Pentagon Official From Enron in Hot Seat
Questions Raised About Army Secretary White and Possible Conflicts of Interest
By Ellen Nakashima
Washington Post Staff Writer
Sunday, January 27, 2002;

Thomas E. White Jr. was installed last year as secretary of the Army in large part because the Bush administration wanted to bring business expertise to the military. As an 11-year executive with Enron Corp. and a 23-year Army veteran, White seemed to fit the bill.
Now, his corporate experience -- his role at Enron and a key subsidiary, Enron Energy Services (EES) -- is raising questions of possible conflicts of interest and of how much he knew about potential accounting lapses at Enron.

White, 58, left Enron Energy Services as vice chairman last May for the Pentagon post. In his first major speech as secretary, he vowed to step up privatization of utility services at military bases. EES, which made its money selling energy services before Enron declared bankruptcy Dec. 2, had been seeking to contract with the military.
Public Citizen, a liberal watchdog group, is charging that was a conflict of interest and wants White to testify before Congress on any potential conflicts of interest as well as his knowledge of Enron's business practices. In addition, Public Citizen would like White to more fully explain 29 meetings and phone calls with senior Enron officials that he participated in after he became Army secretary. White has said the conversations were with "personal friends" about "Enron's deteriorating financial conditions." A senior House Democrat, Henry A. Waxman (Calif.), also wants White to testify, about Enron and related issues.

Former employees are meanwhile alleging accounting irregularities at EES at a time when White was vice chairman. No one has linked White directly to any questionable accounting practice. White and EES chairman Lou Pai were moved aside, former employees allege, to make way for a new management team that would clean up the way thousands of contracts for energy services were handled.
Taken together, the questions and allegations are presenting a perception problem for White, a retired brigadier general and decorated Vietnam veteran involved in ambitious efforts to bring about the transformation of the armed services.

"The Enron thing sounds so terrible that it's just one of these things that if you clam up, you look bad," said Andrew Bacevich, a Boston University professor, and a fan of White who, like White, was a commander of the 11th Armored Cavalry Regiment.
White has had little public comment about Enron beyond saying that it was a "tragedy." He has said he suffered "significant personal losses" in selling his entire portfolio of Enron stock, for $12 million, last year. He did not respond to repeated requests for an interview.

In the Army, White was on the fast track. A 1967 graduate of West Point, he was a natural leader, first in his class to make general. Everyone who knew him in the Army was convinced he was headed for the top, to become a three- or four-star general. "He was a star," said retired Gen. Wesley K. Clark. "The very best the Army had."
People were not surprised when, after a brilliant career with the 11th ACR -- the illustrious "Blackhorse" unit in the front-lines of the Cold War -- Gen. Colin L. Powell, then chairman of the Joint Chiefs of Staff, picked White in 1989 as his executive assistant. He was Powell's "alter ego," said Harlan Ullman, a retired naval officer and friend of both. "It is a job that requires tremendous political sophistication."

Then one day in 1990, White got a very attractive offer from Enron. It was a seven-figure package, a friend said. "For somebody who's in the Army making $100,000 a year . . . it's just an offer he couldn't refuse. He surprised a lot of his Army friends. He got out." Ullman wanted to try to talk White into staying. "Don't waste your time," Powell told him. "I've already tried."
In 1990, White, the son of a Detroit bus driver and a homemaker, joined Enron as a vice president of Enron Operations Corp. In quick succession, he became chairman and chief executive officer of Enron Power Corp., chairman and CEO of Enron Operations Corp., chairman and CEO of Enron Ventures Corp. He was also responsible for Enron Engineering and Construction Co., which built pipelines and power plants in India, including Dabhol; China; and many other countries. He became EES vice chairman in 1998. Through a small, but what some thought potentially lucrative, division, Enron Federal Solutions, EES focused on winning government contracts in energy management.

In December 1998, the Pentagon issued a directive to shift control of base utilities to private hands. EES, with White's help, won the first contract in 1999, worth $25 million over 10 years, to provide energy to Fort Hamilton in New York. Enron hired a Washington lobbyist, paying him $60,000 in 2000 to pursue military base utility privatization.

EES entered nine more bids, none of which succeeded. At confirmation hearings, White told the Senate Armed Services Committee that he would recuse himself from any decisions involving Enron. He also promised to fully divest his Enron holdings.
Sen. Carl M. Levin (D-Mich) has raised questions about White's financial ties to Enron in a letter to the Office of Government Ethics, copied to White, according to a Levin spokesman. Levin's office would neither release the letter or White's reply, nor comment on the reply.

Tyson Slocum, research director at Public Citizen, said the mere fact that White held at least $25 million in Enron stock at the time he took the Army appointment posed a "huge" conflict of interest. "The military uses 70 percent of the federal government's electricity," he said. "That would represent a $2 billion windfall, if private companies were to get into that market."
Last March, EES decided it would pursue contracts only to provide energy to military bases, not to provide equipment or manage their power plants, spokeswoman Peggy Mahoney said. Enron has succeeded in none of its bids and has made no subsequent bids, she said.

It remains unclear how much White, as EES vice chairman, knew about the firm's accounting practices. "His primary focus was supporting [contract] origination with big customers, schmoozing and rainmaking," said Glenn Dickson, an EES director laid off in December. "Obviously, we closed a lot of big deals while he was involved."
Contracts at EES have also been criticized for failing to adequately protect the company from unnecessary risks. "I've been at Enron a long time and I've never in my life seen a more complicated contract than theirs," said a former high-level Enron executive who worked at EES.

In late 2000 and early 2001, after the electricity crisis in California, EES suffered big losses as energy prices spiked, former employees said. One former manager, Margaret Ceconi, sent Enron board members a memo in August alleging that more than $500 million in losses were being hidden in the firm's massive Wholesale Services Group. She alleged the transactions made EES look more profitable to investors.
The memo, first reported last week by the Houston Chronicle, did not allege that White knew of or approved the loss reassignment, which she also reported to the Securities and Exchange Commission. Her attorney said it is unclear whether anyone inside Enron or at the SEC acted on her complaints.

Though there is no evidence he knew of the "segment allocation" highlighted by Ceconi, White was EES's second in command and his compensation depended on the firm's fortunes. "Tom White and Lou Pai in my humble opinion are definitely responsible for the fact that we sold huge contracts with little thought as to how we were going to manage the risk or deliver the service," Dickson said.
In early 2001, a new management team took over at EES, former employees said. "The company suspected that there were serious issues on some of these contracts, so they brought in some of the wholesale guys who were ultimately more adept than Tom was at valuing commodity contracts," said the former high-level EES executive. "Tom's a very smart man. But he never projected himself out as being a risk-management expert at a company."

Staff reporter Joe Stephens and staff researchers Madonna Lebling, Lynn Davis and Margaret Smith contributed
to this report. http://www.cyberspaceorbit.com/warrant34.htm

 

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