Enron called Bush Cabinet officers before bankruptcy
By Arshad Mohammed
WASHINGTON, Jan 10 (Reuters) - Enron Corp., a major campaign donor to President George W. Bush, called two Cabinet officers before filing for bankruptcy last year but the Bush administration chose not to aid the energy trading company, the White House said on Thursday.
The Justice Department on Wednesday announced it had opened a criminal investigation into Enron (NYSE:ENE - news), whose bankruptcy late last year threw thousands out of work, devastated some investors and wiped out the pension plans of many employees.
That investigation, and others by the Labor Department, the Securities and Exchange Commission and five congressional committees, are expected to focus on whether the one-time Wall Street darling may have misled investors about its accounts.
Houston, Texas-based Enron's problems could prove to be a political liability for Bush, with Democrats in Congress raising questions about the company's ties to the White House and many senior Bush advisers.
In what appeared to be an effort to inoculate the White House against po???Enron's Dec. 2 bankruptcy, Bush on Thursday ordered government reviews of U.S. pension rules and corporate disclosure rules to prevent similar cases.
Bush, who worked in the oil industry and has known Enron's chairman since he was governor of Texas, also told reporters he had never discussed Enron's financial difficulties with its chairman Kenneth Lay and last met the executive last spring.
``I have never discussed with Mr. Lay the financial problems of the company,'' Bush said, adding that the last time he had seen Lay was last spring at a literacy fund-raising event organized by his mother, former first lady Barbara Bush.
PHONE CALLS
White House spokesman Ari Fleischer disclosed on Thursday that Lay telephoned Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans last autumn saying his company might not be able to meet its obligations.
Fleischer said Lay suggested the possibility of using the case of Long Term Capital Management (LTCM), a hedge fund which benefited from a private bailout orchestrated by the New York Federal Reserve in September 1998, as model for his company.
After studying the matter and concluding that Enron's problems would not have the kind of systemic effects on the economy that were feared in LTCM's case, O'Neill and Evans decided against takin??? At his daily briefing, the spokesman fended off questions about why Bush was not informed of the decision, the propriety and timing of Enron contacting top government officials about its problems, and whether Evans and O'Neill acted properly.
``Communication is not a wrong-doing. What took place here was they received phone calls and took no action,'' Fleisher said. ``The charge has been did the government take any action, and the answer from these two officials is no.''
Treasury spokeswoman Michele Davis said Lay called O'Neill on Oct. 28 and Nov. 8 -- after Enron's key Oct. 16 disclosure that it was taking huge charges related to its partnerships, which provided the first hint of its spectacular unraveling .
POLITICAL DONATIONS
Enron, its employees and directors have given $623,000 to Bush during his political career, from 1993 to November 2001, according to the Center for Public Integrity, a non-partisan research and investigative reporting organization, making it probably the largest single donor to Bush's political career.
Speaking to reporters after meeting with economic advisers on Thursday, Bush placed the emphasis on workers and investors who suffered as a result of Enron's troubles and ordered two reviews to recommend how to better protect them in the future.
He said the first review, by the Treasury, Commerce and Labor departments, would analyze pension and 401(k) rules and recommend ways to reform them so that ``people are not exposed to losing their life savings as a result of a bankruptcy.''
The review of disclosure rules would be conducted by the Presidential Working Group on Financial Markets, which includes the Treasury Department, Securities and Exchange Commission, Federal Reserve and Commodity Futures Trading Commission.
Once the world's largest energy trader, Enron slid in mere weeks last year from Wall Street stardom to the largest bankruptcy filing in U.S. history on Dec. 2. Its downfall, after withdrawal of a rescue takeover bid by rival Dynegy Inc. (NYSE:DYN - news) threw thousands out of work and hammered investors.
The episode sapped the life savings of many Enron employees who held large amounts of company stock in their 401(k) retirement plans, while top executives allegedly pocketed fat profits by selling before a plunge in Enron's share price.
``I have great concerns for ... (those) who put their life savings aside and, for whatever reason, based upon some rule or regulation, got trapped in this awful bankruptcy and have lost life savings,'' Bush told reporters at the White House, saying the groups would take a ``good hard look'' at the matter.
Bush also appeared to try to put some distance between himself and Lay, who served on a Texas business council when Bush was governor of the state, saying the executive was appointed by his Democratic predecessor, Ann Richards.
At the heart of Enron's problems were complex financial partnerships -- known as special-purpose entities -- set up by Enron executives and used to keep debt off the company's highly leveraged books. After some deals involving the partnerships went sour, Enron in October had to take a $1 billion charge against earnings and cut shareholder equity by $1.2 billion.
Those moves drew market attention to the partnerships, triggering a crisis in investor confidence and credit-rating downgrades that ultimately led to bankruptcy court.
biz.yahoo.com |
