Enron's meltdown

By Rosanne Lin and Agencies, Shanghai Star. 2002-01-17

As the Enron scandal deepens, Bush officials run for cover; Andersen fires lead partner
Enron Corp's Chairman Kenneth Lay (left) called Treasury Secretary Paul O'Neill (centre) and Commerce Secretary Donald Evans (right) to warn them of Enron's mounting financial problems last fall, a White House spokesman said January 10. O'Neill and Evans said they opted to do nothing, with O'Neill rejecting the suggestion that Enron had asked for a bailout.

"I didn't think this was worthy of me running across the street and telling the president ... I frankly think what Ken told me over the phone was not new news. You all had been reporting for weeks that Enron had problems, that they were in trouble."Paul O'Neill,Treasury Secretary

RESPONDING to growing concerns that Enron had special access to the Bush White House, top US officials said on Sunday that they did not alert the president to the energy giant's requests for assistance.

Treasury Secretary Paul O'Neill admitted that he was contacted both at home and in the office by Enron Corp Chairman Kenneth Lay, but said he did not discuss the conversation with President George W. Bush.

"I didn't think this was worthy of me running across the street and telling the president," O'Neill said on the "Fox News Sunday" programme. "... I frankly think what Ken told me over the phone was not new news. You all had been reporting for weeks that Enron had problems, that they were in trouble."

When asked to elaborate on an October 29 call received from Kenneth Lay, Commerce Secretary Donald Evans, who served as Bush's presidential campaign manager, told NBC's "Meet the Press" that the conversation simply regarded reviews of the company's business by credit agencies.

"When I was talking to Ken I wasn't thinking about bankruptcy," Evans said. "I was thinking maybe their credit rating would be dropped some."

The information discussed was publicly known, he added, and "at that point in time, tens of thousands of employees had already lost their life savings because the stock value had already collapsed."

Evans said he later informed White House chief of staff Andrew Card about the call but Card did not tell Bush.

Evans admits to having several discussions with the president about the impact of Enron's downfall but claims that he never mentioned Lay's calls during those discussions.

Energy Department spokeswoman Jeanne Lopatto also said on Sunday, that any communications between Lay and the Energy Secretary Spencer Abraham were exclusively directed to the possible impact of Enron's problems on energy markets.

Thousands of employees have lost their pensions and life savings in the former Fortune 500 company's demise, which began last autumn when the company acknowledged several hundred million dollars of previously undisclosed liabilities.

Campaign patron

Investigators and watchdog groups in the US have been concerned for some time about the pattern of Enron's campaign contributions. Lay's strong support of Bush and other current members of the administration has lead to questions about the involvement of top officials in Enron's unfolding saga.

According to the Centre for Responsive Politics, Enron is Bush's largest career patron, having given him at least $563,000 for his campaigns, including his 1978 House campaign, his two gubernatorial campaigns, and the 2000 presidential campaign.

The Centre For Public Integrity has reported that two dozen top Enron executives "personally contributed to political parties, President Bush, members of Congress, and others overseeing investigations of the company."

Currently, five congressional committees, the Justice Department and the Securities and Exchange Commission are investigating Enron's ruin, including the company's bankruptcy filing on December 2, the largest in US history.

Ongoing investigation

Meanwhile House Democrats continue to probe the nature of personal links between Enron executives and Bush administration officials.

Rep. Henry Waxman, Democrat-California, said he is currently seeking information "about the extent to which Enron may have gotten in bed with the White House through secret liaisons between Vice-President Cheney and Chairman Lay."

White House officials have said such meetings, if any occurred, had nothing to do with Enron's bankruptcy, nor did Enron dictate energy policy, and that any personal relationship between Cheney and Lay is their business.

In a January 3 letter to Waxman, Cheney counsel David Addington said the vice-president privately met with Lay for about a half-hour in the president's oval office on the evening of April 17 to discuss energy policy.

The attorney also reported two staff meetings involving officials of Houston-based Enron and the administration's National Energy Policy Development Group; some of those same people conducted two other social meetings after the group, led by Cheney, dissolved in September, for undisclosed reasons.

In a reply letter sent to the vice-president, Waxman said he wanted more detailed information about personal contacts between the White House and Enron.

Since last year, Waxman has pressed the administration for information about personal contacts between the White House energy task force and energy companies. White House officials have refused to provide a list of the people who met with the task force, saying Congress has no right to review "internal deliberations."

Scandal spreads

Arthur Andersen, the international accounting firm under fire for allegedly mishandling Enron Corp's audit, announced on January 15 it would fire its lead partner, David B. Duncan, as it grapples with a growing scandal of its own.

The firm claims Duncan, who was in charge of reviewing Enron's books, ordered documents be destroyed after learning federal regulators wanted to see them on his own initiative.

Andersen said Duncan called an urgent meeting to organize the quick disposal of Enron-related documents.

Of particular importance, Andersen said Duncan called the meeting on Oct. 23 shortly after Enron had received a request from the SEC about its accounting and financial reporting.

The firm's document policy says no documents must be destroyed if there is a threat of litigation.

Hanging on

Enron announced on January 15 in a press release, that the company had reached an agreement with UBS Warburg, in an effort to reorganize.

Enron and UBS Warburg, the investment banking group of UBS, AG, have agreed to a deal for Enron's North American Gas and electric trading operation that entitles Enron to one-third of the profits generated by the new AA+ rated trading entity.

"This is an extremely positive deal for Enron and its creditors that confirms the substantial value of Enron's trading operation," said Enron CFO Jeff McMahon. "We believe this is a first step among many towards an overall plan of reorganization and planned emergence from bankruptcy."

The deal is for 10 years but allows UBS Warburg a series of options to begin buying out Enron's royalty interest in the third-year of the agreement. UBS Warburg's calls may be exercised in three steps, each representing one-third of the royalty stream.



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