The Story of Enron

“The story of Enron is the story of
unmitigated pride and arrogance.”

 – Jeffrey Pfeffer, Professor, Stanford Business School


Sightings from The Catbird Seat

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January 7, 2005

Enron Directors Reach $168M Settlement

By Michael Liedtke, Associated Press

SAN FRANCISCO (AP) – Eighteen former directors of scandalized Enron Corp. have reached a $168 million settlement, including a $13 million payout out of some of their own pockets, with shareholders burned by the financial shenanigans that culminated in the company’s stunning collapse.

The agreement announced late Friday requires 10 of the former Enron directors to contribute a combined $13 million from the profits that they reaped from selling company stock before Enron revealed it had been grossly exaggerating its sales and profits. The debacle foreshadowed a wave of accounting scandals that sparked an overhaul of the country’s corporate governance practices.

The directors paying an unspecified amount of money are: Robert Belfer, Norman Blake, Ronnie Chun, John Duncan, Joe Foy, Wendy Gramm, Robert Jaedicke, Charles LeMaistre, Rebecca Mark-Jubasche and Ken Harrison, according to attorneys involved in the case.

Other directors who aren’t personally paying money but are neverless covered by the settlement are: Paulo Forraz-Pererira, John Mendelsohn, Jerome Meyer, Frank Savage, John Urquhart, John Wakeham, Charls Walker and Herbert Winokur.

None of the directors are admitting any wrongdoing as part of the settlement, which still requires final court approval….

< < < FLASHBACK < < <

December 14, 2001

Enron makes Whitewater smell like roses

By Bill Press, Tribune Media Services

WASHINGTON — 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….

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December 21, 2001 – From Public Citizen:

Electricity, Commodities Deregulation Allowed Enron to Loot Billions from Lenders, Shareholders, Employees and Consumsers

Tangled Web of Deceit, Political Influence Must be Unraveled by Congress

WASHINGTON, D.C. – After Enron Corp. used its vast web of political connections to win December 2000 passage of commodities trading legislation that helped the company shield its energy trading activities from government scrutiny, California’s energy crisis suddenly took a dramatic turn for the worse as artificial supply shortages led to frequent rolling blackouts, according to a new Public Citizen report released Friday.

The legislation reducing government oversight of energy trading was muscled through Congress —— without a Senate committee hearing —— with the aid of U.S. Sen. Phil Gramm of Texas. Gramm was chairman of the Senate Banking Committee, which had jurisdiction over the legislation he co-sponsored, but he chose to bypass his committee, and the bill was quietly tacked onto a “must-pass” appropriations bill late in the session.

Gramm’s wife, Wendy Gramm, also aided Enron’s rise to power. As chairwoman of the Commodity Futures Trading Commission, she pushed through a key regulatory exemption on Jan. 14, 1993, just as she was about to leave office. Five weeks later, she joined Enron’s board of directors, where she served on the board’s audit committee and had access to key financial information about the company.

On Sept. 4 of this year, Sen. Gramm announced that he would not run for re-election in 2002. Then in November, shareholders and federal regulators learned the extent of Enron’s financial troubles. Since the revelations, the company has filed the largest corporate bankruptcy in history, and shareholders, lenders and Enron employees have lost billions of dollars.

“Millions of people in California paid outrageously inflated prices for electricity because of Enron’s ability to manipulate the markets for electricity and natural gas, and thousands of Enron employees and shareholders have been devastated because of insider dealing and financial trickery,” said Public Citizen President Joan Claybrook.

“Republicans in Congress investigated Whitewater for years and spent millions of dollars. But that pales in comparison to Enron-gate. Congress needs to turn over every rock and see what crawls out from underneath. They should ask, who knew what and when did they know it? Investigations into any criminal conduct should extend to the political players who aided and abetted this company’s rapacious rampage across America. We should make no distinction between the officers who committed these acts and the politicians who enabled them.”

Public Citizen called on Congress to force Wendy and Phil Gramm and Treasury Secretary Paul O’Neill to testify under oath about their knowledge of Enron’s alleged accounting fraud and use of offshore tax and bank regulation havens.

Public Citizen also said that President Bush, Vice President Dick Cheney and political adviser Karl Rove should also be required to answer questions about whether administration officials discussed policies involving energy price controls, other energy regulations or tax havens with Enron representatives.

Bush adamantly resisted price controls even though California’s wholesale energy costs had almost quadrupled in 2000; at the same time, Enron’s trading revenues nearly tripled.

The Public Citizen report – Blind Faith: How Deregulation and Enrons Influence Over Government Looted Billions from Americans – details the political connections and government actions that helped Enron become the most prominent energy trader in the world before its recent collapse. The report found that:

From June through December 2000, California experienced only one Stage 3 electricity emergency (which requires rolling blackouts). But following passage of the Commodity Futures Modernization Act, which shielded Enron’s and others’ trading activities from regulators, the state had 38 Stage 3 emergencies – ending only when federal regulators finally imposed price controls in June 2001.

Enron took advantage of lax government oversight and formed a complex web of more than 2,800 subsidiaries – 874 of which were located in offshore tax and banking regulation havens, mostly in the Cayman Islands. Upon assuming office in 2001, Bush – who has accepted $2 million from Enron during his political career and counts Enron chief executive Kenneth Lay as a close personal friend – scrapped plans put into place by former President Bill Clinton to limit the ability of corporations to effectively use these offshore havens. The action came at the height of high West Coast energy prices, which would have allowed Enron to funnel billions in excess profits to offshore accounts.

As a lame-duck chairwoman of the Commodity Futures Trading Commission, Wendy Gramm exempted Enron and other energy futures traders from oversight in response to a request by Enron. At the time, Enron was a significant source of political funding for her husband. Five weeks later, she joined the company’’s board and served on the board’s audit committee, where she would have had access to the company’s financial details. The chief executive of Arthur Andersen, Enron’s outside auditor, testified before congressional investigators in December that “illegal acts” may have been committed at the company.

“Buried amid the rubble of Enron’s fallen house of cards are the political ties that allowed this greedy company to rip off the public and its own employees, who saw their retirement accounts vanish overnight – even as top executives were bailing out and walking away with hundreds of millions of dollars,” said report author Tyson Slocum, research director for Public Citizen’s Critical Mass Energy and Environment Program.

“There’s an object lesson here for those who decry government regulation: Absent a strong regulatory presence, greed prevails and consumers get the shaft. We’ve seen it time and time again.”

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August 26, 2004

Citigroup Sued Over Enron Scandal

NEW YORK (Reuters) – Citigroup Inc. faces a lawsuit from angry investors who allege they were defrauded in a “massive scheme of deception” when they bought securities tied to the credit-worthiness of bankrupt energy trader Enron Corp.

The suit, brought by Bank of New York Co. Monday in New York State Supreme Court on behalf of numerous investors in Enron-related securities, is the latest in a spate of actions at recovering billions of dollars lost when the Houston-based company collapsed into bankruptcy in 2001.

Plaintiffs include well-known distressed debt funds Angelo Gordon & Co. and Appaloosa Investment LP, who charged in the 77-page complaint that Citigroup concocted a fraudulent scheme to raise billions of dollars from the sale of notes called “Yosemite” securities.

Citigroup, the investors said, then used the funds to make “disguised” loans to Enron “to reduce its own Enron credit risk, prop up Enron’s failing financial condition and generate significant fees in the process.”

The complaint alleges fraud, breach of contract and fiduciary duty, and negligence in the Yosemite transactions, which it said took place between 1999 and 2001. Enron sought Chapter 11 bankruptcy protection on Dec. 2, 2001….

A successful lawsuit might complicate Citigroup’s plan to keep its already high legal costs from rising further.

The company in May roughly quadrupled, to $6.7 billion, its reserves for legal bills, including those for Enron, as it agreed to pay $2.65 billion to settle a lawsuit by WorldCom Inc. investors accusing it of participating in financial fraud.

Citigroup Chief Executive Charles Prince said at the time, “We feel very comfortable in saying that, with our advisers helping us, we have established a reserve that will cover all of our meaningful exposures.”

Reducing exposure

In their complaint, the Yosemite investors said Citigroup knew Enron’s debts were several billion dollars greater than the company publicly disclosed between 1999 and 2001.

They also said the bank wanted to cut its own, rising exposure to Enron. Though Enron was an investment-grade company until just four days before it filed for Chapter 11 bankruptcy, the complaint said Citigroup, because of undisclosed information it possessed about Enron, knew that defaults were “likely.”

Citibank thus found itself in a bind. It knew Enron was not loan-worthy, yet if it failed to find Enron new sources of financing, it ran the significant risk that Enron would collapse before Citibank could recover the billions of dollars Enron owed it,” the complaint said.

“The Yosemite transactions were Citibank’s solution to its problem.”…

For more on Citigroup, GO TO > > > Vampires in the City

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February 14, 2003

Congressional Report Details
More Enron Scams

By Marcy Gordon, Associated Press

WASHINGTON – Enron set up an array of dizzyingly complex schemes to hoodwink the Internal Revenue service, reap more than $2 billion in questionable tax and accounting savings and inflate its income as it paid its executive lavishly, a congressional panel found in an investigation made public yesterday.

The bankrupt company created a dozen tax-sheltering transactions that used such techniques as claiming the same tax loss twice, according to a report by the House-Senate Joint Committee on Taxation, which spent a year investigating Enron’s tax practices.

With names such as Project Apache, Project Renegade and Project Condor, the transactions show a vast new arena of Enron activity beyond the web of off-balance sheet schemes and partnerships previously revealed.

“Money, money, money,” declared Sen. Charles Grasley, R-Iowa, chairman of the Senate Finance Committee, at a hearing on the committee’s report. “Money above honesty and financial accounting.”

The three-volume report “reads like a conspiracy novel,” Grassley said.

The evidence of Enron’s clever manipulation of the tax laws and the fact that other big corporations do the same are fueling a push by lawmakers to crack down on tax shelters. Senate Democratic leader Tom Daschle of South Dakota, called the report “a call to action, and we will act.”

Big accounting firms, investment banks and law firms – including Bankers Trust, Chase Manhattan, Deloitte & Touche and fallen Arthur Andersen – that gave Enron tax advice pushing legal boundaries, did not escape bleme from senators and congressional investigators.

The outside advisers, who received about $88 million in fees from Enron, colluded, said Sen. Max Baucus of Montana the Finance Committee’s senior Democrat.

“Enron and its advisers conspired to mine the tax code for tax schemes. …They ensured that no one – particularly the IRS – would ever discover what they were up to.”

Enron’s failure in late 2001 destroyed the retirement savings of thousands of employees and hurt individual investors and pension funds nationwide. The taxation committee’s inquiry was among more than a dozen congressional investigations last year into Enron’s collapse.

Enron’s tax deals “pushed the concept of business purpose to the limit (and perhaps beyond),” the panel’s report said.

“Enron’s behavior illustrates that a motivated corporation can manipulate highly technical provisions of the law.” By using advice from sophisticated lawyers, investment bankers and accountants, “corporations like Enron have an inherent advantage over the IRS,” it said….

“Show Me the Money!” is emblazoned on an internal Enron document detailing a tax transaction, one of thousands of pages released by the Finance Committee.





“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


August 8, 2002

Lawmaker Seeks Inquiry of Rubin Intervention for Enron

Fox News

WASHINGTON —— A House Republican lawmaker is seeking an investigation into phone calls made on behalf of Enron Corp. to the Bush administration by former Treasury Secretary Robert Rubin.

Rep. Mark Foley, R-Fla., wants the Securities and Exchange Commission to look into the phone call, alleging that Rubin was attempting to tamper with Enron’s credit rating.

“A former Treasury Secretary should not be soliciting financially-beneficial favors from colleagues at an agency that he once led,” Foley wrote in a letter to SEC Chairman Harvey Pitt.

“I would ask that you would investigate all equity trades submitted by Citigroup or its subsidiaries and their clients in the two weeks preceding Mr. Rubin’s call to Mr. Fisher as well as the two weeks following the call,” the letter reads.

In his capacity as head of Citigroup, Rubin allegedly called Treasury Undersecretary of Domestic Finance Peter Fisher last November to see whether Fisher thought it would be a good idea for the Treasury Department to call bond rating agencies to halt an expected reduction in Enron’s credit rating.

Former energy giant Enron declared bankruptcy last December after it revealed that it had been using capital accounts to cover for losses in its operating accounts. Its collapse was the first in a string of corporate scandals that has claimed Tyco International, Global Crossing, WorldCom and others.

Enron’s credit rating and condition was very much on the minds of Citigroup because Enron is a huge client of the bank. Citigroup has millions of dollars of loans with Enron, and such an intervention on behalf of the Treasury to bolster Enron would have benefited both the bank and the energy firm.

The Treasury Department did nothing about the call, but Foley told Fox News that he wants to know whether Rubin or anyone else at Citigroup profited from insider knowledge of Enron’s imminent demise.

“That’s the timing issue that’s critical, people were caught in the exits trying to sell their shares, there was no market. I want to make sure the fat cats, if you will, didn’t prematurely sell their shares knowing of the deteriorating conditions,” Foley said, adding that he is not alleging that Rubin participated in any criminal wrongdoing.

Senate Democrats have called Citigroup officials to testify about the relationship between the bank and the energy giant, but have not called Rubin specifically.

Democrats ask if Rubin is so important, why have Republicans who lead the House not bothered to call him to testify. Republicans say they will leave that open as an option.

Fox News’ Major Garrett contributed to this report.

For more on Robert Rubin and Citigroup, GO TO > > > Vampires in the City

For more on Robert Rubin and Kamehameha Schools, GO TO > > > Dirty Money, Dirty Politics & Bishop Estate

For more on Robert Rubin and Goldman Sachs, GO TO > > > Dirty Gold in Goldman Sachs


April 9, 2002

Enron auditor pleads guilty

David Duncan agrees to work with prosecutors

WASHINGTON (AP) April 9 – The Arthur Andersen auditor who oversaw Enron’s books pleaded guilty Tuesday to ordering the shredding of Enron documents and agreed to cooperate with prosecutors in a deal that could break the scandal wide open.  

FORMER PARTNER DAVID B. DUNCAN pleaded guilty to obstruction of justice, admitting he tried to thwart an Enron investigation by the Securities and Exchange Commission.

He is believed to be the first person in the Enron case to strike a deal with federal prosecutors.

“Documents were in fact destroyed so that they would not be available to the SEC,” he told U.S. District Judge Melinda Harmon, reading from a statement.

The charge carries up to 10 years in prison and hundreds of thousands of dollars in fines. Attorneys did not release details of any agreement on the sentence. Duncan remains free until his sentencing on Aug. 26.

He had no comment as he left the courthouse. His attorney, Sam Seymour, said: “He’s continuing his cooperation, as we’ve said all along.”

Attorney Rusty Hardin, who represents Andersen, said Duncan had denied any criminal wrongdoing until Tuesday and the firm was surprised and disappointed at his statement in court.

“Arthur Andersen made the decision to terminate Mr. Duncan last January based on his exercise of extremely bad judgment in this matter. We stand by that decision,” Hardin said.

Duncan was fired by Andersen after the accounting firm acknowledged the large-scale destruction of documents and deletion of computer files related to the collapse of the energy giant, whose bankruptcy cost thousands of employees their jobs and, in many cases, their life savings.


Duncan could prove crucial in enabling prosecutors to build a case against Enron. As the senior auditor in charge of the Enron account, he would presumably have knowledge of the complex web of partnerships used by the company to keep millions of dollars in debt off its books.

Under the plea bargain, Duncan is immune to any further prosecution related to the Enron case as long as he fully cooperates with federal authorities — which could include testimony at future trials — and agrees not to sell his story or otherwise profit from the debacle.

In court, Duncan described how he ordered Andersen employees on Oct. 21 to destroy certain documents two days after he learned that the SEC was investigating Enron.

“I also personally destroyed such documents,” Duncan told the judge. “I accept that my conduct violated federal law.”

Prosecutors said the shredding occurred between Oct. 23 and Nov. 9. The SEC notified Andersen on Nov. 8 that it would subpoena documents related the firm’s work on Enron.

A grand jury indicted Andersen on March 7 on a charge of obstructing justice, accusing the firm of destroying “tons of paper” at offices worldwide and deleting enormous numbers of computer files on its Enron audits.

At times, the government said, the destruction was so frenetic that employees worked overtime and shredding machines could not keep up.

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February 7, 2002

Enron: Ultimate agent of
the American empire

by Larry Chin, Online Journal,

Centre for Research on Globalisation (CRG),,

Part II: Enron, the Bush administration, and the Central Asian war

Most experts agree that the Caspian Basin and Central Asia are the keys to energy in the 21st century. Said energy expert James Dorian (Oil & Gas Journal, 9/10/01), “Those who control the oil routes out of Central Asia will impact all future direction and quantities of flow and the distribution of revenues from new production.”

America wants the region under total US domination.

The Caspian Basin has an estimated $5 trillion of oil and gas resources, and Central Asia has 6 trillion cubic meters of natural gas and 10 billion barrels of undeveloped oil reserves. Interconnecting pipelines are the key to accessing and distributing oil and gas to European, Chinese and Russian markets.

Policy planners have devoted years to this agenda. A report published in September 2001 detailing a conference held at the Brookings Institution in May 2001 provides clear evidence that the exploitation of Caspian Basin and Asian energy markets was an urgent priority for the Bush administration, and the centerpiece of its energy policy.

The report states that “the administration’s report warned that ‘growth in international oil demand will exert increasing pressure on global oil availability’ and that developing Asian economies and populations——particularly in China and India——-will be major contributors to this increased demand” and that “options for constructing gas pipelines east to Asia from the Caspian have been discussed for the last decade.”

For years, Enron (along with Unocal, BP Amoco, Exxon, Mobil, Pennzoil, Atlantic Richfield, Chevron, Texaco, and other oil companies) has been involved in a multi-billion dollar frenzy to extract the reserves of the three former Soviet republics, Turkmenistan, Azerbaijan, and Kazakhstan.

According to Project Underground (11/7/99), former Soviet, KGB and Politburo members are profiting from oil riches, along with “a formidable array of former top Western Cold Warriors, drawn principally from the cabinet of George [H.W.] Bush.” The dealmakers include James Baker, Dick Cheney, Brent Scowcroft, and John Sununu. Also cashing in on the deals are former Clinton Treasury Secretary Lloyd Bentsen (close friend of Ken Lay and longtime recipient of Enron funding) and Zbigniew Brezezinski.

Brezezinski, a leading member of the Council on Foreign Relations and arguably the most influential policy planner in the world, spearheaded the American effort to destabilize the Soviet Union in Afghanistan in the 1970s. He is a consultant to BP Amoco. His recent book, “The Grand Chessboard” is a virtual blue print for a war and balkanization of Central Asia.

According to Alexander’s Oil & Gas Connections (10/12/98), Enron signed a contract in 1996, giving it rights to explore 11 gas fields in Uzbekistan, a project costing $1.3 billion. The goal was to sell gas to the Russian markets, and link to Unocal’s southern export pipeline crossing Turkmenistan, Uzbekistan and Afghanistan.

Turkmenistan (where Enron’s project was based) and Azerbaijan are closely allied with Israeli military intelligence. Yosef Maiman, a former Israeli intelligence agent, is the official negotiator for energy development projects in Turkmenistan.

Enron recently conducted feasibility studies for a $2.5 billion trans-Caspian gas pipeline to be built jointly with General Electric and Bechtel. Enron’s goal was to link this pipeline to another line through Afghanistan.

As described in many accounts, notably the recently published “Osama Bin Laden: The Forbidden Truth” by Jean Charles Brisard and Guillaume Dasique, a Central Asia Gas (CentGas) consortium led by Unocal had plans for a 1,005 mile oil pipeline and a 918 mile natural gas pipeline from Turkmenistan through Afghanistan to Pakistan. This project stalled because of the political instability in Afghanistan.

In August 2001, George W. Bush revived negotiations with the Taliban.

Writer William Rivers Pitt notes that, “intense scrutiny has shaken loose two e-mails sent by Enron’s Ken Lay to his employees in August of last year. In them, Lay waxes optimistic about the strength and stability of his company, and exhorts his employees to buy into the company’s stock program.”

Pitt believes that, “while many observers view this as the gasping lies of a drowning criminal,” Lay’s messages must be considered in light of the timing: His last e-mail was sent on August 27, about the same time as the final Taliban meeting with the Bush administration. Was Kenneth Lay anticipating a piece of a new pipeline deal, and an Enron contract, courtesy of George W. Bush?

After the Taliban refused the Bush administration’s “carpet of gold,” America dropped its “carpet of bombs” on Afghanistan, allegedly in retaliation for the 9/11 terrorist attacks. Was Ken Lay also anticipating a war, and a way to profit from it?

Former Unocal lobbyist Hamid Karzai now heads a bombed and gutted Afghanistan. Bush’s US envoy is Zalmay Khalizad, another former Unocal representative, who helped draw up the plans for the original CentGas pipeline.

The US has established four new permanent military bases, throughout the region, including a new one in Afghanistan. Recently, Uzbekistan, hosted dozens of members of the US House of Representatives and the Senate. The region will remain a zone of perpetual violence and conflict, and plunder.

If Enron had not made the mistake of collapsing, Kenneth Lay and his team would be in the thick of it.

Enron, Halliburton, Bush…bin Laden?

At the web site Rumor Mill News (, a journalist named “Phoenix” has laid out business links that tie Enron to the bin Laden family. These connections, which have been independently verified by Michael Ruppert (, play out as follows:

1. Osama bin Laden’s family business, the Saudi Binladin Group, is a major construction company. Saudi Binladin Group was an investor in the Carlyle Group. Carlyle’s directors include George H.W. Bush, and James Baker. George W. Bush’s firm Arbusto Energy was funded by an investment from Texas investment banker James Bath, who was also the investment counselor for the bin Laden family. Bath had connections to the CIA, and was involved with the Iran-Contra, savings and loan, and BCCI scandals.

2. One of Saudi Binladen’s joint venture partners is H.C. Price Company.

3. H.C. Price is a major builder of pipelines, and is involved in large projects, including two projects for Enron: the Florida Gas Pipeline and the Northern Border Pipeline running from the US/Canadian border from Montana to Illinois.

4. In 1996, Dresser Industries and Shaw Industries merged their pipecoating businesses to form Bredaro-Shaw Group. H.C. Price became part of Bredaro-Shaw.

5. Halliburton acquired Dresser in 1998. George H.W. Bush’s father, Prescott, was the managing director of Brown Brothers Harriman, which previously owned Dresser. Dresser Industries gave George H.W. Bush his first job in 1948.

6. Dick Cheney orchestrated the Dresser and Bredaro-Shaw acquisitions.

7. Both Halliburton, and its subsidiary Brown & Root, have deep ties to the CIA and the military. The company has been involved in US military conflicts in Vietnam, Bosnia, Kosovo, Macedonia, Chechnya, Pakistan, Colombia and Rwanda. Brown & Root builds oil rigs, pipelines, wells, and nuclear reactors.

It does not appear to be a simple case of coincidence that Saudi Binladin, a long time business partner with the Bush family, also has a partnership with a Dick Cheney-affiliated Halliburton that works with Enron.

The cover-up begins

In their book The Outlaw Bank, Jonathan Beaty and S.C. Gwynne wrote of BCCI, “It was a conspiratorialist’s conspiracy, a plot so byzantine, so thoroughly corrupt, so exquisitely private, reaching so deeply into the political and intelligence establishments of so many countries, that it seemed to have its only precedent in the more hallucinogenic fiction of Ian Fleming, Kurt Vonnegut or Thomas Pynchon. As tales of its global predations were splattered across headlines all over the world, its apparent influence reached almost absurd proportions.”

The scope of Enron’s influence has reached well into the absurd, if not beyond. And there are many more Enrons out there, waiting to be blow open.

In describing the system that breeds Enrons, professor Michel Chossudovsky of the University of Ottawa (CovertAction, Fall 1996) wrote:

“Global crime has become an integral part of an economic system, with far reaching social, economic and geopolitical ramifications . . . the relationship among criminals, politicians, and members of the intelligence establishment has tainted the structures of the state and the role of its institutions . . . this system of global trade and finance has fostered an unprecedented accumulation of private wealth alongside the impoverishment of large sectors of the world population, and the prospects for change are dim. Meanwhile, the international community turns a blind eye until some scandal momentarily breaks through the gilded surface.”

In light of congressional “investigations” headed exclusively by committee chairmen who have received Enron monies, weeks of FBI foot-dragging, continued White House secrecy, no independent counsel, and media complicity in White House damage control efforts, the Enron trail has already begun to grow cold.

The American corporate media has done its best to look the other way. This is no surprise, since Enron dumped handsome sums into the pockets of media moguls, and conservative journalists such as Lawrence Kudlow, Peggy Noonan, William Kristol and others.

Cronies and cohorts are meeting. Patsies and fall guys have been designated. Lies are being fabricated. Fifth Amendment mantras will be repeated.

As was the case with Watergate, BCCI, Iran-Contra, and the savings and loan scandals, it is not too cynical to expect the Enron hearings to expose only enough malfeasance to silence the public, while leaving the massive system intact. The masterminds and the largest beneficiaries are about to slip into the shadows.

The American empire is built on a thousand Enrons. It will exhaust every means to avoid implicating itself, even as it drowns in the cesspool of its own creation, dragging thousands of innocent people down with it.

Copyright Larry Chin. 2002. Reprinted for fair use only. Larry Chin is a freelance journalist and an Online Journal Contributing Editor.


March 7, 2002

The following excerpts are from an interview with Greg Palast, a journalist for the BBC and Observer, on the Alex Jones Radio Show.

If you care anything at all about what is happening to the quality of life in the United States – and the world – then you should read this carefully. You are not likely to see this in any of the mass media. You may not even be able to see it for long on the internet — if the global elite gain control of this last bastion of free speech.

But, for now, the truth is here….

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From : “Catherine Austin Fitts” <>

To : “Solari Action Network” <>

Date : Thu, 7 Mar 2002 18:57:25 -0500

Subject: Transcript of Interview of Greg Palast, Journalist for BBC and Observer, London, by Alex Jones.

(Courtesy of A Great Listener) Alex Jones Radio Show, Monday (PM), March 4, 2002


AJ: This is earth shattering. Can you break it down for us and tell us what the economists have done?

GP: Well, I’ll tell you two things. One, I spoke to the former chief economist, Joe Stiglitz who was fired by the (World) Bank. So I, on BBC and with Guardian, basically spent some time debriefing him. It was like one of the scenes out of Mission Impossible, you know where the guy comes over from the other side and you spend hours debriefing him. So I got the insight of what was happening at the World Bank. In addition, he did not brief me but I got some other sources. He would not give me inside documents but other people handed me a giant stash of secret documents from the World Bank and the International Monetary Fund. . . .

AJ: Just like you got W199I, from the same folks we got it from.

GP: And so one of the things that is happening is that, in fact, I was supposed to be on CNN with the head of the World Bank Jim Wolfensen and he said he would not appear on CNN ever if they put me on. And so CNN did the craziest thing and pulled me off.

AJ: So now they are threatening total boycott.

GP: Yea right. So what we found was this. We found inside these documents that basically they required nations to sign secret agreements, in which they agreed to sell off their key assets, in which they agreed to take economic steps which are really devastating to the nations involved and if they didn’t agree to these steps, there was an average for each nation that signed one-hundred and eleven items that they are required to sign on to. If they didn’t follow those steps they would be cut-off from all international borrowing. You can’t borrow any money in the international marketplace. No one can survive without borrowing, whether you are people or corporations or countries – without borrowing some money and having some credit and…

AJ: Because of the debt inflation pit they’ve created.

GP: Yea, well, see one of the things that happened is that – we’ve got examples from, I’ve got inside documents recently from Argentina, the secret Argentine plan. This is signed by Jim Wolfensen, the president of the World Bank. By the way, just so you know, they are really upset with me that I’ve got the documents, but they have not challenged the authenticity of the documents. First, they did. First they said those documents don’t exist. I actually showed them on television. And cite some on the web, I actually have copies of some…

AJ: Greg Palast dot com?

GP: Yea, . So then they backed off and said yea those documents are authentic but we are not going to discuss them with you and we are going to keep you off the air anyway. So, that’s that. But what they were saying is look, you take a country like Argentina, which is, you know, in flames now. And it has had five presidents in five weeks because their economy is completely destroyed.

AJ: Isn’t it six now?

GP: Yea, it’s like the weekly president because they can’t hold the nation together. And this happened because they started out in the end of the 80s with orders from the IMF and World Bank to sell-off all their assets, public assets. I mean, things we wouldn’t think of doing in the US, like selling off their water system.

AJ: So they tax the people. They create big government and big government hands it off to the private IMF/World Bank. And when we get back, I want to get to the four-parts that you elegantly lay out here where they actually pay off the politicians billions to their Swiss bank accounts to do this transfer.

GP: That’s right.

AJ: This is like one of the biggest stories ever, Sir. I’m sorry, please continue.

GP: So what’s happening is – this is just one of them. And by the way, it’s not just anyone who gets a piece of the action. The water system of Buenos Aires was sold off for a song to a company called Enron. A pipeline was sold off, that runs between Argentina and Chile, was sold off to a company called Enron.

AJ: And then the globalists blow out the Enron after transferring the assets to another dummy corporation and then they just roll the theft items off.

GP: You’ve got it. And by the way, you know why they moved the pipeline to Enron is that they got a call from somebody named George W. Bush in 1988.

AJ: Unbelievable, Sir. Stay right there. We are talking to Greg Palast.


AJ: We are talking to Greg Palast. He is an award-winning journalist, an American who has worked for the BBC, London Guardian, you name it, who has dropped just a massive bomb-shell on the Globalists and their criminal activity. There is no other word for it. You link through at, you can link to his web site –, or any of the other great reports he has been putting out. He now has the secret documents. We have seen the activity of the IMF/World Bank for years. They come in, pay off politicians to transfer the water systems, the railways, the telephone companies, the nationalized oil companies, gas stations – they then hand it over to them for nothhing. The Globalists pay them off individually, billions a piece in Swiss bank accounts. And the plan is total slavery for the entire population. Of course, Enron, as we told you was a dummy corporation for money laundering, drug money, you name it, from the other reporters we have had on. It’s just incredibly massive and hard to believe. But it is actually happening. Greg Palast has now broken the story world-wide. He has actually interviewed the former top World Bank economist. Continuing Sir with all these points.

I mean for the average person out there, in a nutshell, what is the system you are exposing?

GP: We are exposing that they are systematically tearing nations apart, whether it’s Ecuador or Argentina. The problem is some of these bad ideas are drifting back into the U.S. In other words, they have run out of places to bleed. And the problem is, this is the chief economist, this is not some minor guy. By the way, a couple of months ago, after he was fired, he was given the Nobel Prize in Economics. So he is no fool. He told me, he went into countries where they were talking about privatizing and selling off these assets. And basically, they knew, they literally knew and turned the other way when it was understood that leaders of these countries and the chief ministers would salt away hundreds of millions of dollars.

AJ: But it’s not even privatization. They just steal it from the people and hand it over to the IMF/World Bank.

GP: They hand it over, generally to the cronies, like Citibank was very big and grabbed half the Argentine banks. You’ve got British Petroleum grabbing pipelines in Ecuador. I mentioned Enron grabbing water systems all over the place. And the problem is that they are destroying these systems as well. You can’t even get drinking water in Buenos Aires. I mean it is not just a question of the theft. You can’t turn on the tap. It is more than someone getting rich at the public expense.

AJ: And the IMF just got handed the Great Lakes. They have the sole control over the water supply now. That’s been in the Chicago Tribune.

GP: Well the problem that we have is – look, the IMF and the World Bank is 51% owned by the United States Treasury. So the question becomes, what are we getting for the money that we put into there? And it looks like we are getting mayhem in several nations. Indonesia is in flames. He was telling me, the Chief Economist, Stiglitz, was telling me that he started questioning what was happening. You know, everywhere we go, every country we end up meddling in, we destroy their economy and they end up in flames. And he was saying that he questioned this and he got fired for it. But he was saying that they even kind of plan in the riots. They know that when they squeeze a country and destroy its economy, you are going to get riots in the streets. And they say, well that’s the IMF riot. In other words, because you have riot, you lose. All the capital runs away from your country and that gives the opportunity for the IMF to then add more conditions.

AJ: And that makes them even more desperate. So it is really an imperial economy war to implode countries and now they are doing it here with Enron. They are getting so greedy – they are preparing it for this country.

GP: I’ve just been talking to, out in California just yesterday, from here in Paris, the chief investigators of Enron for the State of California. They are telling me some of the games these guys are playing. No one is watching that. It’s not just the stockholders that got ripped off. They sucked millions, billions of dollars out of the public pocket in Texas and California in particular.

AJ: Where are the assets? See, everybody says there are no assets left since Enron was a dummy corporation – from the experts I’ve had on and they transferred all those assets to other corporations and banks.

GP: Well yea, this stuff has really gone just like a three-card Monty game. I mean remember that there is money at the bottom. You did pay California’s electric bills according to the investigations, they are telling me that they were pumped up unnecessarily by 9 to 12 billion dollars. And I don’t know who they are going to get it back from now.

AJ: Well they actually caught the Governor buying it for $137 per megawatt and selling it back to Enron for $1 per megawatt and doing it over and over and over again.

GP: Yea, the system has gotten completely out of control and these guys knew exactly what was happening. Well, you have to understand that some of the guys who designed the system in California for deregulation then went to work for Enron right after. In fact, here I’m in London right now and we have, the British has some responsibility here. The guy who was on the audit committee of Enron, Lord Wakeham. And this guy is a real piece of work, there isn’t a conflict of interest that he hasn’t been involved in.

AJ: And he is the head of NM Rothschild.

GP: There isn’t anything that he doesn’t have his fingers in. He’s on something like fifty Boards. And one of the problems, he was supposed to be head of the audit committee watching how Enron kept the books. And in fact, they were paying him consulting fees on the side. He was in Margaret Thatcher’s government and he’s the one who authorized Enron to come into Britain and take over power plants here in Britain. And they owned a water system in the middle of England. This is what this guy approved and then they gave him a job on the board. And on top of being on the board, they gave him a huge consulting contract. So you know, this guy was supposed to be in charge of the audit committee to see how they were handling their accounts.

AJ: Well, he is also the head of the board to regulate the media.

GP: Yes, he is, because I have run into real problems, because he regulates me.

AJ: They are also trying to pass laws in England where you’ve got an 800-year old well, or in some cases a 2000-year old well that the Romans built that’s on your property and they say we are putting a meter on it. You can’t have your own water.

GP: Yea, and that’s Lord Wakeham. I mean this is the guy from Enron. He is a real piece of work. He can’t be touched here because like I say he actually regulates the media. So if you complain, he’s got his hand on your pen.

AJ: Burrow into NM Rothschild, you’ll find it all there. Go through these four points. I mean you’ve got the documents. The IMF/World Bank implosion, four points, how they bring down a country and destroy the resources of the people.GP: Right. First you open up the capital markets. That is, you sell off your local banks to foreign banks. Then you go to what’s called market-based pricing. That’s the stuff like in California where everything is free market and you end up with water bills – we can’t even imagine selling off water companies in the United States of America. But imagine if a private company like Enron owned your water. So then the prices go through the roof. Then open up your borders to trade – complete free marketeering. And Stiglitz who was the chief economist, remember he was running this system, he was their numbers man and he was saying it was like the opium wars. He said this isn’t free trade; this is coercion trade. This is war. They are taking apart economies through this.

AJ: Well look, China has a 40% tariff on us, we have a 2% on them. That’s not free and fair trade. It’s to force all industry to a country that the globalists fully control.

GP: Well, you know Walmart – I did a story, in fact, if you read my book. Let me just mention that I’ve got a book out, “The Best Democracy Money Can Buy” about how, unfortunately, America has been put up for sale. “The Best Democracy Money Can Buy” is coming out this week. But I have a story in there about how Walmart has 700 plants in China. There is almost nothing in a Walmart store that comes from the United States of America, despite all the eagles on the wall.

AJ: Exactly, like 1984, then they have big flags saying “Buy American” and there’s hardly anything — it’s Orwellian double-think.

GP: What’s even worst is they will hire a factory and right next to it will be the sister factory which is inside a prison. You can imagine the conditions of these workers producing this lovely stuff for Walmart. It’s really….

AJ: And if an elitist needs a liver, they just call.

GP: (Laughs) I know, it’s grim. In fact, I talked to a guy, Harry Wu, is his name and, in fact, he broke into, he’s been in Chinese prison for 19 years. No one believed his horrible stories. He actually broke back into prison, took a camera with him and took pictures of the conditions and said this is the conditions of factories where Walmart is getting its stuff made at, it’s all….

AJ: I was threatened to be thrown off TV here in Austin when I aired video of little girls 4-years old chained down, skinnier than Jews in concentration camps, to die. And I was threatened, if you ever air that again, you will be arrested.

GP: Well you know, it is horrifying stuff that, unfortunately, I have been handed and Stiglitz, was very courageous for him to come out and make these statements. Like I said, he didn’t provide me the documents. The documents really sealed it because it said this is what really happened. They really do say sign on the dotted line agreeing to 111 conditions for each nation. And the public has no say; they don’t know what the hell is happening to them. All they know….

AJ: Go back into privatization. Go through these four points. That’s the key. It sends billions to politicians to hand everything over.

GP: Yea, he called it briberization, which is you sell off the water company and that’s worth, over ten years, let’s say that that’s worth about 5 billion bucks, ten percent of that is 500 million, you can figure out how it works. I actually spoke to a Senator from Argentina two weeks ago. I got him on camera. He said that after he got a call from George W. Bush in 1988 saying give the gas pipeline in Argentina to Enron, that’s our current president. He said that what he found was really creepy was that Enron was going to pay one-fifth of the world’s price for their gas and he said how can you make such an offer? And he was told, not by George W. but by a partner in the deal, well if we only pay one-fifth that leaves quit a little bit for you to go in your Swiss bank account. And that’s how it’s done.

AJ: This is the ….

GP: I’ve got the film. This guy is very conservative. He knows the Bush family very well. And he was public works administrator in Argentina and he said, yea, I got this call. I asked him, I said, from George W. Bush. He said, yea, November 1988, the guy called him up and said give a pipeline to Enron. Now this is the same George W. Bush who said he didn’t get to know Ken Lay until 1994. So, you know…..

AJ: So now they are having these white-wash hearings. You know I was at Enron yesterday in Houston because I’m now here in Austin. We were like 30-feet from the door, right on the sidewalk and I have it on video – goons came up and said you can’t videotape. I said go ahead and have me arrested. I mean I’m talking on the sidewalk, Greg.

GP: Well, you know, I was there in May, telling people in Britain you’ve never heard of Enron, but … And these are the guys who have figured out how to (garbled) this government. In fact, we saw some interesting documents, a month before Bush took office, Bill Clinton, I think to get even with Bush’s big donor, cut Enron out of the California power market. He put a cap on the prices they could charge. They couldn’t charge more than one-hundred times the normal price for electricity. That upset Enron. So Ken Lay personally wrote a note to Dick Cheney saying get rid of Clinton’s cap on prices. Within 48 hours of George W. Bush taking office, his energy department reversed the clamps on Enron. OK, how much is that worth for those guys. You know that has got to be worth, that paid off in a week all the donations.

AJ: Listen at the bombs you are dropping. You are interviewing these ministers, former head of IMF/World Bank economist – all of this, you’ve got the documents, paying people’s Swiss Bank accounts, all this happening. Then you’ve got Part 2, what do they do after they start imploding?

GP: Well, then they tell you to start cutting your budgets. A fifth of the population of Argentina is unemployed, and they said cut the unemployment benefits drastically, take away pension funds, cut the education budgets, I mean horrible things. Now if you cut the economy in the middle of a recession that was created by these guys, you are really going to absolutely demolish this nation. After we were attacked on September 11, Bush ran out and said we got to spend $50 to $100 billion dollars to save our economy. We don’t start cutting the budget, you start trying to save this economy. But they tell these countries you’ve got to cut, and cut, and cut. And why, according to the inside documents, it’s so you can make payments to foreign banks – the foreign banks are collecting 21% to 70% interest. This is loan-sharking. If fact, it was so bad that they required Argentina to get rid of the laws against loan-sharking. because any bank would be a loan-shark under Argentine law.

AJ: But Greg, you said it yourself and the documents show it. They first implode the economy to create that atmosphere. They institute the entire climate that does this.

GP: Yea, and then they say, well gee, we can’t lend you any money except at these loan-shark rates. We don’t allow people to charge 75% interest in the United States. That’s loan-sharking.

AJ: Part 3 and Part 4. What do they do after they do that?

GP: Like I said, you open up the borders for trade, that’s the new opium wars. And once you have destroyed an economy that can’t produce anything, one of the terrible things is that they are forcing nations to pay horrendous amounts for things like drugs – legal drugs. And by the way, that’s how you end up with an illegal drug trade, what’s there left to survive on except sell us smack and crack and that’s how….

AJ: And the same CIA national security dictatorship has been caught shipping that in.

GP: You know, we are just helping our allies.

AJ: This is just amazing. And so, drive the whole world down, blow out their economies and then buy the rest of it up for pennies on the dollar. What’s Part 4 of the IMF/World Bank Plan?

GP: Well, in Part 4, you end up again with the taking apart of the government. And by the way, the real Part 4 is the coup d’etat. That’s what they are not telling you. And I’m just finding that out in Venezuela. I just got a call from the President of Venezuela.

AJ: And they install their own corporate government.

GP: What they said was here you’ve got an elected president of the government and the IMF has announced, listen to this, that they would support a transition government if the president were removed. They are not saying that they are going to get involved in politics – they would just support a transition government. What that effectively is is saying we will pay for the coup d’etat, if the military overthrows the current president, because the current president of Venezuela has said no to the IMF. He told those guys to go packing. They brought their teams in and said you have to do this and that. And he said, I don’t have to do nothing. He said what I’m going to do is, I’m going to double the taxes on oil corporations because we have a whole lot of oil in Venezuela. And I’m going to double the taxes on oil corporations and then I will have all the money I need for social programs and the government – and we will be a very rich nation. Well, as soon as they did that, they started fomenting trouble with the military and I’m telling you watch this space: the President of Venezuela will be out of office in three months or shot dead. They are not going to allow him to raise taxes on the oil companies.

AJ: Greg Palast, here is the problem. You said it when you first came out of the gates. They are getting hungry, they are doing it to the United States now. Enron, from all the evidence that I’ve seen was a front, another shill, they would steal assets and then transfer it to other older global companies, then they blew that out and stole the pension funds. Now they are telling us that terrorism is coming any day. It’s going to happen if you don’t give your rights up. Bush did not involve Congress and the others who are supposed to be in the accession if there is a nuclear attack in the secret government, Washington Post -“Congress Not Advised of Shadow Government.” We have the Speaker of the House not being told. This looks like coup d’etat here. I’m going to come right out with it. We had better spread the word on this now or these greedy creatures are going to go all the way.

GP: I’m very sad about one thing. I report this story in the main stream press of Britain. I’m on the BBC despite Lord Wakeham. I know he doesn’t like me there. I’m in the BBC, I’m in the main daily paper, which is the equivalent of the New York Times or whatever, and we do get the information out. And I’m just very sorry that we have to have an alternative press, an alternative radio network and everything else to get out the information that makes any sense.

I mean this information should be available to every American.

I mean, after all, it’s our government!


Reprinted from

March 5, 2002

Enron Linked to Corruption in
Clinton White House

By Charles R. Smith

Energy Giant Had Deal With Suharto’s Son;
Sought NATO Membership for Croatia

The ongoing investigation into the failure of Enron has led directly to the corrupt Clinton administration. One such Enron deal pushed by the Clinton White House was an exclusive power plant project with the son of Indonesian dictator Suharto, Bambang Trihatmodjo.

Bambang is Suharto’s second son and at one point he was worth over $3 billion. The 48-year-old Bambang also owns an $8 million penthouse in Singapore and a $12 million mansion in an exclusive neighborhood of Los Angeles, two doors down from rock star Rod Stewart.

Starting in 1994, Enron invested $25 million into a deal for the first natural gas-fired power plant in Pasuruan, East Java. According to Commerce Department documents, Enron’s partner in the planned $525 million project was Bambang Trihatmodjo.

Despite the clear evidence of Suharto corruption, Ron Brown personally sought approval for the Enron electric power plant. According to a personal letter directed to the Indonesian minister for trade and industry, Brown endorsed Enron deals for two gas-fired power plants with the corrupt Suharto regime.

“Enron power, a world renowned private power developer, is in the final stages of negotiating two combined cycle, gas turbine power projects,” wrote Brown in his 1995 letter.

“The first, a 500 MW plant in East Java, should begin commercial power generation by the end of 1997 if it can promptly negotiate a gas supply Memorandum of Understanding with Pertamina. The other project, a smaller plant in East Kalimantan, also awaits a gas supply agreement.

“I urge you to give full consideration to the proposals,” concluded Brown to the Indonesian minister.

In October 1995, Brown wrote another letter, this time to Hartarto Sastrosurarto, Indonesia’s coordinating minister for trade and industry, pressing him to conclude Enron’s power plant deal.

“I would like to bring to your attention a number of projects involving American companies which seem to be stalled, including several independent power projects.

“These projects include the Tarahan power project, which involves Southern Electric; the gas powered projects in East Java and East Kalimantan, which involves Enron,” wrote Brown.

“Your support for prompt resolution of the remaining issues associated with each of these projects would be most appreciated,” concluded Brown.

By September 1997, Enron announced the Indonesian power deal was nearly complete. According to Enron, it had signed an agreement to acquire natural gas for its 500-megawatt power plant under development in East Java Indonesia. The 20-year supply agreement was signed with Pertamina, Indonesia’s state-owned oil and gas company.

“This is one of the last critical steps before the East Java project can achieve financial close and commence construction,” said Rebecca P. Mark, chairman and CEO of Enron International.

“We expect the power plant to be operational in early 2000,” said Mark.

Enron and Li Ka-Shing

Although Enron’s partner in East Java was Suharto’s son, the gas supply contract points directly toward Beijing. The gas sold by Pertamina was to be produced under a contract with Mobil Madura Strait Inc. and Husky Oil Ltd. from the Madura field offshore of East Java in the Madura Strait.

Canadian-based Husky Oil is partly owned by Chinese billionaire Li Ka-Shing. Li is currently in business with the Chinese army and reportedly has very close links to Beijing’s military intelligence.

By 1997 the Indonesian economy collapsed and Suharto was overthrown. The resulting economic mess forced Indonesia to default on its payments for the Enron power plants. These developments caused Standard & Poor’s to downgrade Enron’s ratings to triple “B” minus.

The Enron power project was suspended in September 1997, after the power purchase agreement had been signed and the gas contract was completed with the state-owned gas supplier Pertamina. Enron officials objected to the suspension because the final financial close on the power plant was reported to be only days away.

PLN, the state-owned Indonesian electric utility, said that the project was no longer viable because electricity demand did not justify it and the tariffs were unrealistically high.

Enron Gets World Bank Insurance Money

Despite the loss, the U.S. taxpayer, using its insurance obtained through the World Bank Multilateral Investment Guarantee Agency, paid off Enron.

“In June of this year, MIGA paid $15 million to Enron Java Power Co. for its investment in P.T. East Java Power Corporation in Indonesia,” states the 2000 official public release from the World Bank.

“The venture was one of many suspended by the presidential decree of September 20, 1997, issued in response to the country’s economic crisis,” noted MIGA officials.

However, after heavy World Bank pressure, the Indonesian government agreed to pay the $15 million back to MIGA. Initially the World Bank suspended further guarantees of investments in the country until the government agreed to reimburse MIGA the amount paid to Enron.

Discussions on the payout took more than a year, and the amount represented compensation for Enron’s preparatory work done on the project, which was canceled before construction began. Enron reportedly paid Suharto’s son Bambang the $25 million in order to lay the groundwork for the project.

U.S. Aware That Suharto’s Son Involved

According to documents obtained from the U.S. Commerce Department, the Clinton administration was keenly aware that Suharto’s son was being cut in on various U.S.-backed power deals including Enron’s Pasuruan gas plant. In fact, the warnings of corruption came directly from the U.S. ambassador in Jakarta.

Java Power Company has obtained a USD 1.7 billion financing package for its 2 X 610 coal fired Paiton Swasta II power plant,” states a 1996 cable from then U.S. Ambassador Barry.

Java Power Company is 50 percent owned by Siemens Power, 35 percent Powergen PLC of the UK and 15 percent by PT Bumiperitwi Tatapradipta. The latter is a subsidiary of the Bimantara Group controlled by Bambang Trihatmodjo, President Soeharto’s second son.”

Bambang was not only in business with Siemens and Enron but also had an exclusive multimillion-dollar power plant deal with Duke Energy Corp., a no-cut satellite contract with Hughes Space and an Indonesian government-enforced monopoly trash contract with Waste Management. Bambang’s corruption is so well known that even the U.S. Federal Reserve has published information on him.

“Shareholders of the 16 insolvent banks scheduled to be closed in December in Indonesia included several members of the former Royal family, relatives of the President, the brother of an industrialist convicted of bank fraud, and the former head of the state oil company, Pertamina, who was dismissed for unauthorized borrowing of $10 billion,” noted a Federal Reserve report on bank fraud.

Bambang Trihatmodjo, second son of Suharto, the President of Indonesia, admitted that his bank had broken the legal lending limit with loans to the Chandra Asri petrochemical plant, which he and other shareholders owned. He said ‘We admit we broke the legal lending limit. … But to be fair 90 percent of other Indonesian banks did the same.‘”

Enron in China

Enron also sought to break the limits.

Bambang was not the only one involved in corrupt deals with Enron. Enron international deals made through the Clinton administration include construction of gas power facilities inside communist China, directly across from Taiwan, and a failed power plant in Croatia.

Enron’s donations gave it exclusive access to Clinton administration support for deals inside communist China. One such project involved the direct intervention of the U.S. government with communist China to build the Songyu power plant and Liquid Natural Gas terminal located across from Taiwan.

According to U.S. Commerce Department documents, the Clinton administration successfully sought the approval of the Beijing government for the Songyu 2,000 megawatt power plant and for the Xiamen Liquid Natural Gas terminal in Fujian province.

“Project has support of City Gov’t of Xiamen,” states a 1999 Commerce Department advocacy document. “Support Enron and urge Chinese to approve project.”

The twin gas projects inside China were worth nearly $2 billion to Enron. To the Clinton administration, however, a factor more important than money was the number of congressional districts in Texas that were involved. According to the Commerce Department document, 18 Texas districts would be involved in the Chinese project.

Enron Seeks NATO Membership for Croatia

Enron also pushed the limits inside the former Yugoslavia. Enron executives flew to Croatia with Clinton Commerce Secretary Kantor after making a $100,000 donation to the DNC just days before the visit. As a result, Enron struck a deal with the Croatian government to build a power station and run it for 20 years –– at a highly inflated price of nearly $200 million above market prices.

However, tapes of the Enron negotiations with Croatian officials show the U.S. energy company had promised more than electricity at higher than normal cost. According to the Financial Times, Croatia hoped the Enron deal would secure political favors inside the Clinton administration, including a state visit to Washington and membership in the World Trade Organization (WTO).

In one reported meeting, Enron’s head of international operations, Joseph Sutton, guaranteed that Enron would lobby President Clinton for Croatia’s entry into the WTO, the NATO partnership for peace program and even NATO.

Stockholders and law enforcement officials should be very interested in the payments made by the energy giant to its foreign partners and White House patrons. Clearly, with promises of NATO membership, Enron felt its donations had bought top-level White House influence.

It is little wonder that Democrats are no longer anxious to follow the Enron corruption trail. Enron’s documented “corruption, collusion and nepotism” started and ended with Bill Clinton.

Read more on this subject in related Hot Topics:


Ron Brown


From : “Jim Vallette” <>

Reply-To :

To :

Subject : Public finance and Enron’s globalization

Date : Fri, 29 Mar 2002 04:15:38 -0800 (PST)

Hello. I much enjoy your website, and thought you might be interested in our report, Enron’s Pawns.

More info follows…

All the best, Jim


Stunning depths of government collaboration with Enron revealed:

Institute for Policy Studies uncovers $7 billion in public assistance for Enron’s global operations

WASHINGTON (March 22, 2002) –– The Institute for Policy Studies today released an exhaustive study of public financing toward Enron’s overseas expansion.

IPS’ new report, Enron’s Pawns: How Public Institutions Bankrolled Enron’s Globalization Game, explores how the now-fallen giant’s rise to global prominence absolutely depended upon close financial relationships with U.S. agencies, the World Bank, and other government institutions.

“It should be a national disgrace that the U.S. government was subsidizing Enron’s far-flung and often harmful global operations,” said John Cavanagh, Director of IPS.

Researchers from the Sustainable Energy and Economy Network (SEEN), a project of IPS, have discovered that over the past decade, 21 agencies representing the U.S. government, multilateral development banks, and other national governments helped leverage Enron’s global reach with $7.2 billion in public financing approved for 38 projects in 29 countries.

In addition to detailing exactly who funded which Enron projects, the study reveals that long before Enron’s tricks came to light in the United States, the company was infamous for even more egregious practices in the developing world. Armed with taxpayer financing from agencies like the Overseas Private Investment Corporation and the World Bank, Enron marched into developing countries’ energy sectors.

The global strategy of privatizing these countries’ energy sectors has its origins in the Reagan Administration, and became a major priority of international financial institutions in the 1990s. The end results were not reliable energy at an affordable price, but rather, price hikes, blackouts, shady deals cut by government officials, and street riots in which people died.

Enron’s infamous partner in crime, accounting firm Arthur Andersen, also played a role in this global drama: It assessed a utility in the Dominican Republic that Enron ended up buying at almost $1 billion less than its actual value, reaping enormous profits for the company.

“When Enron exacted it modus operandi abroad, U.S. public officials considered it good for U.S. business. Only when Enron’s scandals began to affect Americans did these officials and institutions hold the corporation at arm’s length,” said Daphne Wysham, director of SEEN, and co-author of the report.

“And only when Enron’s leadership revealed their greed on home turf did it become the biggest corporate scandal in recent U.S. history.”

~ ~ ~

Enron’s Pawns will be available on SEEN’s website,, beginning at noon Friday, March 22.

For further information, contact Jim Vallette at 646-522-1605 or Daphne Wysham at 301-573-2468.

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March 6, 2002

Insurers accuse Morgan Chase of fraud

David Teather in New York, The Guardian (UK)

JP Morgan Chase, the battered Wall Street investment bank, was delivered another blow last night when it lost an attempt to force 11 insurance companies to honour $965m (£678m) in bonds related to failed firm Enron.

US district judge Jed Rakoff sided with the insurance firms, some of which have launched a countersuit against JP Morgan alleging fraud.

The insurers claim the oil and gas contracts against which they issued the surety bonds masked straightforward loans. The contracts were between Enron and Mahonia, a JP Morgan affiliate.

Judge Rakoff said the insurers had provided enough evidence that the bonds “were the product” of fraud by the second-largest bank in the US, to deny JP Morgan immediate payment.

“These arrangements now appear to be nothing but a disguised loan – or at least have sufficient [indications] thereof that the court could not possibly grant summary judgment to the plaintiff.”

A JP Morgan spokesman said: “This is a case about a commitment made by the insurance companies and a commitment not kept. We expect to prevail on the merits of our arguments.” A trial has been set for December 2.

JP Morgan fell $325m into the red during the most recent quarter as a result of bad debts. The bank wrote off $456m of trading losses and loans to Enron and still has exposure to potential losses of $2.1bn.

It emerged yesterday that a second analyst claims he was fired for issuing a sell recommendation on Enron. Chung Wu, former financial adviser at the Houston office of UBS PaineWebber, said he was fired after emailing the advice to more than 10 clients in August.

In a filing to the National Association of Securities Dealers, Mr Wu wrote: “Enron management was not pleased and due to the employee stock option relationship UBS PaineWebber has with them, the pressure came from my corporate office to dismiss me.”

UBS said Mr Wu was fired for failing to obtain approval before sending firm correspondence to clients.

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The ‘Rape’ of Amcol

Picking up the pieces after a Singapore debacle

By Alejandro Reyes

LESS THAN THREE YEARS ago, Amcol Holdings was one of Singapore’s hottest stocks. Today, the electronics and property group is again the talk of the town — thanks to a boardroom struggle, accusations of wrongdoing and the conglomerate’s near-collapse. According to Price Waterhouse accountants, Amcol, recently valued at $818 million, may now be worthless.

The group needs over $70 million to meet debt payments. Say investigators: “The situation is critical.”

Amcol, whose main business is the distribution of Sony, Aiwa and Funai consumer electronics, is a “trustee stock,” a counter open for investment by Singaporeans using their Central Provident Fund money. In late June, the Stock Exchange of Singapore (SES) appointed independent directors to Amcol’s board amid allegations of anomalies.

Price Waterhouse was called in; after it issued a preliminary study on July 25, a Singapore court placed Amcol temporarily under the accounting firm’s management.

What went wrong?

The troubles first came to light in 1994 when boss and chief dealmaker Kang Hwi Wah, a flamboyant self-made magnate, was jailed for eight months and fined for taking an $800,000 bribe from a Japanese partner in 1990.

Kang’s prison term rocked the group, which was already suffering from a lack of direction. Before he went to jail, he had been trying to diversify out of low-margin electronics, cutting property deals in China, Indonesia, Malaysia and Singapore.

After his release, the tycoon still owned about 24% of Amcol, the biggest stake. In early 1995 he sold 17.3% to a firm belonging to Indonesian businessman Henry Pribadi, head of Jakarta’s Napan Group and a close associate of both multi-billionaire Liem Sioe Liong and Sudwikatmono, President Suharto’s half-brother.

Last August, Pribadi, whose Indonesian interests span real estate, banking, and petrochemicals, became Amcol’s managing director, with Sudwikatmono as chairman. Coming amid a highly publicized wave of Indonesian investment in Singapore-listed firms, the publicity-shy Pribadi was touted as a white knight expected to inject new funds and give Amcol focus.

But in January this year, Kang sold a 6% stake to a company run by local businessman Lee Howe Yong and Indonesian-born executive Sukamto Sia, who heads Transmarco, a Singapore-listed telecommunications company.

The two have since raised their joint stake to just over 14%. Sia is said to be allied either with Kang, whose conviction bars him from company boards, or with Bambang Trihatmodjo, Suharto’s second son, whose partner Tommy Winarta earlier bought Amcol stock.

The new Pribadi-controlled management hired Merrill Lynch to review operations. The findings were devastating: Amcol’s core business was in tatters and the group lacked control over several joint ventures. Debt was high; earnings, mainly from one-off deals, were expected to fall after two years.

“Pribadi was asked to buy Kang out and he did at an exorbitant price,” says an investment analyst. “Afterward, he found he had bought a lemon.”

In June, as the boardroom fight intensified, some Pribadi-appointed directors approached the stock exchange about alleged irregularities. That prompted the naming of independent directors and the Price Waterhouse probe. By mid-July, trading in Amcol shares was suspended. The Commercial Affairs Department is investigating too; it has reportedly called in a Kang associate.

A picture is emerging of gross mismanagement, incredibly bad deals and dismal accounting. An electronics subsidiary sold goods at a loss to Funai, which resold them to another Amcol firm at a 12% profit. The group bought into a loss-making power plant in China’s Guangdong province, which has surplus electricity. In Indonesia, an associate firm could not adequately document a supposed investment in satellite broadcaster Indostar, for which Amcol advanced $8.5 million.

The associate lent a similar amount interest-free to two Indonesians, including Peter Gontha, a top man at Indostar’s main backer, Bambang’s Bimantara group. Also cited: payments of $300,000 each to Amcol executive Lloyd Lochra and two others, made by its partner in questionable racetrack, casino and property projects in Mauritius.

Singapore Finance Minister Richard Hu has said the government will not rescue Amcol. Still battling for control, Pribadi and Sia are discussing with judicial managers how to revive the group once favored by institutional investors and considered safe enough for retirement money. Amcol stock could face a free fall without a hefty cash injection and a credible rescue plan. An insider alleges: “Whoever was on the throne raped the company.”

However the saga plays out — criminal charges may be laid — there is already one clear loser: the minority shareholders.

For more on Sukamto Sia, GO TO > > > The Indonesian Connection


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February 26, 2002



The National Enquirer

The Enron Corporation was a “sin city” of greed, adultery and corruption, where top executives lived the high life – and ordinary investors lost their shirts.

And The Enquirer has learned exclusively that the company secretly employed CIA agents to carry out its nefarious dealings!

“It was all sex, power and booze at the top,” a former Enron employee declared.

An Enquirer investigation has revealed:

>> Enron executives frequented several Houston strip clubs and billed thousands of dollars directly to the company – including the tab for VIP rooms where sexual favors were dispensed to big spenders.

>> Enron-sponsored parties would often spiral out of control with senior officials’ bar tabs skyrocketing to over $10,000.

>> Kegs of beer were brought into Enron offices and employees drank excessively while at work.

>> Divorce rates among senior Enron officials were high and adulterous romances were widespread among employees – including attractive young women who rose through the ranks thanks to their connections with top execs.

“Enron was completely scandalous,” former employee Janice Hollaway told The Enquirer.

“The place was full of arrogance, superegos and betrayal!”

Enron’s high-flying style of business came to a crash in October when it was discovered the company covered up huge debts. The company’s collapse led to the layoff of 4,000 employees, who lost not only their jobs but also their retirement savings – as did millions of ordinary investors….

The massive losses were fueled in part by free-spending executives who used investors’ funds for sex and booze, insider reveal.

Sources at the Houston strip club Treasures told The Enquirer that Enron executives would often ring up thousands of dollars on private dances and expensive champagne.

“Whenever guys from Enron came into the club they bragged about who they worked for and the girls would flock to the tables knowing they’d be tipped extremely well,” a dancer who has worked at Treasures for over three years disclosed.

“Typically a group of five or six would come in for lunch, drink a few martinis and get private lap-dances from the girls. They always paid their bill with credit cards that clearly said ‘Enron’ on them.” . . .

In a detailed five-page e-mail sent to The Enquirer, a group of management-level former employees knowledgeable about the inner workings of Enron claimed:

>> One top executive brought three strippers into his office one night after business hours. They were caught on security camera – but he got off with a slap of the wrist.

>> Another top man at Enron was engaged to his secretary – but having sex on the side with one of his executives.

>> Even in a company where beautiful women were routinely on a fast track to promotion, one executive secretary’s $650,000 salary raised eyebrows. . . .

It wasn’t just the male Enron executives who led robust lifestyles. Enron director Rebecca Mark – who has been called one of the most powerful businesswomen in the world – was known as much for her wild streak as for the cutthroat business attitude that earned her the nickname “Mark the Shark.” . . .

An inside source told The Enquirer: “It was all about money, money, money: GREED, SEX and POWER were what motivated everyone at the top.

“It seemed like everyone was getting a promotion. Some traders earned bonuses as high as $300,000, and you knew when they’d been handed out because new Porsches and BMWs started rolling into the staff parking lot.”

Former chief executive Jeffrey Skilling earned more than $30 million from sales of Enron stock in the year 2001.

And chairman Kenneth Lay, a former Pentagon economist, raked in $100.3 million before the company crashed and ordinary investors – including pension funds – were socked with huge losses.

But the corruption at Enron went far beyond unbridled greed and rampant sex – it also involved international espionage and electronic spy warfare, The Enquirer has learned.

“No one cared about morals at Enron, at least not at the upper levels. It was an ‘anything goes’ atmosphere and they got the help of the U.S. government along the way,” said a top Washington insider familiar with several secret investigations into the company.

“There have been at least 20 CIA agents on the payroll of Enron in the past eight years. They were given leaves of absence without pay and put on the Enron payroll.

“They trained Enron employees in intelligence gathering and security and also worked in other corporate capacities around the globe. It was through intelligence gathering that Enron was able to get billions of dollars in lucrative contracts in Asia, South America and Europe.

“Basically what the CIA operatives were able to provide was detailed information on bids made by foreign companies on projects of interest to Enron.

“They used human intelligence and also info gleaned from a satellite project called ‘Echelon.’ The satellites intercepted e-mails, phone calls and faxes with detailed business information.

“With this information, Enron was able to put pressure on foreign governments through powerful figures in U.S. government. Enron could easily go to a local authority in, for example, Saudi Arabia or India, and say, ‘Our government is not going to be too happy with you unless Enron gets the contract.’”

Amnesty International cited Enron for engaging in human rights violations and conducting illegal payoffs to police and mid-level officials in India to put down protests over its construction of a $2.8 billion power plant in Dabhol.

“It was the CIA-trained employees and CIA insider information that made it possible for Enron to force its will on the citizens of Dabhol,” said a retired CIA operative.

The opposition to Enron’s CIA tactics at Dabhol became so critical last August that Vice President Dick Cheney implored Indian government officials to support the completion of Enron’s project.

The Washington insider disclosed: “Using the CIA for economic intelligence began with President George Bush Sr. and then exploded under President Clinton, when even the Commerce Department was infiltrated by CIA agents.

“Pure and simple, U.S. intelligence agents were involved in corporate espionage.”

A source with ties to the CIA revealed: “The cozy deal between Enron and the CIA allowed the ‘on loan’ undercover operatives to return to the Agency’s payroll before Enron’s collapse.”

Agents believe that foreign agents were also at work in Enron, the Washington insider added.

“What has the Justice Department investigators upset now is that a rogue CIA agent may have been compromised by a foreign nation. The money-hungry atmosphere at Enron left many vulnerable to blackmail.

“We know that there are intelligence agents from at least three European countries – France, Germany and Italy – who are currently very interested in the Enron probes. This thing has the potential of being the biggest scandal ever!”

And what makes the scandal most outrageous is the suffering it’s caused rank-and-file employees and investors who were wipe out by the company’s collapse.

Many former employees were enraged when Enron founder Lay’s wife went on TV and said she and her husband were close to bankruptcy.

“When she cried, I cried – with anger!” one former worker declared.

“They’ve got palatial homes all over the place and maybe they’ll have to sell a few. But how dare she plead poverty when so many ex-employees are starting to wonder where their next meal and the mortgage money is coming from!”

~ ~ ~

For more on the CIA connections, GO TO > > > The Secret Nests

For more on the Military-Industrial Complex and Cheney connections, GO TO > > > Nests in the Pentagon

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February 26, 2002


By Pete Yost, Associated Press

WASHINGTON – As Enron Corp. reached for markets overseas, power plants it helped build from Guatemala to India received $1.2 billion in government-backed loans from two U.S. agencies.

The Overseas Private Investment Corp. still is owed $453 million from the Enron-related projects, while the Export-Import Bank is due $512 million.

“They’re definitely among our top 10 borrowers,” spokesman Larry Spinelli said.

Though Enron is bankrupt, four of its projects are making its payments on time. Regarding a fifth project, Enron and two other U.S. corporations are seeking to have the overseas corporation pay off a huge insurance claim….

Enron’s relationship with the government is part of a two-pronged business strategy. Inside the United States, Enron has sought to free energy companies from government regulation. Internationally, Enron has embraced Washington’s help in the form of federally backed loans and insurance protection.

The irony is not lost on congressional critics.

The corporation “gave hundreds of millions of dollars in loans and other support to Enron-related projects during the Clinton administration,” said Sen. Charles Grassley, the ranking Republican on the Senate Finance Committee who recently obtained records showing Enron-related projects received $544 million in loans from the corporation.

Separately, the Export-Import Bank made more than $650 million in loans to Enron-related projects overseas.

“These projects obviously were a tremendous benefit to Enron’s operation,” Grassley said. “The disclosure of this information sheds light on the government’s actions in support of Enron over the years.”

Enron’s bankruptcy does not place the loans in jeopardy. Separately created corporation handled the overseas projects for Enron and other U.S. companies.

The overseas corporation and Export-Import Bank loans are backed with the full faith and credit of the U.S. government (a.k.a. US taxpayers).

Though it has just 200 employees, the overseas corporation has deep pockets – a $4 billion reserve that comes from the user fees. U.S. business pay for its loans and insurance. The agency operates at no net cost to U.S. taxpayers – the business fees cover its costs – and earned $215 million last year.

The Export-Import Bank says that it is still owed $203 million on the India project but that it can call on guarantees from five Indian financial institutions for repayment if necessary.

Enron and the other two companies filed an insurance claim in December asking the overseas corporation to pay $200 million. The claim is based on “political risk insurance” bought at the projects outset.

The companies say the Indian government has broken promises to stand behind the project, in effect denying the U.S. corporations their asset and therefore requiring the corporation to pay the insurance policy.

The claims process will take months to resolve.

The other four Enron projects that got corporation money are operating successfully and are paying back their loans in a timely fashion.

Those power plants are in the Philippines, Turkey, Venezuela and Guatemala.

The Export-Import Bank’s Enron-related projects are in Columbia and at the same plants that the overseas corporation is helping in Turkey and Venezuela….

~ ~ ~

To see more very big birds (like Ron Brown and Bill Clinton), GO TO > > > Export-Import Bank; Overseas Private Investment Corp.

To see why citizens should pull the plug on overseas power plants, GO TO > > > The Asian Development Bank

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February 21, 2002


Ex-Treasury chief was offered seat on Enron’s board

By Marcy Gordon, Associated Press

WASHINGTON – Former Enron chairman Kenneth Lay offered a seat on the company’s board of directors in 1999 to Robert Rubin, who was then US treasury secretary, and lobbied Rubin and his successor on issues affecting Enron, documents obtained yesterday show.

The notes and letters show that Lay pressed Enron’s interests to Clinton administration officials. Last month, the Bush administration disclosed a series of telephone calls from Lay – one of President Bush’s biggest campaign contributors – to members of the Bush Cabinet as the company was sliding toward bankruptcy last fall.

The documents were provided by the Treasury Department under a Freedom of Information Act request by the Associated Press.

Meanwhile, Stephen Cooper, Enron’s current chief executive officer, said yesterday that someone could end up in jail on charges stemming from the government’s investigation of the collapsed energy-trading company and the web of partnerships – hiding more than $1 billion in debt – that brought it down.

”Given the enormity of the damage that’s been created, I think it’s going to be difficult to not hold one or more people accountable,” said Cooper, who took the helm at Enron after Lay resigned last month.

Rubin, who left the government in mid-1999, is chairman of the executive committee of Citigroup Inc., which along with other banks lent hundreds of millions of dollars to Enron, hoping to keep it afloat. Rubin called Treasury’s undersecretary for domestic finance, Peter Fisher, last Nov. 8 to seek his intervention on Enron’s behalf. At the time, rating agencies were poised to downgrade their opinions on the financial status of Houston-based Enron.

“If you are considering joining any corporate boards, I would like very much to talk to you,” Lay wrote Rubin on May 14, 1999, after Rubin announced he was leaving his post. ”Given the way Enron has evolved, not only do we badly need a person with your experience and insights … but also I think you would find serving on our board intellectually and otherwise interesting.

“I have placed a call to you in the hope that I might mention this to you personally,” Lay told Rubin.

Rubin did not join Enron’s board of directors.

The same day, Lay wrote a note to Rubin’s successor, Lawrence Summers – now the president of Harvard University – congratulating him on becoming treasury chief and promising to be available ”if there is anything at all I or Enron could do for you or the department.” . . .

In another letter, dated Dec. 3, 1998, Lay urged Rubin to approve Houston’s application to be named an ”empowerment zone,” a status that brings tax breaks and other incentives meant to promote economic revival.

”An empowerment zone would be extremely helpful in our efforts to diversify our economic base and to recover from a decline in oil and energy-related industries,” Lay said.

Enron, with some 20,000 employees when it filed for bankruptcy on Dec. 2, has been one of the largest employers in Houston. The city has not been designated as an empowerment zone.

Bush, in his new budget proposed this month, is seeking to eliminate grants for empowerment zones in urban areas.

© Copyright 2002 Globe Newspaper Company.

For more on Robert Rubin, GO TO > > > Dirty Gold in Goldman Sachs; Dirty Money, Dirty Politics & Bishop Estate; Vampires in the City

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February 16, 2002

Ex-CEO sold $100 million in Enron stock

By Floyd Norris and David Barboza, The New York Times

Kenneth Lay sold $100 million in Enron stock last year, with a large part of that coming from selling shares back to the company after he was warned by Sherron Watkins that the company might collapse “in a wave of accounting scandals,” the company disclosed yesterday.

The sales, disclosed in a report filed by Lay with the Securities and Exchange Commission, included $20 million in shares sold between Aug. 21 and Sept. 4. Watkins, an Enron executive, sent her first letter to Lay on Aug. 15 and met with him Aug. 22.

It is not clear how much profit Lay made on his stock sales, many of which came while he was encouraging Enron employees to purchase shares….

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January 18, 2002


by Sherman H. Skolnick


What happens to previous scandals and commotions? If left unresolved, if there is no closure, do they simply go away?

In large part, the oil-soaked, spy-riddled monopoly press is responsible for the growing short attention span of many Americans. Supposedly from nowhere, like a mushroom out of a cave, the press fakers present suddenly a new buzzing, separate from their usual war-mongering to aid the war-profiteering industries.

After such new item is served up to us, day and night, it disappears from the alleged “news”. That is where the problem starts. Ordinary people, busy paying the landlord or the mortgage company, wrongly suppose the matter is ended. Why? The press whores have stopped bombarding us with it.

That being said, consider the following

About 1985, super international swindler Marc Rich, fled the United States for Zug, Switzerland. He was about to be grabbed and prosecuted by the American authorities for 40 Billion Dollars of fraud, and massive cheating and tax evasion. He proceeded to buy the key authorities in that part of Switzerland where is located his international headquarters. So, the Swiss were not about to send their great corrupt benefactor and paymaster to the U.S. As strange as it may seem, the local prosecutor was his DEFENSE ATTORNEY. Marc Rich was not about to be sent back to the U.S. to face the music.

In the years that followed, Marc Rich proceeded, among other things, to do the following. That was accomplished through his tremendous links to the Chicago markets, acting as his front men and agents for dirty worldwide dealings disguised as trading in currencies, commodities, and indices. Including the Chicago Mercantile Exchange, the Chicago Board of Trade, the Chicago Board Options Exchange, and the Chicago Stock Exchange (formerly the scandal-scarred Midwest Stock Exchange, subject as we have told on our website of massive embezzling of funds permitted by the corrupt IRS brass). Also, including money center banks, Chicago, New York, and London.

Some of the things Marc Rich International did or caused to be done or procured to be done—

=== Swindled Ferruzzi, the Pope’s soybean company in America, out of billions of dollars and destroyed their business as competitors to Archer-Daniels-Midland, ADM, and Cargill, who have been monopolizing the business. To accomplish this, was the largest amount judicial bribery in U.S. history, over 62 million dollars in bribes given to five Chicago federal judges to cover up and whitewash related soybean cases, according to the witnessed confession made in our presence of a Director of the Chicago Board of Trade.

[Please do not heckle me with ill-informed, naive statements why these corrupt judges have not been prosecuted and jailed. Some of them, in violation of law, while on the bench, also represent the billion dollar stock portfolio of Rockefeller’s University of Chicago, containing large blocks of ADM and other stocks. As Rockefeller puppets, such judges are immune from criminal laws.]

As part of this, the Ferruzzi chieftain was murdered at the same time in 1993 as Clinton White House Deputy Counsel Vincent W. Foster, Jr.

[To get a handle on this, you have to study our entire website series on Marc Rich, together with “Chief Crook Enters Microsoft Case” (then Chief Federal Appeals Judge negotiating possible settlement) as well as “Wal-Mart and the Red Chinese Secret Police, Part 3” and “Greenspan Aids and Bribes Bush, Part 4.”]

=== Marc Rich International made a deal with the U.S. Military and other U.S. authorities to change over lead-bullet manufacturing to tungsten from Red China, the world’s major supplier of the metal. As supervised by Marc Rich, the Red Chinese built and are operating a tungsten ammo factory in California. Eventually, as little publicized, all lead bullets, U.S. Military and civilian, on the pretended idea they are “toxic”, will be unlawful in the United States. Notice the treason. A country as a sworn enemy of the U.S. will thus come to control all U.S. bullet-manufacturing including on U.S. soil. [Visit our Marc Rich website story for the details.]

After about 1985, the mass media said little, if anything, about Marc Rich. Occasionally the press did mention “nothing stories”, as they are called, about his socialite wife, who later became his ex-wife, although she apparently continued to get boatloads of money from him from Switzerland and elsewhere. So, if the Marc Rich subject was already of no interest to the average person, well, you wrongly supposed there was closure.

And who after 1985, joined in with this giant money laundry, Marc Rich International, to be together as experts on money laundering, and political and financial corruption? Why, of course, Enron. They dealt in energy contracts and supplies, commodities, telecommunications, internet brokering. You name it, Enron traded it, sold it, bought it, and in the process, like Marc Rich, bribed any and all public officials necessary to be the subject of the BIG FIX.

After 1985, the resulting firm should have been properly called ENRON/MARC RICH INTERNATIONAL. And Marc Rich brought into the equation links to the American CIA as well as various foreign intelligence agencies. [Visit our Marc Rich website series for details.]

As is not well known, Bill and Hillary Clinton are closely aligned, financially and otherwise, with the Bush Family. For example, Bill Clinton as Arkansas Governor split huge dope funds, washed through the Chicago markets, with Daddy Bush, Henry Hyde, and Ollie North. Part of it was the Mena, Arkansas airport caper.

For example, Daddy Bush was a sizeable owner of the American unit of a French firm, American LaFarge, that reportedly supplied the ingredients to Iraqi strongman Saddam Hussein for the manufacturing of poison gas.

Hillary Clinton was a Director of American LaFarge.

In his zero hour, just before leaving office in January, 2001, William Rockefeller Clinton [we explain elsewhere where we call him that] pardoned Marc Rich. The George W. Bush White House, as a cover up for Clinton, removed the U.S. Attorney for the Southern District of New York, Jo Ann White, supposedly deeply investigating the pardongate scandal. Bill and Hillary reportedly had parked for them, in Switzerland and elsewhere offshore, several million dollars from Enron/Marc Rich International to whitewash Marc Rich through an arbitrary pardoning process. When she was yanked out of office, Ms White was in the process of fingering Bill and Hillary as well as Bill’s dope trafficking brother Roger.


Judge for yourself:

=== Enron/Marc Rich owns the George W. Bush Administration, as well as heads of pertinent federal regulatory agencies, and key Republicans and Democrats IN BOTH HOUSES OF CONGRESS.

=== The head of the U.S. Securities and Exchange Commission has to decide whether accounting firm Arthur Andersen’s auditing is such that they are no longer dependable to sign approval of publicly-traded firm’s doings. The current S.E.C. Chairman, Harvey Pitt, said his Enforcement Division and others will do something about Arthur Andersen irrespective of the fact that Pitt as an attorney represented Arthur Andersen. The monopoly press does not mention that the S.E.C. and other regulatory agencies are stuffed full of Enron and Arthur Andersen and Marc Rich yesmen and cowards.

The previous S.E.C. Chairman, Arthur Levitt, has been on the television news making noises like something should be done about Arthur Andersen & Co. What, if anything, did HE do? The press fakers do not mention that Levitt has been a Senior Consultant to CARLYLE GROUP, tied to Daddy Bush, Enron, the Bin Laden Group and Osama bin Laden, and apparent secret owners of what has been until now the firm with exclusive Pentagon contracts for making anthrax vaccine, BioPort, of Lansing, Michigan. [See our website story about the Anthrax Commissars.]

=== Then there is David M. Walker, Comptroller General of the U.S. who heads the investigative arm of the Congress supposed to check out matters related to S.E.C., Enron, Arthur Andersen, Marc Rich, and such, namely, the General Accounting Office, GAO. Until November, 1998, Walker was a partner, board member, and global managing director of Arthur Andersen & Co. And his agencies now are reportedly as well stuffed with Enron, Arthur Andersen, and Marc Rich yesmen and cowards.

=== Marc Racicot [pronounced ROSS-coe] is an Enron lawyer and lobbyist. When he was still Montana Governor, he was the Bush Family hatchet man to reportedly arrange massive bribes to DEMOCRAT officials in Southern Florida during the Electoral College vote episode in the 2000 Presidential Election. Along with former Cabinet Member in the Daddy Bush Administration, James Baker 3rd, Racicot reportedly used part of some 40 million dollars of dope money of Carlos Lehder, co-founder of the Medellin Colombia Dope Cartel. Lehder is a reputed business partner of the Bush Family. Although sentenced to a long federal prison term, but to protect the Bush Family from criminal charges by his testimony, Lehder has mysteriously DISAPPEARED from federal prison, sort of like they also do in Mexico. [See our website series on Chandra Levy for more details.]

The southern Florida DEMOCRAT officials were reportedly bribed to stop the ballot recount to help Bush steal the election process with the help of the “Gang of Five” on the U.S. Supreme Court.

To keep tabs on the thieves in both Houses of Congress, Racicot has been named head of the Republican National Committee, RNC.

Journalists in northern Montana as well as Canadian law enforcement officials contend that Racicot while Montana Governor was instrumentally implicated in cross-border dope trafficking. Little known or understood by many ordinary Americans, massive amounts of dope are coming through Canada and into the U.S. through Montana. The Canadian authorities reportedly have an arrest warrant issued for a top FBI official of southern Florida who has relatives in Canada and he is apparently part of the dope traffic and the cover up. The Clinton White House had blocked, and then the George W. Bush White House has stopped, the Canadians from using the arrest warrant to grab the FBI official linked to Clinton/Bush Family.

=== All the personnel of the U.S. Attorney’s office in Houston have disqualified themselves as to Enron. Why? Because of their family and financial links to Enron. Hey, were they all blind, deaf, and dumb, in the past as to what Enron was doing?

=== When he was a U.S. Senator, John Ashcroft, had his campaign financed in part by Enron. He is now U.S. Attorney General. So, okay, he is disqualifying himself. BUT, the Justice, or Injustice Department, is stuffed full of Marc Rich, Enron, Arthur Andersen puppets, yesmen and cowards. Critics call him JOHN ASHCAN.

=== Pending in Houston, Texas, in the federal court is a case against the officials and directors of Enron. Hearing the case is U.S. District Judge Lee Rosenthal. Asked to freeze the assets of Enron’s top brass, the judge hesitates. No wonder. Previously, she was a law partner to James Baker 3rd, in the firm Baker & Botts, reportedly interwoven with the Bush Family, the Florida election bribery, Enron, Carlyle Group, Bin Laden Group and Osama bin Laden.

As is typical of such situations, the chicken-hearted lawyers who brought the claims to court so far have not asked Judge Rosenthal to remove herself.

=== Sooner or later there will be cases involving Enron and Arthur Andersen & Co. in the Texas state courts. Notice the problem. The highest court of Texas is the Texas Supreme Court with nine judges. SEVEN OF THEM belong to Enron.

AND, there is no provision in Texas law to disqualify the state high court judges who will proceed to hear any such case.

=== During the Reagan/Daddy Bush Administrations, Wendy Gramm was for twelve years head of the Commodity Futures Trading Commission, regulating the commodity industry. As pointed out earlier in this series, she was reportedly the recipient of bribes along with her husband who has decided not to run for re-election as U.S. Senator (R., Texas), Phil Gramm. While leaving office she pushed through regulations freeing Enron from supervision.

She also reportedly covered up the bribery, by the infamous bank, BCCI, of 28 members of the U.S. Senate and 108 members of the House of Representatives. [Visit Part One of this series on website.]

As part of the apparent Enron cover up, Wendy was a Board Member AND on the inner auditing committee. She reportedly helped cover up the massive money laundering by Enron/Marc Rich International through the Chicago markets and major money center banks.

=== As mentioned in Part Two of this series, the Federal Reserve siphoned off 60 billion dollars of Enron funds, hidden partnership deals (some with Marc Rich International), and using fractional reserves, and derivatives hocus-pocus, has been temporarily pumping up the Dow Jones 30 Industrials.

=== Only fools would trust the Internal Revenue Service to supposedly investigate why and how Enron did not pay income taxes. In a series on IRS high-level corruption, we showed how their top brass are riddled with corruption including operating an ocean-going vessel, “California Rose”, as a floating money laundry for illicit funds. [Visit our website series on the IRS.]

=== There is a serious dilemma. On the one hand, we ordinary Americans need to have the truth of Enron/Arthur Andersen/Marc Rich International fully exposed. The problem is that some foreign countries are helping bring out a few of these details in the press, such as major newspapers in England. Why? Since at least the War of 1812, the British have vowed to overthrow the U.S. Constitution and U.S. Government, and revert this Continent to being British puppet colonies with the inhabitants here subjects of the British Crown.

[For details, visit our website series, “The Overthrow of the American Republic”.]

In the 1970s, Arthur Andersen & Co., to escape court scrutiny of their involvement with the American CIA, moved their financial structure to Switzerland, as an entity there known as a Societe Generale.

As the U.S. Government is currently constituted, a full and complete investigation of Enron/Marc Rich International/Arthur Andersen & Co., would cause the downfall of

[1] U.S. espionage agencies and exposure of the numerous American CIA proprietary companies, some trafficking dope through the money center banks and the Chicago markets;

[2] downfall of the Presidency as such, and making any future “election” a farce and a joke;

[3] The downfall of the U.S. tax-collection apparatus, such that the U.S. Government could not continue functioning minus the fund intake, legal or otherwise;

[4] downfall and discrediting of the judicial, executive, and legislative branches of the purported U.S. Government.

Some foreign countries are hoping to make more progress taking over the industrial and financial structure of the U.S. as a result of a terrible scandal. On the other hand, the American common people need these matters to be exposed. A resultant upheaval, even a Revolution, may simply pave the way for a Napoleon-like Emperor and Dictator, leading ordinary Americans, in an outburst of false “patriotism”, to believe we should send our military in every corner of the world to stick our bloodied nose into every other peoples’ culture and business.

Do we Americans have enough cemetery land for all the young dead American soldiers that would result? Or, would American dead soldiers be buried in foreign places, “In Flanders Field, poppies grow, between the crosses, row on row….” (as a World War One poem put it)?

More coming. Stay tuned.


Since 1958, Mr.Skolnick has been a court reformer. Since 1963, founder/chairman, Citizen’s Committee to Clean Up the Courts, disclosing certain instances of judicial and other bribery and political murders. Since 1991 a regular panelist, and since 1995, moderator/producer, of one-hour, weekly public access Cable TV Show, “Broadsides”, Cablecast on Channel 21, 9 p.m. each Monday in Chicago. . . .

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December 4, 2001

Companies circle to pick off Enron assets

By Mark Tran

Electricité de France today expressed an interest in buying Enron Direct, the European retail arm of Enron, the failed US energy giant.

“We are talking with PricewaterhouseCoopers to buy Enron Direct,” Gérard Wolf, an EdF director said.

Enron Direct sells gas and electricity to small and medium-sized businesses mainly in Britain, where it has 150,000 customers….

With Enron filing for bankruptcy protection, companies are circling to pick off the company’s best assets.

In the Philippines, the state-owned generator National Power Company, is looking at buying Enron’s two power plant contracts in the country.

As for Enron Direct, apart from EdF, other companies said to be interested in include Britain’s Centrica and Innogy groups and US-owned TXU Europe and Germany’s RWE.

Unlike Enron’s trading activities in the US, Enron Direct is not legally under administration but PricewaterhouseCoopers is supervising the sale of the retail business as part of its efforts to wind up Enron Europe.

Enron Europe went into administration on November 29, three days before its US parent filed for Chapter 11 bankruptcy protection in the biggest corporate failure in American history.

Enron, once America’s seventh largest company, yesterday gained some breathing space when it secured an $1.5bn emergency round of financing.

Arranged by Citigroup and JP Morgan Chase, the money will be syndicated and is secured by substantially all of the company’s assets.

Enron needs money to ensure delivery of commodities it had already paid for and to avoid eviction from its new 200,000 sq ft Houston trading floor. . . .

For more, GO TO > > > Vampires in the City; What Price Waterhouse?


November 13, 2001

Andersen Could Face SEC Sanction, Suits
Over Enron Accounting Error

Bloomberg News

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.”

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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….

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…




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. . . .

~ ~ ~

And just WHO owned

As of Sept 30, 2001, the top institutional holders were:

#1 – General Electric Co.; #2 – Citigroup; #3 – Pfizer; #4 – Tyco Int’l; #5 – AOL – Time Warner; #6 – Microsoft; #7 — MBNA Corp; #8 – American International Group; #9 – Kohl’s Corp; #10 – AT&T Wireless; #11 – Bank of America; #12 – The Home Depot; #13 – Comcast Corp; #14 – Liberty Media Corp; #12 – Schering Plough.



January 17, 2002

Rubin Shouldn’t Escape Enron Investigation

By Mark Weisbrot, AlterNet

One of the leading political figures embroiled in the Enron scandal is being handed a “Get Out of Jail Free” card, and he doesn’t deserve it. That is Robert Rubin, President Clinton’s former Treasury Secretary.

Rubin seems to have everything he needs to be inoculated from the scandal’s contagion: One of the most powerful and influential people on the planet, he has charmed not only bankers and political leaders of both parties, but the media and opinion-makers as well. In the press he was often portrayed as a primary architect of America’s longest-running economic expansion, in the 1990s.

A cover of Time magazine in 1999 displayed Rubin, Fed Chairman Alan Greenspan, and Larry Summers (number two at Treasury, later replacing Rubin) as “The Committee to Save the World.” But more recently he has been caught peddling his influence for the financial giant Citigroup, where he left public office to become a top executive.

As Enron’s accounting irregularities were being discovered and its fortunes rapidly sinking, Bob Rubin placed a call on November 8 to Peter R. Fisher, current undersecretary of the Treasury for domestic finance. According to Treasury, Rubin wanted to know if the Bush administration was going to intervene with the big credit rating agencies, who were about to lower their rating of Enron’s debt. Since Rubin’s Citigroup was holding hundreds of millions of dollars worth of Enron’s debt, it had quite a large stake in the outcome of any such decision.

Treasury told the press that Fisher said no, and Rubin agreed with the decision — as if this were just an informational call to discuss the pros and cons of political intervention to protect the credit rating on Enron’s bonds. But this should not be allowed to drop.

The public needs to know more about this phone call, and any others that Rubin may have made on Citigroup’s behalf. Whether or not they are technically illegal, such actions are a blatant and corrupt abuse of one of the highest offices of our government.

For those who followed Rubin’s role in the Asian economic crisis a few years ago, this comes as no surprise. If we look at what Treasury actually accomplished with a $120 billion loan package for the region, it was quite different than what Time magazine and the rest of the press were led to believe.

They got the taxpayers of Indonesia, South Korea, and the other affected countries to guarantee the bad debt held by foreign corporations and banks.

Rubin and Summers did nothing to help these countries when they needed reserves to keep their currencies from falling, and we now know that Treasury’s actions actually helped cause the crisis and made it much worse.

They were not “saving the world.” They were saving Citibank and others from losses due to their bad loans — just as Rubin tried to do when he called Treasury about Enron’s debt.

But these details of the Asian crisis did not get much press. That is why it is so important that the current investigations pursue the political corruption involved in the Enron scandal. Rubin is holding one of the two biggest smoking guns so far discovered.

(The other is held by the Bush administration: According to former Federal Energy Commission Chairman Curtis Hebert, Jr., Enron CEO Kenneth Lay told him he would support him as Chairman if he changed his views on utility deregulation. Hebert said he refused. He was subsequently replaced by Pat Wood III, a friend of Ken Lay and George W. Bush.)

Of course most of the political casualties of an independent investigation would be in George W. Bush’s camp. After all, this is the Enron administration — the list of officials with Enron ties is long and goes right to the top, including chief economic adviser Larry Lindsey (former Enron consultant); US Trade Representative Robert Zoellick (former Enron advisory board); chief political advisor Karl Rove (investor).

But the Democrats have been unsure about whether to pursue the investigation into the political realm. Part of this timidity is a desire to avoid the appearance of partisan excess that, in the Clinton scandals, drew a backlash against the Republicans. But they are undoubtedly afraid that some of their own luminaries, Rubin chief among them, might end up on the wrong side of a subpoena.

It would be a shame if these fears, and the media’s reluctance to pursue these issues independently, kept the public from learning the truth about the political corruption involved in Enron’s rise and decline.

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. (

© 2001 Independent Media Institute. All rights reserved.

For more on Robert Rubin, GO TO > > > Dirty Gold in Goldman Sachs

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What they’re saying across the pond . . .

January 13, 2002

Greed is the creed

The stench that surrounds Enron’s collapse must alert Britain’s politicians to the corrupting influence of unregulated capitalism.

By Will Hutton,
The Observer

American democracy is increasingly a fraud.

MONEY buys votes, influence and office. Contemporary Washington makes Caligula’s Rome look like a vicar’s tea party. American politicians’ need for business donations on a gigantic scale to win their election campaigns now pollutes the discourse of the country’s public life, with business writing public policy and corrupting everything it touches.

And the noxious consequences, in terms of ideas and business practice, spill over into Britain.

The bankruptcy of the energy trader Enron before Christmas with $40 billion of debts, the largest recorded in history, was spectacular. It had overstated its profits by half a billion dollars over three years and lost more still in private companies set up to enrich the coterie of top executives in schemes undetected by its auditors, Arthur Andersen. They, we learned last week, had happily disposed of potentially incriminating documents and misled Congress. In tougher times, Enron’s capacity to hide what we would understand as theft was exhausted – and the company collapsed.

Now the subject of a criminal investigation by the Justice Department, the details spilling out offer a bird’s-eye view of how business is done in the US, how favours are bought and how political ideas are honed to serve the interests of the political parties’ benefactors. Two members of Bush’s Cabinet – the Commerce Secretary and Attorney-General – have had to stand aside from the investigations because they received close to $100,000 in political donations from Enron. Chief executive Ken Lay, ‘Kenny Boy’ as Bush dubbed his close friend, personally gave Bush $100,000.

This was not innocent money for a buddy; Enron also greased the wheels of the Democrats. In 2000, it spent $2.4bn supporting candidates for public office in the US – $1.7bn for the Republicans and $700 million for Democrats. Enron wanted a return on its cash and could not afford just to back Republicans. As an energy trader, it needed to find markets in which to trade, which meant opening up the US’s patchwork quilt of state and federally regulated electricity and gas grids to private interests; sometimes, Democrats served this purpose as well as Republicans.

Enron did not want to look like just another corporation using money to buy influence; it needed a cover story. It wanted minimal surveillance of its own operations and the maximum opportunity to enrich its directors while making paupers of its workers (before it collapsed, the directors sold $1bn of personally owned shares while forbidding its employees to sell their Enron shares in their private pension funds); energy markets opened up fast.

The story was deregulation.

No chief executive was as fervent an apostle of how regulation cripples wealth generation as Ken Lay, and now we know why. Republicans, of course, were willing allies in the belief that nothing inhibits businesses more than having to respect the law of the land and accept obligations to the wider society in which they trade. But money talks, and during the 1990s Democrats became evangelists for the same set of ideas. How could they accept Enron’s money, and that of dozens of other corporations, otherwise?

Thus, over the last decade, Ken Lay and Enron have bought a series of decisions that have driven the company’s growth. In the early 1990s, the company ensured via the good offices of Wendy Gramm, then chairman of the Commodity Futures Trade Commission and wife of Enron-supported Texan senator Phil Gramm, that key aspects of Enron’s trading should not be regulated; she was rewarded with a seat on the board.

In the mid-1990s, Enron spearheaded the botched deregulation of California’s electricity grid, ensuring, amid the mayhem that would lead to black-outs and sky-high prices, that at least there was a mandatory spot market in electricity in which Enron could trade.

It made sure, with Bush’s election, that regulation remained favourable to Enron, helped design an energy policy based on more spot market trading and successfully lobbied for the repeal of minimum corporate taxes, the proceeds of which, had they come sooner, would have been used to plug the financial holes created by its own executives’ venality. This was a much better use of the money than serving the public interest.

This was a pretty useful return on its political contributions, but Enron could not have made the progress it did without the intellectual backdrop that all regulation and taxation is bad – and that the more the US deregulated, the better its economy performed. This was, and is, balderdash.

Recent work by economists, notably at investment bank Credit Suisse First Boston, shows that after making the necessary accounting adjustments and including downward revisions, productivity growth in the US has done no more than match that in Europe. Indeed, countries like France and Germany have higher absolute productivity and faster rates of growth than the Americans, despite their approach to regulation and taxation. The deregulation philosophy that enriches Ken Lay and his cronies does not necessarily enrich anybody else.

This is not a case for red tape, bureaucratic regulation or stupid rules, all of which plainly hurt the economy. It is an argument for smart regulation, an imperative if capitalism is not to degenerate into profiteering and economic cannibalism….

For Enron was a major actor in the UK; it dominated energy trading, in particular in electricity and gas, and it took care to include a British political notable, Lord Wakeham, on its board as a non-executive director, though there is no suggestion that he has been involved in any alleged malpractice. When it collapsed, the untold story is that Britain’s market-based electricity distribution system stood on the brink of collapse, too; without regulatory intervention, the country would have suffered a black out on a Californian scale. Yet the unseen and unpraised regulators at Ofgem (the merged regulator of Britain’s gas and electricity markets) moved fast and effectively to ensure that other companies stood behind Enron’s now defunct contracts . The lights stayed on.

Yet even Ofgem’s powers have recently been reduced as part of the ceaseless quest, borrowed from the US as part of lifting the burden on business to foster ‘wealth generation’, to reduce and eliminate regulation. Taking our lead from the US, where companies buy political ideas to suit their interests, British politicians are following the same ideological logic but without the excuse that they need business’s political donations.

Smart and effective regulation is the handmaiden of well-run markets that serve the public interest. It is time our politicians started saying so – and challenging the self-serving braying of our business lobbyists.

Enron, and the philosophy that created it, stinks.


February 11, 2002

When the Gods of the Market Tumbled

By Jamie Dettmer, Insight on the News

“There will be no witch-hunt,” says Sen. Joe Lieberman (D-Conn.), eager as ever to cloak his partisan instincts with the rhetoric of high-mindedness. Having suffered Whitewater indignities for most of the 1990s, the Democrats are out to seize on Enron as an opportunity for some payback.

After all, the failed energy giant was President George W. Bush’s largest corporate backer.

But Enron isn’t the political scandal the Democrats are keen to make it, or at least not a clear-cut partisan one. Plenty of Democrats enjoyed the largesse of Enron, and for all the efforts of Rep. Henry Waxman (D-Calif.) to paint the Bush administration’s energy policy as in effect Enron’s, the Clinton White House also was cozy with the Houston-based energy trader and was obliging when it came to deregulation.

There was nothing wrong with that, as deregulation assisted consumers by lowering costs for suppliers. There is no evidence Bush aides responded to pleas for assistance made by some senior Enron executives. No creditors reported being leaned on by the Treasury Department.

No, the Enron collapse is a scandal of another nature, one that strikes at folly and the human condition. Every generation has to learn anew that what goes up must come down.

Greed distracts, and investors, employees, politicians and captains of finance and industry get drawn into presuming that success is forever.

Of course, the Greeks had a word for it: hubris. And that great chronicler of human frailties and follies, the English writer Rudyard Kipling, wrote a poem about it —— “The Gods of the Copybook Headings,” the eighth stanza of which might have been written yesterday instead of in 1919:

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew, And the hearts of the meanest were humbled and began to believe it was true That All is not Gold that Glitters, and Two and Two make Four — And the Gods of the Copybook Headings limped up to explain it once more.

A booming economy —— a New Economy no less —— had led the wise and foolish alike to succumb to the notion that the stock markets always would do well and that magical names such as Enron, Cisco and a bunch of other new commercial entrants would be untouched by adversity. Even Federal Reserve Chairman Alan Greenspan waxed merrily on about how the New Economy had slipped the moorings of the traditional ups and downs of the business cycle.

Oh, brave new world! And no one listened to the boring gods of the copybook headings because:

They denied that the Moon was Stilton; they denied she was even Dutch. They denied that Wishes were Horses, they denied that a Pig had Wings. So we worshipped the Gods of the Market Who promised these beautiful things.

And it wasn’t just outsiders and investors who consoled themselves when things went bad with bizarre notions that Enron could walk on water, however dumb the commercial decisions it made. There was the auditing firm, Arthur Andersen, which as far back as February 2001, if the Washington Post is to be believed, were aware that not all was right at the energy trader.

According to a Jan. 17 Post article, senior executives at Andersen considered dropping Enron as a client last February because of concerns about the company’s bookkeeping. But then greed kicked in: Why imperil lucrative consulting contracts with Enron by withdrawing from its auditing role? And, who knows, Enron might just save itself.

Hubris also apparently gripped the members of Enron’s audit board, who were doing very nicely, thank you, and had no intention of rocking any boats and endangering some pleasant on-the-side financial ties with the company and its founder, Kenneth Lay.

Lord Wakeham, a former member of Iron Lady Margaret Thatcher’s government, was on a separate $6,000-a-month consulting contract with Enron. Wendy Gramm, the wife of Sen. Phil Gramm (R-Texas), couldn’t have been displeased with the $50,000 donation the Lay family gave her university.

And three of the six-member board held shares in Enron that last spring were worth in total about $7.5 million.

No, better to keep silent, better to hope that the gods of the market were right when they said the moon was Stilton.

The Democrats’ vague blaming of the Bush administration risks taking attention away from where it should be and missing the point of this scandal whose seeds were planted during the Clinton administration. The focus should be on the sorry state of business ethics in the United States today. And on the failure of “the system” to protect investors and employees from crony capitalism and unabashed greed on the part of Enron bosses, the document-shredding auditors and Wall Street bankers who helped organize the dubious complex partnerships that hid Enron’s massive debt.

That senior Enron management and Arthur Andersen felt able to ignore the basic rules says a lot about the regulatory and oversight systems that are meant to ensure transparency and the flow of reliable information on the state and behavior of companies.

But it also says a lot about old-fashioned covetousness and how even regulatory and watchdog systems can’t protect from fraud and folly when people don’t want to listen because, as Kipling says, “the burnt fool’s bandaged finger goes wabbling back to the fire.”

Jamie Dettmer is a senior editor for Insight.


February 19, 2002


By David Wright, Kevin Lynch & Courtney Callahan

The National Enquirer

IT WAS MURDER! That’s the stunning verdict of top law enforcement experts who have independently examined the shooting death of Enron executive Cliff Baxter, which was hurriedly ruled a suicide by a controversial medical examiner.

And insiders believe the popular boss’ tragic death is linked to the giant energy company whose shady dealings and bankruptcy have shattered the lives of thousands of employees. “Mr. Baxter’s death was NOT a suicide – and nothing points to a natural death, which leads to the unavoidable conclusion that foul play was involved,” said Peter Levin, a veteran prosecutor in Philadelphia.

Baxter, a 43-year-old former vice-chairman of the Houston-based company was found dead in his Mercedes just half a mile from his $700,000 home.

He had been steeling himself to testify before congressional committees about Enron’s questionable accounting practices – and just days earlier had talked to a business associate about “perhaps needing a bodyguard.”

“He knew where all the Enron bodies were buried and he was apparently ready to talk,” former congressman John LeBoutillier, who attended Harvard Business School with former Enron CEO Jeff Skilling, told The Enquirer.

“The evidence for foul play is pretty strong. Here’s a man who had everything to live for – children he loved and a comfortable future. He’s lying in bed in the middle of the night when he suddenly gets up, dresses, gets into his car, drives a short distance and blows his brains out. It doesn’t make sense.

“There’s billions of dollars missing. If the people involved are capable of cheating, lying and stealing money, it’s not going much further to hire a hit man and have someone whacked.”

Veteran prosecutor Craig Silverman, who nailed dozens of murderers in his 16 years as chief deputy district attorney of Denver, Colo., told The Enquirer:

“A trained killer can make a murder look like suicide. There are hit men who work for large sums of money and do a very efficient job of killing in the way that suits their clients’ purposes.”

Company insiders say Enron was a cesspool of greed, inflated egos and illicit sex.

And Baxter’s friends and co-workers have deep doubts about the so-called suicide of a former boss who knew the inner workings of the firm.

“He wasn’t the kind of guy who’d kill himself,” his friend Lyndon Taylor told The Enquirer. . . .

Added another close friend: “Here is a guy with everything in the world to live for. He still had his money, he had a huge yacht and a wonderful family. The thought that he would kill himself is absolutely mind-boggling.”

Baxter’s body was found at 2:23 a.m. on January 25. Harris County medical examiner Joye Carter completed the autopsy and decided it was suicide by that night unusual speed, according to insiders.

Dr. Carter has a controversial past, an Enquirer investigation reveals. In 1993 she was the District of Columbia Chief Medical Examiner when Washington lawyer Paul David Wilcher was mysteriously found dead in his apartment. Wilcher had been investigating the events leading up to the Branch Davidian fire in Waco, Texas. But no cause of death was ever determined and autopsy reports were never made public.

In February 2001 Carter was fined $1,000 and narrowly escaped being fired for allowing an unlicensed pathologist to perform roughly 200 autopsies in the Houston area. And during her time in Houston, the county has paid hefty damages in two lawsuits brought by whistle-blowers on her staff who alleged official misconduct.

Nine days after Baxter’s death, police still hadn’t publicly supported the suicide verdict. “It’s highly significant that the police are being so cautious,” a former senior detective told The Enquirer.

“There are so many questions here – most importantly, why did he leave the house so suddenly? Was he lured by a phone call? Had he agreed to meet someone?

“The fact that the police investigation is still going on tells me that despite what the medical examiner says, the detectives on the ground haven’t ruled out murder.”

For another Suicide vs. Murder mystery, GO TO > > > Vince Foster


< < < 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.




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.]


May 17, 2000


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 exotic 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.)



February 2, 2001


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 Dirty Gold in Goldman Sachs & 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

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For more on Herbert “Pug” Winokur and the Penn Central bankruptcy 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

For more on Putnam and Marsh & McLennan, GO TO > > > The Marsh Birds


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.

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 CommissionFrom: 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.

~ ~ ~

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.]


February 13, 2002

Six Members of Enron’s Board Planning to Resign, SEC told

HOUSTON (Associated Press) – Six Enron board members who were among those in charge when the company spiraled into bankruptcy last year are resigning.

The company said in a filing with the Securities and Exchange Commission yesterday that three of its longest-serving members and the three international members would resign in 30 days. . . .

Charles Elson, director of the Center for Corporate Goverence at the University of Delaware, said the string of resignations was no surprise.

“At this point you’re working with a corpse,” Elson said. “The real decision-making is in the hands of the bankruptcy judge and the creditors.”

Yesterday’s resignations follow that of Kenneth Lay, who stepped down from the board Feb. 4. Lay resigned as chairman and chief executive of Enron on Jan. 23. The board, which had 15 members before Lay stepped down, was left with eight.

The international members who resigned, Ronnie C. Chan, Paulo V. Ferraz Pereira and Lord John Wakeham, were on the board’s six-member audit committee, responsible for double-checking Enron’s bookkeeping.

The others who stepped down were Charles a. LeMaistre, 78, former president of the University of Texas M.D. Anderson Cancer Center; Robert K. Jaedicke, 73, former Stanford University Graduate School of Business dean; and Houston businessman John H. Duncan, 74.

Chan, 52, is chairman of the Hang Lung Group, a Hong Kong real estate powerhouse. Ferraz, 47, is executive vice president of Group Bozano, a Brazilian banking conglomerate.

Wakeham, 69, was appointed to the House of Lords in 1992.

Jaedicke is chairman of the board’s audit committee. His resignation, along with the three foreign directors, leaves only Wendy Gramm and Dr. John Mendelsohn on the panel.

Gramm, the wife of Sen. Phil Gramm, R-Texas, joined Enron’s board in 1993, just five weeks afer resigning as chairwoman of the Commodity Futures Trading Commission.

Mendelsohn is LeMaistre’s successor as president of M.D. Anderson.


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 VoteThey 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.

Retirement Losses

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.

Skilling Resigns

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 4, 2001

Companies circle to pick off Enron assets

By Mark Tran

Electricité de France today expressed an interest in buying Enron Direct, the European retail arm of Enron, the failed US energy giant.

“We are talking with PricewaterhouseCoopers to buy Enron Direct,” Gérard Wolf, an EdF director said.

Enron Direct sells gas and electricity to small and medium-sized businesses mainly in Britain, where it has 150,000 customers….

With Enron filing for bankruptcy protection, companies are circling to pick off the company’s best assets.

In the Philippines, the state-owned generator National Power Company, is looking at buying Enron’s two power plant contracts in the country.

As for Enron Direct, apart from EdF, other companies said to be interested in include Britain’s Centrica and Innogy groups and US-owned TXU Europe and Germany’s RWE.

Unlike Enron’s trading activities in the US, Enron Direct is not legally under administration but PricewaterhouseCoopers is supervising the sale of the retail business as part of its efforts to wind up Enron Europe.

Enron Europe went into administration on November 29, three days before its US parent filed for Chapter 11 bankruptcy protection in the biggest corporate failure in American history.

Enron, once America’s seventh largest company, yesterday gained some breathing space when it secured an $1.5bn emergency round of financing.

Arranged by Citigroup and JP Morgan Chase, the money will be syndicated and is secured by substantially all of the company’s assets.

Enron needs money to ensure delivery of commodities it had already paid for and to avoid eviction from its new 200,000 sq ft Houston trading floor….

For more on Citigroup, GO TO > > > Vampires in the City

For more on PricewaterhouseCoopers, GO TO > > > What Price Waterhouse?


December 7, 2001


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’s Empire

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. . . .

Catbird: Visit CorpWatch – One of the best sites on the web! URL:


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.


December 21, 2001

S&P comments on Enron-related insurer lawsuits

NEW YORK (Standard & Poor’s) Dec. 21, 2001 – Standard & Poor’s today commented on the insurance industry in the wake of J.P. Morgan Chase & Co.’s announcement that it has filed lawsuits against several large insurance companies – including Chubb Corp., CNA Financial Corp. and Travelers Property Casualty Corp.

These insurers had issued surety bonds that guaranteed various assets of Enron Corp., which filed for bankruptcy earlier this month.

At this time, it is unclear what impact, if any, these lawsuits will have on the ratings on various insurers. Standard & Poor’s will continue to monitor the situation, particularly with respect to the insurers that are the largest issuers of surety bonds, and will make further comments when appropriate….

Copyright 2001, Reuters News Service

For more on Chubb Group, GO TO > > > The Chubb Group

For more on J.P. Morgan, GO TO > > > Nests Along Wall Street

For more on the Travelers Insurance Co., Citigroup and Robert Rubin, GO TO > > > Vampires in the City

For more on Goldman Sachs and Robert Rubin, GO TO > > > Dirty Gold in Goldman Sachs

For more on Robert Rubin, Goldman Sachs and Kamehameha Schools, GO TO > > > Dirty Money, Dirty Politics and Bishop Estate


December 21, 2001

XL exposure to Enron $75 million

(Business News) – Contrary to earlier indications, XL Capital Ltd. said its exposure to claims arising from the bankruptcy of energy trader Enron Corp (ENE) might total $75 million, but it said it could not yet estimate its Enron losses.

XL said it faced about $45 million in exposure to surety bonds and could face further large payouts on liability policies if Enron’s directors are successfully sued. . . .

For more on XL Capital, Marsh & McLennan, and George Bush, GO TO > > > The Marsh Birds


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


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….


The Enron Debacle

The Los Angeles Times

The Enron debacle is long past being a story about the fall of a corporation. Enron’s tentacles stretch far and wide, to accounting firms, the Securities and Exchange Commission, Congress, the White House, the Justice Department, even journalists. The question is becoming not who was tainted by Enron but who wasn’t. It is an object lesson in why the SEC, the campaign finance system, the government culture itself need reform. With so few left untainted, who is trustworthy to clean up the mess?

Consider the Bush administration, which has 35 officials who have held Enron stock. Top political advisor Karl Rove‘s stock was worth six figures. President Bush, despite his lame attempt to associate Enron head Kenneth L. Lay with former Texas Gov. Ann Richards, has long enjoyed a close relationship with him. Presidential economic advisor Lawrence B. Lindsey received $50,000 as an Enron “advisor.” Atty. Gen. John Ashcroft recused himself from the criminal investigation because he had received a hefty Enron contribution to his 2000 senatorial campaign.

Given these and many more links, it is ever more disturbing that Vice President Dick Cheney obstinately refuses to divulge detailed information about his energy task force’s numerous meetings with Enron executives. Rep. Henry A. Waxman (D-Los Angeles) has released another study showing that numerous policies in the White House energy plan were virtually identical to those espoused by Enron; no fewer than 17 policies, including deregulation initiatives and support for trading in energy derivatives, would have benefited the corporation.

By no means did Enron confine its efforts to the White House. On the contrary, Capitol Hill lawmakers eagerly partook of Enron’s booty. Power couple Sen. Phil Gramm (R-Texas) and Wendy Gramm constitute a study in conflicts of interest in themselves. Wendy Gramm is a member of Enron’s board; her husband was pivotal in permitting Enron to receive an energy trading exemption.

As The Times’ Mark Fineman revealed Friday, none of the key congressional committees investigating Enron or its former auditor, the Andersen company, would be able to summon a majority if they excluded members who had received campaign contributions from either company.

Sen. Joseph I. Lieberman (D-Conn.), one of the chief investigators, accepted thousands of dollars from both. Rep. W.J. “Billy” Tauzin (R-La.), who is aggressively investigating, raked in contributions from the two companies. Lieberman and Tauzin are running away from Enron as fast as they can, but the contributions will always distort public perception of their actions.

Few have been more fervent in denouncing the culture of greed that led to debacles such as Enron than New York Times economics columnist Paul Krugman. Yet it now turns out that Krugman himself was paid $50,000 as an Enron consultant in 1999, even though his position had “no function” that he was aware of.

After Sept. 11, polls showed that the American public had greater confidence in government and other institutions. The Enron scandal threatens to swiftly reverse that trend.

There could be no better argument for political and regulatory reforms.

(If you want other stories on this topic, search the Archives at

Copyright 2002 Los Angeles Times


Insight on the News – Politics
Issue: 02/11/02

When the Gods of the Market Tumbled

By Jamie Dettmer

“There will be no witch-hunt,” says Sen. Joe Lieberman (D-Conn.), eager as ever to cloak his partisan instincts with the rhetoric of high-mindedness.

Having suffered Whitewater indignities for most of the 1990s, the Democrats are out to seize on Enron as an opportunity for some payback. After all, the failed energy giant was President George W. Bush’s largest corporate backer.

But Enron isn’t the political scandal the Democrats are keen to make it, or at least not a clear-cut partisan one. Plenty of Democrats enjoyed the largesse of Enron, and for all the efforts of Rep. Henry Waxman (D-Calif.) to paint the Bush administration’s energy policy as in effect Enron’s, the Clinton White House also was cozy with the Houston-based energy trader and was obliging when it came to deregulation.

There was nothing wrong with that, as deregulation assisted consumers by lowering costs for suppliers. There is no evidence Bush aides responded to pleas for assistance made by some senior Enron executives. No creditors reported being leaned on by the Treasury Department.

No, the Enron collapse is a scandal of another nature, one that strikes at folly and the human condition. Every generation has to learn anew that what goes up must come down.

Greed distracts, and investors, employees, politicians and captains of finance and industry get drawn into presuming that success is forever.

Of course, the Greeks had a word for it: hubris. And that great chronicler of human frailties and follies, the English writer Rudyard Kipling, wrote a poem about it – “The Gods of the Copybook Headings,” the eighth stanza of which might have been written yesterday instead of in 1919:

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew, And the hearts of the meanest were humbled and began to believe it was true That All is not Gold that Glitters, and Two and Two make Four – And the Gods of the Copybook Headings limped up to explain it once more.

A booming economy – a New Economy no less – had led the wise and foolish alike to succumb to the notion that the stock markets always would do well and that magical names such as Enron, Cisco and a bunch of other new commercial entrants would be untouched by adversity.

Even Federal Reserve Chairman Alan Greenspan waxed merrily on about how the New Economy had slipped the moorings of the traditional ups and downs of the business cycle.

Oh, brave new world! And no one listened to the boring gods of the copybook headings because:

They denied that the Moon was Stilton; they denied she was even Dutch. They denied that Wishes were Horses, they denied that a Pig had Wings. So we worshipped the Gods of the Market Who promised these beautiful things.

And it wasn’t just outsiders and investors who consoled themselves when things went bad with bizarre notions that Enron could walk on water, however dumb the commercial decisions it made. There was the auditing firm, Arthur Andersen, which as far back as February 2001, if the Washington Post is to be believed, were aware that not all was right at the energy trader.

According to a Jan. 17 Post article, senior executives at Andersen considered dropping Enron as a client last February because of concerns about the company’s bookkeeping. But then greed kicked in: Why imperil lucrative consulting contracts with Enron by withdrawing from its auditing role? And, who knows, Enron might just save itself.

Hubris also apparently gripped the members of Enron’s audit board, who were doing very nicely, thank you, and had no intention of rocking any boats and endangering some pleasant on-the-side financial ties with the company and its founder, Kenneth Lay.

Lord Wakeham, a former member of Iron Lady Margaret Thatcher’s government, was on a separate $6,000-a-month consulting contract with Enron. Wendy Gramm, the wife of Sen. Phil Gramm (R-Texas), couldn’t have been displeased with the $50,000 donation the Lay family gave her university.

And three of the six-member board held shares in Enron that last spring were worth in total about $7.5 million.

No, better to keep silent, better to hope that the gods of the market were right when they said the moon was Stilton.

The Democrats’ vague blaming of the Bush administration risks taking attention away from where it should be and missing the point of this scandal whose seeds were planted during the Clinton administration. The focus should be on the sorry state of business ethics in the United States today. And on the failure of “the system” to protect investors and employees from crony capitalism and unabashed greed on the part of Enron bosses, the document-shredding auditors and Wall Street bankers who helped organize the dubious complex partnerships that hid Enron’s massive debt.

That senior Enron management and Arthur Andersen felt able to ignore the basic rules says a lot about the regulatory and oversight systems that are meant to ensure transparency and the flow of reliable information on the state and behavior of companies.

But it also says a lot about old-fashioned covetousness and how even regulatory and watchdog systems can’t protect from fraud and folly when people don’t want to listen because, as Kipling says, “the burnt fool’s bandaged finger goes wabbling back to the fire.”

Jamie Dettmer is a senior editor for Insight.


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 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 16, 2002

Enron’s California smoking gun

By Anthony York,

Did the Bush administration do the disgraced company’s bidding during the state’s electricity crisis?

Remember the California energy crisis? As the implications of the collapse of Enron spiral ever wider, increasing attention is being paid to the close connections between the White House and the Texas energy trader. So far, there has been no evidence that Bush officials tried to stave off the Enron disaster. But the real smoking gun for Enron could be its role in the California energy deregulation debacle.

Vice President Cheney has already admitted that he and Enron CEO Ken Lay discussed the California situation in some of their six meetings last year, leading some critics to believe that Bush’s hands-off policy toward the Golden State’s energy meltdown was adopted at the bidding of Enron, whose profits soared during the crisis.

Lay was also instrumental in replacing the chairman of the federal commission that regulates energy issues with his own nominee, after the original chairman refused to kowtow to Enron’s wishes on electricity deregulation.

A California state Senate committee is currently calling for depositions of Enron and Arthur Andersen officials to find out if the former energy giant or its auditors willfully destroyed documents that were under subpoena from the committee. And an ongoing criminal investigation by California Attorney General Bill Lockyer is still looking into allegations that energy producers and traders, including Enron, artificially manipulated the price of energy to profit off of California’s poorly constructed energy deregulation plan.

Enron officials once took pains to note that California’s problems could not be blamed on energy producers but on California’s partially deregulated market, which they said didn’t go far enough. But it’s now becoming apparent that Enron was as responsible as anyone for the shape of that deregulation plan. As the Enron mess continues to heat up, California could prove to be the company’s biggest political embarrassment.

The fast-moving story took another twist on Tuesday, when Joe Dunn, a California state senator chairing a committee conducting an investigation into possible price gouging, noted that Arthur Andersen, Enron’s accountant, may have destroyed documents that had already been subpoenaed by the California Legislature.

“We are requesting subpoenas to Enron and Arthur Andersen,” Dunn said.

“There is significant concern at this point in time that the documents that were destroyed by Arthur Andersen may have been embraced in the subpoena that was served upon Enron last June. The media reports are that those documents that were destroyed were destroyed in September or October, last fall. That would have been after the legislative subpoena was served upon Enron. If those documents were willfully destroyed after they were subpoenaed, that is very, very serious.”

Dunn is hoping to call high-ranking Enron and Arthur Andersen officials before his committee for depositions later this year. He says his committee is not looking into filing criminal or civil charges against any company. His committee, Dunn says, is simply looking into “how we got into an energy crisis and whether any legislative fixes are necessary.” And that process involves a hard look at Enron.

“The real questions,” says Dunn, “and this is an enormous task to unravel, is what role Enron had in 1) driving up the price of a given megawatt, even though they were not the final seller; and 2) What role did Enron play in the shuffling of megawatts for the purpose of creating artificial shortage on the distribution lines.”

But getting Enron to cooperate has not been easy. In fact, Dunn characterized the company’s response as “disgusting. Enron has been the worst of all market participants with respect to their cooperation with our committee, and that’s been true from the very beginning. They were the one and only holdout of producing documents to the committee.” Dunn says it was only when Enron realized that the Legislature had the votes to pass a resolution holding Enron in contempt and threatened them with fines of $1 million per day that they handed over the documents.

Even then, Dunn says, Enron continued to give the committee the runaround. He says the company produced about 50 boxes of documents that were “woefully inadequate.” His committee will be reviewing Enron’s compliance in a public hearing sometime in the next couple of weeks, and Dunn says he is “cautiously pessimistic about avoiding further contempt hearings against Enron.”

Meanwhile, Attorney General Bill Lockyer is still investigating allegations that energy producers and traders, including Enron, manipulated prices. “This investigation has been open for over a year, and it is still ongoing,” said Lockyer spokeswoman Sandra Michioku. “There are some questions about pricing practices, and unfair business practices by many energy companies.” Michioku said the attorney general’s office was still “at least weeks away” from wrapping up the investigation.

And to complete the California-Enron trifecta, Rep. Henry Waxman, D-Calif., said recent revelations by Vice President Cheney seem to indicate that Cheney took marching orders about how to handle the California crisis directly from Lay.

In his response to Cheney, Waxman said Cheney’s timeline “raises additional questions about the extent to which Enron may have influenced the administration’s energy policies.”

Enron spokeswoman Karen Denne says the company has cooperated and will continue to cooperate “with all inquiries and investigations.” It’s going to be busy. Enron was involved in California from the beginning of the state’s move to deregulate its electricity system. The company was a key voice calling for the federal legislation that set the various deregulation plans in motion. That law, known as the Energy Policy Act of 1992, was one of President George H.W. Bush’s final acts as president.

California was among the first states to jump on the deregulation bandwagon. At the tail end of a crippling recession, companies were leaving the state in droves, complaining that the price of doing business there was too high. That cost included high taxes, and among the highest energy costs in the nation.

In its zeal to deregulate, California set up a poorly designed system, deregulating the wholesale side of the energy market, while leaving price caps in place on the retail side. So wholesale prices skyrocketed for the utilities buying power from the producers, while at the same time, the utilities were prevented from passing the spike to ratepayers.

Lenny Goldberg, lobbyist for the Utility Reform Network (TURN), says Enron played a key role in setting up California’s broken marketplace. “Unlike the market in Pennsylvania, which is transparent and works, Enron was pushing for a pretty murky, nontransparent, easily gameable market. They wanted much less authority and power in the Independent System Operator , so it would be much easier to manipulate the market.”

The ISO was designed to be a central command station coordinating the scheduling for the delivery of power so that everyone would get the power they needed. But Goldberg says Enron’s insistence that the coordination be conducted essentially in private helped energy producers artificially manipulate the market.

During hearings before the Public Utilities Commission, as the state was crafting its deregulation plan, Enron argued for establishing a separate power exchange, or PX, to serve as a sort of clearinghouse, a place where competitive forces would lower the price of power for California electricity consumers.

“Their argument was that you don’t want utility-like people running a market,” says John Rozsa, an aide to Sen. Steve Peace, who played a key role in the Legislature’s first attempts at electricity deregulation. “It gave them the ability to arbitrage between markets, and that’s what their business was. What Enron really wanted was a dark market — contracts that were not subject to any regulatory scrutiny.”

Though it is unclear just how much Enron made off the California energy crisis, a hint comes from the company’s stock price during the spring of 2000. During the second quarter of 2001, the peak of the California crisis, the company reported earnings of $404 million (45 cents per share) compared with $289 million (34 cents) a year earlier, an increase of nearly 40 percent. The previous quarter, Enron reported a 34 percent increase in quarterly profit.

Goldberg says Enron’s biggest profits in California may have come from a spike in natural gas prices during the state’s energy crisis. “I don’t know. Ask Arthur Andersen whether Enron made any money on the California market,” he quipped.

Now, congressional Democrats are calling on Dick Cheney to clarify just how influential Enron was in shaping the administration’s hands-off approach to the California crisis.

While the state was in the midst of rolling blackouts and soaring wholesale energy prices — prices that many argue were artificially manipulated by Enron and other energy producers and traders — the White House refused to intervene as Enron and power plant owners cashed in.

But throughout the California meltdown, Enron continually downplayed its role. “California is a very, very small percentage of our profitability,” Enron spokesman Mark Palmer told the San Franicsco Chronicle last year.

Indeed, when California Gov. Gray Davis asked the Federal Energy Regulatory Commission (FERC) to reimburse California consumers to the tune of $8.9 billion for what he says were artificially high energy prices, Enron was far down on the list of companies the state wanted money from.

“I don’t think anyone would dispute the statement that they made significant profit off the situation we found ourselves in the past year, year and a half,” Joe Dunn said of Enron. “They like to describe themselves as a minor player in the California energy market, and as evidence of that they cite that they were only 10 percent of the final sales of electricity through the ISO. That’s an interesting statistic, but that’s not the whole picture. Enron was probably the most significant trader; the trading of a given megawatt may go through 15 different owners before it’s ultimately sold through the ISO.” Last summer, California lawmakers, led by Gray Davis, lobbied the FERC to place price caps on energy prices in California. But the administration, in the person of Vice President Dick Cheney, refused to step in.

On April 18, Cheney told the Los Angeles Times, “California is looked on by many folks as a classic example of the kinds of problems that arise when you do use price caps,” referring to the caps on retail energy prices under the state’s deregulation plan, put in place to protect California consumers.

When asked about regulating wholesale energy prices in California, Cheney said, “I don’t see that as a possibility … Any package you can wrap it in, any fancy rhetoric you can prop it up with, it does not solve the problem.”

Cheney’s comments came just one day after the vice president met with Lay to discuss energy policy. In his letter to Waxman Cheney says that while he and Lay never discussed Enron’s looming financial woes, they did talk about California.

“The vice president met with Mr. Kenneth L. Lay, chairman and chief executive officer of the Enron Corporation,” the letter states. “The meeting occurred on April 17, 2001, and lasted for about a half-hour. They discussed energy policy matters, including the energy crisis in California, and did not discuss information concerning the financial position of the Enron Corporation.”

Enron has long been seen as a way for Democrats — particularly in California — to score political points against the Bush administration. Even before the company’s bankruptcy, it had become a sort of shorthand for Democrats wanting to paint an administration that was propped up by big contributions from the energy industry in exchange for federal policy that would not interfere with their profits.

In his State of the State address last year, Davis, who himself received $10,000 in campaign contributions from Enron, blamed “out-of-state profiteers” for manipulating California energy prices and “holding California hostage.” Lockyer was a bit less tactful, saying, “I would love to personally escort Lay to an 8-by-10 cell that he could share with a tattooed dude who says, ‘Hi, my name is Spike, honey.'”

After Cheney’s refusal to intervene in the California crisis, Sen. Dianne Feinstein, D-Calif., said the administration was doing the energy industry’s bidding at the expense of California energy users. “It was very disappointing,” she says. “He spoke about letting the free market work and drilling in Alaska. That’s not going to help California in the short term. We need price caps until we’re able to fix this very broken market … There seems to be no interest in really wanting to understand the California situation.”

But Davis spokesman Steve Maviglio said the governor did not think that the Lay meeting directly influenced Cheney’s or Bush’s decision to take a hands-off approach in California. “I think we always thought it was philosophical to begin with,” he said. “Cheney and Lay seem to have the same philosophical bent about markets, so it wasn’t a real shocker.”

Davis spoke to Lay repeatedly throughout the California crisis, “because he had the president’s ear,” on energy issues, according to Maviglio. But Lay, like the administration, argued against the FERC bailing out California. “In California, when the shit hit the fan, they were very vocal in their support for deregulation” of the retail side of the energy market, he said.

Lay and Enron clearly enjoyed immense influence in the new Bush White House. Lay reportedly had a large say in who would head the FERC, the agency that regulated Lay’s company. Lay was adamant in getting an FERC chairman who supported Enron’s plan to provide “open access” to state retail power markets. The reluctance of Curtis Hebert, a Republican who briefly became chairman after Bush’s election, to support the plan was reportedly part of the reason that Lay, and Bush, dumped the Clinton appointee.

In an interview on PBS’s “Frontline,” Hebert was asked about his relationship with Lay and the White House.

“Mr. Lay made no secret with us about his close relationship with the president and the White House and so on. We’ve been told that he in fact says things like, ‘I’ll help you with what you need politically, let’s say, staying on as chairman of the FERC, if you’ll go along with me on this policy issue.’ Did that ever happen?” asked the interviewer.

“I would never make that trade,” Hebert responded.

“Did he ever propose such a trade?”

“I would just say that I would never make such a trade.”

“Our sources tell us that in fact he offered to talk to the president on your behalf if you would go along with what he wanted.”

“I don’t think there’s any doubt he would be a much stronger supporter of mine if I … were willing to do what he would want me to do.”

Weeks later, Bush replaced Hebert with Texan Patrick Henry Wood, with Lay’s blessing.

Two weeks later, bowing to immense political pressure by the state’s worsening crisis, the FERC adopted a limited price cap plan to provide some relief to Californians. But those caps did not go far enough, according to consumer advocates.

“They were mitigations,” says Doug Heller, consumer advocate for the Foundation for Taxpayer and Consumer Rights. “But they still capped prices at a higher level than was reasonable. There were ways around it, but at least it was something.”

Soon after the price caps took hold, the state entered into long-term contracts with other energy prices, and after a cooler-than-expected summer, the energy crisis subsided.

But, Heller says, the damage had already been done. “Before the energy crisis, the average price, or the average peak price, was about $30 per megawatt hour. The contracts Davis signed range from $100 to $150 per hour for the next two years, then slowly drop over 10 years into the $60 range. But thanks to this gouging, the state is still now paying about five times the pre-deregulated price and 10 years out, will still be paying about twice the price of energy before deregulation.”


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.

* * *


Lawrence Lindsey, Bush’s chief economic adviser, said that Enron’s bankruptcy is a “tribute to American capitalism.”

Marc Raciot, new GOP national chairman said that he could not at first see what would be amiss with him continuing to earn a side income from the firm where he worked as an Enron lobbyist.

Treasury Secretary Paul O’Neill shrugged: “Companies come and go. It’s part of the genius of capitalism.”

Paul O’Neill, debuted last fall as the new Securities and Exchange Commission chairman complaining that the government was pestering corporations too much about whether they were representing their profits and losses accurately. Business knew better than some mere federal drone.


January 19, 2002

White House Aided Enron in Dispute

Cheney, Others Intervened Over Indian Power Plant

By Dana Milbank and Paul Blustein, Washington Post

The White House coordinated a multi-front effort last year to help Enron Corp. settle a dispute with the Indian government, which the energy company hoped would deliver $2.3 billion as it was running out of cash in the weeks before declaring bankruptcy.

According to government records released yesterday, President Bush’s National Security Council led a “working group” with officials from various Cabinet agencies to resolve Enron’s troubles over a power plant venture. Enron, facing nonpayment by its Indian government customer, wanted to sell its interest for $2.3 billion.

The administration’s efforts  which included Vice President Cheney’s conversation with an Indian official and were to involve a personal appeal by Bush to Indian Prime Minister Atal Bihari Vajpayee  appeared to end on Nov. 8. That’s the day Enron filed documents with the Securities and Exchange Commission revising its financial statements to account for $586 million in losses.

It’s also the day Enron Chairman Kenneth L. Lay talked by phone with Treasury Secretary Paul H. O’Neill about the company’s dire finances.

The documents released yesterday provided new details about Bush administration efforts to aid Enron, the once highflying company that filed for bankruptcy law protection in December and now faces Justice Department and congressional investigations. The India episode demonstrates the ability of Enron  once one of the nation’s most aggressive and innovative firms, and one of the biggest political donors  to command the attention, and sometimes the intervention, of the nation’s highest government officials.

The Bush administration intensified government actions just as Enron’s financial problems grew severe and the power plant venture reached a moment of crisis. Those efforts stopped when the scope of Enron’s spectacular collapse was becoming known worldwide.

Administration officials say their efforts were appropriate and unremarkable, intended primarily to protect U.S. taxpayers’ $640 million interest in the troubled Dabhol power plant. The Clinton administration, starting in the mid-1990s, also had backed Enron in its dispute with Indian officials.

White House press secretary Ari Fleischer said yesterday: “It’s not uncommon for leaders of the United States, no matter what party they are, to help make certain that if contracts are to be awarded overseas, they’re given to Americans. There’s a lot of competition.”

But Jon Sohn, the international policy analyst for the environmental group Friends of the Earth, said Enron received more government help with its projects than other companies  under both the Clinton and Bush administrations.

The group calculated that Enron received $2.4 billion for its overseas energy projects between 1992 and 2000 from the Overseas Private Investment Corp. and the Export-Import Bank of the United States in the form of loans, insurance and guarantees.

“We maintain that the U.S. government was involved because it was Enron, which happened on so many of their projects,” Sohn said.

The $3 billion power plant, located south of Bombay, was built as India began to open its heavily state-run economy and allow foreign firms greater investment opportunities. The nation’s biggest foreign investment by far, the plant was highly controversial from the start. It drew opposition from environmentalists, Indian nationalists and even the World Bank.

The project is “not economically viable,” Heinz Vergin, the World Bank’s country director for India, wrote in April 1993, rejecting a request for a bank loan.

But some U.S. taxpayer-financed institutions helped finance the project. OPIC provided $160 million in loans and $180 million in risk insurance; the Export-Import Bank lent the project $300 million. The agencies say such projects create U.S. jobs and exports.

Enron sought to sell its 65 percent interest in the Dabhol plant after years of squabbling with the plant’s lone customer, the Maharashtra State Electricity Board. In a Sept. 14 letter to Vajpayee, Lay said he wanted $1.2 billion for the cost of the company’s investment and $1.1 billion for the purchase of offshore lenders’ debt.

The $2.3 billion total, he wrote, “strikes me as exceptionally reasonable when compared to the size of our legal claim,” which Enron had put at $4 billion to $5 billion.

When Lay wrote the letter, Enron’s stock had plunged to $32.76, from a high of $90 in August 2000. The drop left Enron scrambling for cash to keep its far-flung businesses afloat.

At that same time, the administration working group was trying to resolve the dispute between Enron and India.

“The acute lack of progress in this matter has forced Dabhol to rise to the highest levels of the United States government,” OPIC President Peter Watson said in a Nov. 6 message to a top Vajpayee aide, Brajesh Mishra. “I ask that you give this matter serious and immediate attention.”

The documents do not make clear whether the Bush administration was pressuring India to release Enron from the project or to reach another settlement.

Fleischer said the administration’s actions had nothing to do with Enron’s political contributions. He noted that the Clinton administration had acted in a similar manner on Dabhol.

Indeed, according to the Center for Public Integrity, Lay accompanied Clinton’s commerce secretary, Ronald H. Brown, on a trip to India in 1995. In 1994, Enron executive Rodney L. Gray joined Brown on a trip to Russia.

Clinton administration officials said they felt obliged to champion Enron’s cause because Maharashtra state had effectively reneged on its contractual obligations to pay for the plant’s output.

“There is an appropriate role for the U.S. government to step in on behalf of U.S. companies when foreign governments are treating them unfairly,” said David Rothkopf, deputy undersecretary of commerce for international trade in the first Clinton term. “Enron, just like any other company, was entitled to that support.”

By last summer, documents show, the National Security Council was intimately involved in discussions about the plant. A June 28, 2001, e-mail from an NSC staffer announced there was “good news” regarding Enron and Cheney: “The Veep mentioned ENRON in his meeting with Sonia Gandhi”  the president of India’s opposition Congress Party.

Also that week, an unnamed government staffer noted that he would “ask the Indians” if Enron chairman Lay “is invited to the dinner” with OPIC’s Watson.

A July 30 government memo, labeled as a “Confidential Business Communication,” was distributed to members of the “Dabhol Working Group.” It noted that earlier in the month, Lay visited India and met with various officials. It said State Department official Christina B. Rocca had met with a senior aide to the Indian prime minister.

The memo also noted possible plans to “broaden the advocacy” related to the power plant. That plan called for solving problems related to the plant “in a diplomatically correct manner.”

The memo suggested enlisting the aid of Ambassador-designate Robert D. Blackwell, the World Bank, the U.S. Embassy in New Delhi, the State Department and the Indian Embassy in Washington.

A Nov. 1 government e-mail indicated that talking points had been prepared for Bush in his meeting with Vajpayee. They were never used.

An intragovernmental e-mail sent on the afternoon of Nov. 8, and labeled “Importance: High,” said, “President Bush can not talk about Dabhol as was already mentioned.”

The e-mail  released by OPIC officials after they deleted the sender’s and recipients’ names  also said that Bush’s top economic adviser, Lawrence B. Lindsey, “was advised that he could not discuss Dabhol.”

Lindsey had earned $100,000 as an Enron consultant in 1999 and 2000. The e-mail, released under the Freedom of Information Act, was first reported yesterday by the New York Daily News.

A Nov. 9 e-mail said that national security adviser Condoleezza Rice chose not to discuss Dabhol in her meeting with Mishra. Enron shares had fallen to $8.63 that day, and the company filed for bankruptcy law protection on Dec. 2.

Fleischer said Lindsey did not get involved because the White House counsel warned of a possible conflict of interest.

Bush did not get involved because “it was a matter of not rising up to his level,” Fleischer said.

The Dabhol plant first ran into serious trouble in 1995 when a new Indian state government canceled the agreement between the plant and the state electricity board. Construction resumed after massive political wrangling and litigation in Indian courts.

Among the plant’s most influential advocates was Frank Wisner, who was then ambassador to India. Wisner sparked a furor when he joined the board of an Enron-controlled company after retiring from the Foreign Service in 1997.

Early in 2001, the state board stopped buying power from the plant, saying the cost was too high. Enron soon began trying to sell its interest.

Enron’s bankruptcy leaves OPIC exposed to more than $1 billion in risks related to projects sponsored by the energy giant, according to an internal OPIC report. That represents a sizable chunk of the agency’s portfolio of $15.2 billion.

Enron and its partners in the Dabhol project are seeking compensation from OPIC for potential losses. But even if OPIC has to pay them, it can seek redress from the Indian government.

Staff writers Joe Stephens and James V. Grimaldi and researcher Lucy Shackelford contributed to this report.


January 20, 2002

Safeguards Didn’t Stop Enron’s Fall

By Richard W. Stevenson and Jeff Gerth, The New York Times

WASHINGTON – The multilayered system of safeguards that was to protect investors and employees from a catastrophic corporate implosion largely failed to detect or address the problems that felled the Enron Corp., say regulators, business executives and scholars.

The breakdown encompassed the company’s auditors, lawyers and directors and extended to groups monitoring Enron from outside, like regulators, financial analysts, credit-rating agencies and Congress, which in the coming week will open hearings into the downfall.

“This was a massive failure in the governance system,” said Robert Litan, director of economic studies at the Brookings Institution, the research organization. “You can look at the system as a series of concentric circles, from management to directors and the audit committee to regulators and analysts and so forth. This was like a nuclear meltdown where the core melted through all the layers.” . . .

From a government and regulatory perspective, Enron, as one of its executive said late last year, thrived in a “regulatory black hole” that the company labored to create.

At the Federal Energy Regulatory Commission, Enron lobbied in the 1990s for a rule that exempted trading in electricity derivatives from reporting requirements.

The lack of scrutiny by the energy regulatory commission was one reason that William Rainier, the chairman of the Commodity Futures Trading Commission, told Congress in 2000 that he was “deeply concerned” about a bill that would exempt energy trading from his commission’s review because dealers in energy derivatives had no other regulator.

Ranier’s objections were largely ignored, and the exemption, heavily backed by Enron, became law.

Enron was not shy in making its views known on Capitol Hill and among the regulatory agencies – or in spreading campaign contributions around to Republicans and Democrats alike to ensure it would get a $5.95 million to the two parties, with 74 percent going to Republicans, according to figures compiled by the Center for Responsive Politics, a watchdog group.

“Money allowed the Enron leadership to come to town,” said Charles Bowsher, who as comptroller general of the United States during the Regan administration led the General Accounting Office, Congress’ auditing and investigative agency.

“Everyone say they didn’t get anything, that the secretary of the Treasury turned them down,” said Bowsher. “But if you look back over the last five years, what they did get was no oversight.”

The board of directors has ultimate responsibility for any company’s performance and conduct. Within the board, special responsibility falls on the outside directors, whose job is to cast a skeptical eye on management and to oversee issues that speak to the company’s credibility, including its financial audits.

Enron’s board consists of Kenneth Lay, the chairman and chief executive, and 14 non-management members. The company’s former president, Jeffrey Skilling, was a member until he resigned in August.

But much of the early attention has focused on the performance of Enron’s accounting firm, Arthur Andersen, whose primary function was to assure that the company was accurately and completely disclosing its financial results and condition. . . .

Arthur Andersen may have had reason to view Enron through a flattering lens, given its symbiotic relationship with the company, one sure to be examined in depth in the corporate autopsy. At the same time that it was acting as Enron’s auditor, it was seeking and getting lucrative consulting work from Enron.

Arthur Andersen was also successfully lobbing against the Securities and Exchange Commission’s effort two years ago to limit just that type of dual role; some regulators felt it created a conflict of interest by raising questions about whether an auditor would challenge the management of a company from which it sought additional business.

Moreover, Enron turned over to Arthur Andersen some responsibility for its internal bookkeeping, blurring a fundamental division of responsibilities that companies employ to assure the honesty and completeness of their financial figures. Further obscuring the line between an independent outside auditor and corporate management, many of Enron’s financial executives had moved to the company from Arthur Andersen. . . .

The close ties between management and the board also raise questions about the board’s independence, experts on corporate governance say. Twice in 1999 – on June 28 and on Oct. 12 – the board approved a waiver of the company’s conflict-of-interest rules to allow Andrew Fastow, the chief financial officer, to set up private partnerships that would do business with Enron, according to a review conducted by Enron’s law firm, Vinson & Elkins.

Those partnerships and others are at the heart of the inquiry into whether company executives profited at the expenses of shareholders and employees. Enron has estimated that Fastow made more than $30 million from the two partnerships set up in 1999. The partnerships were also used to hide Enron’s mounting debts.

Enron’s collapse has also focused new attention on the Wall Street analysts, whose judgments about stocks are widely assumed to be driven as much by a desire to help their firms win investment banking business from the companies they follow as to give investors sound guidance.

Not only were most of the big Wall Street firms bullish on Enron over the past few years as its stock went up, but they also kept the faith as cracks started to appear in Enron’s foundations last summer and fall.

Analysts at firms including Goldman Sachs, Lehman Brothers, Salomon Smith Barney and UBS Warburg all continued to recommend the stock to investors well into the fall, after Enron’s problems started to become public.

~ ~ ~

For more on Arthur Andersen, GO TO > > > P-s-s-t, wanna buy a good audit?

For more on Goldman Sachs, GO TO > > > Dirty Gold in Goldman Sachs


Thomas E. White – Thomas E. White became the 18th Secretary of the Army on May 31, 2001, after nomination to that post by President Bush and confirmation by the United States Senate.

As Secretary of the Army, Secretary White has statutory responsibility for all matters relating to Army manpower, personnel, reserve affairs, installations, environmental issues, weapons systems and equipment acquisition, communications, and financial management. Secretary White is responsible for the department’s annual budget of nearly $70 billion. The leads a work force of just over one million active duty, National Guard and Army Reserve soldiers and 270,000 civilian employees, and has stewardship over 15 million acres of land.

Prior to his appointment as Secretary of the Army, Secretary White served as Vice Chairman of Enron Energy Services, the Enron Corporation subsidiary responsible for providing energy outsource solutions to commercial and industrial customers throughout the United States. Mr. White was responsible for the delivery component of energy management services, which included commodity management; purchasing, maintaining, and operating energy assets; developing and implementing energy information services; capital management; and facilities management.

Secretary White also served as a member of Enron’s Executive Committee and was Chairman and Chief Executive Officer for Enron Operations Corporation. He was also responsible for the Enron Engineering and Construction Company, which managed an extensive construction portfolio with domestic and international projects.

Secretary White began his public service career as an Army officer. After graduating from the United States Military Academy at West Point, he was commissioned in the United States Army in 1967, rising to the rank of Brigadier General in 1990. His distinguished military career included two tours in Vietnam and service as Commander, 1st Squadron, 11th Armored Cavalry Regiment; Commander, 11th Armored Cavalry Regiment, V Corps; Director, Armor/Anti-Armor Special Task Force; and Executive Assistant to the Chairman, Joint Chiefs of Staff.

Mr. White attended the Naval Postgraduate School, Monterey, California, and graduated in 1974 with a degree in Operations Research. In 1984, he attended The United States Army War College, Carlisle, Pennsylvania.

Secretary White retired from the Army in July, 1990.

– Web Biography

Secretary White’s Base Salary for Enron Ventures Corp. was $701,667 annually.

~ ~ ~

For more on Army Secretary Thomas E. White, GO TO > > > Nests in the Pentagon


January 22, 2002

Documents Reportedly Shredded at Enron

Former executive says destruction continued last week

By Pete Yost, Associated Press

WASHINGTON – Enron is looking into the reported destruction of documents at its Houston headquarters after the federal government began investigating the company, an attorney for the bankrupt energy giant said last night.

In an interview with ABC News, a former Enron executive, identified as Maureen Castaneda, said the shredding of documents took place in an accounting office on the 19th floor. . . .

Castaneda said the destruction began after Thanksgiving and continued to at least last week.

The Securities and Exchange Commission began looking into Enron in mid-October.

“We are investigating the circumstances of the reported destruction of documents,” Washington attorney Robert Bennett, who is representing Enron, said in a statement.

“In October 2001 the company issued several directives to all Enron employees worldwide that all relevant documents should be preserved in light of pending litigation,” Bennett added. “If anyone violated those directives, they will be dealt with appropriately.”

The reported shredding at Enron follows revelations over the past week and a half about document destruction at Arthur Andersen, Enron’s accounting firm.

Some of the shredded Enron paper displayed in the ABC story contained the word “Jedi,” one of the entities involved in an array of off-the-books partnerships that kept hundreds of millions of dollars in Enron debt off the company’s balance sheet for several years.

Enron’s inquiry into shredding at its headquarters came as congressional investigators pressed for public testimony by an Andersen auditor fired over the document destruction at the accounting firm. . . .

In a related development, consumer advocate Ralph Nader said a special counsel should investigate Enron rather than the Justice Department’s criminal division.

Nader also told Bush administration officials should have alerted the Justice Department and the Securities and Exchange Commission last fall when contacted about Enron’s problems.

For more on the “JEDI” and the Simon connection, GO TO > > > William Simon Says…


January 24, 2002

Lay Resigns as Chairman, CEO of Enron

By Dan Morgan and Peter Behr, The Washington Post

WASHINGTON – Kenneth Lay resigned yesterday as chairman and chief executive of Enron Corp., caught between unrelenting pressure from the energy company’s creditors and a circle of federal and congressional investigators pursuing the reasons for the company’s collapse late last year.

Earlier yesterday, a lawyer for Enron’s outside auditor, David Duncan, said his client will defy a subpoena and refuse to testify before Congress about the destruction of financial documents.

Lay, 59, who founded the Houston company in 1986 and presided over its surging growth as an energy trader in the late 1900s, submitted his resignation around noon in a conference phone call with the company’s board of directors. He will remain on the board. . . .

IN OTHER ACTION yesterday, the Labor Department said its investigation of Enron is focusing on identifying officials responsible for employee retirement plans and checking whether they acted only in the interest of the plans and their participants.

The investigation, which was announced last month, “will take some time,” Ann Combs, assistant labor secretary, said yesterday.

Enron’s retirement plans included:

>> 401(k) plan with about 63 percent of its assets in Enron stock and 20,796 participants.

>> A benefit plan with about 20,000 participants and no assets in company stock.

>> An employee stock ownership plan with about 7.600 participants mostly invested in Enron stocks.

For several weeks before its bankruptcy filing, Enron had prohibited its workers from selling stock held in their 401(k) retirement plans, even as Enron’s stock price was plunging.


January 24, 2002

Gramm Decries Innuendo, Says Wife Had No Hint of Enron Failure

By Nancy Benac, Associated Press

WASHINGTON – Sen. Phil Gramm of Texas, whose wife sits on Enron’s board and audit committee, said yesterday he had no advance warning of the company’s bankruptcy or its dire financial situation.

The Republican senator added that he and his wife, Wendy, lost nearly $700,000 in compensation that had been set aside for payment to her later from an account tied to the value of Enron stock.

Wendy Gramm has been named in a lawsuit by investors against Enron executives and directors.

Gramm said he and his wife, a former head of the Commodity Futures Trading Commission, have made it a point not to discuss her business activities.

“My wife and I have had parallel careers ever since we came to Washington,” he said. “When we go home, we talk about important things like the Texas A&M football, me taking out the garbage, those kinds of things.”

Gramm said his wife sold all her Enron stock in 1998, before the value of the company’s stock soared. Her net gain on three stock transactions was about $207,000, Gramm’s office said. . . .

Gramm, who has received $97,350 in campaign donations from Enron since 1989, has decided to remove himself from congressional hearings focusing on what went wrong at the company. But he will take part in more general inquiries into accounting standards, investor protection issues and other matters, the senator said. . . .

Gramm defended his wife against the criticisms that have been aimed at the energy company, saying, “she did nothing wrong.”

The shareholder lawsuits allege that Enron’s directors and senior executives sold $1.1 billion in Enron shares between 1998 and 2001 with inside knowledge that the company was in financial trouble.

Wendy Gramm likely will be called to testify before one of many congressional panels looking into the Enron debacle.


January 24, 2002

From Common Dreams Newscenter (

Published in the February 4, 2002 issue of The Nation

Crime in the Suites

There Are More Enrons Out There; The Rot is Systemic

by William Greider

The collapse of Enron has swiftly morphed into a go-to-jail financial scandal, laden with the heavy breathing of political fixers, but Enron makes visible a more profound scandal – the failure of market orthodoxy itself. Enron, accompanied by a supporting cast from banking, accounting and Washington politics, is a virtual piñata of corrupt practices and betrayed obligations to investors, taxpayers and voters.

But these matters ought not to surprise anyone, because they have been familiar, recurring outrages during the recent reign of high-flying Wall Street. This time, the distinctive scale may make it harder to brush them aside.

“There are many more Enrons out there,” a well-placed Washington lawyer confided. He knows because he has represented a couple of them.

The rot in America’s financial system is structural and systemic. It consists of lying, cheating and stealing on a grand scale, but most offenses seem depersonalized because the transactions are so complex and remote from ordinary human criminality. The various cops-and-robbers investigations now under way will provide the story line for coming months, but the heart of the matter lies deeper than individual venality. In this era of deregulation and laissez-faire ideology, the essential premise has been that market forces discipline and punish the errant players more effectively than government does.

To produce greater efficiency and innovation, government was told to back off, and it largely has. “Transparency” became the exalted buzzword. The market discipline would be exercised by investors acting on honest information supplied by the banks and brokerages holding their money, “independent” corporate directors and outside auditors, and regular disclosure reports required by the Securities and Exchange Commission and other regulatory agencies.

The Enron story makes a sick joke of all these safeguards.

But the rot consists of more than greed and ignorance. The evolving new forms of finance and banking, joined with the permissive culture in Washington, produced an exotic structural nightmare in which some firms are regulated and supervised while others are not. They converge, however, with kereitzu-style back-scratching in the business of lending and investing other people’s money.

The results are profoundly conflicted loyalties in banks and financial firms–who have fiduciary obligations to the citizens who give them money to invest. Banks and brokerages often cannot tell the truth to retail customers, depositors or investors without potentially injuring the corporate clients that provide huge commissions and profits from investment deals. Sometimes bankers cannot even tell the truth to themselves because they have put their own capital (or government-insured deposits) at risk in the deals.

These and other deformities will not be cleaned up overnight (if at all, given the bipartisan political subservience to Wall Street interests). But Enron ought to be seen as the casebook for fundamental reform.

The people bilked in Enron’s sudden implosion were not only the 12,000 employees whose 401(k) savings disappeared while Enron insiders were smartly cashing out more than $1 billion of their own shares. The other losers are working people across America. Enron was effectively owned by them.

On June 30, before the CEO abruptly resigned and the stock price began its terminal decline, 64 percent of Enron’s 744 million shares were owned by institutional investors, mainly pension funds but also mutual funds in which families have individual accounts. At midyear, the company was valued at $36.5 billion, having fallen from $70 billion in less than six months. The share price is now close to zero.

Either way you figure it, ordinary Americans–the beneficial owners of pension funds–lost $25-$50 billion because they were told lies by the people and firms they trusted to protect their interests.

This is a shocking but not a new development. Global Crossing went from $60 a share to pennies (as with Enron, the market had said it was worth more than General Motors). CEO Gary Winnick cashed out early for $600 million, but the insiders did not share the bad news with other shareholders. Workers at telephone companies bought by Global Crossing had been compelled to accept its stock in their retirement plans. (Winnick bought a $60 million home in Bel Air, said to be the highest-priced single-family dwelling in America.)

Lucent’s stock price tanked with similar consequences for employees and shareholders, while executives sold $12 million in shares back to the failing company. (After running Lucent into the ground, CEO Richard McGinn left with an $11.3 million severance package.)

There are many Enrons, as the lawyer said.

The disorder writ large by the Enron story is this regular plundering of ordinary Americans, who are saving on their own or who have accepted deferred wages in the form of future retirement benefits. Major pension funds can and do sue for damages when they are defrauded, but this is obviously an impotent form of discipline. Labor Department officials have known the vulnerable spots in pension-fund protection for many years and regularly sent corrective amendments to Congress–ignored under both parties.

In the financial world, the larceny is effectively decriminalized–culprits typically settle in cash with fines or settlements, without admitting guilt but promising not to do it again. If jailtime deters garden-variety crime, maybe it would be useful therapy for corporate and financial behavior.

The most important reform that could flow from these disasters is legislation that gives employees, union and nonunion, a voice and role in supervising their own pension funds as well as the growing 401(k) plans. In Enron’s case, the employees who were not wiped out were sheet-metal workers at subsidiaries acquired by Enron whose union locals insisted on keeping their own separately managed pension funds.

Labor-managed pension funds, with holdings of about $400 billion, are dwarfed by corporate-controlled funds, in which the future beneficiaries are frequently manipulated to enhance the company’s bottom line. Yet pension funds supervised jointly by unions and management give better average benefits and broader coverage (despite a few scandals of their own). If pension boards included people whose own money is at stake, it could be a powerful enforcer of responsible behavior.

The corporate transgressions could not have occurred if the supposedly independent watchdogs in the system had not failed to execute their obligations. Wendy Gramm, wife of Senator Phil Gramm, the leading Congressional patron of banking’s privileges, is an “independent” director of Enron and supposedly speaks for the broader interests of other stakeholders, from the employees to outside shareholders. Instead, she sold early too.

With notable exceptions, the “independent” directors on most corporate boards are a well-known sham–typically handpicked by the CEO and loyal to him, even while serving on the executive compensation committees that ratify bloated CEO pay packages. The poster boy for this charade is Michael Eisner of Disney. As CEO, he must answer to a board of directors that includes the principal of his kids’ elementary school, actor Sidney Poitier, the architect who designed Eisner’s Aspen home and a university president whose school got a $1 million donation from Eisner.

As Robert A.G. Monks and Nell Minow, leading critics of corporate governance, asked in one of their books: “Who is watching the watchers?”

Do not count on “independent” auditors, as Arthur Andersen vividly demonstrated at Enron. While previous scandals did not involve massive document-shredding, Andersen’s behavior is actually typical among the Big Five accounting firms that monopolize commercial/financial auditing worldwide. Andersen already faces SEC investigation for its role in “Chainsaw Al” Dunlap’s butchery of Sunbeam and has paid $110 million to settle Sunbeam investors’ damage suits.

A decade ago Andersen fronted for Charles Keating’s notorious Lincoln Savings & Loan, which bilked the elderly and then collapsed at taxpayer expense–despite a prestigious seal of approval from Alan Greenspan (Keating went to prison; Greenspan became Federal Reserve Chairman).

But why pick on Arthur Andersen? Ernst & Young paid out even more for “recklessly misrepresenting” the profit claims of Cendant Corporation–$335 million to the New York and California public-employee pension funds. Cendant itself has paid out $2.8 billion to injured investors, but hopes to recover some money by suing Ernst & Young.

PriceWaterhouseCoopers handled the books at Lucent, accused of inflating profits by $679 million in 2000 and prompting yet another SEC investigation.

The corruption of customary auditing–and the fact that an industry-sponsored board sets the arcane accounting tricks for determining whether profits are real or fictitious–is driven partly by the Big Five’s dual role as consultants and auditors. First they help a company set its business strategy, then they examine the books to see if management is telling the truth.

This egregious conflict of interest should have been prohibited long ago, but the scandal has reached a ripeness that now calls for a more radical solution–the creation of public auditors, hired by government, paid by insurance fees levied on industry and completely insulated from private interests or politics.

Actually, this isn’t a very radical idea, since the government already exercises the same close scrutiny and supervision over commercial banks. Because that banking sector lost its primary role in lending during the past two decades, the same public auditing and supervisory protections should be extended to cover the unregulated money-market firms and funds that have displaced the bankers.

Enron is unregulated, though it functioned like a giant financial house. So is GE Capital, a money pool much larger than all but a few commercial banks. Mutual funds and hedge funds are essentially free of government scrutiny. So are the exotic financial derivatives that Enron sold and that led to shocking breakdowns like the bankruptcy of Orange County, California.

The government failed too, mainly by going limp in its due diligence but also by withdrawing responsibility through legislative deregulation. The one brave exception was Arthur Levitt, Clinton’s SEC commissioner, who gamely raised some of these questions, but without much effect because he was hammered by the industry and its Congressional cheerleaders.

Corrupt accountants and investment bankers now have a friendlier commissioner at the SEC – lawyer Harvey Pitt, whose firm has represented Arthur Andersen, each of the Big Five and Ivan Boesky, whose fraud case was settled for $100 million. Pitt blames Arthur Levitt’s inquiries for upsetting the accounting industry’s self-regulation. Given his connections, Pitt should not just recuse himself from the Enron case–a crisis of legitimacy for the SEC–he should be compelled to resign.

Similarly sympathetic cops are scattered throughout the regulatory agencies. At the Federal Reserve, a new governor, Mark Olson, headed “regulatory consulting” in Ernst & Young’s Washington office. Another new Fed governor, Memphis banker Susan Bies, has been an active opponent of strengthening derivatives regulation.

But the heart of the scandal resides in New York, not Washington. The major houses of Wall Street play a double game with their customers – doing investment deals with companies in their private offices while their stock analysts are out front whipping up enthusiasm for the same companies’ stocks.

Think of Goldman Sachs still advising a “buy” on Enron shares last fall, even as the company abruptly revealed a $1.2 billion erasure in shareholder equity. Goldman earned $69 million from Enron underwriting in recent years, the leader among the $323 million Enron paid Wall Street firms.

Think of the young Henry Blodget, now famous as Merrill Lynch’s never-say-sell tout for the same Nasdaq clients whose fees helped fuel Blodget’s $5-million-a-year income (Merrill has begun settling investor lawsuits in cash).

Think of Mary Meeker at Morgan Stanley Dean Witter, dubbed the “Queen of the Net” for pumping up Internet firms while Morgan Stanley was taking in $480 million in fees on Internet IPOs. The conflict is not exactly new but has reached staggering dimensions. The brokers whose stock tips you can trust are the ones who don’t offer any.

The larger and far more dangerous conflict of interest lies in the convergence of government-insured commercial banks and the investment banks, because this marriage has the potential not only to burn investors but to shake the financial system and entire economy. If the newly created and top-heavy mega-banks get in trouble, their friends in power may arrange another cozy government bailout for those it deems “too big to fail.”

The banking convergence, slyly under way for years, was formally legalized in the 1999 repeal of Glass-Steagall, the New Deal law that separated the two sectors to eliminate the very kind of self-dealing that the Enron case suggests may be threatening again.

We don’t yet know how much damage has been done to the banking system, but its losses seem to grow with each new revelation. JP Morgan, Chase and Citigroup provided billions to Enron while also stage-managing its huge investment deals around the world and arranging a fire-sale buyout by Dynergy that failed (Morgan also played financial backstop for Enron’s various kinds of trading transactions). Instead of backing off and demanding more prudent management, these two banks lent additional billions during Enron’s final days, perhaps trying to save their own positions (we don’t yet know).

Instead of warning other banks of the rising dangers, Chase and Citi led the happy talk. Both have syndicated many billions in bank loans to other commercial banks–a rich fee-generating business that allows them to pass the risks on to others (federal regulators report that the volume of “adversely classified” syndicated loans has risen to 8 percent, tripling the problem loans since 1998).

These facts may help explain why former Treasury Secretary Robert Rubin, now of Citigroup, called an old friend at Treasury and suggested federal intervention. Rubin’s bank has a large and growing hole in its own loan portfolio. Could Treasury please pressure the credit-rating agencies, Rubin asked, not to downgrade Enron?

Though he styles himself as a high-minded public servant, Rubin was trying to save his own ass. Indeed, he called the very Treasury official who, as an officer of the New York Federal Reserve back in 1998, had engineered the cozy bailout of Long Term Capital Management – the failing hedge fund that Citigroup, Merrill and other major financial houses had financed. Gentlemanly solicitude for big boys who get in trouble connects Washington with Wall Street and spans both political parties.

In this new world of laissez-faire, when things go blooey, the government itself is exposed to risk alongside hapless investors – if the commercial banks are lending federally insured deposits along with their own investment plays or are exercising what amounts to an equity position in the failed management. This is allegedly forbidden by “firewalls” within the mega-banks, but when a banker gets in deep enough trouble, he may be tempted to use the creative accounting needed to slip around firewalls.

“A bank that has equity shares in a company that goes south can no longer make neutral, objective judgments about when to cut off credit,” said Tom Schlesinger, executive director of the Financial Markets Center. “The rationale for repealing Glass-Steagall was that it would create more diversified banks and therefore more stability. What I see in these mega-banks is not diversification but more concentration of risk, which puts the taxpayers on the hook. It also creates a financial sector much less responsive to the real needs of the economy.”

The fallacies of our era are on the table now, visible for all to see, but the follies are unlikely to be challenged promptly – not without great political agitation. The other obvious deformity exposed by Enron is the insidious corruption of democracy by political money. The routine buying of politicians, federal regulators and laws does not constitute a go-to-jail scandal since it all appears to be legal.

But we do have a strong new brief for enacting campaign finance reform that is real. The market ideology has produced the best government that money can buy.

The looting is unlikely to end so long as democracy is for sale.

© 2002 The Nation Company, L.P.


January 27, 2002

Former Executive Appeared Distraught Before Suicide

By Jim Yardley and Shaila K. Dewan, The New York Times

HOUSTON – Cliff Baxter was supposed to be on a boat right now, floating on some endless expanse of blue water beneath endless blue skies….

The son of a police sergeant, Baxter was getting out of Enron as a rich man at a time when his vision for the company apparently clashed with those of many of its top executives. He had helped create the company’s centerpiece business, its energy trading operations, and had risen to vice chairman.

He had a loving wife and two children and a big new house in an exclusive suburb. He could afford to do anything, or nothing at all.

But if Baxter left Enron months before trouble engulfed the company, those troubles seemed to be engulfing him when he was found dead early Friday morning, shot once in the head. An autopsy was completed on Friday, and the death has been ruled a suicide, a representative of the Harris County Medical Examiner’s Office said.

Baxter had been subpoenaed by Congress to testify about Enron, and investigators hoped he would be a helpful witness against his former peers, because his name had surfaced as someone who had complained mightily about the financial partnerships now at the center of the company’s collapse. He had also been named as a defendant in a shareholder lawsuit.

HIS ANGUISH became evident to those who bumped into him in recent weeks. People who saw him at the Houston Yacht Club, where until recently Baxter kept a boat, Tranquility Base, noticed that his salt-and-pepper hair had turned mostly white between December and January, according to the club’s president, Chuck Buckner.

“Cliff was a guy who clearly seemed to be very concerned that people would think ill of him whether he’d done anything wrong or not,” said Buckner, a partner with Ernst & Young. . . .

Police investigators in Sugar Land, the affluent Houston suburb where Baxter’s body was discovered inside his parked Mercedes-Benz, have refused to reveal the contents of a suicide note he left behind . . .

“He was really typical of what the Enron culture was, although he was a very principled individual,” said one former colleague, Michael P. Moran, a retired general counsel of Enron’s natural gas pipeline group who is now serving on the creditors’ committee overseeing the bankruptcy.


January 27, 2002

Large Houston Law Firm Helped Build Partnerships to Hide Debt

By James V. Grimaldi and Peter Behr, The Washington Post

WASHINGTON – Attorneys from Vinson & Elkins, one of Houston’s largest and most prestigious law firms, played a critical role in helping Enron Corp. structure a series of complex partnership deals that helped drive the company into bankruptcy, according to documents and former senior Enron executives.

The lawyers worked side-by-side with Enron officials and Arthur Andersen accountants to create several off-balance-sheet investment partnerships that are now at the center of government investigations into possible shareholder fraud, the executives said. The deals helped Enron conceal hundreds of millions of dollars in debt and gave investors a false picture of the company’s financial stability.

Vinson & Elkins’ work for Enron, the firm’s largest corporate client, included rendering legal opinions that vouched for the authenticity of the Raptor and Condor partnerships, two of Enron’s most complex and controversial business arrangements. These “true sale” opinions are used to assure outside investors that funds, assets and liabilities were in fact changing hands as promised in the partnership documents.

One of the largest partnerships was described to investors as independent but was in fact controlled by senior Enron executives. Enron acknowledged last fall.

The former executives said the role played by Vinson & Elkins at times went beyond the customary work of a large corporation’s outside counsel. They said the attorneys regularly participated in discussions in Enron’s 48th floor conference room where complex partnerships were structured, then diagrammed on a large white display board.

Arthur Andersen participated in the design of these vehicles,” said Clayton Vernon, a former Enron economist and manager. “They (accountants) weren’t passive. The same is true for Vinson & Elkins.” . . .

Since the investigations began, Vinson & Elkins has tried to distance itself from the company once considered so close that the firms was jokingly known as “Vinson & Enron.” The Enron account brought the law firm $150 million over the past five years.

Concerns over the law firm’s role in a series of questionable partnerships first came to light earlier this month with the release of a memo written by an Enron whistleblower to then-chairman Kenneth Lay.

In the document, former Enron vice president Sherron Watkins urged that some of the partnership deals be reviewed by independent lawyers, but she questioned whether Vinson & Elkins could impartially investigate their negative impact on the company. . . .

But when Lay referred the matter to Enron’s in-house lawyers, general counsel James V. Derrick Jr., a former Vinson & Elkins lawyer,” called his old firm to handle the matter anyway.

The Vinson & Elkins review concluded that the partnership deals were appropriate “from a technical standpoint” but could be “portrayed very badly” by a newspaper exposé or lawsuit.

Last fall, Lay also cited Vinson & Elkins in trying to reassure employees about Enron’s falling stock price.

In a Sept. 26 e-mail chat with an employee, Lay said Enron’s board would not approve the use of any financial vehicles “unless we were convinced both by our internal officers and counsel (Vinson & Elkins) that they were legal and totally appropriate.”

Joseph Dilg, 50, the firm’s new managing partner, was the chief liaison with Enron for a decade. Dilg said he could not comment on specific transactions, citing attorney-client privilege.

But he said the firm adhered to the highest professional and ethical standards….”


January 27, 2002

Stock’s Slide Hit Pension Funds as Money Managers Kept Buying

By Adam Geller, Associated Press

NEW YORK – It wasn’t just Enron employees and individual investors who bet heavily – and lost big – on the company’s stock last fall. Some of the nation’s largest money management firms and pension funds also got shellacked when they kept buying even as evidence of Enron’s troubles mounted, often investing money set aside for retirement.

But some industry insiders are reluctant to second-guess firms like Alliance Capital Management, which kept pouring money into Enron. . . .

Investments in Enron gone awry cost the Florida State Board of Administration $306 million, more than $280 million of that in money handled by Alliance. Such losses raise the question of whether investment managers should have seen Enron’s collapse coming. . . .

Florida is suing Enron and has fired the New York-based Alliance. New York City’s pension fund has joined in the lawsuit.

In addition, a handful of individual investors in mutual funds have sued alliance, accusing the company – which was the largest single stakeholder in Enron – of mishandling their money. The investor lawsuits allege a conflict of interest by a former Alliance executive, Frank Savage, who also sits of Enron’s board. . . .

But as dissatisfied as it is with Alliance’s performance, Florida officials note that the firm appears to have been operating on the same assumptions and making decisions similar to those at least some of its competitors were making.

“Like a lot of people out on Wall Street, they seem to have believed in this company,” said Michael Pucillo, a West Palm Beach, Fla., attorney representing the state’s Board of Public Administration in a suit against Enron. “What can I tell you? They’re not alone.”

In the three months that ended in September, the company snapped up 17.8 million shares of Enron stock for its own mutual funds, giving it a total of 43 million shares, or nearly 6 percent of the entire energy company.

The firm’s extreme bullishness on Enron stock is grimly illustrated in a spreadsheet faxed to Florida officials by Alliance.

The sheet’s first entry, dated Nov. 6, 2000 and denoted with a tiny “B” for “buy,” shows Alliance began by acquiring 150,000 shares of Enron on Florida’s behalf at $78.74 a share.

It is the first of 50 such “B” entries, at prices as high as $82.73 a share, interrupted only by a single, limited sale of the stock last April. The purchases, records show, continued through mid-November. At the very end, the purchases were especially aggressive – in just the four days ending Nov. 16, Alliance bought up 1.27 million shares of Enron.

By the time Alliance finally realized its mistake and liquidated Florida’s holdings, two days after Dynegy Corp. abandoned plans to buy Enron, the stock was worth 28 cents a share.

(Catbird Note: Hey, Florida Governor Jeb Bush! I thought your dad said that you were the smart one in the family!)

Still, Alliance was just one of several money management firms that put more money into the stock through September.

Fidelity Management & Research and its sister international firm upped their stake in Enron by 5.7 million shares to 23 million during the three months that ended in September, the latest date for which figures are available.

Smith Barney bought 3.4 million shares during the same period, boosting its stake to 20.6 million shares.

Some such buying decisions were actually made by bullish investment firms on behalf of others, a result of the increasingly common practice of sub-advising, in which the operator of a mutual fund farms out management of assets to another firm.

For more, GO TO > > > The Great Nest Egg Robberies


February 2, 2002

Financial Perks

Trend is toward more lavish packages for executives

By Liz Pulliam Weston, Los Angeles Times

The lavish retirement plans, low-interest loans and other perquisites showered on Enron Corp. managers have put a spotlight on a growing corporate trend – one of ever-richer executive benefits packages whose costs often can be hidden from shareholders.

Compensation experts say companies increasingly are using executives’ benefits packages, which already are far more generous than those offered to regular workers, as a way to quietly beef up total pay for top managers regardless of how their company performs.

Sumptuous paychecks for executives are nothing new. But shareholder activists say weak regulatory requirements, along with a faltering stock market, are leading to unchecked growth in executive retirement plans and other benefits even as regular workers face losses and cutbacks in their own plans.

“The trend has been for executives to be greedier and greedier, even though there’s a recession,” said Cynthia Richson, director of corporate governance for the State of Wisconsin Investment Board.

As many workers’ 401(k) retirement plans shrink, executives at some companies get guaranteed returns on their investments. Other companies pour hundreds of millions into special executive-only retirement accounts. Companies also pay for big insurance policies and offer executive multimillion-dollar loans, complete with below-average interest rates and a company promise to forgive some of the payments. . . .

For a variety of accounting and regulatory reasons, companies often are not required to report the price tag for many of their executive benefits to the Securities and Exchange Commission. When benefits are disclosed, their costs often are tucked into footnotes or lumped into a catchall category of “other compensation,” said Nell Minow, editor of the Corporate Library, which tracks compensation trends. . . .

Traditional pension plans limit benefits to executives with high six-figure incomes, because the plans can take into account no more than $200,000 of salary when determining benefits. The Internal Revenue Service also requires companies to cap the 401(k) contributions of their highest-paid workers, so many executives are prevented from making the full $11,000 annual contributions the law otherwise allows.

About 60 percent of the executive retirement plans in a 1998 survey simply made up for the benefits that would otherwise have been lost to IRS rules, said Janet Den Uyl, head of executive benefits and compensation for William M. Mercer Inc. . . . (See ‘The Marsh Birds’ ).

Here are some of the non-salary perks companies have made available to top managers:

>> Guaranteed returns on investment. Top executives at Enron could contribute salary and bonuses to so-called ‘deferred compensation’ accounts with guaranteed minimum annual returns of 12 percent. Struggling Lucent Technologies Inc. has a similar plan that promises to pay 5 percentage points more than the 10-year Treasury rate. . . .

>> Bigger company matches. The typical company match for a 401(k) defined contribution plan is 50 cents for every dollar the employee contributes, up to 6 percent of the worker’s salary…. The company contribution for an executive version of a 401(k) is typical 60 percent higher….

>> Huge low-cost loans. SEC filings show telecom company Global Crossing Ltd., which filed for bankruptcy protection this week, made an $8 million loan to Chief Executive Thomas Casey in November 2000 and a $1.8 million loan to President David Walsh in March 2001.

Both loans were secured by the executives’ homes, but the interest rates they paid – 6.01 percent for Casey, 4.75 percent for Walsh – were 3 to 4 percentage points below prevailing rates on standard home equity loans. . . .


February 7, 2002

Enron losses catch up with insurers, sting profits

By Bill Rigby

NEW YORK, Feb 7 (Reuters) – As the Enron saga unfolded in front on Congress, the trail of devastation left by the bankrupt energy trader caught up with insurers, wiping millions off quarterly profits.

American International Group Inc. (AIG) and Chubb Corp. (CB) both took a hit on Thursday, adding to the pain of a year already clouded by the destruction of the World Trade Center.

The insurers got hurt by Enron in two ways: underwriting surety bonds, which guaranteed Enron Corp.’s promises to deliver gas; and losses on investments in the Houston company.

The insurers won’t be the last this season to get hit. Life insurer MetLife Inc. (MET) held $63 million in Enron investments, according to analysts, which it may have to write down when it reports earnings next week. CNA Financial (CNA), also reporting next week, has already said it faces $50 million in surety losses.

Further losses may also be lurking in the form of directors’ and officers’ liabilities — designed to protect bosses from lawsuits — but insurers may seek to cancel Enron’s policies if they can show directors meant to mislead investors.

Warren, New Jersey-based Chubb took the biggest hit on Thursday, setting up a $220 million reserve fund to cover surety losses, putting a large dent in reported profits.

Chubb, like other property and liability insurers in the 1990s, turned to surety bonds as a good way of making money as rates declined in their main lines of business.

The practice turned out to be quite risky, however, as sureties were used to guarantee a range of complex financial deals, not just the traditional construction projects or straightforward deliveries.

Chubb has so far only actually paid out a small fraction of its $220 million reserve, and may not end up paying it all, as the firm — along with a group of other insurers — is battling J.P. Morgan & Co. (JPM) to avoid payment on one deal, which the insurers say was misrepresented.

The matter is likely to take months — if not years — to settle, as broader investigations into Enron proceed.

Including the Enron hit, Chubb’s quarterly net profits fell 83 percent, to $28.7 million.

New York-based AIG, the world’s No. 1 insurer by market value, said it paid out $57 million in Enron surety bond claims, and also wrote down $69 million worth of Enron investments in the quarter.

Despite that, the giant insurer, known for delivering reliable profits from its global operations, reported net profits increased 3.5 percent, to $1.87 billion.

AIG and Chubb are the latest in a line of insurers to take a hit from Enron.

Over the past week, several other insurers faced up to Enron-related losses putting a dent in earnings, including John Hancock Financial Services Inc. (JHF), Phoenix Cos. Inc. (PNX), and W.R. Berkley Corp. (BER).

© 2002 Reuters


February 13, 2002

Lay Refuses to Testify

By Susan Schmidt, The Washington Post

WASHINGTON – Former Enron chairman Kenneth Lay withstood a torrent of criticism from angry senators yesterday before invoking his Fifth Amendment right and refusing to testify about his knowledge of the financial dealings that pushed his company into bankruptcy last fall.

Subpoenaed by the Senate Commerce Committee, Lay said he appeared with a “profound sadness” about what happened to the company he built and to its employees and shareholders and wanted to explain his side of the story.

But he said he could not ignore the advice of his lawyers not to testify under oath. “I am deeply troubled about asserting these (Fifth Amendment) rights because it may seem to some that I have something to hide,” Lay said.

Lay became the fifth current or former Enron executive to refuse to testify before congressional committees investigating the company’s downfall. The Justice Department and securities regulators also are probing what Lay and other senior executives knew about partnerships an internal Enron board report said were used to inflate profits and hide losses. . . .

“You are perhaps the most accomplished confidence man since Charles Ponzi,” said Sen. Peter Fitzgerald, R-Ill. “I’d say you’re like a carnival barker except that might not be fair to carnival barkers. A carnie will at least tell you up front that he’s running a shell game.”

Sen. Byron Dorgan, D-N.D., said he wanted to know “how is it that 29 Enron executives at the top were able to earn $1 billion in stock sales in 2001 while people at the bottom lost everything.”

“Obviously, Mr. Lay, the anger here is palpable,” said Sen. John Kerry, D-Mass. “Lives are ruined, many lives at the top and at the bottom.” Kerry said that Enron had 2,832 offshore partnerships and questioned whether they were set up to evade taxes.

“Mr. Lay, we are all stunned and confused by Enron’s behavior, and especially by your unwillingness to come clean with the American people,” said Sen. Jean Carnahan, D-Mo.

Sen. Barbara Boxer, D-Calif., said her state was “bled dry” by Enron price gouging during last year’s energy crisis there….

ENRON AUDITOR ARTHUR ANDERSEN was unwilling to provide much information to the investigators, and stopped cooperating altogether when Enron fired the company last month, Powers said.

He also said his committee did not examine insider trading by Enron executives, calling it a “very serious issue that needs to be investigated.”

Lay was portrayed in the report as a lax manager who “bears significant responsibility for those flawed decisions” to create off-the-books partnerships and let others run them.

Also yesterday, it was announced that control of Enron’s retirement plans is being transferred from company executives to an independent expert who will be appointed by the Labor Department.

Enron must pay the cost of the independent, legal representative for three years, up to a maximum $1.5 million a year plus expenses such as accounting services. The agreement may require bankruptcy court approval.

The legal representative, called a fiduciary, will “aggressively protect workers’ interests during corporate bankruptcy proceedings and maximize the likelihood of recovering funds for the plans,” Labor Secretary Elaine Chao said.

“Enron’s employees should be confident that their interests will be protected by a fiduciary who is unrelated to Enron,” Chao said….

THE FIDUCIARY, which officials are in the process of securing, will assume control over operating the plans and investing their assets. The representative will also select and monitor investment managers and funds.

(Catbird Catcall: I can visualize Labor Secretary Elaine Chao with a candle desperately looking for ‘an honest fiduciary’. We’ll keep our eyes open and advise you who the “officials” find.)

Many workers lost retirement savings that were heavily invested in Enron stock as the price steadily declined last year. Overall, the 20,795 participants in Enron’s 401(k) plan had about 63 percent of their assets invested in company stock.

(Catbird Comment: Wonder WHERE the remaining 37 percent of their assets were invested? And WHO was in charge of investing them?)

The department is investigating whether the company-appointed fiduciaries were prudent and acted only in the interest of the employees and the plan, as required under federal pension law.

FIVE FORMER CHAIRMEN OF THE SECURITIES AND EXCHANGE COMMISSION told the Senate Banking Committee that Enron’s collapse has exposed flaws in the accounting and financial reporting system and will require major reform to restore investor confidence.

In calling for changes, the chairmen, whose leadership at the SEC spanned all but eight years between 1975 and 2000, conceded that some of the practices they put in place during their tenure were no longer adequate, including the Public Oversight Board an industry-funded group charged with regulating the accounting profession.

The panel of chairmen included Arthur Levitt Jr., Richard Breeden, David Ruder, Harold Williams and Roderick Hills. (John Shad, who ran the SEC from 1981 to 1989, died in 1994.) The former chairmen called for stronger SEC rules and for congressional action where it might be warranted.

“I fear backsliding,” said Levitt, who was chairman from 1993 to 2000 and battled the accounting industry over auditor independence at the end of his term.

In the wake of Enron, Congress is reviewing virtually every part of the financial reporting system, focusing on the roles played by company management, audit committees, auditors and regulators.

Banking Chairman Paul Sarbanes, D-Md., asked the former SEC officials to recommend ways to improve the system and prevent another failure like Enron. The chairmen came armed with thick proposals outlining their ideas for reform.

Although they differed in their solutions, they all agreed that the system of self-regulation for accountants does not work in its current form and that the SEC must play a larger role in the oversight of the profession.


February 20, 2003

EOTT Energy Restructures Board; New Board Provided for Under EOTT’s Plan Of Reorganization, as Company Emerges From Chapter 11

Press Release, EOTT Energy Partners, L.P.

HOUSTON — EOTT Energy Partners, L.P. (OTC Pink Sheets: EOTPQ) announced today that it has identified individuals to serve on the Board of Directors of EOTT Energy LLC upon implementation of its Plan of Reorganization. The Plan is expected to become effective on March 1, 2003.

Under the terms of the Plan of Reorganization, EOTT Energy Partners, L.P. will emerge from bankruptcy as a new entity, EOTT Energy LLC, as the owner of the limited partnerships through which EOTT’s business is operated.

Joining the Board are: J. Robert Chambers, a managing director at Lehman Brothers, Inc.; Julie H. Edwards, executive vice president, finance and administration and chief financial officer of Frontier Oil Corporation; Robert E. Ogle, a managing director in the Corporate Advisory Services practices of Huron Consulting Group; S. Wil VanLoh, Jr., president, co-founder and managing partner, Quantum Energy Partners; and Daniel J. Zaloudek, founder of multimedia content company IMEDIA, and a former senior executive with international oil and gas operations of Koch Industries. Thomas M. Matthews, the former chief executive officer of Avista and former president of NGC Corporation, and James M. Tidwell, chief financial officer and vice president of finance for WEDGE Group Incorporated, will also join the new Board.

Mr. Matthews and Mr. Tidwell currently serve on the Board of EOTT Energy Corp., the General Partner of EOTT Energy Partners, L.P. Mr. Matthews will serve as Chairman of the new board.

Commenting on the prospective Board reorganization, EOTT’s President and Chief Executive Officer, Dana R. Gibbs said, “The members of the new board are distinguished by their extensive expertise and relevant business experience. Drawing on backgrounds in energy services, finance and business reorganization, we look forward to their individual contributions to our strong framework for competing in the future, with solid customer relationships, a stronger financial position and a clear plan for growth.”

EOTT Energy Partners, L.P. and its subsidiaries filed for protection under Chapter 11 of the U.S. Bankruptcy Code on October 8, 2002 in the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division, under a “fast track” process to significantly reduce its debt, restructure its finances, and formalize a complete separation from Enron Corp.

Following is background information about each of the members of EOTT’s new board:


Mr. Chambers is currently a Managing Director at Lehman Brothers, Inc., where he manages the Lehman Energy Fund portfolio with 13 years of energy finance experience. Earlier, he was a fixed income analyst in Lehman’s High Yield Department, covering the energy sector. During this time, he was named to the Institutional Investor All-American Research Team on five separate occasions. Mr. Chambers has been involved in numerous energy company restructurings/bankruptcies, including Forcenergy, Costilla Energy, Dailey International, Rigco North America, and Presidio Oil Company. Prior to his tenure with Lehman Brothers, Mr. Chambers served in the Investment Banking Department of Kidder, Peabody & Company from 1989 to 1994.

Mr. Chambers graduated magna cum laude from Texas A&M with a B.B.A. in Finance and Accounting.


Ms. Edwards is Executive Vice President, Finance and Administration, and Chief Financial Officer of Frontier Oil Corporation in Houston, Texas, where she earlier held the posts of secretary and treasurer. Prior to joining Frontier (formerly Wainoco Oil), she was Vice President of Corporate Finance with Smith Barney, Harris Upham & Co. Inc., in New York and Houston where she focused on the energy sector. She began her career as a petroleum geologist working with Amerada Hess Corporation and American Ultramar, Ltd.

Ms. Edwards graduated from Yale College, Yale University, where she earned a B.S. in Geology and Geophysics. She was awarded her MBA with a concentration in Finance by Wharton Graduate School.


Mr. Matthews currently provides strategic and advisory assistance to companies, individuals and universities on business, political and education issues. In his last corporate post, Matthews served as CEO of Avista Corp., leading the company in independent power, telecommunications, fuel cells and the Internet, as well as the continued expansion of its electric and gas utility operations. Before his tenure Avista, Mr. Matthews served as president of NGC Corp., where he was responsible for oversight of worldwide operations, as well as the c with ompany’s corporate merger and acquisition, legal, regulatory, and information technology functions. Previously, Matthews was Vice President of Texaco, Inc. serving as president of its refinery and marketing and global gas and power divisions.

Mr. Matthews graduated with honors in civil engineering from Texas A&M University. He has completed postgraduate training in petroleum and natural gas engineering at the University of Oklahoma and executive program training at Stanford University in finance and Columbia University in international business. Mr. Matthews also serves on the board of Environmental Power Corporation.


Mr. Ogle is a Managing Director in the Corporate Advisory Services practice of Huron Consulting in Houston, where he focuses on corporate restructuring. Prior to his association with Huron, Mr. Ogle was a partner with Arthur Andersen LLP, and also a partner with Spicer & Oppenheim, where he led its litigation support and bankruptcy practice. Earlier in his career, he served in the internal audit department of Gulf Oil Corporation and in private accounting practice.

Mr. Ogle graduated from Southern Illinois University-Edwardsville with a B.S. in Accounting and received a Masters Degree in Accounting from the University of Missouri-Columbia. He is a Certified Public Accountant, member of the American Institute of Certified Public Accountants, former Secretary and Board of Director of the Texas Society of Certified Public Accountants (“TSCPA”), and former President of the Houston Chapter of the TSCPA. A member of the Association of Insolvency Accountants, Mr. Ogle is a Turnaround Manager of the Association of Certified Turnaround professionals, member of the American Bankruptcy Institute and of the National Association of Bankruptcy Trustees, and a Certified Fraud Examiner.


Mr. Tidwell currently serves as Vice President and Chief Financial Officer of WEDGE Group Incorporated, a position that he has held since January 2000. WEDGE is a diversified firm with subsidiaries in engineering and construction, hotel, oil and gas, and real estate businesses. Prior to joining WEDGE, Mr. Tidwell served as President of Daniel Measurement and Control, a division of Emerson Electric Company and as Executive Vice President and Chief Financial Officer of Daniel Industries Inc., a leading supplier of specialized equipment and systems to oil, gas and process operators and plants to measure and control the flow of fluids. Prior to joining Daniel Industries, Mr. Tidwell served as Senior Vice President and Chief Financial Officer of Hydril Company, a worldwide leader in engineering, manufacturing and marketing premium tubular connections and pressure control devices for oil and gas drilling and production.

Mr. Tidwell holds a B.S. degree in Business and a Masters degree in Accounting from the University of Kansas. He is also a Certified Public Accountant. Mr. Tidwell serves on the boards of Pioneer Drilling Company, T3 Energy Services, and Tidelands Geophysical and is a member of the audit committee of each.


Mr. VanLoh serves as President and is a co-founder and Managing Partner of Quantum Energy Partners, a private equity fund specializing in the energy industry. He is responsible for co-managing Quantum’s investment activities, including investment sourcing, due diligence, transaction execution and portfolio company monitoring. Additionally, Mr. VanLoh actively works with Quantum’s portfolio companies on such activities as structuring debt and equity placements, executing commodity hedges, and providing merger, acquisition and divestiture advice. Prior to Quantum, Mr. VanLoh co-founded Windrock Capital, Ltd., an energy investment banking firm specializing in raising private equity and providing merger, acquisition and divestiture advice for energy companies. Earlier in his career, he was an investment banker in Kidder, Peabody & Co.’s Natural Resources Group and also with NationsBank Investment Banking.

Mr. VanLoh holds a degree in Finance from Texas Christian University. He currently serves as director/manager of a number of Quantum portfolio companies, including Saxet Energy, Ltd., Pointwest Energy Inc., Meritage Energy Partners, LLC, EnSight Energy Partners, LP, Cougar Hydrocarbons Inc., Tri-C Energy, LP and Rockford Energy Partners, LLC. He is a former Director/Manager of Texoil, Inc., Crown Oil Partners, LP and Parks & Luttrell Energy Partners, LP. Mr. VanLoh is a member of the IPAA Finance Committee.


Mr. Zaloudek is a business investor, consultant and political advisor based in Tulsa, Oklahoma. The founder of IMEDIA, inc., an international multimedia content company, he also owns farming and ranching interests in Oklahoma. Mr. Zaloudek earlier held several key executive positions at Koch Industries in Wichita Kansas, and was responsible for all aspects of Koch’s international oil and gas business. Prior to Koch Industries, he served as engineer, economic coordinator and business manager for Exxon.

Mr. Zaloudek holds a M.B.A. from Louisiana State University and a B.S. in Mechanical Engineering from Oklahoma State University. He is a member of the Board of Trustees for Oklahoma State University in Tulsa, and was a member of the OSU Foundation Board of Governors and Board of Trustees and served as chairman of the Foundation. He is also a former member of the Board of Directors of the American Legislative Exchange Council (ALEC) and the Wichita Technology Corporation, a joint public-private organization.

The Plan of Reorganization was confirmed on February 18, 2003 by the U.S. Bankruptcy Court for the Southern District of Texas in Corpus Christi. The Plan will become effective on March 1, 2003. However, EOTT’s Plan of Reorganization is subject to appeal for ten days following the entry date of the Court’s orders….

About EOTT

For current information on the plan of reorganization, please see updates at .

EOTT Energy Partners, L.P. is a major independent marketer and transporter of crude oil in North America. EOTT also processes, stores, and transports MTBE, natural gas and other natural gas liquids products. EOTT transports most of the lease crude oil it purchases via pipeline that includes 8,000 miles of intrastate and interstate pipeline and gathering systems and a fleet of more than 230 owned or leased trucks. The partnership’s common units are traded under the ticker symbol “EOTPQ: PK”….


March 18, 2003

Merrill pays $80m in Enron case


WASHINGTON — The U.S. Securities and Exchange Commission on Monday charged Merrill Lynch and Co. and four of its former executives with securities fraud, accusing them of helping Enron Corp. to pad its profits.

Merrill Lynch and its former executives aided and abetted Enron Corp.’s earnings manipulation by engaging in two fraudulent year-end transactions in 1999,” the SEC said in a 22-page complaint filed in U.S. District Court in Houston.

Merrill said it agreed to pay $80 million to settle the case, a move that it said “concludes the SEC’s investigation into Enron-related matters with respect to the company.”

Merrill, one of several Wall Street firms under scrutiny for their dealings with the energy-trading group that collapsed in scandal in 2001, announced the settlement in principle last month.

In a statement, the SEC said the four former Merrill executives named in the complaint — Robert Furst, Schuyler Tilney, Daniel Bayly and Thomas Davis — “are contesting the matter.”

At issue in the investigations were a deal between Enron and Merrill involving power-generating barges in Nigeria and a series of trades involving Enron and Merrill’s energy trading division, which has since been sold.

Enron used the transactions to add about $60 million to its 1999 fourth-quarter income and to increase its full-year 1999 earnings per share to $1.17 from $1.09, the SEC said.

According to the SEC, Merrill bought an interest in the Nigerian barges from Enron at the end of 1999 with the understanding that Enron would arrange for its sale within six months at a specified rate of return.

“In substance, this transaction was, at best, a bridge loan because the risks and rewards of ownership did not pass to Merrill Lynch,” the commission said.

The other transaction involved energy trades that Merrill believed “were essentially a wash” and that it “knew had the purpose and effect of inflating Enron’s income by approximately $50 million,” the SEC said.

SEC Enforcement Division Director Stephen Cutler said the $80 million was one of the five largest penalties ever imposed in a civil securities enforcement action.

“Even if you don’t have direct responsibility for a company’s financial statements, you cannot turn a blind eye when you have reason to know that what you are doing will help make those statements false and misleading,” Cutler said in a statement.

Ira Sorkin, Furst’s attorney, told Reuters, “We do not believe he did anything improper or anything that violated federal securities laws, and we intend to defend the action.”

Tilney’s attorney, Robert Trout, said, “Schuyler Tilney did not engage in any wrongdoing. He is a person of great integrity and would never participate in a fraudulent scheme.”

Thomas Fitzpatrick, attorney for Davis, said his client “gave final approval to the Nigerian barge transaction after it had been thoroughly vetted by legal counsel…. He did not aid Enron in fraudulently accounting for the transaction and he did not even know how Enron booked the transaction.”

Fitzpatrick said Davis “had no involvement in the energy trade and is not charged concerning that transaction. He intends to vigorously defend the only charge against him.”

Bayly’s attorney could not immediately be reached.

Merrill neither admitted nor denied wrongdoing. The firm said last month it would also consent to an injunction barring it from violating federal securities laws under the deal….


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Last update September 1, 2004, by The Catbird