Auditor Says It Destroyed Enron Records
January 11, 2002
Los Angeles Times
E-mail story
"The admission angers investigators of the energy firm's messy bankruptcy.
Its chief sought help from two Cabinet members, the White House reveals."
By RICHARD SIMON and JAMES GERSTENZANG, Times Staff Writers
WASHINGTON -- The accounting firm Andersen
acknowledged Thursday that it destroyed a
"significant" number of documents related to its
audit of Enron Corp., as the White House disclosed
that Enron's chief executive contacted Bush Cabinet
members for help when the energy company was
collapsing.
Treasury Secretary Paul H. O'Neill and Commerce
Secretary Don Evans said they listened to Enron
Chairman Kenneth L. Lay's description of the firm's
dire financial problems last fall but took no action.
Both revelations deepened the controversy over
Enron's sudden failure--one that has financial, legal
and political overtones. The disclosure by
Andersen, until recently known as Arthur
Andersen, prompted outrage in Congress and
could complicate federal investigations into the
massive bankruptcy.
Andersen said in a statement that it had disposed of
a "significant but undetermined number of electronic
and paper documents and correspondence" relating
to Enron. Investigators could not immediately say
what documents were destroyed. A company
spokesman said the matter is under review and
would not say whether the destruction was
accidental or intentional. The company said millions
of documents related to Enron still exist.
A congressional aide said Andersen notified
investigators that "potentially thousands of records"
were destroyed in September, October and
November. Investigators plan to meet with the head
of Andersen's Houston office next week and
question him on the matter.
Despite the administration's efforts to distance itself
from the Enron fiasco, the company's huge political
footprint continued to create problems. Atty. Gen.
John Ashcroft, his chief of staff and the entire U.S.
attorney's office in Houston, where Enron is based, recused themselves from
the criminal probe of the company because of potential conflicts of interest.
Ashcroft received campaign contributions from Enron for his failed 2000
Senate campaign, and the U.S. attorney in Houston said many on his staff have
family members who could be affected by the Enron bankruptcy.
The fallout touched the White House, as President Bush ordered senior officials
to recommend reforms of the pension system and to examine federal rules
governing corporate disclosures. Investigators are probing whether company
officials withheld financial information from investors who, along with
employees in the company pension plan, suffered huge losses in the firm's
collapse.
"Ken Lay is a supporter," the president said of the Enron executive, a generous
donor to Bush's political campaigns. "But what anybody's going to find is that
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."
The latest twist in the Enron saga came one day after the Justice Department
launched a criminal probe of the company, investigating, among other matters,
whether Enron knew of problems but failed to disclose them. In congressional
testimony last month, the head of Andersen said he had warned Enron that the
company might be guilty of "possible illegal acts" for withholding financial
information from auditors--an allegation Enron denied.
Andersen's destruction of records drew angry reactions from members of
Congress investigating the accounting methods used by the auditor.
Chairman W.J. "Billy" Tauzin (R-La.) of the House Energy and Commerce
Committee called the loss "deeply troubling" and vowed to investigate.
"It should never have happened," Tauzin said. "Clearly this is a very serious
matter. Anyone who destroyed records simply out of stupidity should be fired;
anyone who destroyed records intentionally to subvert our investigation should
be prosecuted."
"The list of problems and problem people involved in this entire tawdry affair
seems destined to grow," said Rep. John D. Dingell of Michigan, the top
Democrat on the House Energy and Commerce Committee. "The seriousness
of this matter cries out for further investigation."
Stephen Cutler, director of the Securities and Exchange Commission's
enforcement division, called the record destruction an "extremely serious
matter" but added that it "will not deter us from pursuit of our investigation and
will be included within the scope of our investigation."
The SEC is investigating whether Enron used loopholes in accounting
regulations to hide debt. In addition, Congress is looking into Andersen's
interpretation of accounting rules that allowed Enron to exclude losses at
several partnerships from its reporting. Enron and Andersen dispute who is to
blame for the faulty accounting.
On Oct. 16, Enron reported a third-quarter loss of $638 million and disclosed
a $1.2-billion reduction in shareholder equity.
On Nov. 8, it announced it had
overstated its earnings by $586 million during the last four years, sending the
company's stock tumbling from more than $90 a share a year earlier to less
than a dollar. The meltdown cost more than 4,000 employees their jobs and
destroyed the retirement savings of employees with company-sponsored
savings plans.
Because, as the company said, the retirement plan was changing administrators,
those employees were locked out of selling their shares at the time the stock
began its most precipitous descent. However, many executives managed to sell
their shares just before the stock's plunge.
The company filed for protection from its creditors Dec. 2.
At the White House, Press Secretary Ari Fleischer said Lay called O'Neill and
Evans separately, reporting "his concerns about whether or not Enron would be
able to meet its obligations."
O'Neill said in the two calls he received--on Oct. 28 and Nov. 8, according to
an aide--Lay expressed concern about the implications for the capital markets
and also that a possible downgrading of the company's credit rating might ruin a
pending merger prospect.
Lay did not ask for anything specific, O'Neill said. "As secretary of the
Treasury with responsibility for the U.S. capital markets, I get calls every day
from the big players in the world" warning about important financial events, he
told CNN.
But Treasury spokeswoman Michele Davis said Lay did draw a comparison
with Long Term Capital Management, a large investment firm that was saved
from collapse in 1998 by a federally orchestrated private bailout.
Lay "expressed a concern that if Enron went bankrupt, it would affect the
credit markets the way the Long Term Capital Management problems a few
years earlier affected the credit markets, that it would have ripple effects
throughout the whole banking sector," she said.
Davis said O'Neill never discussed a bailout or any other kind of aid for Enron.
Evans said Lay was hoping for high-level "support."
Fleischer said that the secretaries decided not to inform Bush of the calls and
that Bush did not learn of them until Thursday morning.
Fleischer said Evans and O'Neill handled the matter appropriately.
Communication "is not a wrongdoing. What took place here was they received
phone calls and took no action." .
However, Rep. Henry A. Waxman (D-Los Angeles) said the calls show that
the administration had advance word of Enron's collapse and did nothing to
protect shareholders or employees.
Fleischer dismissed the criticism as partisan rhetoric, "what people have
become so used to in Washington, which is a politically charged, politically
motivated effort to blame one party or to look only at one party." Enron, he
said, has given hundreds of thousands of dollars to both parties.
Bush said he had not spoken with Lay about his company's financial problems
and had not seen him since last spring, when they met at a Houston theater
where the president's mother was the sponsor of a book-reading fund-raiser by
celebrity authors.
Lay was a so-called pioneer in Bush's presidential campaign, which meant he
committed to raising at least $100,000.
Lay also personally contributed more than $275,000 to the Republican
National Committee during the 2000 election cycle, part of overall donations
from company employees and directors to the RNC that exceeded $1.1
million. Enron gave $100,000 to help pay for Bush's inauguration.
In that cycle, Enron employees and directors gave $530,000 to the
Democratic National Committee; Lay made no personal contributions
to the DNC.
In calling for an examination of the pension rules, Bush said he directed O'Neill,
Evans and Labor Secretary Elaine Chao to determine "the effects of the current
law on hard-working Americans and to come up with recommendations of
how to reform the system to make sure that people are not exposed to losing
their life savings as the result of a bankruptcy, for example."
In addition, he said that O'Neill, along with the SEC, the Federal Reserve and
the Commodity Futures Trading Commission would study corporate disclosure
rules and regulations in light of the Enron bankruptcy.
"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 grew from a small natural-gas pipeline operator into the world's largest
energy-trading operation. At its peak, it handled 1 in 4 wholesale deals for
electricity, gas and other energy products.
The company championed energy deregulation and tried to influence the way
California structured its energy markets and how the state steered through its
electricity crisis. It became a target of attacks from politicians, regulators and
consumer activists for its aggressive business tactics.
latimes.com _ _ _
Times staff writers Josh Meyer in Washington, Thomas S. Mulligan in
New York and James F. Peltz in Los Angeles contributed to this report. |
