Enron's Lay Faces House Subpoena; Powers to Testify Today
By Jeff St.Onge and Susan Decker
Washington, Feb. 4 (Bloomberg) -- A House subcommittee chairman says he will subpoena Former Enron Corp. Chairman Kenneth Lay to force him to testify tomorrow, after Lay refused to appear before Congress voluntarily.
Lay canceled scheduled testimony today and tomorrow, a move his lawyer blamed on lawmakers' ``inflammatory'' comments about an internal company investigation.
The 203-page review concluded Enron executives enriched themselves while hiding at least $1 billion in losses in 3,000 partnerships, steps that led to the biggest bankruptcy filing in U.S. history. The study, commissioned by the board, was led by University of Texas Law School Dean William Powers.
Powers is scheduled to testify before the House Financial Services subcommittee this afternoon, along with Securities and Exchange Commission Chairman Harvey Pitt.
Lay had been scheduled to testify before the same panel tomorrow and before the Senate Commerce Committee today. Representative Richard Baker, a Louisiana Republican who chairs the House Financial Services Capital Markets Subcommittee, will subpoena Lay to make him testify tomorrow, Baker's spokesman Michael DiResto said.
Democratic Senator Byron Dorgan, who was in charge of the Senate hearing, told NBC yesterday that the Powers report shows ``a culture of corporate corruption.'' Republican Senator Peter Fizgerald, a panel member, said the report depicts ``a giant pyramid scheme.'' House Energy and Commerce Committee chairman Billy Tauzin spoke of ``security fraud'' on NBC's ``Today'' show.
``These inflammatory statements show that judgments have been reached and the tenor of the hearing will be prosecutorial,'' Lay's attorney, Earl J. Silbert, said in a letter to the Senate Commerce Committee.
Andersen's Response
The report said the board's audit committee shared in the blame for inadequate disclosures in Enron's public filings, along with management, Arthur Andersen LLP and the company's longtime Houston law firm, Vinson & Elkins.
Enron lawyer Robert Bennett said the report showed a resolve to find the facts and proved that ``the board was not provided a great deal of information that it should have had.''
Andersen spokesman Patrick Dorton called the report ``self- serving'' in downplaying the board's responsibility. ``The authors, whose independence is already in question, were handpicked by Enron's board,'' Dorton said. ``The authors failed to consult with Andersen in any substantial way.''
`As Little as Possible'
The report said investigators were told ``by more than one person that the company spent considerable time and effort working to say as little as possible'' in documents about transactions with related parties that proved to be Enron's downfall.
``That impulse to avoid public exposure, coupled with the significance of the transactions for Enron's income statements and balance sheets, should have raised red flags for senior management, as well as for Enron's outside auditors and lawyers. Unfortunately, it apparently did not.''
U.S. Treasury Secretary Paul O'Neill said he wants tougher penalties on senior executives who mislead investors, the Wall Street Journal reported, citing an interview.
Lay, a contributor to President George W. Bush, ``bears significant responsibility'' for ``flawed decisions'' in approving some transactions, the report said.
Top Executives Profited
Enron employees involved with affiliated partnerships enriched themselves ``by tens of millions of dollars they should never have received,'' the report said. Former Chief Financial Officer Andrew Fastow made at least $30 million, former General Manager Michael Kopper got at least $10 million and two other employees made at least $1 million each, the report said.
``This personal enrichment of Enron employees, however, was merely one aspect of a deeper and more serious problem,'' the report said. ``These partnerships -- (called) Chewco, LJM1 and LJM2 -- were used by Enron management to enter into transactions that it could not, or would not, do with unrelated commercial entities.''
Transactions used to hide debts and offset losses didn't follow accounting rules and were implemented ``improperly,'' the report said. The transactions resulted in Enron overstating earnings from the third quarter of 2000 through the third quarter of 2001 by about $1 billion, the report said.
Favorable Results
``Many of the most significant transactions apparently were designed to accomplish favorable financial statement results, not to achieve bona fide economic objectives or to transfer risk,'' the report said. ``They allowed Enron to conceal from the market very large losses resulting from Enron's merchant investments by creating an appearance that these investments were hedged.''
Enron lawyer Bennett said the report shows the board wasn't shown details of the partnerships. Tauzin, a Louisiana Republican, blamed the board.
Tauzin said the report raises questions about Skilling, whose signature, the report says, was missing on some deals. ``What does that say about his knowledge about whether these deals were dishonest or corrupt?'' Tauzin said. Skilling will testify before the House Oversight and Investigations Subcommittee on Thursday, Tauzin said. Fastow and Kopper will appear but will plead the Fifth Amendment.
In August 2001, Enron Vice President Sherron Watkins sent an anonymous letter to Lay raising questions about the partnership. Lay told the report's authors ``he viewed the letter as thoughtfully written and alarming.''
Enron, once the seventh-largest U.S. corporation, began to unravel in October after it said shareholder equity was reduced by around $1 billion because it used stock to pay off debt of a partnership run by Fastow. The writedown also raised questions about how Enron accounted for debt and losses of similar affiliated partnerships. On Nov. 8, it restated earnings back to 1997, lowering them by $586 million.
The company filed for bankruptcy Dec. 2 as its stock slid below $1 from more than $80 a year ago and the company was unable to finance its business. |
