HUME: Former Enron executive Sherron Watkins, who warned last August that Enron was in a financial crisis, told Congress this week that former chairman Ken Lay was duped by colleagues.
Are we closer to learning the truth about Enron? For answers, we turn to the lead congressional investigator, Congressman Billy Tauzin, chairman of the Energy and Commerce Committee in the House. Also here with questions is our panel.
Good morning, Mr. Chairman. Nice to have you, sir.
U.S. REPRESENTATIVE BILLY TAUZIN, R-LA.: Good morning. Good seeing you.
HUME: What do we now know as a result of these hearings, about the — in broad outline...
TAUZIN: Well, the...
HUME: ... that we didn't know before?
TAUZIN: Well, we know now, basically, who the culprits were, as Sherron Watkins put it. We know who the gang of thieves were within the corporation. And we have a better sense now of how they organized their work and how they got away with it, how they kept the board of directors out of the loop, and even, to some degree, Ken Lay, up until the point where Sherron Watkins visits with him and tells him about this.
HUME: Now, let me just pursue that with you a little further. She was pretty exculpatory, in a sense, about Ken Lay. She said that he really was duped, and that she didn't think — you know, he had just come back into the job of CEO, after having relinquished it for a period of time, and that he didn't really know what was going on.
Do you feel that, in that sense, I mean, that he was blameless of guilty knowledge?
TAUZIN: Well, up until that point. I mean, at the point she brings this to his attention, he can't say "I didn't know" anymore.
What happens after that is rather interesting. What happens at that point, when Sherron Watkins says, "Mr. Lay, you've got a cancer inside your corporation, you've got a gang of thieves that are literally stealing the corporation, and it's going to — your corporation is going to explode in an accounting scandal," and I think at one point she said, look, the corporation's been robbing the bank, and now it's trying to pay it back...
HUME: Right.
TAUZIN: ... it's that bad — at that point, you know, it's hard to believe that he didn't understand the seriousness of it.
But I asked her that very carefully, privately in interviews and then on the record at the hearing, do you think he got it? And she still believes he didn't fully understand it.
I think today, I'm beginning to understand why she says that.
HUME: Why?
TAUZIN: Because I think he turned to his general counsel, Jim Derrick...
HUME: Right.
TAUZIN: ... and basically said to Jim Derrick, check this out for me.
HUME: And?
TAUZIN: Jim Derrick turns to whom? Vinson & Elkins.
HUME: Law firm?
TAUZIN: Right, the inside law firm that's been advising the accountants and the scoundrels on how to put these deals together.
HUME: And then what happened?
TAUZIN: Well, the next thing you know, Jim Derrick asks Vinson & Elkins to do an investigation, but he tells Vinson & Elkins, very carefully, don't look at the accounting, don't question the accounting, don't do a real in-depth analysis of the transactions, just tell me whether you see enough for us to go to an outside legal counsel to investigate it.
Well, what do you expect to get from Vinson & Elkins at that point? They said, don't go any further.
HUME: All right.
WILLIAMS: Now, Congressman, what does this say about accounting practices nationwide? I think that's what most Americans are concerned about, is other companies that may be up to the same kind of shenanigans with accounting. Do you see this being pandemic?
TAUZIN: Well, first of all, look at the Powers report. The Powers report is replete with statements like...
HUME: The Powers report is a report prepared by?
TAUZIN: By Dean Powers of the Texas — dean of the law school in Texas in Austin. And he was brought onto the board to do this investigation. He's since retired.
Dean Powers investigated what happened at Enron, basically. And his team came up with basically the same thing we're coming up with, the same list of scoundrels, same activities.
But what he says consistently is that they violated accounting standards, they circumvented accounting standards. In almost every case, they literally took an accounting standard and stood it on its head. They called Arthur Andersen's work creative and aggressive, circumventing and a violation of the accounting standards.
So, the answer is that, first of all, Enron stands as sort of an aberration. This is a corporate thievery that — where the accounting standards were constantly violated.
Does it mean the accounting standards are good? No, we're beginning to understand the accounting standards are not good enough, and maybe we better revisit them across the country and across corporate boards.
(CROSSTALK)
BARNES: I'm sorry, Congressman, Mr. Chairman...
TAUZIN: That's an insult...
(LAUGHTER)
BARNES: I'm interested in the political aspects here. In your hearings, in your investigation, have you uncovered anything that implicates the Bush administration in any wrongdoing, or in any involvement at all in the Enron affair?
TAUZIN: Not in the scandal. I mean, obviously, they were friends.
BARNES: Right.
TAUZIN: Obviously, Enron was a big supporter of the president, and Ken Lay was a personal friend and supporter.
BARNES: Right.
TAUZIN: And, as well as Enron supported many members of Congress, Democrats and Republicans.
But, as Jim Greenwood said, I think it was last week, he and the investigators who work for our committee found no involvement of Bush officials in this scandal.
BARNES: Let me ask about Enron's influence. One charge has been that Ken Lay and Enron got the Bush administration to appoint Pat Woods as the head of the Federal Energy Regulatory Commission. Is that correct?
TAUZIN: I think Pat Woods was going to get appointed to something anyhow. I mean, he was a close friend of the president's, he was close to the Bush administration in Texas. He was the head of the PUC in Texas. In fact, he wanted the FCC job.
BARNES: Right.
TAUZIN: So I think the next job that came up was the FERC job, and he got it.
BARNES: It was not Ken Lay who produced that appointment, then?
TAUZIN: I don't think he produced it. I'm sure he recommended it, just as well as many people did in Texas.
BARNES: Yes, one other question. Along this line, it's been charged that Ken Lay had a veto over who would be energy secretary in the Bush administration. Have you uncovered anything to substantiate that?
TAUZIN: No, I have no knowledge of that. No.
CONNOLLY: Mr. Chairman, you said recently that you anticipate some folks here will go to the pokey. Today you're talking about "gang of thieves." Have you been able to pinpoint who you think that is that is heading to the pokey?
And are there any complications from the work that your committee's doing while the Justice Department is also pursuing its criminal probe? Would you prefer to grant immunity and learn more?
TAUZIN: No. We're very careful about developing the facts without interfering with the potential criminal investigation that's going on.
In fact, our investigators are working hand in hand in glove with the FBI and the SEC. The SEC chairman and their officials came in early to meet with us to share information.
What we're basically doing is uncovering what happened, identifying what we think are the bad players. And then we're going to leave it up to the criminal authorities to see whether or not any of them need to go to jail, whatever you call the jail.
CONNOLLY: So you're not sure yet who's heading there?
TAUZIN: I think I've got a good idea who may get indicted, but again, that's not my job.
HUME: Let me ask you about a memorandum that I know has come to light in the course of your investigation. This is a memorandum from a lawyer at Vinson & Elkins, the law firm you spoke about earlier, that has to do with giving Sherron Watkins, the whistle blower about whom we've heard, from also whom we've heard much, a new job. And let me just talk about a part of that memo.
At the top it says: Per your request, says this lawyer, Carl Jordan (ph), the following are some of bullet thoughts on how to manage the situation with the employee who made the sensitive report. Assuming a suitable position can be found, I recommend documenting in memo form that the transfer is being affected per her request. This would be worded to convey that the company has considered and decided to accommodate her request for reassignment."
TAUZIN: Read the bottom of it. It gets even worse. The second part says, in effect, now as to your question about what happens if you fire her or get rid of her. And then the Vinson & Elkins memo goes on to explain the problems, the lawsuits, the investigations that might follow.
HUME: But they didn't fire her, did they?
TAUZIN: No. But the fact that they're inquiring that this Ms. Butcher (ph), who works for Jim Derrick, again the general counsel to Ken Lay, the fact that they've inquired of Vinson & Elkins to give them a memo about what they can or can't do with this woman who has come forward and has made allegations...
HUME: Tells you what?
TAUZIN: It tells me, you know, that there may be more people involved in covering up what was going on.
HUME: But at the end of the day, though, what happened was she got assigned to another job and was not fired. Wouldn't a lawyer say, look, I just was giving them a rundown on all the implications of moving her, including that. This memo does not establish that anybody ever tried to fire her, does it?
TAUZIN: No, it doesn't. But, again, the mere fact that they're asking the lawyers, in-house lawyers for Enron, what happens if we fire her? That means somebody's thinking of it.
HUME: Right.
TAUZIN: And, in fact, Fastow did try to get Sherron Watkins fired. We know that. He had a hard drive seized, and he did everything he could to get rid of her. So she had every reason to believe there were people in that corporation who might indeed want her fired or find some way to get rid of her. The fact that they were asking Vinson & Elkins to tell them what are the consequences of doing this means somebody was thinking about it.
HUME: Right. All right, let me just take you to another company, Global Crossing. Another very large bankruptcy, a company that spread around a lot of campaign contributions, a couple of very prominent political figures, the father George Bush. Democratic National Chairman Terry McAuliffe made a tremendous killing on that stock when it ran up so high.
Is there a likelihood that these investigations, your own included, will expand to cover that company, about which accounting questions have been raised as well?
TAUZIN: Our investigators are looking at some of the issues raised by the Global Crossing. What we've found so far is it's a very different set of problems.
Global Crossing, like a lot of the telecom companies, did some creative accounting, too. The telecom companies, dot-com companies, all of them have to account for intangible assets, the eyeballs on the Internet, the knowledge, the goodwill. Those kinds of things are difficult to account for. And many of these companies counted as current income future sales of broad band and all these services. I think that's what got Global Crossing in trouble.
HUME: And, so...
TAUZIN: And I think we have to do something about those accounting standards again.
HUME: All right.
TAUZIN: We have to somehow come up with better ways to identify what is real income and what is phonied-up income. We have to come up with better standards to make sure that when somebody wants to put debt off the books, that they really transfer the assets and risk.
Under the current standards, Enron is a good demonstration of how, with clever and aggressive accounting, again, people can get away with phonying up income and hiding debt. And that's not good for investors; it's not good for the corporate America.
HUME: Chairman Billy Tauzin, thank you very much. It was a pleasure to have you, sir.
TAUZIN: Good to be with you.
HUME: Up next, the stories you won't find on any other Sunday show and our panel on Congress, cash, Enron and much else.
(BEGIN VIDEO CLIP)
KEN LAY, FORMER CHAIRMAN OF ENRON: I have, however, been instructed by my counsel not to testify based on my Fifth Amendment Constitutional rights.
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