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Non-Tech : The ENRON Scandal -- Ignore unavailable to you. Want to Upgrade?

To: Karen Lawrence who wrote (817)	1/18/2002 6:37:30 PM
From: Karen Lawrence	Read Replies (2) \| Respond to of 5185

Just when you think, gosh maybe GWB didn't know anything, something like this turns up: Enron and the Bushes by David Corn When George W. Bush was first running for governor of Texas, Washington editor David Corn took a look at Bush family activities on behalf of Enron in Argentina--itself now suffering the results of untamed financial markets. We reprint this November 21, 1994, article to show how Enron's connections with the Bushes stretch not just to Washington but around the world. --The Editors Several years ago, says Rodolfo Terragno, a former Argentine Cabinet Minister, he received a telephone call from George W. Bush, son of the then-Vice President. When he hung up, Terragno was annoyed, he recalls, for the younger Bush had tried to exploit his family name to pressure Terragno to award a contract worth hundreds of millions of dollars to Enron, an American firm close to the Bush clan. During this past year, as George W. campaigned across Texas to replace Governor Ann Richards, he portrayed himself as a successful businessman who relied on "individual initiative," not his lineage. Contacted in Buenos Aires, Terragno, now a member of the Chamber of Deputies, offered an account that challenges Bush's campaign image. In 1988, Terragno was the Minister of Public Works and Services in the government of President Raúl Alfonsín. He oversaw large industrial projects, and his government was considering construction of a pipeline to stretch across Argentina and transport natural gas to Chile. Several US firms were interested, including the Houston-based Enron, the largest natural gas pipeline company in the United States. But Terragno was upset with the corporation's representatives in Argentina. They were pressing Terragno for a deal in which the state-owned gas company would sell Enron natural gas at an extremely low price, and, he recalls, they pitched their project with a half-page proposal--one so insubstantial that Terragno couldn't take it seriously. Terragno let the Enron agents know he was not happy with them. It was then, Terragno says, that he received the unexpected call from George W. Bush, who introduced himself as the son of the Vice President. (The elder Bush was then campaigning for the presidency.) George W., Terragno maintains, told the minister that he was keen to have Argentina proceed with the pipeline, especially if it signed Enron for the deal. "He tried to exert some influence to get that project for Enron," Terragno asserts. "He assumed that the fact he was the son of the [future] President would exert influence.... I felt pressured. It was not proper for him to make that kind of call." George W. did not detail his relationship with the pipeline project or with Enron, according to Terragno. The Argentine did not know that Enron and the Bush set are cozy. President Bush is an old friend of Kenneth Lay, Enron head for the past ten years and a major fundraiser for President Bush. After the 1992 election left Secretary of State (and Bush pal) James Baker jobless, he signed as a consultant for Enron. An article by Seymour Hersh in The New Yorker last year disclosed that Neil Bush, another presidential son (the one cited by federal regulators for conflict-of-interest violations regarding a failed savings and loan), had attempted to do business with Enron in Kuwait. The Enron company and the family of its top officers have donated at least $100,000 to George W. Bush's gubernatorial campaign. Shortly after Terragno's conversation with George W., more Bush-related pressure descended on him, the former minister claims. Terragno says he was paid a visit by the US Ambassador to Argentina, Theodore Gildred. A wealthy California developer appointed ambassador by President Reagan, Gildred was always pushing Terragno to do business with US companies. This occasion, Terragno notes, was slightly different, for Gildred cited George W. Bush's support for the Enron project as one reason Terragno should back it. "It was a subtle, vague message," Terragno says, "that [doing what George W. Bush wanted] could help us with our relationship to the United States." Terragno did not OK the project, and the Alfonsín administration came to an end in 1989. Enron was luckier with the next one. The pipeline was approved by the administration of President Carlos Saúl Menem, leader of the Peronist Party and a friend of President Bush. (The day after Menem was inaugurated, Neil Bush played a highly publicized game of tennis in Buenos Aires with Menem.) Argentine legislators complained that Menem cleared the pipeline project for development before economic feasibility studies were prepared. Replying to a list of questions from The Nation asking whether George W. Bush spoke to Terragno about the pipeline project and whether he had any business relationship with Enron, Bush's gubernatorial campaign issued a terse statement: "The answer to your questions are no and none. Your questions are apparently addressed to the wrong person." This blanket denial covered one question that inquired if George W. Bush had ever discussed any oil or natural gas projects with any Argentine official. George W.'s response on this point is contradicted by a 1989 article in the Argentine newspaper La Nacion that reported he met that year with Terragno to discuss oil investments. (The newspaper noted that this meeting took place in Argentina, but Terragno says he saw Bush in Texas.) Theodore Gildred, a private developer again, is traveling in Argentina; his office says he is unavailable. An Enron spokesperson comments, "Enron has not had any business dealings with George W. Bush, and we don't have any knowledge that he was involved in a pipeline project in Argentina." In late August, several members of the Chamber of Deputies--Terragno not among them--submitted a request for information, calling on President Menem to answer dozens of questions about the business activities of the Bush family in Argentina. (In 1987, Neil Bush created a subsidiary of his oil company to conduct business there. In early August, a Buenos Aires newspaper reported that on a forthcoming trip to Argentina the former President would lobby the Menem government to allow a US company to build a casino there. The onetime President said this was not true.) One of the deputies' queries was, Does Menem know whether George W. Bush attempted to capitalize in Argentina on his father's position? So far Menem has not responded.

To: Karen Lawrence who wrote (817)	1/18/2002 7:13:39 PM
From: Mephisto	Respond to of 5185

Enron's Complex Deals Even Baffled Company Insiders January 17, 2002 Los Angeles Times E-mail story By MICHAEL A. HILTZIK and DAVID STREITFELD, Times Staff Writers HOUSTON -- The conference room on the 48th floor of Enron Corp.'s Houston headquarters--the nerve center of the energy trader's convoluted and risky deals--was at the opposite end of the hall from the company's outside accounting firm, Andersen. The room was entirely paneled in whiteboards and furnished with a full supply of colored markers. There Enron executives were briefed on the dizzyingly complex structures that Andersen consultants had layered onto deals that often had started out as straightforward. The experience often left some at Enron dumbfounded. "You'd see things involving 30 or 40 different entities," said Clayton Vernon, a former research analyst and trading manager at Enron. "They would clear a whiteboard and draw a flowchart that would be absolutely incomprehensible." Another former executive familiar with the conference room recalled: "They'd be drawing boxes and arrows going in every direction." The drawings would describe shell companies and offshore entities with intricate interrelationships, all headed by mysterious figures designated on the whiteboards as "Mr. X" or "Mr. Y." When pressed, accountants would identify the mystery figures only as "somebody who's a friend of the company," according to the former executive, who asked to remain unidentified. These phantom executives, the Andersen accountants announced, were due payments of hundreds of thousands of dollars to play their shadowy roles in the transactions. Chicago-based Andersen served Enron not only as its outside auditing firm, bound to ensure that the company's books complied with financial disclosure standards, but also as business consultants. The dual function, which may have subjected Andersen to a conflict of interest, is expected to come under intense scrutiny by Congress as it begins looking into the Enron collapse. In many cases, the goal of the complex structures, the former employees say, was twofold: to keep them off Enron's corporate balance sheet and thus out of view of the public, and to enable Enron to record revenue from the deals before it was received--often more revenue than the deals were likely to produce. Whatever the rationale, this process is behind the extraordinary complexity of Enron's financial dealings and helps explain how profound problems in its numerous businesses eluded the comprehension of auditors, shareholders, regulators and tax authorities for years. Enron's 2001 annual report lists about 3,800 subsidiaries, of which more than 700 are located in the Cayman Islands or other offshore financial havens. Most of these are known as "special purpose entities," or SPEs, created by Enron as vehicles for its complicated transactions. These deals were among those lambasted by Enron Vice President Sherron S. Watkins, who complained in a memo she wrote Aug. 15 to Enron Chairman Kenneth L. Lay. The memo was released earlier this week by a congressional committee. Public documents and interviews with former Enron employees suggest that during the last two years the company's deals became more complicated and their economic rationales more suspect. The effect was to create transactions that, rather than benefiting Enron, tended largely to enrich senior executives who were entitled to special compensation for their roles in the partnerships. Andrew S. Fastow, Enron's former chief financial officer, reportedly was entitled to $30 million in such compensation. The aim also may have been to produce the illusion of continued revenue gains for the company, which was facing slowing growth in many of its core businesses. Even before that, the labyrinthine character of Enron deals was a byword at the company. In early 2000, four months after he joined the company, Vernon said he first saw deals that didn't seem quite right. "But the transactions were so complicated I assumed there was some part I was missing that meant they were at least reasonable business propositions for the Enron shareholders," he said. "In hindsight, they should have raised more red flags." Vernon and others say there were indications within Enron that high-level executives of the company's outside auditing firm, formerly known as Arthur Andersen, approved of these maneuvers Andersen, which on Tuesday fired the Houston-based partner overseeing the Enron account and suggested that lax oversight of the company was limited to its Houston office, declined to reply to questions Wednesday about the firm's involvement in structuring the transactions. An Andersen spokesman said the firm is looking into its actions and is cooperating with investigators. Vernon said he asked Enron Chairman Lay point-blank at a company "town hall" session Sept. 26 if he was comfortable with Andersen's integrity and oversight. At the time, the company was facing the first wave of criticism over the offshore partnerships that had shielded liabilities from public scrutiny. Lay replied in the affirmative, Vernon recalled, adding that not only Andersen's Houston office but its national office had also approved the partnerships in advance. "Everything is done ethically," Lay said, in Vernon's recollection. An Enron spokesman said Wednesday night that she could not confirm or deny that Lay made the remarks Vernon attributed to him. Recordings of this and other internal company meetings purportedly featuring Lay's reassurances have been requested from Enron by congressional investigators. In any case, the complex structures enabled Enron to conceal the real ramifications to its bottom line of many of its deals with offshore partnerships. Some of the sour deals stemmed from the company's ill-fated venture into broadband communications in the late 1990s, when Wall Street was highly excited about high-speed data services for homes and offices over fiber-optic networks. Enron invested in several fiber-optic companies and bought transmission rights over regional lines despite signs that the market for such communications capacity was facing a glut and that values were likely to plunge. In transferring some of these transmission rights to offshore partnerships, former employees say, Enron wantonly overvalued them. The company might value regional lines in the Southeast on the same scale as lines in the Northeast, which were more heavily used and much more valuable. It also would value "dark fiber"--that is, installed but unused network capacity akin to empty pipelines--at the same value awarded "lit" fiber, which already was interconnected to nationwide networks and carrying data. In transferring the asset offshore, it would record the sale on its own books as a sale at the higher, inflated values. But such deals also required Enron to cover any losses incurred by the offshore partnership, usually by payments of cash or shares. This so-called contingent liability would not be disclosed to investors, a process that vastly inflated Enron's earnings and led to a $586-million restatement of its earnings late last year. Sources say the transactions became even more questionable beginning in early 2000. "One of the games they played was to make them so complex that people couldn't see where the risk lay," Vernon said. "You'd have to spend hours with the analysts to figure it out, and then you'd be told, 'Andersen's already signed off on this.' " latimes.com _ _ _ Hiltzik reported from Los Angeles, Streitfeld from Houston.