Much of what Enron did was apparently legal, thanks to a compliant Clinton SEC. In an end run around Congress, the SEC gave Enron the ability to do what it did:
January 23, 2002
New York Times
Exemption Won in 1997 Set Stage for Enron Woes
By STEPHEN LABATON
WASHINGTON, Jan. 22 — As it expanded aggressively overseas in the 1990's, the Enron Corporation (news/quote) won an exemption from a Depression-era law that would have prevented its foreign operations from shifting debt off their books and that barred executives from investing in partnerships affiliated with the company.
The exemption enabled Enron's foreign operations to engage in the kind of financial engineering that experts now say was reminiscent of some of the corporate excesses of the 1920's that led to the 1940 law and that were an important element of the company's meteoric rise and startling collapse....
.....Enron's initial efforts in 1996 to persuade Congress to change the law were thwarted by opposition from a powerful trade group and some federal regulators. The company responded by hiring the former boss of a leading staff official at the Securities and Exchange Commission to represent it in negotiations with the agency. In an unheralded five-paragraph order in March 1997, the S.E.C. official, Barry P. Barbash, gave Enron's foreign operations a broad exemption from the law — the Investment Company Act of 1940....
.....Experts say that the S.E.C. rulings unshackled the company from significant accounting restraints and business dealings between the Enron companies and their executives. The 1997 exemption, in particular, cleared the path for the company to both expand overseas and make greater use of the special partnerships that have caused the company so much turmoil.
"From a regulatory standpoint, this raises a flag," said Joseph V. Del Raso, a former official at the S.E.C. in the 1980's and an expert on the Investment Company Act. "It gave them carte blanche to go all over the world and set up subsidiaries and affiliated entities that would have been prohibited under the act."
Another expert on the act, Mark A. Sargent, the dean of the Villanova law school, agreed.
"The Enron structure was not a single company with stockholders engaged in operations like an ordinary corporation," he said. "It was similar to an investment company with investments in a bunch of different companies. The decision to exempt those from the kind of protections to investors is now coming home to roost."...
nytimes.com
Here's the kicker (Barbash was the lawyer at the S.E.C. who approved the exemption):
....The company decided to retain Joel H. Goldberg, a former director of the investment management division at the S.E.C., who said today that he did not know how the company came to hire him.
An Enron official said the company had retained Mr. Goldberg knowing that he had previously been Mr. Barbash's boss and was his predecessor at the S.E.C. Mr. Goldberg had been Mr. Barbash's supervisor at the S.E.C. in the 1980's and the Labor Department in the 1970's. The two lawyers are now partners at the international law firm of Shearman & Sterling.
Mr. Goldberg said he viewed the exemption as a narrowly tailored one intended to permit the company to continue its overseas projects. But he acknowledged that had the company not been granted the exemption, it would have been constrained from using any partnerships or shifting debt off the books in its foreign operations.
"I guess on the one hand, if they had been subject to the Investment Company Act, they probably could not have done these transactions," he said. "The subsidiaries would not have existed, and they would have had to make another plan."
Gee, that last line is a real doozie!
I'm waiting to see Levitt, Goldberg and Barbash hauled before Congress to explain how this whole deal was worked out. |
