Bush vows full Enron investigation
By Rex Nutting, CBS.MarketWatch.com
Last Update: 3:58 PM ET Jan. 10, 2002
WASHINGTON (CBS.MW) - The Bush administration is distancing itself from Enron, one of its biggest campaign supporters.
President Bush promised Thursday that his personal and political ties with Enron CEO Kenneth Lay would not stand in the way of a full federal investigation into America's largest bankruptcy ever.
In the meantime, Attorney General John Ashcroft and his chief of staff have removed themselves from any involvement in the Justice Department's probe into Enron's accounting methods. Ashcroft received more than $50,000 in campaign contributions from Enron and Lay for his unsuccessful Senate campaign in 2000.
The White House also revealed for the first time that Lay had informed two top Cabinet officers about Enron's troubles in October, well before the company restated its earnings and ultimately filed for bankruptcy.
"This administration will fully investigate issues such as the Enron bankruptcy to make sure we can learn from the past and make sure that workers are protected," Bush told reporters before a White House meeting with his economic team.
"The administration is deeply concerned about its effects on the economy," Bush said of collapse of Enron (ENE: news, chart, profile). "We're also deeply concerned about its effects on the lives of our citizenry." Read David Callaway's commentary on the effects Enron will have on Bush. Bush said he had never discussed Enron's financial situation with Lay and had not met with Lay since a fund-raiser in Houston last spring.
O'Neill, Evans calls
But Lay did contact Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans sometime last fall to discuss Enron's financial difficulties, White House spokesman Ari Fleischer said Thursday.
"O'Neill said that he had been contacted by Mr. Lay in the fall of last year and Mr. Lay brought to the secretary's attention his concerns about whether or not Enron would be able to meet its obligations," Fleischer told reporters. "And he expressed his concern about the experience that Long-Term Capital went through when Long-Term Capital went bankrupt."
Fleischer said O'Neill took the matter up with Undersecretary Peter Fisher, who concluded that Enron did not pose a systemic risk as Long-Term Capital had.
When the Long-Term Capital Management hedge fund collapsed in September 1998, the New York Federal Reserve Bank took the unusual step of leaning on its top creditors to ensure that there would be no contagion from its collapse. Long-Term had leverage of more than $100 billion against assets of less than $2 billion.
O'Neill and Evans did not report their contacts with Lay to Bush until Thursday morning, Fleischer said, adding that their decision was appropriate.
There was no indication about what Lay asked O'Neill and Evans to do, if anything.
Lay's ties to administration
Lay also meet with Vice President Dick Cheney last spring as part of Cheney's overhaul of national energy policy. Cheney has confirmed that Lay and his company executives held six meetings with Cheney and his staff. See full story.
Lay was a top fund-raiser for Bush in the 2000 election when Evans was campaign chairman. He also donated money for the inauguration and for the legal battle in Florida. Bush said he first got to know him when Lay was supporting Democratic Gov. Ann Richards in 1994.
That's the same year Lay gave $1,000 to Ashcroft, then a Republican senator from Missouri. Lay also hosted a campaign fund-raiser for Ashcroft in 1998 when he was exploring a presidential bid.
The $25,000 received by Ashcroft's Victory Committee in 2000 was the only contribution Enron's political action committee made to an individual campaign committee. The $25,000 it received from Lay was the largest contribution Lay made to any congressional candidate.
DOJ probe
The Justice Department said Deputy Attorney General Larry Thompson would make all top level decisions concerned the Enron probe.
Former CEO Jeffrey Skilling has not been subpoenaed by the Justice Department but will cooperate fully, his spokesman told Dow Jones Newswires.
None of the company's top officers have been subpoenaed yet by the Justice Department, said attorney Robert Bennett, who's representing the company.
The SEC, the Labor Department, and several congressional committees have opened probes into Enron as well.
Andersen, Enron's auditor, said Thursday it had inadvertently destroyed "a significant but undetermined number of documents," including email, that the Justice Department and Securities and Exchange Commission had requested about the clean bill of health it had given Enron.
"Millions of documents related to Enron still exist," Andersen said.
Andersen said it had informed investigators about the loss of documents and immediately suspended its "records management policy."
Andersen said it has asked former Sen. John Danforth, R-Mo., to help it review the incident and recommend changes in policies.
Witch hunt
Fleischer warned Congress not to conduct a "partisan witch hunt" into Enron, noting that Enron executives had also contributed heavily to Democrats. In the latest election cycle, Democratic congressional candidates received about $368,000 in hard money contributions from Enron-affiliated donors while Republicans received about $764,000. Read more at the Center for Responsive Politics and the Center for Public Integrity.
Bush said the Treasury, Labor and Commerce departments would convene a working group to examine whether pension laws should be amended to give workers better protection during bankruptcies.
Defined-benefit pensions are guaranteed by the federal Pension Guaranty Benefits Corp., but defined-contribution plans such as 401(k), IRA or Keogh plans are not protected.
Many Enron workers have testified that they lost their retirement savings when the company blocked them from trading Enron stock from their retirement accounts as the stock collapsed.
At the same time, many executives were able to sell before the bottom fell out. According to a civil suit, top executives sold $1.1 billion worth of stock just before the bankruptcy. See full story.
In addition, Bush said the SEC, the Commodity Futures Trading Commission, the Federal Reserve and the Treasury would look into the adequacy of corporate disclosures.
"There needs to be a full review of disclosure rules to make sure that the American stockholder, or any stockholder, is protected," Bush said.
Enron declared bankruptcy Dec. 2 after it restated its earnings on Nov. 8, saying it had hidden hundreds of millions in losses at several closely related partnerships.
At one point Enron was the seventh-largest company in the United States based on revenue. It was once the world's top buyer and seller of natural gas and the largest electricity marketer in the United States. It also marketed coal, pulp, paper, plastics, metals and fiber-optic bandwidth.
Shares of Enron fell 9 cents to 70 cents in recent trades, far below its 52-week high of $83.
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Rex Nutting is Washington bureau chief of CBS.MarketWatch.com. |
