Despite Warning, Enron Chief Urged Buying of Shares
By RICHARD A. OPPEL Jr.
nytimes.com
ET wonders how good and unbiased and unselfserving the advise was that Enron gave to GWB in helping the president formulate an energy policy. Good for the nation, good for GWB, good for Enron. I doubt it on the good for the nation part.
WASHINGTON, Jan. 18 — More than a month after an Enron (news/quote) vice president warned that the company might be an "elaborate accounting hoax," Kenneth L. Lay, the chairman, used an online chat to urge employees to buy Enron shares, a transcript of the session shows.
Mr. Lay, who apparently disposed of some Enron stock himself within days of receiving the warning, assured employees in the chat session that the company's leaders "were convinced both by all of our internal officers as well as our external auditor and counsel" that its finances were legal and appropriate.
In his comments to workers on Sept. 26, Mr. Lay made no reference to the issues raised in a letter he received in mid-August from Sherron S. Watkins, the vice president, warning him of serious accounting problems at Enron. Nor did Mr. Lay mention that he had asked Enron's outside law firm, Vinson & Elkins, to review the letter's claims.
Ultimately, Enron restated nearly $600 million in profits over four years, largely because of the issues that Ms. Watkins had brought to Mr. Lay's attention. The earnings restatement in November, and other negative financial disclosures, put the company on the path to filing for bankruptcy protection on Dec. 2.
In Washington, the White House confirmed today that Vice President Dick Cheney met with a top Indian politician in June "about the status" of an Indian power plant project owned primarily by Enron, whose executives have been major campaign contributors to President Bush. The meeting was part of a broader administration effort to aid the troubled project by putting pressure on the Indian government.
Mr. Cheney discussed the Dabhol power plant with Sonia Gandhi, president of the opposition Congress Party in India. The plant has been an albatross for Enron as the company has fought a long-running battle with Indian politicians over the fate of the project. The discussions were first reported Friday by The Daily News in New York.
Last year, the Maharashtra state utility in India, which had agreed to buy all of the plant's output, objected that the price was too high and stopped paying its power bills. The plant was partly financed with more than $600 million in loans and risk insurance obtained from the federal Overseas Private Investment Corporation and the United States Export- Import Bank.
Today, Ari Fleischer, the White House spokesman, said Mr. Cheney intervened because the administration was "looking out to protect America's jobs and taxpayers' money." He noted that Clinton administration officials had also been advocates on behalf of Enron in India.
Mr. Lay met with the vice president during the preparation of the administration's energy policy blueprint last year. The energy report reflected some, but not all, of the policy prescriptions favored by Enron.
Mr. Fleischer said that administration officials considered having Mr. Bush raise the issue during a meeting Nov. 9 with the Indian prime minister, Atal Behari Vajpayee, but that they opted not to do so because the subject "did not rise to the president's level" and because Mr. Cheney had already intervened. The timing of that meeting would also have made it awkward for Mr. Bush to mention Enron, as it came one day after the company's huge profit restatement.
Enron and its executives have been Mr. Bush's largest campaign contributors since his first run for Texas governor in 1994, donating more than $600,000. But today, in a briefing with reporters, Mr. Fleischer brushed aside the notion that Mr. Bush decided against bringing up Dabhol because of "the appearance of impropriety."
He did, though, acknowledge that White House lawyers told Lawrence B. Lindsey, the president's chief economic adviser, that Mr. Lindsey should have "no direct involvement in the Dabhol plant" because of his prior work for Enron. Mr. Lindsey, who heads the National Economic Council, was paid $50,000 in 2000 for work on an Enron advisory board.
Earlier this week, the White House said that Mr. Lindsey directed a review of the effect Enron's collapse could have on the nation's economy, concluding that it would be minimal. Mr. Fleischer said there was no reason for Mr. Lindsey to recuse himself from that study.
"It's apples and oranges," he said. "One was a more direct involvement. The other was reviewing broader implications having nothing to do with the specifics of Enron's financing."
Later in the news briefing, Mr. Fleischer added that President Bush was "very concerned" that "the leaders of Enron took advantage of the people of Enron."
Thousands of Enron employees lost a large part of their life savings as Enron shares plunged last year. Lawyers suing the company have calculated that senior Enron executives and directors sold more than $1 billion in company stock in the last three years.
Today, investigators from the House Energy and Commerce Committee interviewed Enron officials in Houston, including Richard A. Causey, the chief accounting officer. Investigators in New York interviewed Michael C. Odom, one of several executives of the Arthur Andersen accounting firm in Houston who were relieved of management duties this week. The firm said that widespread destruction of Enron-related documents took place in October, after auditors learned that the Securities and Exchange Commission was investigating Enron.
In the transcript of Mr. Lay's online chat, which was released today by a lawyer for Enron workers suing the company, Mr. Lay was explicit about the endorsements he said the company had received from Arthur Andersen for its complex financial transactions.
"In many cases, not only has the local Arthur Andersen office approved these vehicles, but they have also been approved at Arthur Andersen's headquarters office from some of the world's leading experts on these types of financing," Mr. Lay said.
An Andersen spokesman said tonight that on the most significant of the deals at issue, Enron failed to provide the accountants with critical information.
Documents released this week by the House committee laid out a timeline that indicates that within days of receiving Ms. Watkins's warning about Enron's finances, Mr. Lay was disposing of some Enron shares.
But in the chat session, Mr. Lay argued that the stock was a good buy, and he suggested that employees "talk up the stock and talk positively about Enron to your family and friends."
He also told employees that the third-quarter financial results were "looking great." Three weeks later, Enron disclosed that it lost $618 million in the quarter and that it was writing down $1.2 billion of its net worth partly to reflect the reversing of some of its complex deals.
Eli Gottesdiener, the lawyer who released the transcript today, criticized Mr. Lay's comments as misleading and damaging to employees at Enron who still trusted Mr. Lay.
"This is more than a full month after Watkins is basically blowing the whistle," Mr. Gottesdiener said. "Despite all that he knows, he is not only telling people to stay put, but he has the nerve to tell people this is a buying opportunity."
This evening, Mark Palmer, an Enron spokesman, referred questions about Mr. Lay's chat session to Earl J. Silbert, Mr. Lay's Washington lawyer. Mr. Silbert did not return a phone call.
One portion of Enron took a step toward getting a fresh start tonight when a bankruptcy court in New York approved the sale of the company's flagship energy trading business to UBS Warburg.
Under the deal, Enron will get one- third of the profits from the trading operations that UBS Warburg is taking over through a licensing agreement. UBS Warburg will pay nothing upfront for the acquisition of the trading business, which was once responsible for about 90 percent of Enron's revenue.
In Texas, meanwhile, a former Enron executive, Max Yzaguirre, resigned as chairman of the state's public utility commission, a casualty of Enron's collapse. For weeks, Texas Democrats have blasted Gov. Rick Perry, a Republican, who accepted a $25,000 campaign contribution from Mr. Lay one day after he appointed Mr. Yzaguirre in June. As chairman of the utility commission, Mr. Yzaguirre had considerable influence over policies involving electricity deregulation. |
