• Enron Is Target of Criminal Probe (Post, Jan. 10, 2002)
• Bush Officials Received Early Warning on Enron (Post, Jan. 10, 2002)
• Cheney, Aides Met With Enron 6 Times in 2001 (Post, Jan. 9, 2002)
• Enron Executives Face Subpoenas (Post, Jan. 3, 2002)
• Timeline of Enron's Collapse
• Special Report: Enron
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The Enron Corp. Controversy
With Peter Behr
Post Business staff writer
Monday, Jan. 14, 2002; 1:30 p.m. EST
On Wednesday, Justice Department officials confirmed a criminal investigation of Enron Corp., which may have deliberately concealed crucial information about its finances from investors. Read the full story "Enron Is Target of Criminal Probe" (Post, Jan. 10, 2002).
Join Post Business staff writer Peter Behr to talk about the investigation and controversy over Enron Corp.
Below is the transcript.
Editor's Note: Washingtonpost.com moderators retain editorial control
over Live Online discussions and choose the most relevant questions for
guests and hosts; guests and hosts can decline to answer questions.
Does the leadership of Enron and their auditors deserve to be raked over the coals and maybe go to prison -- you bet! But watching the news and reading the papers, it seems that a number of Democrats and reporters (it is sometimes hard to tell the difference) are trying to indict the Bush administration based upon nothing. Did Enron contribute to Republicans? Yes, and Democrats too. Did they ask for help and get no special favors? Yes. Was the Attorney General acting properly by recusing himself? Yes. It seems to me that any attempt to paint Bush with this is a big (liberal inspired) stretch.
As my colleague Dan Morgan wrote this weekend, the political contributions by Enron’s top people were very large, and favored Republicans over Democrats about 70 percent of the time over the past dozen years, but they certainly didn’t ignore Democrats. The two parties shared pretty evenly in 2000.
President Bush was the largest beneficiary of Enron chairman Ken Lay's generosity and when Lay's company was in dire straits last fall, he was able to get through to two cabinet members of the Bush administation.
The administration says nothing was done, but it's that kind of access that greatly troubles critics of our political campaign contribution rules.
What comparisons do you think can & will be made to the Whitewater scandal? Is Enron a bigger version, or are they not at all similar.
Peter Behr: I don’t see a connection between Enron and Whitewater, except it creates a get-even opportunity for Democrats who felt the Republicans ganged up unfairly on Clinton.
If there’s a parallel for Enron – and this is still an if – it would be the collapse of Michael Milken’s junk bond operation at Drexel Burnham Lambert, a decade ago.
NPR reported this morning that employees of the Arthur Anderson accounting firm had destroyed documents relating to Enron.
Is there any legitimate reason that Arthur Anderson employees could have had for destroying these documents?
Data Destruction Intensifies Andersen's Woes (Washington Post, Jan. 11, 2002)
Peter Behr: Andersen's admission that Enron audit documents were destroyed is a devastating development that goes to the fundamental credibility of this huge accounting firm. The circumstances of what happened aren't known yet, but Andersen's actions are like the gap in President Nixon's White House recordings a generation ago. It will be hard -- and maybe impossible -- for investigators to be certain that some critical piece of information hasn't been explunged from the record.
I know that the Enron investigations are focusing on the accounting & financial failure or the company. Does it make anyone nervous that this company had a big part in shaping not only Texas's energy policy, but the nation's energy policy? Will that part get investigated as well?
Peter Behr: Congress will take a close look at how Enron's lobbying influenced the deregulation moves in electricity and gas markets in the nation, and in Texas.
Enron was a powerful force in the debate over the Texas electricity deregulation plan, which President Bush supported as the state's governor -- the plan took effect this month.
A lot of other new power generating companies wanted the same policies Enron was after. Did Enron get more out of energy deregulation than other companies? It's not clear to me. Enron's collapse had much effect on power sales.
The policy question still remains -- will electricity deregulation be a better deal for consumers and businesses than the regulated monopoly power service that we used to have?
Enron's collapse was apparently predictable to many in the energy industry, even if the SEC and outside auditors claimed to know nothing. Even energy business people who assumed Enron was strong still knew that the company was basically a giant shell game. So where was the Federal Energy Regulatory Commission? Does the FERC know what it's doing at all?
Peter Behr: FERC - the Federal Energy Regulatory Commission -- had the authority at any time to march down to Houston and demand a look at Enron's books. But for years, FERC has supported the energy deregulation policy enacted by Congress in 1992. FERC gave Enron a waiver that freed the company from having to submit detailed financial reports, disclosing relationships with these mysterious partnerships and getting approval of new issues of securities.
All the "independent" power markets got that privilege, since they were the new competitors taking on the monopoly utilities.
FERC would need a huge staff indeed if it wanted to really understand what a big energy trader like Enron was doing. There should be an important debate about the kinds of regulatory changes at FERC, the SEC and the commodity regulators that are called for in the wake of Enron's blowup.
What does The Post mean by "damage control efforts by the president." The front page article by Mike Allen quotes democrats with an agenda, but I'm not seeing any hard facts or evidence of a coverup.
Peter Behr: The question of damage control arises because of the time it took the administration to disclose the contacts between top Enron officials and top officials of the Bush administraiton. After weeks of silence about these contacts, and months of silence about the meetings with Mr. Lay and the Vice President's task force, the details came out in a rush last week, along with the surprising confirmation of a criminal probe by the Justice Department.
The administration critics say this has a scripted feel.
It seems that the issue here is whether Enron officials divested themselves of holdings aware that the company was heading for bankruptcy. Meanwhile, cemployee shareholders were barred from such transactions.
The President has assembled a team to report to him on this issue. But, given that the President himself engaged in similar behavior (dumping $800,000 worth of shares in an energy concern in advance of poor earnings reports) how can he be taken seriously?
Peter Behr: The contrast in the stock selling by Enron executives and the plight of its employees has some critical details that sometimes get missed.
The Enron insiders reaped huge windfalls selling stock at or near its peak from fall a year ago to early 2001. Enron employees were free to switch their investments from Enron stock to any number of mutual funds during that time.
They faced two restrictions: an Enron employee couldn't sell stock the company had put into the 401 plan as its match until the employee turned 50. And for a short period last fall, the fund was locked up while Enron changed administrators. By the time that happened, Enron shares had already lost more than three-quarters of their maximum value.
Securities lawyers say the key question is whether top Enron executives had inside information of the company's growing financial problems a year ago, as they were cashing in stock options -- and declaring the company to be in good shape. If investigators find out that was happening, Enron employees who hung on to the stock believing the company was OK would indeed be victims.
The LA Times has reported on the connection between Wendy Gramm and her husband with Enron; especially as related to deregulation of energy derivatives.
Do you think this is an important aspect of the investigation, despite not being widely reported?
Peter Behr: Wendy Gramm headed the Commodity Futures Trading Commission early in 1993 when it issued a new rule allowing Enron and other companies to trade complicated financial contracts called derivatives without regulators' oversight. After leaving the CFTC, she went on Enron's board. Her relationship with Enron will get a close look and rightly so.
What does it mean that the executives contacted cabinet officials. Were they expecting a bailout? How does Alan Greenspan fit into this picture?
Peter Behr: It seems that the main thing Enron wanted was some help from the administration in delaying a downgrading of Enron's credit rating by Moody's Investor Services and the other credit rating companies.
If this had happened, it could well have amounted to a flagrant inteferrence in a credit rating process that, under law, is supposed to be completely independent.
No outsiders are supposed to tell Moody's, Fitch and Standard & Poor's how to grade the riskiness of Enron's debt, or any other company's. Investors depend on the honesty of this process.
Moody's was considering a downgrade in October, when Ken Lay contacted the administration, mentioning Enron's fears about a downgrade. A steep downgrade then would force Enron to speed up payments on some debts and scare away customers and investors. And eventually, that is what happened as Enron's credit was marked down.
The administration and Moody's say there were no conversations between them about Enron.
Can you comment on how the other energy traders are faring in light of this debacle? I would imagine that in true capitalist fashion, Enron's former competitors have gained a great deal of business from this.
Peter Behr: There is plenty of energy trading still going on, although it's not being done the way Enron did it. Basically, if you wanted to sell electricity, Enron would quote you its price. If you wanted to buy it, Enron would quote that price, too. But the buyers and sellers never were in contact directly and didn't know when Enron was offering both sides.
Enron would dress up these contracts with other features -- such as a kind of insurance coverage that protected both sides against a big shift in weather. Companies liked that.
Some experts believe Enron was growing by low-balling prices.
Now Enron's trading department and its software has been purchased by USB Warburg. If that deal is completed and the trading operation gets going, we'll see how popular Enron's approach was.
New York City, N.Y.:
The administration appears to be proud of the fact that they did nothing to help ENRON after the placement of the calls to the two cabinet officials, but has not ENRON already received help for its dollars by backing the Republicans and their philosophy of "let's have no new government regulations that hurt the private sector." Also, when the Government was alerted to the impending ENRON meltdown, was there not a moral imperative to safeguard the employees?
Peter Behr: President Bush ran on a pro-deregulation platform, so that was something voters could look at. When Ken Lay went to the administration for help, Enron's troubles were plain as day and short of a bailout, there wasn't anything the administraiton could do to protect the workers.
The main thing the government is supposed to do for employees -- and investors - is require that companies tell the truth about their financial condition. It will be months before that question is answered in Enron's case -- far too late to help investors and employees.
I've worked at one of the "Big 5" accounting firms before... the way that working papers are created and handled would make it virtually impossible for any one person, or even several people, to truly destroy documentation. Every email and document is tracked and automatically backed up on computer servers that employees don't have access to delete. The paper trail is extensive.
Do you really believe that people at Andersen set out to methodically destroy documentation when they had to know that they would fail to delete all the documents anyway?
Peter Behr: That's a good question, and the obvious answer is, nobody on the outside knows. Andersen and other accounting firms routinely "clean up" background documents when an audit is completed. The issue here is why any document destruction of any kind was permitted beginning last fall -- if that' s what happened -- when Enron and Andersen knew that the company's financial reporting was the focus of an SEC inquiry.
Cherry Hill, N.J.:
How do you think the public will react to this. Will they see this as the "liberal media" or Democrats trying to get revenge for the Clinton scandals, or will they look at this as a legitimate issue.
Peter Behr: I think people are pretty focused on their retirement savings plans and the market risks they face in their investments. Enron's collapse raises lots of legitimate issues on those scores.
What will be the short term and long term repercussions of the whole Enron/Andersen incident?
Peter Behr: It really depends on what the investigators find.
If Enron executives violated securities laws, this story will last for a long time. If Andersen is forced out of business and has to merge with another accounting firm because of what it did, the story will continues. The bigger the story becomes and the longer it lasts, the more likely that Congress will seriously consider whether we need changes in energy policy and accounting rules.
Right now, I don't know whether this helps the Democrats politically long term. It's hard to predict how Americans will react to the next chapters of the story -- like Ken Lay's scheduled appearance before a Senate committee next month. Will voters say, "that's President Bush's friend" or conclude the administration didn't have much to do with Enron's fall? We'll just have to find out.
New York, NY:
What are the chances Enron may emerge from bankruptcy in any form? What do you percieve as the significant hurdles before Enron may achieve this?
Peter Behr: Enron is not going to emerge as Enron. Its trading operation may get back on its feet under new owners, but Enron as a global energy and trading company and a political powerhouse is gone.
Peter Behr: I'm signing off now. Thank you for the interesting questions. I wish I had time to answer more of them.
That wraps up today's show. Thanks to everyone who joined the
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