on earth can there be adjustments of billions of dollars? Isn't it a conflict of interest for the accounting firm to depend on the company they are auditing for tens of millions of dollars in consulting contracts.
Where were the federal regulatory agencies? And what about those in Congress who derailed efforts at federal regulations for this type of trading activity? Do they bear some responsibility?
Did the stock analysts who kept recommending a strong "buy" know what they were doing? Did they have a conflict of interest?
This is a company that operated between the cracks of federal regulations. It created secret, off-the- books partnerships with names like Jedi, Chewco, LJM, and others. It allowed a top executive to take ownership positions in these partnerships, which seems to me to be a clear conflict of interest. Who in the company approved these transactions?
Who are the investors, besides Enron, in these partnerships? How much were their investments and what was their return? These are some, but not all, of the questions the American people deserve to have answered. We intend to find those answers.
If this were just another business failure, there would be no need for congressional hearings. But this is anything but just another failure.
More than $60 billion in value has been lost in just months. Some at the top of the pyramid got rich and many at the bottom lost everything. It appears to me to be a combination of incompetence, greed, rampant speculation with investors' money, and perhaps some criminal behavior. Investigations will sort it all out. But, in the end tens of thousands of employees and investors will have lost tens of billions of dollars.
It is my hope that these hearings and all other investigations will help us determine whether laws need changing. If they do, we should change them. They will also help us determine whether laws have been broken. If they have, those who did so must be held accountable.
I'd like to read a quote from Business Weeks' most recent Editorial Page, which I think goes a long way in summing up why this inquiry is necessary:
"Enron Corp's bankruptcy is a disaster of epic proportions by any measure - the height from which it fell, the speed with which it has unraveled, and the pain it has inflicted on investors, employees, and creditors. Virtually all the checks and balances designed to prevent this kind of financial meltdown failed. Unless remedied, this could undermine public trust, the capital markets, and the nation's entire equity culture."
I think that pretty much sums up why we are all here today. I look forward to hearing from our witnesses.
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HEARING OF THE SENATE COMMITTEE ON COMMERCE
"AN OVERVIEW OF THE ENRON COLLAPSE"
REMARKS OF U.S. SENATOR RON WYDEN
"Because of what happened at Enron, there are Oregon families going to grief counseling rather than holiday parties this year. These are Oregonians who lost retirement security because as Enron's stock plunged like the Titanic, in effect the senior executives on the deck locked the workers in the boiler room, preventing them from selling off 401(k) shares while they dumped their own.
"What is especially unsettling is that there is a law on the books today that was designed to prevent the sort of carnage that took place at Enron. I wrote this law, which is called the Financial Fraud Detection and Disclosure Act, so that there would be new, stiffer requirements on accountants to search for fraud at publicly held companies like Enron and disclose it when they found it.
"I intend to withhold my judgment on this case until the Security and Exchange Commission and criminal investigators have completed their inquiry, but given what is already on the record, it sure doesn't look like much was done to detect and disclose the very conduct that the Financial Fraud Detection and Disclosure Act was designed to root out.
"For example, the Financial Fraud Detection and Disclosure Act requires that every audit includes procedures designed to detect illegal acts and specifically identify related party transactions that are essential to the integrity of the financial statements. Here there were clearly related party transactions that had financial hide- and-seek written all over them and the auditors failed to have procedures in place to identify them. When Enron's Chief Financial Officer set out a special purpose entity funded primarily with Enron stock bought at a discount, while continuing to serve as an officer of Enron that should have set off the warning lights required by the law.
"Certified financial statements are not supposed to be a game of financial hide-and-seek and our review should play particular attention to how it was that Enron transactions big enough to bring down this financial house of cards were not big enough to be clearly and visibly reported by the auditors."
- Courtesy of: t r u t h o u t 2001
November 13, 2001
Andersen Could Face SEC Sanction, Suits Over Enron Accounting Error
HOUSTON -- Arthur Andersen may face U.S. Securities and Exchange Commission sanction and shareholder lawsuits because it certified Enron Corp. financial reports that the company disavowed last week as inaccurate, legal and accounting experts said.
Andersen, the world's fifth-largest accounting firm, served as Enron's outside auditor for more than a decade. Last week, the company reported that it overstated earnings by $586 million over 41/2 years, inflated shareholder equity by $1.2 billion because of an "accounting error," and failed to consolidate results of three affiliated partnerships into its balance sheet.
Enron restated its financial reports as the company suffered a cash crisis triggered by disclosure of the cut in shareholder equity and the start of an SEC investigation.
"I'd be very surprised if the SEC didn't go after Arthur Andersen," said Alan Bromberg, securities law professor at Southern Methodist University.
Andersen partner David Tabolt has said the firm is cooperating with a special committee of Enron's board of directors appointed to investigate the accounting problems.
Lynn Turner, who was the SEC's chief accountant for three years until he resigned in August, said Enron and Andersen ignored a basic accounting rule when they overstated shareholder equity.
Explaining the equity reduction last week, Enron said it had given common stock to companies created by Enron's former chief financial officer in exchange for notes receivable, and then improperly increased shareholder equity on its balance sheet by the value of the notes.
"What we teach in college is that you don't record equity until you get cash for it, and a note is not cash," said Turner, who is now director of the Center for Quality Financial Reporting at Colorado State University.
"It's a mystery how both the company would violate, and the auditors would miss, such a basic accounting rule, when the number is $1 billion."
November 28, 2001
Enron Rescue Falls Apart
by Peter Behr, Washington Post Staff Writer
Dynegy Inc. today abandoned its plans to rescue Enron Corp., leaving the once-dominant Houston energy trading company with little alternative than to file for bankruptcy, analysts said.
Enron, whose financial expertise and political clout helped it capitalize on the deregulation of electricity and gas markets, now faces more than $7 billion in debts that come due during the next year. It has no lenders in sight, its formerly lofty stock price is now below $2 a share, its credit is in tatters, its pipelines mortgaged or sold and its credibility with investors shattered.
In a statement today, Dynegy chairman Chuck Watson said his company had pulled out of negotiations because of Enron's "breaches of representations, warranties, covenants and agreements" in the initial purchase agreement. Dynegy had agreed to buy Enron on Nov. 9 for about $23 billion, but after Enron's stock price plummeted following the deal, Dynegy demanded a renegotiation of terms to lower the price.
That effort collapsed today when Standard & Poor's Corp. cut Enron's credit rating to junk status, exposing Enron to accelerated repayment of more than $3 billion in debt that it could not fully cover, according to analysts.
"It leaves Enron in desperate straits," said Andre Meade, a financial analyst with Commerzbank Securities in New York. "Bankruptcy is fairly likely at this point."
Meade and other analysts noted that Enron was the most important middleman matching buyers and sellers of electricity, natural gas and other products. Thus its failure could disrupt energy trading markets, possibly causing sharper swings in short-term energy prices.
Most analysts said any disruptions would likely be temporary because other energy companies are ready to fill Enron's shoes, but experts cautioned that the size of Enron's trading obligations aren't known outside the company.
A series of increasingly damaging disclosures by Enron in the past month about improper accounting of loans to outside investment partnerships involving some of its senior corporate executives swept away investor confidence, leading to the breakdown of the Dynegy deal.
It was an epic fall for a prideful company whose long-time chairman and chief executive Ken Lay was a close supporter and confidant of President Bush and the Bush family.
Enron, an influential lobbyist for energy deregulation in Washington and in state capitals, had led in the creation of a huge new market for energy products and related financial contracts and became the world's largest trader of these specialized transactions.
Its revenue tripled to $100 billion from 1998 to 2000.
In 1999, Enron launched EnronOnline, an Internet-based trading system for electricity, natural gas, crude oil and a wide range of other products. But Enron also spent billions of dollars acquiring a power plant in India, a water system in Britain, and fiber-optic networks to carry Internet traffic, all of which backfired.
The collapse of energy prices this spring started Enron's stock on a downward slide from a high of nearly $90 a year ago. That accelerated a cash drain at the company and confronted it with the threat of growing losses and asset erosion because of largely concealed deals with its energy partnerships.
In August, its chief executive officer Jeffrey Skilling resigned. He had been the architect of its expansion and had approved the outside partnerships, and his departure started the company's final down spiral.
November 28, 2001
Markets Down on Enron's Collapse
By Jerry Knight, Washington Post Staff Writer
The stock market was jolted today by the impending collapse of Enron Corp., the biggest company in the natural gas business and the nation's seventh largest corporation based on revenue.
Dynegy Inc., another big gas company, backed out of buying Enron at mid-day, leaving the giant gas company teetering toward bankruptcy. Enron's natural gas trading desk, which dominates that business, was shut down.
After credit rating agencies downgraded Enron to the "junk bond" level, the company stopped paying its bills and others refused to do business with it.
Enron's stock, worth nearly $90 a share a year ago, plunged into penny stock territory -- closing down $3.50 to 61 cents -- and some traders speculated that it might become worthless.
Enron's collapse pulled down the stocks of Citigroup Inc. and J.P. Morgan Chase & Co., which only a few weeks ago gave Enron several hundred million dollars in unsecured loans.
Citigroup and J.P. Morgan Chase are both members of the Dow Jones industrial average, and the declines in their stocks alone knocked more than 30 points off the Dow, which fell nearly 161 points to 9711.86.
The sudden implosion of Enron is the most serious business failure since the dot.com and telecom collapse, and it triggered widespread selling on Wall Street.
The Standard & Poor's 500 stock index fell nearly 21 points to 1128.52 and the Nasdaq Stock Market composite index was down 48 to 1887.97.
Shares of other energy companies fell as did software stocks, which had been one of the strongest segments of the technology market. . . .
In its latest region by region survey of the economy, the Federal Reserve reported signs of improvement in some parts of the country but said they were outweighed by the continuing slowdowns in other places.
Enron's failure has nothing to do with economic conditions and everything to do with the way the company was run.
Only a few months ago, Enron was being touted as the model of the modern corporation. Starting out as a stodgy natural gas pipeline, Enron used the Internet to make itself the master gas trader, revolutionizing the business and generating vast profits.
Much of those profits turned out to be the product of mysterious deals with affiliated companies that never actually put any cash in Enron's coffers.
As Enron's problems began to become evident a few weeks ago, the Houston company put itself up for sale, finally accepting an $8.4 billion offer from much smaller Dynegy Inc. But the more Dynegy executives looked into Enron's business, they less they liked.
Today they pulled the plug leaving Enron little alternative but to file for bankruptcy. . . .
AND JUST WHO OWNS ENRON?
As of Sept 30, 2001, the top institutional holders were:
#1 - Alliance Capital Mgmt with 42,939,048 shares; followed closely by #2 - Janus Capital Mgmt with 41,361,200 shares; #3 - Putnam Investment Mgmt (Marsh & McLennan) with 23,122,100 shares; #4 - Barclays Global Investors (a member of the Committee of 300) with 23,047,196 shares; and #5 - Fidelity Mgmt & Research with 20,790,452 shares.
The remaining of the top 15 investors included: Smith Barney; State St. Global Advisors; Aim Mgmt; Vanguard Group; Morgan Stanley; Northern Trust; Deutsche Bankers Trust; Massachusetts Financial Service; Presdner Rcm; Cs First Boston Investment. . . .
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For more on Marsh & McLennan, GO TO > > > The Marsh Birds
For more on Morgan Stanley and the investment game, GO TO > > > Nests Along Wall Street
< < < FLASHBACK < < <
From If the Gods Had Meant Us to Vote They Would Have Given Us Candidates:
. . . Old Mr. Powerhouse watches George W. Bush swing with his slow roundhouse right of Compassionate Conservatism, then watches Al Gore counterpunch with his feeble left jab of Practical Idealism, and he just laughs and laughs, not caring one whit whether Compassionate Practicality, Conservative Idealism, or any combination thereof wins in November -- because he owns both of these pugs.
Among the corporations already represented on the money lists of both the Bush and Gore campaigns are:
Aetna, AT&T, BellSouth, Boeing, Citigroup, Du Pont, Enron, Ernst & Young, Goldman Sachs, IBM, Intel, Lazard Freres, Lehman Brothers, Merrill Lynch, Microsoft, Monsanto, Morgan Stanley, Raytheon, Roche, Time Warner
From The Buying of the President 2000: . . .
George W. Bush's Top 10 Career Patrons
1. Enron Corporation
2. Sanchez family and related business interests.
3. Vinson & Elkins.
4. Hicks, Muse, Tate and Furst, Inc.
5. Bass family and business interests.
6. The Sterling Group.
7. Pilgrim's Pride Corp.
8. Farmers Group, Inc. (Zurich)
9. Sam and Charles Wyly, Jr. and business interests.
10. Arter & Hadden.
< < < A FURTHER BACK FLASHBACK < < <
From The Buying of the President (1996 ed), regarding contributions to Republican candidate, Phil Gramm:
The name of one company in particular might have caught Wendy Gramm's attention: Enron. ...
It's a fairly large company, based in Houston. Of all the companies that wrote to the CFTC (Commodity Futures Trading Commission) seeking the exemption (of energy derivative contracts from federal regulation), Enron was the biggest donor to Gramm campaigns, giving $34,100 over the years. . .
After taking actions that led to the exemptions from regulation, Wendy Gramm (wife of Phil Gramm and chosen by Ronald Reagan to head the CFTC in 1987) resigned on January 20, 1993, the day Clinton was inaugurated.
Five weeks later, she was named to Enron's board of directors. The part-time position pays her $22,000, plus $1,250 for each meeting she attends. In April 1993 the commodities commission voted 2 to 1 against regulating the business...
In its 1992 annual report, Enron calls itself the "manager of the largest portfolio of fixed-price and natural-gas derivative contracts in the world." The company also has roughly $4.5 billion in interest-rate swaps, another exotic transaction that Wendy Gramm helped to exempt from deregulation while she was at the CFTC...
[A Catbird Note: Kamehameha Schools'/Bishop Estate's infamous McKenzie Methane deal was done in 1989 -- during Wendy Gramm's tenure as head of the CFTC. Hmmmm.]
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ENRON HAS ANOTHER DISTINCTION -- IT IS THE #1 CAREER PATRON OF GEORGE W. BUSH, JR.
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From The Buying of the President 2000: . . . For three decades now, hundreds of electrical power, oil refining, and chemical plants have been pumping toxic particles into the air over Texas. These plants produce as much smog-forming nitrogen oxides as 18 million cars, making Texas the state with the largest volume of air pollution in the nation. The Texas Legislature passed the Texas Clean Air Act in 1971, but plants built before the law was passed don't have to comply with its rules.
In December 1996, staff members of the Texas Natural Resources and Conservation Commission (TNRCC), the state environmental agency, began meeting with representatives from eleven companies to talk about reducing the emissions of the plants that benefitted from the grandfather clause. But when it looked like the commission was moving toward eliminating the exemption for those plants, energy-industry executives balked and headed straight for the governor's office.
On January 14, 1997, Bush's environmental director, John Howard, told his boss in a memo: "Industry has expressed concern that the TNRCC is moving too quickly and may rashly seek legislation this session."
In early March, Bush tapped Vic Beghini, an executive with Marathon Oil Co., and Ansel Condray, an executive with Exxon Corp., to come up with a plan to let the industry comply voluntarily with the state's clean-air regulations. . . .
Beghini and Condray then presented the finished proposal at a June 19, 1997 meeting of about forty industry executives. In his notes of the meeting, James Kennedy of E.I. du Pont de Nemours and Co., the giant chemical manufacturer, wrote, "Amoco presented the paper to the group at the meeting as something that has been agreed to at high levels and was not subject to change."
On March 31, 1998, Bush appeared at a press conference flanked by executives of Exxon, Amoco, and Texas Utilities, among others, to announce that 26 companies-- representing 60 of the 831 pollution-producing companies in the state, had pledged to reduce emissions by 15,000 tons a year. "We're committed," Bush said, "to clean air in the state of Texas."
But whether companies cut back on emissions didn't really matter to the governor or to the industry. ... "The concept paper has no 'meat' with respect to actual emissions reductions," Kennedy wrote. . . .
As far as Bush was concerned, his voluntary compliance plan was already a rousing success, a model of public-private partnership good enough to take on the road to the presidential primaries. Three weeks after Bush announced that he was a candidate for President, his spokesman, Scott McClennan, boasted: "Governor Bush was the first governor in Texas to tell grandfathered industries, 'It's time to clean up.' Voluntary programs are working in Texas."
Well, not really. A study by the Environmental Defense Fund published six months after Bush's press conference found that only three of the 26 companies had actually scaled back their emissions. (In 1999, under increasing public pressure, Bush finally signed a bill that forces power plants to cut their emissions in half by 2003.) . . .
May 17, 2000
A CATBIRD PONDERING
On May 17, 2000, I caught a curious Enron commercial on TV. The ad appeared to promote a unique idea that we should make BAND-WIDTHS -- those invisible waves which we use to communicate with each other -- a COMMODITY!
As a commodity -- don't you see -- these band-widths become things that can be bought and sold. And, Enron, I presume, would be one of the companies that trades in this new-fangled portfolio of derivative contracts.
Wow! A way to buy and sell something you can't see or feel, and something we always took for granted belonged to everyone!
Holy Capitalism, Batman, what a concept!
What next ... WATER?
(If you think this is a joke, go to > > > World Trade Organization.)
< < < YET ANOTHER FLASHBACK < < <
February 2, 2001
HOW TO CREATE A PHONY POWER CRISIS: THE BUSH-ENRON CONNECTION
By Uri Dowbenko
The phony US energy crisis has deep ties to the Bush Family.
One of the prime beneficiaries of the "crisis" is Enron Corporation and its chairman, Ken Lay, a major corporate and personal contributor to George W. Bush's presidential campaign.
Even though California Gov. Gray Davis has reached into California residents' deep pockets to bail out the utility companies through emergency legislation, Washington Gov. Gary Locke has balked.
According to KCPQ-TV's Chris Daniels' "A Disturbing New Twist in Western Power Troubles, " Governor Locke says, 'It's unjustified, it's obscene, and clearly hurting all consumers.'"
Like other western governors, Locke has had to pay for electricity at any price.
In November of 1999, for example, electricity was purchased for $29 a megawatt hour.
A year later, the price increased to $160 an hour, according to sources at Tacoma Power.
Last month it was at $525.
Locke expressed his indignation saying, "I've very disappointed in President Bush that the new administration will not be intervening."
But why should he intervene?
One of Bush's largest campaign contributors is Enron Corporation, a Texas-based company which is part of the de facto global energy oligopoly-cartel.
Although diversifying into other business, Enron has been best known as the largest buyer and seller of natural gas in the United States. Its 1999 revenues of $40 billion had made it the 18th largest company in the United States.
Enron is also invested in energy projects around the world, including the UK, Argentina, Bolivia, Brazil, the Philippines, Indonesia, China, India and Mozambique.
One of the global energy cartel's most visible players, Enron saw its corporate profits rise 34 percent in the fourth quarter of 2000.
Enron shareholders should ask----did dividends come from price gouging US citizens?
How George W. Bush Got "Layed"
Federal Election Commission records show that Enron Chairman Kenneth Lay donated more than $350,000 directly to Bush campaigns since 1997.
Lay also gave another $100,000 to Republican candidates and fundraising committees.
In addition, Enron Corporation, including employees, also donated $1.5 million in soft money to Bush and Republican committees.
More recently, Lay and his wife donated $10,000 to the "Florida Recount Fund," and another $100,000 to the "Presidential Inaugural Fund."
As one of his fundraising "Pioneers," Lay helped raise more than $100,000 for Bush's campaign for president.
In consideration of these numbers, is it too much to ask for a phony and contrived power "crisis" as a payback?
Naah, not at all . . .
According to newswire reports, as a new energy advisor for President Bush, Ken Lay says that precap prices for wholesale electricity in the West "is not even a short-term solution."
Not coincidentally, Enron is the largest power marketer in the United States. A cap would limit the prices it and other wholesalers could charge to utilities. Wholesale power prices were deregulated under the landmark 1996 law but retail rates were not.
Lay said the federal government should limit itself to an "advisory" role, letting California leaders resolve a "pretty much self-inflicted problem."
California's rolling blackouts have come as the two large utilities, PG&E Corp. and Southern California Edison, have struggled under huge debts through buying electricity at higher wholesale prices than they can recoup under the retail rates they are allowed to charge.
In the short term, Lay said, the state government will have to "buy the power to fill the short positions of the utilities."
And to ensure Enron's unconscionable profit, he should have added.
Enron's Pug Winokur, Shadow Government Insider
On the Enron corporate website, one of the members of the board of directors, Herbert S. "Pug" Winokur, Jr., is described as chairman and CEO of Capricorn Holdings, Inc., and former senior executive vice president of Penn Central Corporation. (For more on Penn Central go to Nests on the Rails.)
As the Insiders' Insider, "Pug" Winokur has been such a permanent fixture in the Washington Old Boy Network that he's even mentioned in a 1978 book by Daniel Guttman called "The Shadow Government."
Historically Winokur's Capricorn Holdings was used as an investment vehicle in NHP, an apartment management firm headed by Roderick Heller III.
In turn, NHP's assets included oft-purloined and defaulted HUD Section 8 subsidy housing, a notorious and well-known vehicle for fraud and money laundering.
Winokur was also on the Board of Directors of Harvard Endowment Fund, which purchased 50 percent of NHP, making the prestigious Harvard a prototypical, but very low-profile, slum landlord. (See "Bushwhacked: HUD Fraud, Spooks and the Slumlords of Harvard")
It should also be noted that George W. Bush attended Harvard Business School. Later, after Bush joined Harken Energy Corp and became a director, the largest stock position and seat on the board was acquired by Harvard Management Co.
Ironically, from 1988 to 1997, Winokur was also the chairman and CEO of DynCorp, one of the government's largest contractors in data acquisition and management.
Since DynCorp had a contract from the Department of Justice, Winokur would have profited from the DoJ Asset Seizure Program, as well as HUD's Operation Safe Home seizures which targeted low-income tenants and mortgage holders in the inner cities.
In addition DynCorp is one of the lead contractors for the new phony War on Drugs in South America called "Plan Colombia," another tax-payer supported scam to bring monies into DynCorp's coffers.
Now there's a guy who understands that the only way to do a deal is to get it rigged from the very beginning.
Enron's Son of a Spook
Enron dealmaker Frank Wisner, Jr., muscled the company into lucrative overseas contracts, most notably in India and the Philippines.
Enron's deal to manage a power plant in the Philippines was due largely to Wisner's efforts. Based in Subic Bay, a former US military outpost, the power planet was taken over by Enron in 1993, two months after the last US troops left the base.
Wisner is also credited with helping Enron win a $2.8 billion deal in India, building a power plant near Bombay. Now the project is under heavy fire for being over-priced, and the deal continues to simmer with allegations of bribery.
Wisner, Jr., must have learned his tradecraft from his father Frank Wisner. Sr., one of the CIA's prime operatives.
Wisner, Sr., who worked at the CIA from 1947 until just before his "suicide" in 1965, was involved in 1) the 1954 CIA coup in Guatemala, toppling the goverment of Jacobo Arbenz for United Fruit Company, 2) the 1953 overthrow of Iranian Prime Minister Mohammed Mossadeq, and 3) the secret operations against Indonesian President Sukarno.
Unlike his spooky father, Frank Wisner, Jr., however, was a former Pentagon official before his job at Enron.
Enron's Ken Lay and the Bush Boys
Enron Founder and Chairman Kenneth Lay also worked in the Pentagon for the Nixon administration during the Vietnam War.
Lay is a close friend of George H. W. Bush. In fact, his Houston home in River Oaks is near the Tanglewood residence of the former president and CIA director.
Although there have been no published reports of Bush Sr. doing favors for Lay, three of the Bush Boys have used their father's name to get contracts for Enron.
According to an article by Seymour Hersh in the New Yorker, Neil and Marvin Bush tried to influence government officials for an Enron bid to rebuild Shuaiba North power plant in Kuwait.
Ironically this power plant was destroyed in George Bush's Persian Gulf War. Enron abandoned the bid a year ago.
In 1988, George W. Bush reportedly telephoned Rodolfo Terragno, Argentina's Public Works Minister, to ask him to award Enron a contract to build a pipeline from Chile to Argentina.
"He assumed that the fact he was the son of the president would exert influence. I felt pressured. It was not proper for him to make that kind of call," Terragno told The Nation.
Finally, when Carlos Menem, another Bush Sr. crony, became president of Argentina, Enron won the bid.
Neil Bush, director of the failed Denver-based Silverado Savings and Loan, created a subsidiary of his oil company to conduct business in Argentina in 1987.
Argentina finally got so fed up with the Bush Boys, they formally had a parliamentary investigation regarding their so-called "business dealings.
Enron Rigs Washington During the Clinton Years
Even though it has strong ties to the Republican Party, Enron also did remarkably well during the Clinton years.
Most importantly, they got a ban lifted on Export-Import Bank financing of projects in China.
This allowed Enron to move forward on overseas projects guaranteed by US taxpayers. In other words, if Enron "fails," you pay.
Enron also got new rules instituted at the Ex-Im Bank that allowed the bank to finance projects on the basis of projected cash flow.
This insider track helped Enron make multi-billion dollar deals overseas with US taxpayers guaranteeing their performance.
>> March 1993, Enron made a deal to develop new European markets for Russian gas.
>> November 1993, Enron made a $1 billion deal with Turkey to develop two power plants. Ex-Im Bank provided $285 million in financing. The Overseas Private Investment Council(OPIC)covered insurance costs.
>> August 1994, Enron made a deal to build a power plant in India. ExIm provides major financing and OPIC provides an additional $100 million.
>> November 1994, Enron made a deal to build a $130 million power plant in China. Ex-Im Bank again provided the financing.
Moral of the story? When you're a monopoly capitalist, it doesn't matter who's in office. Republicans. Democrats. They all are open to inducements.
Lawsuit Against Enron Alleges Conspiracy
Unfazed by the bogus and contrived energy crisis, the San Francisco City Attorney is filing a lawsuit against Enron and 11 other companies.
The filing says that Enron "conspired to restrict supplies and drive up prices" costing consumers additional charges "on the order of 1 billion dollars."
Washington's Governor Locke says President Bush needs to take counter-measures or the economy will suffer on a national level.
"If the federal government doesn't act, you're going to see a lot of jobs go away, a lot of business close down . . ." says Locke. "We need help from the federal government immediately to help stabilize the situation."
Is this Enron's first visible and public Bush payoff?
It just might be the best "energy crisis" money can buy.
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Uri Dowbenko is the chairman and CEO of New Improved Entertainment. He can be reached at email@example.com
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< < < A Flashback to Year 2000 < < <
Greenbacks and Election Blues
Enron: Facts and Figures
Prepared by: ImpactResearch: A Program of the DataCenter
Basic Business Information
Publicly Traded on the New York Stock Exchange (ticker symbol ENE)
Headquarters: 1400 Smith Street, Houston, TX 77002
Enron's Sales in 1999: $40,112,000,000
Net Income: $893,000,000
Cash on hand at end of 1999: $288,000,000
(Hoover's Company Profile, 2000)
Top Individual Stock Holders
BELFER, ROBERT A., 1.18% (PRX 03-21-2000) Common Stock
BELFER, ROBERT A., 17.02% (PRX 03-21-2000) Preferred Convertible Stock
Office Address: Belco Petro. Corp. 67 5th Ave., 46th Fl. New York, New York 10153-0002
Director since 1983 Mr. Belfer's principal occupation is Chairman and Chief Executive Officer of Belco Oil & Gas Corp., a company formed in 1992. Prior to his resignation in April, 1986 from Belco Petroleum Corporation ("BPC"), a wholly owned subsidiary of Enron, Mr. Belfer served as President and then Chairman of BPC. (Proxy Statement, March 21, 2000)
RUBEN, LAWRENCE, JR., ET AL, 1.43% (PRX 03-21-2000) Common Stock
RUBEN, LAWRENCE, JR., ET AL, 22.06% (PRX 03-21-2000) Preferred Convertible Stock
Married to Selma Belfer (see above)
Office Address: 600 Madison Ave, New York, NY, 10022-1615
Chairman and CEO
KENNETH L. LAY
US Political Connections
As of June 2000, Enron had contributed $10,265 to Sen. Slade Gorton 's Campaign (Center for Responsive Politics)
As of January 2000, Enron had contributed $99, 750 to George W. Bush's Presidential Campaign - the 11th largest contributor to Bush's campaign (Center for Responsive Politics)
Kenneth Lay contributed a total of more than $100,000 to Bush's gubernatorial campaigns of 1994 and 1998, this made Lay Bush's top 21st individual donor (Associated Press, April 7, 2000)
Kenneth Lay and his wife, Linda contributed $76,000 to the Republican National State Elections Committee since 1997 (Associated Press, April 7, 2000)
Enron's total lobbying expenditures for 1998 were $1,600,000. Of this, $200,000 was lobbying expenditures for Enron Wind Corp. (Center for Responsive Politics)
Enron hired former members of Pres. George Bush's Cabinet, Secretary of State James Baker and Commerce Secretary Robert Mosbacher in 1993 to help develop overseas projects. Mosbacher had served on the board of Enron in the 1980's (The New York Times, February 23, 1993)
New Jersey State Attorney General is accusing Enron of violating state laws that prohibit some energy providers from making donations to politicians (Megawatt Daily, March 27, 2000)
Foreign Political Involvement
In order to get approval from the British Government to purchase one of Britain's largest public water utilities, Enron funneled "Labour almost pounds 30,000 in the last two years" (The Independent (London), September 11, 1998)
Shortly after his father won the US Presidency in 1988, George W. Bush called the Argentine Minister of Public Works, Rodolfo Torragno to pressure him to accept Enron's "laughable" bid for a large pipeline project. (Mother Jones, March 1, 2000; The Nation, November 21, 1994)
There were accusations in Panama that Enron was using it's influence with Energy Minister Luis Carlos Valenzuela to force the state oil company to sign a "sweetheart deal" with Enron to export natural gas to Central American (Latin America Energy Alert, December 8, 1999; The Nation, May 22, 2000)
"Gas giant Enron Corp.'s plan to develop Mozambique's Pande natural gas field appears to have been saved from cancellation last month by a blunt threat from the U.S. National Security Council to cut off future U.S. aid to the country." (The Oil Daily, December 1, 1995) Enron beat out South Africa's state petroleum company, Sasal to build the pipeline in 1995 and recently sold the gas and oil rights to Sasal.
Enron and Native Peoples in the United States
Manager of Enron's American Indian Affairs is Roger Fragua.
Fragua was formerly the Jemez Tribe Administrator in New Mexico (Las Vegas Review-Journal, September 27, 1997)
In 1997, Confederated Tribes of Warms Springs, Oregon, expressed their wish to gain control over the three Portland General Electric Co. hydropower dams on the Tribes' land in order to restore abandoned fish ladders. Enron owned PGE and "intended to keep the license". (Engineering News-Record, August 4, 1997) In early 2000, Enron Corp.'s Portland General Electric Co. agreed to sell stakes in its hydroelectric system over four decades to the Tribes, (Houston Chronicle, February 2, 2000) At the same time, Enron is in the process of selling it's interests in PGE to Sierra Pacific Resources. (Inside F.E.R.C.'s Gas Market Report, March 17, 2000)
Activists challenging Enron's wind farm on the Columbia River Gorge "maintain that Enron has been unresponsive to tribal and environmental concerns, refusing to reply to repeated invitations to visit the site or meet with elders." (Indian Country Today (Lakota Times) April 12, 2000) In testimony to the US Congress in 1999, Enron's manager of American Indian Affairs stated, "We seek Tribal partners that are motivated in seeking "for-profit" energy projects that are culturally, environmentally and economically sound Enron has a long history of responsibly working with many American Indian Tribes ". (Federal Document Clearing House Congressional Testimony, July 1, 1999)
Kenneth L. Lay, CEO and Chairman of Enron, received the American Spirit Award from the Council of Energy Resource Tribes in 1988. The award is "given to a corporate executive who has supported CERT and its efforts to enhance higher education opportunities for American Indian students in the fields of science, engineering and business". (Coal, March 1988) (For more on stealing from Indians, GO TO > The Bureau of Indian Affairs)
Enron and the Environment
In 1996, Enron received the Corporate Conscience Award for Environmental Stewardship sponsored by the Council on Economic Priorities. (PR Newswire, June4, 1996)
Patagonia, Inc, and outdoor clothing and equipment company committed to environmentally friendly business decisions, purchases all of it's electricity from Enron Wind. The first company in California to do so. (The Energy Report, July 13, 1998)
Enron's pipeline project with Florida Gas Transmission Co, was found in violation 109 times regarding wetlands destruction and improper land clearing and damaging waterways in 1994. It paid $575,400 in fines. (Oregonian, August 6, 1996 and Southeast Energy Power Report, December 16, 1994)
Enron and Dutch Shell's pipeline in Bolivia ruptured on January, 2000, and spilled 29,000 barrels of crude petroleum. This contaminated "hundreds of acres of organic farmland, killing fish and birds in the Andes' lake Poopo, and destroying the livelihood of a 5,000 year old native tribe, Uru Morato". Enron and it's Bolivian partner, Transredes has spent $ 10-mil so far on the oil spill, and clean-up has not yet been completed, a spokesman for Enron Corp, which owns 50% of Transredes, said late Mar 21. (Friends of the Poopo and the Uru Morato, Vermont, USA and Platt's Oilgram News, March 23, 2000)
Enron, Shell and Transredes are building a 390 mile pipeline in Bolivia that has "brought serious environmental and social problems " to local communities living along its path. They have so far experienced, "pollution of local water resources, degradation of local roads, soil and air pollution ". (A World Class Disaster: The Case of the Bolivia-Cuiaba Pipeline, A Report on the Failures of Enron international to Comply with Bolivian Environmental Laws and OPIC Loan Conditions in the Construction of the Lateral Ipias-Cuiaba Gas Pipeline, December 8, 1999) Activist have been pressuring the US Overseas Private Investment Corporation to pull it's support of the Cuiaba Pipeline Project, however, Enron has stated that it will proceed with the project, whether or not it gets OPIC funding. (Financial Times (London) July 15, 1999)
Enron's activities with their Dabhol Power project in India has been documented by Human Rights Watch as violating the human rights of locals protesting the project, the largest power plant in the world. "The Dabhol Power Corporation and it's parent company, Enron, are complicit in these human rights violations. Enron's local entity, the Dabhol power Corp. benefited directly from an official policy of suppressing dissent through misuse of the law, harassment of anti-Enron protest leaders and prominent environmental activists, and police practices ranging from arbitrary to brutal". (The Enron Corporation: Corporate Complicity in Human Rights Violations, Jan 1999, Human Rights Watch)
Enron's water division, Azurix Corp, is the city water supply company for the community of Bahia Blanca in Buenos Aires. In April, 2000, the water supply was laced with toxic bacteria that cause skin irritation and possible neurological damage. (Reuters, April 25, 2000)
The World Bank is objecting to the terms of a power purchase agreement between Enron and the state of Lagos (Nigeria) in December of 1999. The terms are too favorable to Enron: they acquired a long-term right to sell power to Lagos without competitive bidding; can charge a high price for the fuel used by its power plant; cannot be penalized for the poor performance of its plants; does not fully bear the completion risks for the plants under its control; benefits from generous arrangements for payment security; and would receive excessive contract termination payments. (EIU ViewsWire, May 25, 2000)
In 1999, Enron Wind agreed to relocate a proposed wind farm away from endangered California Condor flight patterns after The National Audubon Society and Tejan Ranch began a public campaign targeting Enron Wind after the California Energy Commission approved development of the project (Global Power Report, November 12, 1999)
Enron's Board of Directors (Proxy, March 23, 2000)
NORMAN P. BLAKE, JR., 58 Director since 1993 Mr. Blake is the Chief Executive Officer and Secretary General of the United States Olympic Committee. Mr. Blake served as Chairman, President and Chief Executive Officer of the Promus Hotel Corporation from December, 1998 until November, 1999 when it merged with the Hilton Hotels Corporation. From November, 1990 until May, 1998, he served as Chairman, President and Chief Executive Officer of USF&G Corporation until its merger with the St. Paul Companies. He is also a director of Owens-Corning Corporation.
RONNIE C. CHAN, 50 Director since 1996 For over nine years, Mr. Chan has been Chairman of Hang Lung Development Limited, a publicly traded Hong Kong company involved in property development and investment as well as hotel development and management. Mr. Chan also co-founded and is a director of various companies within Morningside/Springfield Group, which invests in private industrial companies internationally and he is also a director of Standard Chartered Bank plc and Motorola, Inc.
JOHN H. DUNCAN, 72 Director since 1985 Mr. Duncan's principal occupation has been investments since 1990. Mr. Duncan is also a director of EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.), Azurix Corp. and Group I Automotive Inc.
WENDY L. GRAMM, 55 Director since 1993 Dr. Gramm is an economist and Director of the Regulatory Studies Program of the Mercatus Center at George Mason University. From February, 1988 until January, 1993, Dr. Gramm served as Chairman of the Commodity Futures Trading Commission in Washington, D.C. Dr. Gramm is also a director of IBP, inc., State Farm Insurance Co. and Invesco Funds. Dr. Gramm was also a director of the Chicago Mercantile Exchange until December 31, 1999.
KEN L. HARRISON, 57 OTO Director since 1997 Mr. Harrison has served as Chairman of the Board and Chief Executive Officer of Portland General Electric Company since1988. He plans to retire on March 31, 2000. Additionally, Mr. Harrison served as Chairman of Enron Communications, Inc. from its inception in 1996 through November, 1999, and as a Vice Chairman of Enron from July, 1997 to July, 1999.
ROBERT K. JAEDICKE, 71 Director since 1985 Dr. Jaedicke is Professor (Emeritus) of Accounting at the Stanford University Graduate School of Business in Stanford, California. He has been on the Stanford University faculty since 1961 and served as Dean from 1983 until 1990. Dr. Jaedicke is also a director of Boise Cascade Corporation, California Water Service Company and GenCorp, Inc. Dr. Jaedicke was also a director of State Farm Insurance Co. until June, 1999.
KENNETH L. LAY, 57 Director since 1985 For over fourteen years, Mr. Lay has been Chairman of the Board and Chief Executive Officer of Enron. Mr. Lay is also a director of Eli Lilly and Company, Compaq Computer Corporation, Azurix Corp., EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.), Questia Media, Inc. and Trust Company of the West.
CHARLES A. LEMAISTRE, 76 Director since 1985 For 18 years, Dr. LeMaistre served as President of the University of Texas M. D. Anderson Cancer Center in Houston, Texas and now holds the position of President Emeritus.
REBECCA MARK-JUSBASCHE, 45 Director since 1999 Since July, 1998, Ms. Mark-Jusbasche has served as Chairman and Chief Executive Officer of Azurix Corp., a global water company formed by Enron in 1998. From May, 1998, until July,1999, Ms. Mark-Jusbasche served as a Vice Chairman of Enron. From January, 1996, until March, 1999, Ms. Mark-Jusbasche served as Chairman of Enron International Inc. From January, 1996 until May, 1998, Ms. Mark-Jusbasche served as Chief Executive Officer of Enron International Inc. From July, 1991 until March, 1998, she served as Chairman and Chief Executive Officer of Enron Development Corp. Ms. Mark-Jusbasche is a member of the Council on Foreign Relations and The Chase Manhattan Corp. National Advisory Board.
JOHN MENDELSOHN, 63 Director since 1999 Since July, 1996, Dr. Mendelsohn has served as President of the University of Texas M.D. Anderson Cancer Center. Prior to 1996, Dr. Mendelsohn was Chairman of the Department of Medicine at Memorial Sloan-Kettering Cancer Center in New York. Dr. Mendelsohn is a director of ImClone Systems, Inc.
JEROME J. MEYER, 62 Director since 1997 For over eight years, Mr. Meyer served as Chairman and Chief Executive Officer of Tektronix, Inc., an electronics manufacturer located in Wilsonville, Oregon. Currently, Mr. Meyer serves as Chairman and as a director of Tektronix, Inc. He is also a director of Standard Insurance Corp. and Centerspan Communications, Inc.
PAULO V. FERRAZ PEREIRA, 45 Director since 1999 For over five years, Mr. Pereira has served as President and Chief Operating Officer of Meridional Financial Group and Managing Director of Group Bozano. Mr. Pereira is the former President and Chief Executive Officer of the State Bank of Rio de Janeiro.
FRANK SAVAGE, 61 Director since 1999 Since 1995, Mr. Savage has served as Chairman of Alliance Capital Management International (a division of Alliance Capital Management L.P.). Mr. Savage is also a director of Lockheed Martin Corporation, Alliance Capital Management L.P., Lyondell Chemical Corp. and Qualcomm Corp.
JEFFREY K. SKILLING, 46 Director since 1997 Since January, 1997, Mr. Skilling has served as President and Chief Operating Officer of Enron. From January, 1991until December, 1996, he served as Chairman and Chief Executive Officer of Enron North America Corp. and its predecessor companies. Mr. Skilling is also a director of Azurix Corp. and the Houston Branch of the Federal Reserve Bank of Dallas.
JOHN A. URQUHART, 71 Director since 1990 Mr. Urquhart serves as Senior Advisor to the Chairman of Enron. From 1991 to 1998, Mr. Urquhart was a Vice Chairman of Enron. Since August, 1991, Mr. Urquhart has also been President of John A. Urquhart Associates, a management consulting firm in Fairfield, Connecticut. He also serves as a director of TECO Energy, Inc., Hubbell, Inc., The Weir Group, plc and Catalytica Inc.
JOHN WAKEHAM, 67 Director since 1994 Lord Wakeham is a retired former U.K. Secretary of State for Energy and Leader of the Houses of Commons and Lords. He served as a Member of Parliament from 1974 until his retirement from the House of Commons in April, 1992. Prior to his government service, Lord Wakeham managed a large private practice as a chartered accountant. He is currently Chairman of the Press Complaints Commission in the U.K. and chairman or director of a number of publicly traded U.K. companies. Lord Wakeham is also a director of Azurix Corp.
HERBERT S. WINOKUR, JR., 56 Director since 1985 Mr. Winokur is Chairman and Chief Executive Officer of Capricorn Holdings, Inc. (a private investment company) and Managing General Partner of Capricorn Investors, L.P., Capricorn Investors II, L.P. and Capricorn Investors III, L.P., partnerships concentrating on investments in restructure situations, organized by Mr. Winokur in 1987, 1994, and 1999, respectively. Prior to his current appointment, Mr. Winokur was Senior Executive Vice President and a director of Penn Central Corporation. Mr. Winokur is also a director of Azurix Corp., The WMF Group, Ltd., Mrs. Fields' Holding Company, Inc., CCC Information Services Group, Inc. and DynCorp.
Top Ten Institutional Stock Holders as of June 15, 2000 (Vicker's Stock Research)
INST CODE INSTITUTION NAME INCORP SHARES VALUE($000) PORTFOLIO VALUE($000) %PORT MM JANUS CAPITAL US 67,127,310 4,891,903 226,957,100 2.15 MF JANUS FUND US 26,118,310 1,903,372 29,979,300 6.34 BA BARCLAYS BK PLC FN 20,533,076 1,496,348 448,821,000 .33 MM FMR CORP US 17,520,864 1,276,833 626,451,900 .20 MM CITIGROUP INC. US 16,623,620 1,211,446 191,045,900 .63 MM AMER CENT INVT US 13,686,800 997,426 89,791,300 1.11 MM MSDW & CO US 13,281,745 967,907 192,401,600 .50 MM TAUNUS CORP US 12,938,627 942,902 203,497,200 .46 MM STATE STR CORP US 12,804,149 933,102 322,063,600 .28 MM PUTNAM INV MGT. US 11,347,292 826,934 275,420,100 .30 Source:
ImpactResearch: A Program of the DataCenter
1904 Franklin Street, Suite 900, Oakland, CA 94612 USA
Tel: 1 510-835-4692 Fax: 1 510 835 3017
PO Box 29344, San Francisco, CA 94129 USA
Tel: 415-561-6568 Fax: 415-561-6493
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For more on Herbert "Pug" Winokur and the Penn Central bankruptcy and fraud scandals, GO TO > > > Dirty Gold in Goldman Sachs
For more on Herbert "Pug" Winokur and Dyncorp, GO TO > > > HUD; Nests in the Pentagon
For more on Wendy Gramm, GO TO > > > Birds on the Power Lines
The Power Elite: Enron and Frank Wisner
by Vijay Prashad
On 28 October 1997, Enron Corporation announced the entry of Frank G. Wisner Jr. onto its board of directors. Most of the business press did not find this untoward and it certainly did not emerge as part of the US discussions on corruption at the highest level.
Frank Wisner, as we know in India, was the US Ambassador from 1994 until this year and his entry into Enron must be seen in light of the scandal of Dabhol.
Enron, like most US corporations, uses its close association with the state (both its elected and bureaucratic arms) for its own ends. US campaigns are financed by corporations whose money not only enables politicians to win elections, but it also buys businesses the state's power both for domestic subsidies and for the use of US power in the international arena.
Frank Wisner, Jr. was a big catch for Enron Corporation. His lineage is impeccable, since his father, Frank Wisner Sr., was a senior CIA official (from 1947 until his suicide in 1965) who was involved in the overthrow of Arbenz of Guatemala (1954) and Mossadeq of Iran (1953).
Wisner Junior was well-known in the CIA and he worked as Under Secretary of Defense for Policy and Under Secretary of State for International Security Affairs; his current boss, Kenneth Lay, Chief Executive Officer of Enron Corporation, also worked for the Pentagon during the US war in Vietnam. With "economic espionage" as a task for the CIA (see PD, 12 October 1997), there is little doubt that Wisner used this instrument during his long-tenure as Ambassador in Asian nations. A Wisner staffer told InterPress Services this year that "if anybody asked the CIA to help promote US business in India, it was probably Frank".
When Wisner was US Ambassador to the Philippines (1991-92), Enron was in the midst of negotiations to manage the two Subic Bay power plants.
When Wisner left Manila in July 1992, Enron won the deal and began to manage the plant in January 1993.
During Wisner tenure in India, he fought long and hard to secure various deals for Enron. He went so far as to boycott the "India Power '96 -- Beyond Dabhol" summit, despite being scheduled to give an address (this was part of a US advisory to companies to avoid India for six-months, a pressure tactic on India during the winter of 1995-96). Wisner left India earlier this year only after it seemed like Enron's place was secure.
Enron, like most monopoly corporations in the US, uses money as a means to buy influence and power. To gain access to a lucrative contract to rebuild the Shuaiba power plant in Kuwait, Enron hired former US Secretary of State James Baker as a consultant who travelled to the oil kingdom to negotiate with his Gulf War allies for his new employer. The sons of George Bush also helped Enron win this contract despite a lower bid from Deutsche Babcock, a German firm.
The Bush brothers also helped Enron in their deal to win a contract to build a pipeline from Chile to Argentina in 1988. Finally, Wendy Gramm (wife of Senator Phil Gramm) joined Enron's Board of Directors in 1993 after she resigned from the Commodity Futures Trading Commission.
This Commission, just days after Gramm's resignation, deregulated energy futures, thereby allowing Enron to earn 10% of its profits by adventures on the financial markets.
Beside all this evidence, it appears hypocritical for Rebecca Mark, Chairperson of Enron Development Corporation, to declare that "Enron's reputation is being attacked, and we do not do business under the table".
The story does not end there.
In 1991-92, Enron donated $28,525 to the Democratic Party and in 1993-94, it gave $42,000. These monies enabled Enron to send its executives on international tours with the late Secretary of Commerce Ron Brown in January 1995 (when Kenneth Lay came to India) and in March-April 1994 (when Chief Executive Officer of Enron International, Rodney Gray came to Russia).
In the former, Enron was in negotiation for the Dabhol plant among other things (such as the $1.1 billion offshore holdings) and in the latter, Enron was interested in the marketing of Russian gas in Europe.
President Clinton noted that Brown's trips resulted in "expanded opportunities for American business in [the USA] and abroad". The "pay to play" project of US "democracy" is once again in evidence. The example of Enron and Wisner proves beyond a reasonable doubt that the US state is not a neutral actor in world affairs and that US transnational corporations are part and parcel of the corruption within the US Empire.
The hearings in Washington on "campaign finance reform" do not bother with this level of corruption, for most of those who are running the investigation are beholden to business interests. Enron, for instance, will not be a part of the investigation, since it is deemed to be a patriotic US entity out to create jobs for US workers and to accumulate wealth to defer the costs of the US's mercenary army.
- Vijay Prashad is Assistant Professor of International Studies at Trinity College in Hartford, Connecticut.
Source: People's Democracy, 16 November 1997
For more on the CIA connection, GO TO > > > The Secret Nests
Commodity Futures Trading Commission - From: The Buying of the President (1996 ed): . . .
Phil Gramm has also been criticized for mixing government business and campaign politics by using his Senate office staff to work on campaigns. . . . At least two different aides to Senator Gramm have written memos about how Gramm's wife, Wendy...should be used for his reelection bid. . . .
That is particularly interesting in light of the powerful position she held in Washington as chairwoman of the Commodity Futures Trading Commission. As the nation's leading regulator of futures contracts for all agricultural commodities, Wendy Gramm was under tight ethical constraints as to the degree and nature of her personal daily interaction with agribusiness interests.
In other words, the chairwoman of the powerful federal regulatory agency overseeing agriculture commodities futures trading would be helping her U.S. senator husband raise campaign funds from the corporations and individuals she regulated. . . .
The CFTC oversees federal regulation of the nation's fourteen commodities and futures exchanges. At those exchanges, contracts to buy and sell a seemingly endless variety of commodities are traded: oil and gas, soybeans, cattle, pork belies, corn, precious metals, cocoa, lumber, cranberries, and sugar, to name but a few. The regulatory duties of the CFTC are aimed largely at ensuring fairness and stability at the nation's commodities exchanges.
One week after Bill Clinton won the presidential election it became clear that Wendy Gramm would be leaving the politically appointed CFTC post.
On November 16, 1992, nine energy companies wrote to the commission seeking to exempt energy derivative contracts, a business valued at $5 TRILLION a year, from federal regulation. . . .
In response to the energy companies' request, Wendy Gramm set in motion the process that led to those energy derivative contracts, and other exotic financial transactions, being exempted from regulation. . . .
A Center for Public Integrity investigation shows that of the nine companies that requested the exemption, seven had donated to Phil Gramm campaigns through PACs, company officers, or employees. . . .
Cumulatively, Gramm's campaigns had received $157,250 from the people who were asking his wife to exempt energy derivatives and the other transactions from regulation. ...
During Wendy Gramm's tenure with the commodities commission, Phil Gramm accepted $38,500 in commodity honoraria, according to his actual disclosure records. . . At the same time she was heading the commodities commission, he was on the Senate Banking committee. That means that Phil Gramm, too, had regulatory jurisdiction and oversight regarding commodities.
On July 24, 1990, Phil Gramm voted to kill an amendment that would have lowered the sugar price support from eighteen cents a pound to sixteen cents a pound. That was a potential conflict of interest because Gramm's disclosure show that at the time the couple owned between $15,000 and $50,000 worth of stock in a sugar company named Castle and Cooke.
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The name of one company in particular might have caught Wendy Gramm's attention: Enron. ...
It's a fairly large company, based in Houston. Of all the companies that wrote to the CFTC (Commodity Futures Trading Commission) seeking the exemption (of energy derivative contracts from federal regulation), Enron was the biggest donor to Gramm campaigns, giving $34,100 over the years. . .
After taking actions that led to the exemptions from regulation, Wendy Gramm (wife of Phil Gramm and chosen by Ronald Reagan to head the CFTC in 1987) resigned on January 20, 1993, the day Clinton was inaugurated. Five weeks later, she was named to Enron's board of directors. The part-time position pays her $22,000, plus $1,250 for each meeting she attends.
In April 1993 the commodities commission voted 2 to 1 against regulating the business. . . .
In its 1992 annual report, Enron calls itself the "manager of the largest portfolio of fixed-price and natural-gas derivative contracts in the world." The company also has roughly $4.5 billion in interest-rate swaps, another exotic transaction that Wendy Gramm helped to exempt from deregulation while she was at the CFTC. . . .
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[A Catbird Note: Bishop Estate's infamous McKenzie Methane deal was done in 1989 -- during Wendy Gramm's tenure as head of the CFTC. Hmmmm. For more of this story, GO TO > > > Dirty Money, Dirty Politics and Bishop Estate.]
June 9, 1999 - Press Release:
US-China Business Council Board Welcomes Eleven
WASHINGTON - The United States-China Business Council today announced the election of eleven senior U.S. business figures to the organization's Board of Directors.
At its Annual Membership Meeting in Washington, June 9, members of the Council approved a slate of new directors forwarded to the membership by the Council's Board of Directors at their meeting on June 8.
Council Directors on June 8 also named Michael R. Bonsignore, Chairman and CEO of Honeywell Inc., as the organization's chairman for 1999-2000.
Executives joining the Council's Board include the following:
Roger G. Ackerman, Chairman and Chief Executive Officer, Corning Incorporated
Carleton S. Fiorina, Group President, Global Service Provider Business, Lucent Technologies
Durk I. Jager, President and CEO, The Procter & Gamble Company
L. Oakley Johnson, Senior Vice President, Corporate and International Affairs, American International Group, Inc.
J. Bennett Johnston, Chairman, Johnston Development Co., LLC
Sean Maloney, Senior Vice President and Director, Sales & Marketing Group, Intel Corporation
Patrick J. Martin, Senior Vice President - Developing Markets Operations, Xerox Corporation
Terence H. Thorn, International Government Relations and Environmental Affairs, Enron International
Morton L. Topfer, Vice Chairman, Dell Computer Corporation
Henry Wallace, Group Vice President, Ford Motor Company
Lawrence B. Zahner, President, GM China Operations, General Motors Overseas Corporation
In addition to Mr. Bonsignore, the Council's officers for the coming year include Ambassador Carla A. Hills (Hills & Co.) and Frederick W. Smith (FDX Corporation) as vice chairmen; Edgar Hotard (Praxair, Inc.) as Secretary-Treasurer; Larry L. Simms (Gibson, Dunn & Crutcher LLP) as Counsel, and Robert A. Kapp as president.
The US-China Business Council, headquartered in Washington, D.C. serves the business needs of more than 250 major US companies and firms. The Council maintains service offices in Beijing, Shanghai and Hong Kong. . . .
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For more on American International Group, GO TO > > > The Un-American Insurance Group
For more on Carla A. Hills, GO TO > > > HUD; The Bio-tech Birds
World Trade Organization - From If the God's Had Meant Us to Vote ... They Would Have Given Us Candidates by Jim Hightower:
BLUE GOLD. ... Canadians have something we need, and I don't mean hockey players. "Blue Gold," it's been dubbed by a Canadian newspaper, but it's far more valuable than that implies, since the world can actually do without gold.
Water. That's what Canada has that parts of our country and much of the world might literally kill for.
Hell, you say, water's everywhere. 70 percent of the earth is covered in the stuff. Yes, but as Canada's Maude Barlow points out to anyone who'll listen, less than one-half of 1 percent of all the water on the globe is fresh water available to drink.
An author and agitator for common sense, Ms. Barlow heads the Council of Canadians and is founding chair for progressive politics and policies. "Worldwide, the consumption of water is doubling every 20 years," she writes in a stunning report entitled "Blue Gold: The Global Water Crisis." Barlow calculates that in a very short while, most of the world's people will face shortages or absolute scarcity. . . .
Canada, on the other hand, has a blessing of agua fresca. . . . Some 20% of the world's entire supply of fresh water is in the winding rivers and countless lakes splashed all across the vast land . . .
This is not a reality that has dawned on Canadians alone. Others are casting their eyes northward, thinking, "There's gold in them thar hills." But it's not countries making invasion plans -- it's corporations.
To get their hands on the gold, the corporate grubbers first have to change the way the world's supply of drinking water is managed.
Instead of letting countries treat it as a resource to be held in common and allocated by the public for the general good, they want it to be considered as just another commodity to be held and traded by private investors strictly for their own profit.
Like oil or pork bellies . . . only this is your drinking water they want to privatize and commodify. . . .
For much more, GO TO > > > The World Trade Organization
December 2, 2001
At Enron, the Fall Came Quickly
Complexity, Partnerships Kept Problems From Public View
By Steven Pearlstein and Peter Behr, Washington Post Staff Writers
Only a year ago, Ken Lay might have been excused for feeling on top of the world.
The company he founded 15 years before on the foundation of a sleepy Houston gas pipeline company had grown into a $100 billion-a-year behemoth, No. 7 on Fortune's list of the 500 largest corporations, passing the likes of International Business Machines Corp. and AT&T Corp. The stock market valued Enron Corp.'s shares at nearly $48 billion, and it would add another $15 billion before year-end.
Enron owned power companies in India, China and the Philippines, a water company in Britain, pulp mills in Canada and gas pipelines across North America and South America. But those things were ancillary to the high-powered trading rooms in a gleaming seven-story building in Houston that made it the leading middleman in nationwide sales of electricity and natural gas.
It was primed to do the same for fiber-optic cable, TV advertising time, wood pulp and steel.
Enron's rise coincided with a stock market boom that made everyone less likely to question a company if it had "Internet" and "new" in its business plan.
And, to top it off, Lay's good friend, Texas Gov. George W. Bush, on whom he and his family had lavished $2 million in political contributions, had just been elected president of the United States.
Enron intended to become "the World's Greatest Company," announced a sign in the lobby of its Houston headquarters. Lay was widely hailed as a visionary.
A year later, Lay's empire, and his reputation, are a shambles. Enron's stock is now virtually worthless. Many of its most prized assets have been pledged to banks and other creditors to pay some of its estimated $40 billion debt. Company lawyers are preparing a bankruptcy court filing that is expected to come as soon as this week and may be the biggest and most complex ever. Most of Enron's trading customers have gone elsewhere.
The company's 21,000 employees have lost much of their retirement savings because their pension accounts were stuffed with now-worthless Enron stock, and many expect to lose their jobs as well this coming week.
Some of the nation's biggest mutual-fund companies, including Alliance Capital, Janus, Putnam and Fidelity, have lost billions of dollars in value.
Meanwhile, the Securities and Exchange Commission, headed by a Bush appointee, is investigating the company and its outside auditors at Arthur Andersen, while the House and Senate energy committees plan hearings.
It will take months or years to definitively answer the myriad questions raised by Enron's implosion. Why did it happen, and why so quickly? What did Enron's blue-chip board of directors and auditors know of the financial shenanigans that triggered the company's fall when hints of them became public six weeks ago? Should government regulators have been more vigilant?
Even now, however, it is clear that Enron was ruined by bad luck, poor investment decisions, negligible government oversight and an arrogance that led many in the company to believe that they were unstoppable.
By this fall, a recession, the dot-com crash and depressed energy prices had taken a heavy toll on the company's financial strength.
The decline finally forced the company to reveal that it had simply made too many bad investments, taken on too much debt, assumed too much risk from its trading partners and hidden much of it from the public.
Such sudden falls from great heights recur in financial markets. In the late 1980s, its was junk-bond king Drexel Burnham Lambert. In the 1990s, it was Long Term Capital Management, the giant hedge fund. Like Enron, Drexel and Long Term Capital helped create and dominate new markets designed to help businesses and investors better manage their financial risks. And, like Enron, both were done in by failing to see the risks that they themselves had taken on.
It was in the trading rooms where Enron's big profits were made and the full extent of its ambitions were revealed.
Early on, the contracts were relatively simple and related to its original pipeline business: a promise to deliver so many cubic feet of gas to a fertilizer factory on a particular day at a particular price. But it saw the possibilities for far more in the deregulation of electric power markets, which would allow new generating plants running on cheap natural gas to compete with utilities.
Lay and Enron lobbied aggressively to make it happen. After deregulation, independent power plants and utilities and industries turned to Enron for contracts to deliver the new electricity.
The essential idea was hardly new. But unlike traditional commodity exchanges, such as the Chicago Board of Trade and the New York Mercantile Exchange, Enron was not merely a broker for the deals, putting together buyers and sellers and taking transaction fees. In many cases, Enron entered the contract with the seller and signed a contract with the buyer.
Enron made its money on the difference in the two prices, which were never posted in any newspaper or on any Web site, or even made available to the buyers and sellers. Enron alone set them.
By keeping its trading book secret, Enron was able to develop a feel for the market.
And virtually none of its activity came under federal regulation because Enron and other power marketers were exempted from oversight in 1992 by the Commodity Futures Trading Commission -- then headed by Wendy Gramm, who is now an Enron board member.
Because it was first in the marketplace and had more products than anyone else, "Enron was the seller to every buyer and the buyer to every seller," said Philip K. Verleger Jr., a California energy economist.
The contracts became increasingly varied and complex. Enron allowed customers to insure themselves against all sorts of eventualities -- a rise and fall in prices or interest rates, a change in the weather, the inability of a customer to pay.
By the end, the volume in the financial contracts reached 15 to 20 times the volume of the contracts to actually deliver gas or electricity.
And Enron was employing a small army of PhDs in mathematics, physics and economics -- even a former astronaut -- to help manage its risk, backed by computer systems that executives once claimed would take $100 million to replicate.
Dominant Energy Supplier
Enron was so dominant -- it was responsible for one-quarter of the gas and electricity traded in the United States -- that it became a prime target for California officials seeking culprits for the energy price shocks last year and this. It was an image Enron didn't improve by publicly rebuffing a state legislative subpoena for its trading records.
How much risk Enron was taking on itself, and how much it was laying off on other parties, was never revealed. Verleger said last week that Enron once had one of the best risk-disclosure statements in the energy industry. But once the financial contracts began to outpace the basic energy contracts, the statements, he said, suddenly became more opaque. "It was, 'Trust us. We know what we're doing,' " he said.
None of that, however, was of much concern to investors and lenders, who saw Enron as the vanguard of a new industry. New sales and earnings justified an even higher stock price, still more borrowing and more investment.
By 1997, however, after lenders began to express concern about the extent of Enron's indebtedness, chief financial officer Andrew Fastow developed a strategy to move some of the company's assets and debts to separate private partnerships, which would engage in trades with Enron.
Fastow became the manager of some of the largest partnerships, with approval of the audit committee of Enron's board.
Enron's description of the partnerships were, at best, baffling: "share settled costless collar arrangements," and "derivative instruments which eliminate the contingent nature of existing restricted forward contracts."
More significantly, Enron's financial obligations to the partnerships if things turned sour were not explained.
When Enron released its year-end financial statements for 2000, questions about the partnerships were raised by James Chanos, an investor who had placed a large bet that Enron stock would decline in the ensuing months. Such investors, known as short sellers, often try to "talk down" a stock, and Enron executives dismissed Chanos's questions as nothing more than that.
On Oct. 16, however, it became clear that Chanos was onto something. On that day, Enron reported a $638 million loss for the third quarter and reduced the value of the company's equity by $1.2 billion. Some of that was related to losses suffered by the partnerships, in which Enron had hidden investment losses in a troubled water-management division, a fiber-optic network and a bankrupt telecommunications firm. The statement also revealed that the promises made to the partnerships to guarantee the value of their assets could wind up costing $3 billion.
Within a week, as Enron stock plummeted, Fastow was ousted and the Securities and Exchange Commission began an inquiry. Then, on Nov. 8, bad turned to worse when Enron announced it was revising financial statements to reduce earnings by $586 million over the past four years, in large part to reflect losses at the partnerships.
It was also disclosed that Fastow made $30 million in fees and profits from his involvement with the outside partnerships.
The last straw was Enron's admission that it faced an immediate payment of $690 million in debt -- catching credit analysts by surprise -- with $6 billion more due within a year. Fearful that they wouldn't get paid for electricity and gas they sold to Enron, energy companies began scaling back their trading.
Desperate to salvage some future for the company, Lay agreed to sell Enron to crosstown rival Dynegy Inc. for $10 billion in stock. Perhaps more important, Dynegy agreed to assume $13 billion of Enron's debts and to inject $1.5 billion in cash to reassure customers and lenders and to keep its operations going. But when Dynegy officials got a closer look at Enron's books during Thanksgiving week, it found that the problems were far worse than they had imagined. They decided the best deal was no deal.
"The story of Enron is the story of unmitigated pride and arrogance," said Jeffrey Pfeffer, a professor of organized behavior at Stanford Business School who has followed the company in recent months.
"My impression is that they thought they knew everything, which is always the fatal flaw. No one knows everything."
As harsh as it is, that view is shared by many in the energy industry: customers and competitors, stock analysts who cover the company and politicians and regulators in Washington and state capitals. In their telling, Enron officials were bombastic, secretive, boastful, inflexible, lacking in candor and contemptuous of anyone who didn't agree with their philosophy and acknowledge their preeminence.
Last month, sitting in the lobby of New York's Waldorf-Astoria hotel, Lay seemed to acknowledge that pride may have been a factor in the company's fall. "I just want to say it was only a few people at Enron that were cocky," he said.
Lay declined to name them, but most would put Jeffrey Skilling at the top of the list. Lay tapped Skilling, a whiz kid with the blue-chip consulting firm of McKinsey & Co. and the architect of Enron's trading business, to succeed him as chief executive in February.
Shortly after taking over the top spot, Skilling appeared at a conference of analysts and investors in San Francisco and lectured the assembled on how Enron's stock, then at record levels, was undervalued nonetheless because it did not recognize the company's broadband network, worth $29 billion, or an extra $37 a share.
Skilling loved nothing more than to mock executives from old-line gas and electric utilities or companies that still bought paper from golf-playing salesmen rather than on EnronOnline.
Skilling once called a stock analyst an expletive for questioning Enron's policy of refusing to release an update of its balance sheet with its quarterly earnings announcement, as nearly every other public corporation does.
In August, after Enron's stock had fallen by half, Skilling resigned as chief executive after six months on the job, citing personal reasons.
As for Lay, some question how much he really understood about the accounting ins and out. When asked about the partnerships by a reporter in August, he begged off, saying, "You're getting way over my head."
Lynn Turner, who recently resigned as chief accountant at the Securities and Exchange Commission, said Enron's original financial statements for the past three years involve clear-cut errors under SEC rules that had to have been known to Enron's auditors at Arthur Andersen.
Turner, now director of the Center for Quality Financial Reporting at Colorado State University, said that based on information now reported by the company, he believes the auditors knew the real story about the partnerships but declined to force the company to account for them correctly.
Why? "One has to wonder if a million bucks a week didn't play a role," Turner said. He was referring to the $52 million a year in fees Andersen received last year from Enron, its second-largest account, divided almost equally between auditing work and consulting services.
Anderson spokesman David Talbot recently described the problems with Enron's books as "an unfortunate situation."
If Enron's auditors failed investors, the same might be said for its board of directors -- and, in particular, the members of the audit committee that is charged with reviewing the company's financial statements.
The committee is headed by Robert Jaedicke, a former dean of the Stanford University business school and the author of several accounting textbooks. Members include Paulo Ferrz Pereira, former president of the State Bank of Rio de Janeiro; John Wakeham, former head of the British House of Lords who headed a British accounting firm; and Wendy Gramm, the former Commodity Futures Trading Commission chairman.
Wakeham received $72,000 last year from Enron, in addition to his director's fee, for consulting advice to the company's European trading office, according to Enron's annual proxy statement. And Enron has contributed to the center at George Mason University, where Gramm heads the regulatory studies program.
Charles O'Reilly, a Stanford University business school professor, said that while such donations rarely "buy" the cooperation of directors, they do indicate the problem when chief executives and directors develop a "pattern of reciprocity" in which they do favors for each other and gradually become reluctant to rock the boat, particularly on complex accounting matters.
"Boards of directors want to give favorable interpretation to events, so even when they are nervous about something, they are reluctant to make a stink," O'Reilly said.
Stock analysts were equally easy on Enron, despite the company's insistence on putting out financial statements that, even in Lay's words, were "opaque and difficult to understand."
Many analysts admit now that they really didn't know what was going on at the company even as they continued to recommend the stock to investors. They were rewarded for it by an ever-rising stock price that seemed to confirm their good judgment.
"It's so complicated everybody is afraid to raise their hands and say, 'I don't understand it,' " said Louis B. Gagliardi, an analyst with John S. Herold Inc. in Norwalk, Conn.
"It wasn't well understood. At the same time, it should have been. There's a burden on the analysts. . . . There's guilt to be borne all around here."
© 2001 The Washington Post Company
For more on Arthur Anderson, GO TO > > > P-s-s-t, wanna buy a good audit?
December 4, 2001
Houston Astros' park still is Enron Field - for now
by Marcus Green, The Courier-Journal
The Houston Astros are still calling their home ballpark Enron Field - for now.
Team officials say that as long as the beleaguered Houston energy trader - which filed for Chapter 11 federal bankruptcy protection over the weekend - remains in existence and keeps up its payments on its 30-year, $100 million commitment, the 2-year-old stadium in downtown Houston will keep its name. . . .
Enron's fall is the latest instance of a stadium name holder hitting the skids. The TWA Dome in St. Louis became the Dome at America's Center when the storied airline filed for Chapter 11 and was subsequently purchased by American Airlines' parent, AMR Corp.
PSINet Stadium in Baltimore has kept its name even as its namesake company goes through bankruptcy. Some others that have named stadiums, like San Francisco's 3Com Corp, are wading in red ink. . . .
December 7, 2001
ENRON'S FALL: VICTIMS AND LESSONS
From an editorial in The Washington Post
Enron's collapse is by some measures the largest bankruptcy in history, and the list of victims will be long.
Shareholders have already seen the value of their stock evaporate. Banks that lent Enron will lose millions. Most unfairly, employees who now risk joblessness may also lose their retirement security, since many had 401(k) retirement plans invested overwhelmingly in Enron stock.
But there might just be a silver lining in Enron's implosion, for it may bring an overdue revolt against conflicts of interest at stockbrokers and audit firms.
Stockbrokers are supposed to analyze companies and advise investors which shares to buy; investors pay for this advice. But the biggest stockbroking outfits are owned by investment banks that also do other types of business: advising companies on mergers, helping them to issue shares or bonds.
The advisory businesses create a conflict of interest: In order to cultivate corporations that may hire them, banks are reluctant to allow their stock analysts to issue sell recommendations on their stock.
The "Chinese Walls" that are supposed to guarantee analysts' objectivity by separating them from other parts of their banks are ineffective, and sometimes nonexistent. In some banks, stock analysts who are supposedly working in investors' interests are also expected to work on corporate advisory projects.
This kind of conflict may explain why many analysts continue to recommend Enron's stock just a few days before the company's bankruptcy.
In one unfortunate case, Lehman Brothers rated Enron a "strong buy" as it headed toward disaster. It may or may not be coincidental that Lehman was in line to earn a large fee for advising on the takeover of Enron - a takeover that fell through partly as a result of falls in Enron's stock price.
A similar conflict of interest plagues audit firms. Auditors are supposed to serve investors by certifying the accuracy of companies' financial statements. But auditors also earn consulting fees when they advise companies on information technology and other management issues. The desire to win consulting contracts may reduce auditors' appetite for dust-ups with companies whose accounts seem suspicious.
Enron's auditor, Arthur Andersen, earned $27 million in consulting fees from the company last year - slightly more than the $25 million it got paid to audit Enron's books.
At the same time it failed to challenge Enron's habit of hiding some of its dicier business in partnerships that went unreported on the balance sheet.
The conflicts of interest for stockbrokers and auditors, while similar, demand different remedies.
Investors themselves are in a position to correct some of the stockbroker problem: They can ignore advice from analysts at the integrated investment banks, and route their business through smaller independent stockbrokers. But the auditor conflicts need to be fixed by regulators at the Securities and Exchange Commission.
The commission's last chairman, Arthur Levitt, took a tough line with the auditors; his successor, Harvey Pitt, has struck a softer tone. With luck, Pitt will now adopt more of his predecessor's outlook.
Without objective auditing, there will be more and more Enron's - and more and more investors, lenders and employees who get unfairly burned. . . .
~ ~ ~
For more on Arthur Anderson and other nests of the 'Big Five', GO TO > > > P-s-s-t, wanna buy a good audit?
For more on Arthur Levitt and The Carlyle Group, which he now works for, GO TO > > > Birds that Drink from Cesspools.
For more on Harvey Pitt and the Securities and Exchange Commission, which he now heads, GO TO > > > Spotting the SEC.
December 13, 2001
Enron: Pulling the Plug on the Global Power Broker
By Pratap Chatterjee
Special to CorpWatch
On December 4, 2001, Enron filed for bankruptcy. Not long ago Enron was the largest energy trader in the world, the largest natural gas pipeline owner in the country and a pioneering force behind energy deregulation. The move resulted in 4,500 layoffs, or 60% of Enron's workforce at its headquarters in downtown Houston.
Employees and investors were stunned. How could one of the most wealthy and powerful corporations in the world go bust over night? Wall Street shuddered; could this be the first in a series of corporate disasters that marked the now official US recession?
In Houston, security guards patrolled the Enron buildings, watching employees as if they were potential thieves as they emptied their desks. Workers flooded into the streets in front, many crying and hugging one another as police on horseback shouted at them to disperse.
"My group was told nothing yesterday, other than to gather personal belongings and leave" former Enron employee Kathleen Salerno wrote in a letter to the Houston Chronicle.
"On November 30, we were given the right to move Enron's matching funds for our retirement savings plans from Enron stock to another fund. My personal account amounted to $46.01. Another friend, with almost twenty years service had $102. This is absurd, sad, and I think, criminal."
A Vietnamese-American worker compared the Enron's demise to the fall of Saigon in 1975. "I watched the fear in the eyes of the South Vietnamese soldiers as they retreated and disposed of their weapons. I watched families and friends hugging each other for comfort as they waited in fear for the uncertainties which were about to fall on them. Last Monday those memories came flooding back. I saw chaos and confusion. I saw co-workers and friends hugging one another for comfort."
It was a far cry from previous years when Enron high flyers bought silver Porsches -- the most favored status symbol at the company -- to celebrate annual bonuses as high as $1 million. The company's stock soared to $90 a share at its peak last August, making it the seventh largest business in the United States. For five years in a row Enron was named "The Most Innovative Company in America" by readers of Fortune magazine.
Enron was founded in 1985 by Kenneth Lay, a former employee of the now defunct Federal Power Commission and an erstwhile economist at the Pentagon during the Vietnam War. The company was created when Lay merged Houston Natural Gas with InterNorth, a natural gas company based in Nebraska.
Over the years Lay invested millions of dollars in lobbying federal officials and financing their political campaigns to get them to privatize and deregulate the energy industry.
In 1989 Enron began trading natural gas commodities to help utility customers shield themselves from risk by locking up the long-term prices that they wanted ahead of time. Enron bought the gas supplies from producers, arranged for delivery and took a cut of every deal.
In time, the company became the largest natural gas merchant in North America and the United Kingdom. This success in the natural gas industry soon made Enron believe it could apply these tactics of deregulation and political influence to a dizzying array of businesses from internet broadband to water, coal and steel.
The Economist magazine described Enron as an "evangelical cult," with Ken Lay its "messiah."
This expansion was overseen by Jeffrey Skilling, a former energy consultant at McKinsey & Company, who joined Enron in 1990. Skilling transformed the company into the biggest and most aggressive of the new breed of unregulated energy traders that bought and sold billions of dollars of electricity and other commodities daily.
But instead of bringing prices down for buyers, these transactions had the effect of driving up prices to hundreds of times of production costs, pushing states like California into major debt.
"We are on the side of angels," Skilling, who was appointed chief executive officer of Enron early this year, told a television crew. He dismissed those who saw the company as a profiteer in California's energy crisis. "People want to have open, competitive markets. They want fair competition. It's the American way."
The Emperor Has No Clothes
Then, in mid-August Skilling was forced out of his job, cashing in his shares and options, pocketing some $62 million, while Lay cashed in stock worth $150 million. Two months later the company disclosed it had some internal financial problems and Enron's share price started to spiral downward even faster than it had risen.
Carl Wood, a member of California's energy commission, wryly remarked that Enron had turned out to be "all hat and no cattle -- that's their Texas expression."
Employees were far more bitter. A former Enron employee wrote in the Houston Chronicle that Skilling once said, "Enron's strategy is simply to take the money outside the building and move it inside the building.' The smartest thing Skilling ever did: leave the building, and take the money with him."
Others, like George Strong, a lobbyist who worked for Enron for 25 years, say that Skilling brought arrogance and greed to the company.
"We were looking to do a deal to supply energy to HISD (Houston's public school district), and I explained to them that it would take a year to educate the school district and make it comfortable with changing the way it got its power," says Strong. "The guy I was working with -- he was a director in his late 30s -- started yelling, 'I don't have a year! My bonus is based on what I do this quarter. If I can't get it done in three months, I don't have time for it.'"
Yet even though the boom in new markets and transactions inflated Enron's revenue and made for fat bonus checks, the company was still paying out more than it was bringing in. So Enron's accountants used complex bookkeeping tricks to shift billions of dollars in debt off its balance sheet and into an array of partnerships set up by Andrew Fastow, the company's chief financial officer.
This had the effect of making it look like the company was doing far better than it really was, until mid-October when Enron disclosed that its shareholders' equity (a measure of the company's value) had dropped $1.2 billion in the third quarter.
A week later the company fired Fastow and appointed a special committee to examine the transactions, led by William Powers Jr., the dean of the University of Texas law school. The Securities and Exchange Commission also opened a formal investigation into transactions.
Investors started to suspect that Enron was hiding major losses and began to dump the company shares when Enron revealed that it had $13 billion in debt. Dynegy, a smaller cross-town rival company, agreed to acquire Enron for $9 billion plus the assumption of the debt, with additional financing from Chevron-Texaco, a major Dynegy shareholder.
When Enron disclosed even more debts, the energy traders started to panic and follow the investors by refusing to do business with the company. In late November Dynegy pulled out of the deal forcing Enron into bankruptcy. The company listed assets of $49.8 billion and debts of $31.2 billion, although this total did not include all the company's debts.
In early December Enron's share price plunged to 36 cents from the high of $90 just over a year before, making the company a victim of the very market forces that it exploited to become rich in the first place.
In mid-December, a creditors committee, composed of some of the major banks that Enron owed money to, was to be set up to decide what parts of the company should be sold off in order to pay the bills.
Meanwhile employees who lost their jobs after Enron filed for bankruptcy protection were told they would receive no more than $4,500 in severance pay. They also were told to petition the bankruptcy court to cash in unused vacation days.
However shareholders refused to accept that all the money had simply evaporated.
A lawsuit filed in early December accused 29 Enron officers and directors of engaging in "massive insider trading" and making "false and misleading" statements about the company's financial performance while selling about $1.1 billion worth of stock over the last three years.
Senior management are not the only people who profited during Enron's glory days. Between 1997 and 2000 Enron spent $10.2 million influencing Washington politicians.
During the 2000 Presidential campaign the Center for Public Integrity identified Enron as the single largest patron of George W. Bush's political career. A frequent flier on Enron corporate jets, Bush received $774,100 from Enron management and the company itself including $312,500 for his campaigns for governor.
In return then governor Bush helped deregulate Texas electric markets in 1999, permitted "grandfathered air polluters" and passed laws protecting businesses from lawsuits.
This close relationship continued when Bush took over the White House. Lay reportedly is the only executive who got a private audience with Vice President Dick Cheney, to discuss the administration's energy policy.
Enron was also a powerful behind the scenes force shaping US trade policy. As a key member of the U.S. Coalition of Service Industries, Enron positioned itself to play a major role in WTO negotiations.
These negotiations affect a wide array of services that impact daily life, from health care and education to energy and water. Enron's agenda of deregulation and privatization clearly meshed with Washington's position at the recent WTO meeting.
Enron was also on the Board of the National Trade Council, a prime mover behind granting the President fast track authority over all trade negotiations.
Today, as the cash flow dries up so too have Enron's friends in high places. Although Bush and his administration have made sympathetic noises, so far they have refused to bail out the company. Senior officials have said that they are tracking the situation closely, which may be a euphemism for waiting to see if Enron turns out to be more of a liability than an asset.
And despite the fact that Enron's far-flung empire of international subsidiaries from Argentina to Turkey are still operating, there are signs of financial troubles at some operations most notably in India as well as in Brazil. Those operations have been plagued by charges of human rights and environmental abuses.
In India, the company has been in a protracted dispute over unpaid bills and contract terms with the state utility of Maharashtra at the $3 billion Dabhol Power venture, India's largest single foreign investment. Enron has been offering its 65% stake in Dahbol for the knockdown price of $1 billion, but has yet to find any takers. Banks with $ 1.5 billion dollars in loans and loan guarantees outstanding on Dabhol are threatening to seize the plant outright.
In addition, Human Rights Watch and Amnesty International have both documented human rights abuses committed by local police working as a private security force for Enron. Among the violations are numerous incidents of police on the Enron payroll beating local residents opposed to the Dabhol project, including elderly villagers and women. Some were even dragged out of their homes, brutally beaten with night sticks and arrested for refusing to cooperate with the company.
Enron has always enjoyed being a case study for business school textbooks, and may continue to be one for years to come -- for very different reasons. At its zenith Enron derived 80% of its revenue from trading, exemplifying to students how market forces can be exploited for super-profits.
Today, it remains a cautionary tale for those who believe in unfettered markets. At the very least, Enron has become a victim of the dot com shakeout and the current recession.
The question that remains to be answered is: Will Lay, who rose from humble beginnings, continue to be a powerful Washington insider? If Bush and other politicians persist in giving him access to the corridors of power as they have in the past, Lay may still be able to mount a comeback. . . .
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December 14, 2001
Enron makes Whitewater smell like roses
By Bill Press
WASHINGTON (Tribune Media Services) -- Something smells rotten in Houston. Energy giant Enron, which used to brag about becoming the world's biggest company, now holds the record for the country's biggest ever bankruptcy filing.
The human impact is staggering. Some 4500 employees are out of work. Tens of thousands of investors watched their Enron stock sink suddenly from $83 per share to 26 cents, wiping out $60 billion of stockholder value. And those 11,000 employees whose 401K funds were invested exclusively in Enron -- and who were forbidden by Enron's own rules from diversifying -- today have no retirement plan at all.
But Enron may be more than the world's biggest corporate disaster. It could also be the world's biggest case of corporate criminality.
Enron's demise wasn't due to business factors like strong competition, a shrinking market or a lagging economy. It was due to deceitful, and perhaps illegal, games played by corporate executives: diverting funds into secret partnerships, cooking the books to keep those deals secret, lying to investors and employees about the financial health of the company, while selling their own stock to make sure they wouldn't be hurt when the whole house of cards collapsed.
Unlike thousands of employees, for example, Enron Chairman Kenneth Lay isn't crying the blues. He cashed out on $123 million worth of stock options in 2000 alone, and this year pocketed another $25 million.
Even as the company started falling apart, other executives were rewarded. Just days before filing for bankruptcy, Enron handed $55 million out to some 500 senior officials: an average $110,000 bonus for screwing up.
Yes, something smells rotten in Houston. But something smells rotten in Washington, too -- because both the rise and fall of Enron are closely linked to the political fortunes of George W. Bush.
For years, Ken Lay and George Bush have been joined at the hip, two free-wheeling Texas buddies. One helped the other succeed in "bidness;" the other helped his pal make it big in politics.
Consider the Bush-Enron connections. Enron could never have happened anywhere but Texas. It was only able to grow so big, so fast, because of the deregulation of energy companies instituted by then-Gov. George W. Bush.
And Ken Lay rewarded his friend. He and Enron together were Bush's biggest contributor, giving $2 million to his campaigns for governor and president. Lay also loaned Bush his corporate jet. In 2000, Lay sent a memo to company employees, suggesting that they contribute personal funds to Bush through the company's political action committee: $500 for low-level managers; $5000 for senior executives.
Once in the White House, Bush responded generously.
Ken Lay was the only energy executive to meet privately with Vice President Dick Cheney to help shape the administration's new energy policy -- which included a recommendation to break up monopoly control of electricity transmission networks, a longtime Enron goal.
For a while, Bush even considered naming Lay his Commerce Secretary. Fortuitously, that appointment never happened. But he did surround himself with Enron partisans. Lawrence B. Lindsey, Bush's top economic adviser, was an Enron consultant.
Robert Zoellick, U.S. Trade Representative, served on Enron's advisory council. I. Lewis Libby, Cheney's Chief of Staff, was a major Enron stockholder. Thomas White, Secretary of the Army, was an Enron executive for over 10 years and held millions of dollars in stocks and options when appointed.
Karl Rove, chief White House political adviser, owned between $100,000 and $250,000 worth of Enron stock when he met with Ken Lay in the White House to discuss Enron's problems with federal regulators. And, until he was named Republican National Chairman last week, Marc Racicot was Enron's Washington lobbyist.
No wonder the Bush White House refused to help California solve its energy crisis last Spring. California's problems were caused by Enron's suddenly inflating the price of electricity, forcing blackouts throughout the state. But Bush refused to intervene to help consumers. He wouldn't do anything to hurt his pal's big business.
Indeed, the Bush-Enron connections are so close, it's hard to tell whether Enron is the house that Bush built or Bush is the house that Enron built. We know George Bush and friends were major players in Enron's corporate success. Were they also major facilitators of Enron's corporate wrongdoing?
Either way -- and war or no war -- the whole mess demands a congressional investigation.
If Congress and Ken Starr could spend two years investigating a 20-year old $100,000 real estate investment in Arkansas, they can and must examine a multi-billion dollar energy scam in Texas, where millions lost their shirts.
Enron makes Whitewater look like peanuts. . . .
December 16, 2001
Financial system's safety net did little to slow Enron Corp. collapse
by Jerry Hirsch and Thomas Mulligan, Los Angeles Times
Enron Corp.'s stunning slide into bankruptcy, the largest in U.S. history, met little resistance from the very safeguards that represent the first line of defense in the U.S. financial system for investors, employees and the general public, according to interviews with accounting, financial and corporate-governance experts.
The weaknesses that allowed Enron practices to destroy billions of dollars in investor funds were well known before the energy-trading firm's collapse, but lobbying efforts by special interests stymied efforts to fix the system.
A congressional hearing last week made clear that the Enron debacle is a watershed that will foster a tougher corporate oversight system that is less vulnerable to conflicts of interest and outside influence.
The immense breadth of Enron's failure could change the corporate landscape.
In November, Enron disclosed that the profit it had reported to shareholders and government regulators over the past four years was overblown by 20 percent, or $586 million, dealing a giant blow to the shareholders and sending the stock tumbling from more than $90 per share to less than a dollar. The meltdown cost more than 4,000 employees their jobs, jeopardizes thousands more and destroyed the retirement savings of employees with company-sponsored savings plans.
The massive accounting adjustment was a public confession that the company had excluded losses at several partnerships on its financial statement. The event focused immediate attention on its auditors at accounting titan Arthur Andersen and its interpretation of accounting rules that allowed the company to exclude the partnerships from its reporting. . . .
Enron created numerous partnerships that held company assets and in many cases employed company executives as managers. Key financial details about the partnerships, which invested in energy companies, water facilities, telecommunications and other ventures, remain undisclosed, but it is know that some executives earned millions of dollars in fees operating them. . . .
(Catbird: For those of you who have followed the scandals of Hawaii's Kamehameha Schools/Bishop Estate, this song will sound familiar. If you aren't familiar with that story, go to > > > Dirty Money, Dirty Politics and Bishop Estate.)
THE INDEPENDENCE OF A CORPORATE BOARD is generally considered crucial to protecting shareholder interests, but Enron directors had a number of apparent conflicts of interest. Corporate governance experts say the board fell down on the job.
None of the directors, who are facing a number of shareholder lawsuits, returned telephone calls for comment.
The board included Robert A. Belfer, an oil-patch billionaire; Wendy Gramm, the former chief regulator of the Commodity Futures Trading Commission - one of Enron's core businesses; Robert K. Jaedicke, a Stanford professor and former dean of the Stanford Business School; and other business veterans. . . .
(Catbird Pondering: Hmm, wonder why The Los Angeles Times doesn't mention board member Herbert "Pug" Winokur in this article, who was also a board member in Penn Central as well as Dyncorp?)
ALTHOUGH CREDIT-RATING AGENCIES are neither regulators nor, like auditors, official overseers of corporate bookkeeping, their opinions about companies' financial strength carry enormous weight in the marketplace.
When S&P finally downgraded Enron bonds to "junk" status on Nov. 29, followed the same day by Moody's and smaller rival Fitch Inc., it yanked out the last prop from Enron's stock and scuttled a planned acquisition by rival Houston energy company Dynegy Inc.
By that time, however, many Enron bonds had already lost more than half their value as investors reached their own conclusions about Enron's stability and stampeded to sell.
Sean Egan, managing director of Saline, Mich-based Egan-Jones Ratings Co., argues that the big agencies were conflicted because they take fees from the corporations whose debt they rate.
Egan-Jones, who dropped Enron's rating to junk status a month before the other agencies, accepts no fees from bond issuers, instead selling their opinions on a subscription basis to bond investors.
EVERY YEAR there's some stock that defies gravity. The company preaches why time-honored fundamentals such as earnings or conservative debt ratios no longer apply to its business model.
Analysts swallow the story, the financial media gush praise and investors buy shares.
In the end, however, the market always learns that there is no real substitute for a sound balance sheet and the stock plunges.
The Enron case demonstrates that even savvy financial minds can become befuddled by these speculative bubbles.
January 9, 2002
Enron Met With Energy Task Force Six Times
Cheney Pressed by Congress for details about panel he headed.
By Jim Drinkard, USA Today
WASHINGTON - Officials of fallen energy giant Enron met six times with President Bush's energy policy task force, the administration said in a letter released Tuesday. The last meeting came just six days before the company announced the accounting charges that triggered its collapse.
However, the White House said that at no time in the meetings - including one private session between company Chairman and CEO Kenneth Lay and Vice President Cheney - did officials discuss Enron's financial condition.
The assertions were made in a letter from Cheney's counsel, David Addington, to Rep. Henry Waxman, D-Calif. Waxman has been pressing for the information for more than eight months.
Bush created the task force last January to map how the government should deal with energy policy including what the administration said was a looming energy crisis. The administration has refused to release a list of those who participated in the process. Cheney headed the task force. . . .
Federal agencies and Congress are investigating the company's collapse.
Attention has focused on whether Enron used its political connections and campaign contributions to shield itself from scrutiny. The Texas-based energy firm and its chairman, Lay, have been the top donors to President Bush throughout his political career.
A study by the non-partisan Center for Public Integrity found that 24 top Enron executives and board members named in a shareholder lawsuit for cashing in $1.1 billion in stock were heavy political donors. They gave nearly $800,000 to Bush, the national political parties and members of Congress as Enron hid its true financial conditions, the study said.
Waxman welcomed Tuesday's disclosure but said it did not go far enough. He asked Cheney to disclose other contacts between the company and the administration, including telephone conversations and e-mail exchanges. He also asked for details of discussions, documents and the identities of those involved. . . .
Waxman noted that at the time of the April 17 Cheney-Lay meeting at which one topic was California's energy crisis, Enron had been campaigning against the imposition of federal price caps on wholesale energy sales in that state.
The following day, Cheney said the administration would not support price caps.
January 12, 2002
GOVERNMENT REVEALS MORE REQUESTS TO ASSIST ENRON
By Dana Milbank and Susan Schmidt, The Washington Post
WASHINGTON - The Bush administration yesterday disclosed further efforts to solicit government help for Enron Corp. before the giant energy company's bankruptcy filing, including a telephone call from former Clinton Treasury Secretary Robert Rubin to a top Treasury official to explore whether the Bush administration could intervene on the company's behalf.
Rubin, chairman of the executive committee at Citigroup, one of Enron's main creditors, called Peter Fisher, Treasury undersecretary for domestic finance, and asked "what he thought of the idea" of calling bond rating agencies to help forestall a crippling reduction in Enron's credit rating, according to a statement released by the Treasury Department.
Fisher told Rubin that he didn't think it was advisable, and did not make a call, a Treasury spokesman said.
The news of Rubin's efforts concluded another day of new disclosures at the Treasury Department, on Capitol Hill and elsewhere about the extent of government contact with Enron executives in the weeks before the company declared the largest corporate bankruptcy in American history. . . .
Also yesterday, Congress moved closer to filing a lawsuit against Vice President Dick Cheney to force the release of information on administration meetings with energy industry executives last spring.
Enron's Dec. 2 filing for bankruptcy law protection was the largest in U.S. history, wiping out the pensions of thousands of workers. The Justice Dept has opened a criminal investigation into the collapse, and President Bush on Thursday created task forces to examine changes to the law to protect pensioners in bankruptcies.
That same day, Enron's auditor acknowledged that it had destroyed thousands of documents; two Bush Cabinet secretaries said they had received calls from Enron's chief executive, Kenneth Lay, as the company neared collapse and Attorney General John Ashcroft recused himself from the criminal probe because of campaign contributions. . . .
The Treasury Dept's statement about Rubin showed Enron's political reach and the administration's determination to point out that the company had contacts with prominent Democrats as well as Republicans. . . .
January 14, 2002
Ex-Enron workers left with little but anger
By Mark Babineck, Associated Press
HOUSTON - Losing his retirement investment in Enron Corp. was one thing. What really hurt, says Charles Prestwood, was realizing that his unwavering corporate loyalty ran only one direction.
"We had great trust, great loyalty," said Prestwood, 63, who retired as a plant operator in 2000. "We were trained loyalty above everything."
More than a month after Enron shed more than 5,000 jobs worldwide and its stock bottomed out, retirees and laid-off workers are facing up to the ways the debacle has stung them.
Enron employees whose 401(k) accounts were filled with company stock watched helplessly as ceaseless bad news obliterated its value last fall, while a bookkeeping mechanism barred them from cashing out.
"I'll never trust my employer quite the same again," said "Tim Dalton, a corporate security specialist who was among the 4,500 Houston workers laid off in December.
Enron chairman Kenneth Lay "was like the Pied Piper. We followed him like lemmings into the sea," said Deborah DeFforge, who might have to leave Houston for the West Coast to find work.
Congressional committees as well as the Justice and labor departments want to know why many senior Enron executives and board members sold their stock when it was still valuable, while workers were barred from selling stock in their 401(k) transactions was implemented because the plan changed administration. By the time transactions could resume, the price was $9.98. It now sells for about 68 cents.
The peak value of Prestwood's retirement account, about $1.3 million, might sound lavish. But he had intended to live off the dividends, plus Social Security and a small pension . . .
"What so hurts about the whole deal is that something you devote your whole life to, you see it destroyed right in front of your eyes," he said.
Prestwood is one of a number of former Enron workers who have filed lawsuits over their 401(k)s. . . .
"We had no idea the books were messed up," Prestwood said.
"When you're locked in and sit there crying and watching it melt down, something you've devoted your whole life to building, it's sad."
January 14, 2002
Bush not told of Enron's pleas for help, Cabinet members say
By H. Josef Hebert, Associated Press
WASHINGTON - Two Bush Cabinet members said yesterday they never considered intervening in Enron's spiral toward bankruptcy, nor informed President Bush of requests for help from the fallen energy giant.
"Companies come and go. It's ... part of the genius of capitalism," said Treasury Secretary Paul O'Neill, when asked if he was surprised at the sudden collapse of Enron.
Last fall, a month before declaring bankruptcy, O'Neill received two telephone calls from Kenneth Lay, Enron's chief executive. Lay also called Commerce Secretary Don Evans at the time, reaching out for help to harness the company's slide.
O'Neill's view of Enron's collapse was characterized as "cold-blooded" and reflective of "the 18th century but not the 21st century" by Sen. Joseph Lieberman, D-Conn., whose Committee on Governmental Affairs is leading Senate investigations into the Enron debacle.
Separately, Lieberman said that an internal Arthur Andersen LLP memo on Oct. 12 directing that all but basic Enron working papers be destroyed "raises very serious questions about whether obstruction of justice occurred."
Lieberman and Sen. John McCain, R-Ariz., said on CBS' "Face the Nation" that the administration may have been right in not intervening to try to save Enron. But they said the government's response - as well as earlier federal monitoring of its business practices - may have been hampered by the energy company's freewheeling flow of campaign contributions.
Since 1990, Enron and its employees contributed $5.77 million to political campaigns, with about three-fourths of it going to GOP candidates. About half of the money was spent in the 2000 election, with Bush a major beneficiary.
O'Neill and Evans said yesterday that while they received calls from Lay in late October and early November, they dismissed any suggestion of intervening to help the company.
On NBC's "Meet the Press," Evans said that Lay was looking "for all the possible ways that he could stabilize his company" and asked that Evans consider contacting credit rating agencies.
Neither O'Neil nor Evans said they informed Bush of the calls. But Evans said he frequently discussed Enron's situation during general meetings with Bush in November and December.
On "Fox News Sunday," O'Neill said, "I don't ... tell the president every time somebody calls me."
January 15, 2002
Whistleblower Warned Enron Chief of Problems
By David S. Hilzenrath and Peter Behr
The Washington Post
Last August, more than two months before Enron Corp. disclosed it had overstated profits and understated its debts, an internal whistleblower warned Enron Chairman Kenneth Lay that the company might "implode in a wave of accounting scandals," congressional investigators said yesterday.
Enron asked its outside law firm to investigate but instructed it not to make a "detailed analysis" or second-guess the company's outside accountants, House Energy and Commerce Committee leaders said.
In an unsigned letter to Lay in August - shortly after Enron chief executive Jeffrey Skilling suddenly resigned - Enron employee Sherron Watkins described a "veil of secrecy" around partnerships involving the energy-trading company's chief financial officer, Andrew Fastow.
Watkins, who was not named by the committee, confirmed her role yesterday. A vice president for corporate development reporting to Fastow, she later met with Lay to explain her allegations.
In the letter, she described the kind of misleading accounting and insider deals that caused Enron to correct more than four years of financial results Nov. 8; fueling a meltdown in its stock price and ultimately leading it to seek bankruptcy Dec. 2. . . .
Committee investigators found Watkins' seven-page letter Sunday while going through 40 boxes of records turned over by Enron, a spokesman said.
Rep. W.J. "Billy" Tauzin, R-La., the committee chairman, and Rep. James Greenwood, R-Pa., who chairs an investigative subcommittee, didn't release the letter, but they quoted from it yesterday in demanding more records.
In her letter, Watkins recommended that Enron enlist independent legal and accounting firms to investigate key transactions and the way Enron and the accounting firm Arthur Andersen handled the accounting, according to the lawmakers.
The law firm Vinson & Elkins interviewed employees of Enron and Andersen, including David B. Duncan, the Andersen partner overseeing the firm's work for Enron. That suggests Andersen was alerted to potential trouble involving its audits of Enron during the period when its personnel were destroying thousands of pages of records related to Enron.
In the memo, Watkins mentioned two complex transactions involving Enron's purchases of large blocks of stocks in two Internet companies several years ago. At the time, Enron made an agreement with a private partnership it had set up to guard against a drop in the Internet companies' share prices.
The partnership, named Raptor, had to pay Enron if the companies' stock prices fell, which they did. This protected Enron against losses of nearly $1 billion in 2000 and part of 2001.
But as its part of the swap, Enron had promised to make up Raptor's losses with shares of Enron stock, which was not fully disclosed to investors. . . .
January 16, 2002
Auditor Shredded Enron Papers After Inquiry
By Marcy Gordon, Associated Press
WASHINGTON - Arthur Andersen LLP said yesterday it is firing a senior auditor who organized a "rushed disposal" of Enron documents last fall after federal regulators had requested information about the failing energy company.
It was the first time that the accounting firm has acknowledged that the document destruction occurred after Enron received requests from the Securities and Exchange Commission for information on its financial reporting.
The lead auditor in the Enron case, David B. Duncan, was fired. Andersen also said that four partners in its Houston office would be stripped of management responsibilities and that three auditors had been put on administrative leave.
One of the four Houston partners, D. Stephen Goddard Jr., an Andersen managing partner, was a major fund-raiser for President Bush's 2000 campaign, and was one of the "Pioneers" who raised at least $100,000. He also personally contributed $1,250 to Bush's earlier races for Texas governor . . .
Enron was Bush's largest corporate contributor in the 2000 race.
The SEC sent a letter to Enron on Oct. 17 asking for information after the company reported hundreds of million of dollars in third-quarter losses. Duncan called an urgent meeting on Oct. 23 to organize an "expedited effort" to destroy documents, Andersen said.
Two weeks later, in a desperate e-mail, his assistant said, "Stop the shredding." A day before that, Andersen had received a federal subpoena for the documents.
The law firm of Sullivan & Cromwell, which is representing Duncan, said he is cooperating with investigators.
Andersen's chief executive officer, Joseph Berardino, did not rule out the possibility that wrongdoing reached higher into the accounting firm than the auditors being disciplined. . . .
The company said it is replacing the management of its office in Houston, where Enron is based. Four Andersen partners in the Houston office "have been relieved of their management responsibilities," the accounting firm said. . . .
The SEC has been investigating Andersen's role in Enron's complex accounting, including questionable partnerships that kept about $500 million in debt off the energy company's books and allowed Enron executives to profit from the arrangements.
The SEC's enforcement director, Stephen M. Cutler, said last week the agency was widening the scope of its investigation to include Andersen's destruction of documents.
The Justice Department is pursuing a criminal investigation of Enron, which became the biggest corporate bankruptcy in U.S. history of Dec. 2.
"If anyone at Enron broke the rules, they will be punished," Treasury Secretary Paul O'Neill said in a speech to a retailers' group. . . .
Also yesterday, the New York Stock Exchange delisted Enron stock, saying the shares "are no longer suitable for trading" on the exchange. The delisting means the stock, which sold for $83 a year ago but has changed hands at no higher that $1 since December, can only be traded over the counter.
In addition to firing Duncan, Andersen said it was placing Enron auditors Thomas H. Bauer, Debra A. Cash and Roger D. Willard on administrative leave.
The fact that Andersen employees destroyed documents after learning of the SEC inquiry "is more than just unethical. It would be criminal as well," said Ken Johnson, spokesman for Rep. Billy Tauzin, R-La., chairman of the House Energy and Commerce Committee.
Duncan is to meet today with committee investigators. He already has provided them with six boxes of personal files and records.
"Now that he's been fired, he may have a little more motivation to be cooperative," Johnson suggested.
In addition to Goddard, the partners removed from the Houston office are Michael M. Lowther, Gary B. Goolsby and Michael C. Odom....
Also yesterday, it was announced that Congress will scrutinize Enron's tax returns to determine if shelters or other practices may have concealed the company's financial condition.
Senate Finance Committee investigators are "interested in whether Enron has been complying with federal tax laws," said the panel's spokesman, Mike Siegel.
Sen. Charles Grassley, R-Iowa, said the issue is "whether Enron used certain tax vehicles that might have masked the company's financial condition." . . .
January 17, 2002
Accounting firm debated dropping Enron last year
By Kathleen Day and Peer Behr, The Washington Post
WASHINGTON - Senior executives of accounting firm Arthur Andersen considered dropping Enron Corp. as a client in February, 2001 because of concerns about the Houston energy company's bookkeeping practices, according to an internal e-mail cited yesterday by sources.
The Feb. 6, 2001, e-mail was sent eight months before Enron disclosed financial problems in October, and would be the earliest indication yet that Andersen officials were worried about possible damage to their firm's reputation, sources said ...
Sources said investigators also asked Duncan about another internal Andersen document, a memo last August that described warnings Sherron Watkins, an Enron official, had made to the firm's Houston office. That was about the same time that Watkins told Enron Chairman Ken Lay that the trading giant might "implode in a wave of accounting scandals."
J.P. Morgan Chase & Co. reported a $456 million reported a $456 million quarterly loss related to Enron, while Dominion Resources Inc. of Richmond, Va., the state's largest power supplier, said it lost $97 million from transactions with Enron.
WHITE HOUSE press secretary Ari Fleischer spent much of his daily briefing yesterday responding to questions about administration contacts with Enron.
Mitchell Daniels Jr., the White House budget director, told reporters yesterday that he had a two-minute conversation with Lay on Oct. 11. Lay was interested in the prospects for an economic stimulus plan, which in the House version contained $254 million for Enron.
"He obviously came to the worst place in Washington for insight because I gave him a totally incorrect prediction," Daniels said. "I thought Congress would finally passe something." Congress adjourned without acting.
White House economic adviser Larry Lindsey, who was a consultant to Enron, said his staff studied the potential collapse of the company as part of an ongoing monitoring of the energy market.
"None of the stuff we were doing was Enron-specific," Lindsey said. "It was not the monitoring of a company, but the monitoring of market conditions."
Fleischer said Lindsey concluded that Enron's collapse would not hurt U.S. and global markets.
That is the same finding reached by Peter Fisher, the Treasury undersecretary in charge of financial markets, who opened a review after phone calls Lay made to Treasury Secretary Paul O'Neill on Oct. 28 and Nov. 8. The Lindsey review began in mid-October.
MEANWHILE yesterday, Fisher said in a speech to insurance industry executives in Boca Raton, Fla., that accounting and financial reporting rules must be strengthened to prevent "financial catastrophes" for undermining investor confidence in U.S. companies' stocks.
"There are a number of investigations going on into the events surrounding the bankruptcy of Enron," said Fisher. "If rules were broken, rule breakers should be punished. If rules were bent, we should improve the means of enforcing those rules. And if loopholes were used, new rules should be written."
Fisher said companies need to "reinvigorate private-sector standard setting for accounting" and "take responsibility" for improving disclosure practices.
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