Bush, aides knew of Enron troubles
"Why, Waxman asked, did the administration fail to
act despite having advance knowledge of the largest
bankruptcy filing in history?
''The White House had knowledge that Enron was likely to
collapse but did nothing to try to protect innocent employees
and shareholders who ultimately lost their life savings,''
Waxman said in a statement. ''I am deeply troubled that the
White House stood by and let this happen to thousands of
families.''
Boston Glove
By Anne E. Kornblut,
Globe Staff, 1/11/2002
WASHINGTON - As legal troubles mounted for energy giant
Enron, White House officials acknowledged yesterday that
Enron chairman Kenneth Lay, a major donor to President
Bush, had called two Bush Cabinet members late last year to
discuss the company's collapsing finances.
White House officials, eager to control the political damage at
the start of a criminal inquiry, said the administration had not
offered assistance after Lay called the Commerce and Treasury
secretaries. Bush, who has known Lay since his years in Texas,
sought to distance himself further, saying he has not talked to
Lay since last spring.
Enron tumbled from the heights of the energy trading market
to junk bond status in a matter of weeks last fall, prompting
investigations into accounting practices that forced the firm to
file for Chapter 11 bankruptcy on Dec. 2. The retirement plans
of thousands of employees, who had invested heavily in
company stock, became worthless. The company was already
facing scrutiny on Capitol Hill, where Democrats accused the
politically connected firm of wielding unfair influence over
national energy policy.
The disclosure about Lay's phone calls gave fresh momentum
to the Democratic effort to investigate Enron's dealings, fast
becoming the biggest potential embarrassment the Bush
administration has faced. Matters grew worse for the Texas
company late yesterday when its auditor, Arthur Andersen
LLP, said a ''significant but undetermined'' number of its
documents and electronic files relating to its auditing of Enron
had disappeared or been destroyed.
Attorney General John Ashcroft, meanwhile, recused himself
from a Justice Department inquiry into Enron announced on
Wednesday. Ashcroft received a $25,000 donation from Lay
and another $25,000 from the company and its employees
during his 2000 reelection bid for US senator from Missouri,
which he subsequently lost. Deputy Attorney General Larry
Thompson has taken over the lead role in the investigation,
Justice Department officials said.
According to a White House spokesman, Lay suggested in a
phone call to Commerce Secretary Donald Evans on Oct. 29
that Enron might follow the example of Long Term Capital
Management, a hedge fund that received a private bailout
arranged by a public reserve board in 1998. But in that case,
LTCM's financial woes were viewed as a threat to the whole
economy; neither Evans nor Treasury Secretary Paul O'Neill -
whom Lay spoke with on Oct. 28 and Nov. 8 - felt that Enron
posed such a danger, officials said.
After receiving a report on the matter by Treasury
Undersecretary Peter Fisher, Evans and O'Neill decided that
Enron's impending bankruptcy filing ''was isolated and
unique, and focused on Enron Corp., and was not symptomatic
of anything sector-wide,'' White House press secretary Ari
Fleischer said.
''I want to remind you that communication is not a
wrongdoing,'' Fleischer said, when pressed repeatedly about
the phone calls. ''What took place here was, they received
phone calls and took no action. The charge has been, did the
government take any action. And the answer from these two
officials is no. And I think if you were going to go down this
road, I think it's also fair to say, who in the entire town had
any contact with Enron or phone calls?''
But Representative Henry Waxman, the California Democrat
who for months has pursued information about the
relationship between Bush and Enron, turned the question on
its head. Why, Waxman asked, did the administration fail to
act despite having advance knowledge of the largest
bankruptcy filing in history?
''The White House had knowledge that Enron was likely to
collapse but did nothing to try to protect innocent employees
and shareholders who ultimately lost their life savings,''
Waxman said in a statement. ''I am deeply troubled that the
White House stood by and let this happen to thousands of
families.''
White House officials said Bush learned that Enron was
headed toward bankruptcy court last fall, but that he was not a
part of the decision to steer clear of assisting the firm. Bush
said he had never discussed the company's financial troubles
with Lay.
''I have never discussed, with Mr. Lay, the financial problems of
the company,'' Bush told reporters during a meeting with his
economic team. ''The last time that I saw Mr. Lay was at my
mother's fund-raising event for literacy, in Houston. That
would have been last spring. I do know that Mr. Lay came to
the White House in - early in my administration, along with I
think 20 other business leaders, to discuss the state of the
economy. It was just kind of a general discussion. I have not
met with him personally.''
According to a letter from the White House to Waxman dated
Jan. 3, however, Enron executives met with Vice President
Dick Cheney six times over the past year. Cheney heads the
president's energy task force, and discussed the energy crisis
in California earlier last year with Lay personally.
In response to questions about Enron's questionable
shareholder dealings - which left thousands of former
employees destitute because they were not allowed to dump
their Enron stock as prices fell, yet allowed high-ranking
executives to sell their shares when the prices were still high -
Bush called on O'Neill to review pension rules, possibly in
order to put a limit on how much an employee can invest in a
single company.
In recent days, White House officials have begun to point to
Enron's bipartisan - albeit lopsided - political donations as one
sign that the administration was not alone in its relationship
with the energy trader.
Lay and other Enron employees have been a major source of
contributions for Bush throughout his career; the chairman,
who is based in Texas, was a ''pioneer'' for the Bush 2000
campaign, a designation given to those who raised more than
$100,000 each. Lay gave another $100,000 for the Bush
inaugural and thousands more to pay for the Florida recount.
During his two gubernatorial races, Bush received $122,500
from Lay.
In addition, since the beginning of the last election cycle, in
March 1999, Lay has given $282,910 in unregulated soft
money to the Republican National Committee, on top of the
money he gave Ashcroft. Lay has donated to an array of
candidates in previous years, including giving $1,000 to
then-New Jersey governor Christie Whitman in 1999; $2,000
to Senator Bob Dole in 1996; $1,000 to President George H.W.
Bush; and $1,000 to Mitt Romney, who tried in 1994 to unseat
Senator Edward M. Kennedy. Lay also has given to Democrats,
donating $500 to Representative Edward J. Markey of
Massachusetts in 1996.
According to the nonpartisan Center for Responsive Politics,
Enron gave more in political donations than any other energy
firm during the 2000 election, contributing more than $2.43
million to candidates and parties; 72 percent of the donations
were to Republicans.
In the current election cycle - during which the company fell
from soaring profit reports to filing for bankruptcy protection -
Enron gave $168,834 in donations, 88 percent of which went
to Republicans.
The ties between Enron and the Bush administration reach
beyond donations. Karl Rove, Bush's chief political strategist,
had more than $100,000 in Enron stock before he agreed to
divest it - and still held onto $68,000 of it while he discussed
the energy business with Lay at the beginning of Bush's term.
Lawrence B. Lindsey, the president's chief economic adviser,
made $50,000 from consulting for Enron in 2000.
Anne E. Kornblut can be reached at akornblut@globe.com.
This story ran on page A1 of the Boston Globe on 1/11/2002.
© Copyright 2002 Globe Newspaper Company.
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