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Congress and PensionsChicago Tribune - by Michael Tackett – January 26, 2002
WASHINGTON -- On Dec. 21, 1999, in Enron's chest-puffing days, the company churned out a press release to tout its status as one of Fortune magazine's "100 best companies to work for in America."
"Our corporate culture and our world-class employees make Enron a great place to work," said Kenneth Lay, the company's chairman and chief executive officer. "We are proud to receive recognition as a top workplace; it's a reflection of our commitment to our employees and their key role in our company's success."
Now Lay has resigned, and Enron Corp.'s commitment to employees, especially its retirement savings plans, is under high-profile congressional scrutiny. And the story of how many Enron workers watched their 401(k) plans, the savings programs designed to ensure a comfortable retirement, become nearly worthless is sparking a broader debate on the potent political issue of retirement security.
Some lawmakers and pension specialists are wondering if the Enron case will be for the 401(k) plan what the Studebaker case of nearly 40 years ago was to more traditional company pension plans. In the Studebaker case, workers were shocked to find their pension benefits were not guaranteed when the company terminated the plan in 1963.
That case prompted Congress to eventually pass the Employee Retirement Income Security Act of 1974, establishing among other things a government guarantee of defined-benefit pension plans. But those protections do not apply to 401(k) plans, which have dramatically overtaken traditional pensions in number in the last 15 years.
"I've watched this go from a backwater technical issue no one paid attention to, to now being one of the core issues people think of," said Rep. Earl Pomeroy (D-N.D.), a leading pension authority in Congress. "As a result, the politics behind it have grown hotly charged as well.
"This is a mixed blessing. The good news is Congress is now interested," Pomeroy said. "The bad news is Congress is now interested. This is an area where ill-advised, well-intentioned legislation can do some serious damage."
Even before the hearings started, several legislative proposals have been introduced. One, by Sens. Barbara Boxer (D-Calif.) and Jon Corzine (D-N.J.), would limit employee contributions in company stock to 20 percent of the total and employees could convert any matching company stock to another financial instrument within 90 days. To reduce the appeal of granting a match in stock, the legislation also would cut tax breaks for matching company stock in half.
Another proposal, offered by Rep. Charles Rangel (D-N.Y.), calls for a federal tax penalty on sales of stock by company insiders if other lower-ranking employees are restricted.
The federal government can only loosely regulate most employee benefits because companies provide them on a voluntary basis. And, as workers often come to find, companies almost universally reserve the right to change, amend or terminate any or all of those benefits.
Buffet of benefits
Businesses are far more likely, however, to emphasize benefits as an inducement to sign on and stay with a company. Enron's employee handbook, for instance, lays out a rich buffet of benefits in addition to the 401(k) plan: a stock options plan that awarded up to 25 percent of salary in Enron stock options; subsidized membership at The Body Shop fitness center, complete with tai chi and Pilates classes; and an on-site doctor's office.
Like many companies, Enron also offered a 401(k) savings plan, listing its stock as the first option of many investment funds available. The company matched each $1 an employee contributed with 50 cents worth of Enron stock.
Those who chose the Enron option were rewarded famously as the stock value soared. But as Enron's stock plummeted, they learned the crushing reality of the risk inherent in 401(k) plans. The plaintive stories of families whose retirement savings were wiped out will no doubt be told during the hearings.
Congress is likely to respond in some fashion, and Pomeroy and others are concerned that lawmakers could actually set back the cause of retirement security. For instance, if Congress were to regulate 401(k) plans too heavily, companies might choose to not offer them, putting workers' retirement finances in even greater peril.
Companies also could choose to provide no match. Indeed, as salaried workers at Ford Motor Co. found recently, that company match is voluntary and Ford suspended its contribution to 401(k) plans for 2002. What's more, the government can guarantee a pension plan because it is not based on an employee making an investment decision. Similar protection for a 401(k) plan would be tantamount to the government guaranteeing an ever-rising rate of return.
Defined-benefit plans, promising a certain amount of money for life upon retirement, are far more easily regulated than 401(k) plans, whose results depend on market forces and individual choices. In the last 10 years, most 401(k) plans clearly increased in value that would have far exceeded defined-benefit plans.
Shifting of risk
But it is also true that most companies, desirous of having employees control large blocks of stock, encourage investment in company stock. When that stock goes down in value, the risk of the investment becomes harshly clear.
The number of American workers covered by some form of pension plan has remained nearly constant for 25 years, at about 50 percent of the private sector labor force. But over that time, the number covered by 401(k), or defined-contribution, plans has far exceeded those covered by the more traditional defined-benefit plans. With that move has also come a shifting of risk, from the employer to the employee.
"The shift from the defined-benefit plan to the defined-contribution plan has left employees with a great deal more exposure than they had under traditional pension plans," Pomeroy said. "And, to my knowledge, Congress has never had a hearing on this great shift."
That may well be about to change. And there are those who are pushing for Congress to take a more aggressive stance. For one, Karen Friedman, director of policy strategies of the Pension Rights Center in Washington, said Congress should "enact protections to see that Enron doesn't happen again."
"One big question that this raises is: Are we, in this society, overreliant on the 401(k) plan and other non-insured savings plans?" Friedman said. "We think this is the perfect time to have that debate. We've been warning of the perils of 401(k) plans for years and years. Maybe 401s were great in a bull market. The question is, are they the right plan in today's market?"
For now, how that question will be answered falls to Congress.
"You know Congress is going to be looking for one," Pomeroy said, "or if not one, a darned good press release."
Enron: The Political ScandalSalon – by Scott Rosenberg – January 25, 2002
So what if Bush and company didn't bail out Enron? The outrage lies in what politicians did for the company on its way up, not the way down.
Jan. 18, 2002 - The collapse of Enron, we now hear, is not a "political scandal" -- it's a "business story." A fine distinction! So far, no one possesses evidence that government officials lied, goofed around with interns, ran guns from the White House basement, burglarized opponents' campaign offices or accepted bags of unmarked bills. And so a growing chorus in the media now chants that the Enron affair should not be considered in the same class as Whitewater, Watergate, Iran/Contra or any of the other previous brouhahas that have consumed Washington and brought presidencies to their knees.
This tells us that the scandal yardstick our political and media culture currently uses is bent like a pretzel. You say your president may have finagled a real estate deal many years ago? Time to name a special prosecutor! He lied about his sex life? Draw up the articles of impeachment! But tell us that a high-profile corporation donated millions of dollars to legions of politicians, including the president; bent the government to its will; lined the pockets of its executives while dodging all taxes; then went bankrupt, vaporizing thousands of employees' retirement accounts? Nah, that's no "political scandal." Come on -- where're the bimbos?
Enron's dismal story simply doesn't meet the high bar of triviality the press today demands. The sums of money involved are too great; the flaws in our political system that it exposes are too vast. It's just too real to qualify…
Cheney Does Enron’s BiddingWashington Post – by D. Milbank, G. Kessler – January 24, 2002
WASHINGTON -- As presidential candidate George W. Bush's top economic adviser in 2000, Lawrence Lindsey was also a $50,000-a-year consultant to Enron Corp. At one point, those two roles merged.
In 1999 and 2000, Enron Chairman Kenneth Lay convinced Lindsey of the wisdom behind one of Enron's businesses, a consulting operation that advised companies on energy efficiency. Lindsey was so impressed that he incorporated Lay's ideas into the Bush campaign's energy policy.
``It stuck with me,'' Lindsey said Thursday.
The cozy relationship serves as one more reminder of the political influence and reach of the once-giant energy company. Its ties extend deep into President Bush's staff, appointments, Cabinet members, friends, family -- and his own past.
According to financial records, about 35 administration officials have held Enron stock. A few, such as top Bush political adviser Karl Rove, had six-figure holdings. (Rove sold holdings that had been valued between $100,000 and $250,000 last year, after the price had dropped, for $68,000).
Several others -- Lindsey, U.S. Trade Representative Robert Zoellick, Commerce Department general counsel Theodore Kassinger, Maritime Administrator William Schubert -- served as paid Enron consultants.
Bush's Secretary of the Army, Thomas White, was vice chairman of the Enron business that Lay had described to Lindsey during the campaign. White had held between $25 million and $50 million in Enron stock in addition to options and other forms of remuneration. Newly appointed Republican National Committee Chairman Marc Racicot was an Enron lobbyist. Bush campaign adviser Ed Gillespie, sent in when Bush took office to get the Commerce Department up and running, was an Enron lobbyist.
Still others, such as Attorney General John Aschcroft and Energy Secretary Spencer Abraham, received campaign contributions from Enron, while many more -- including Securities and Exchange Commission Chairman Harvey Pitt, Federal Energy Regulatory Commission Chairman Pat Wood and Deputy Attorney General Larry Thompson -- have indirect ties to Enron or its auditor Arthur Andersen.
Enron also consulted on policy with top administration officials such as Commerce Secretary Donald Evans, Treasury Secretary Paul O'Neill and Vice President Dick Cheney, who was on a first-name basis with Enron's chairman.
There has been no indication that the administration's ties to Enron are illegal, and the giant company had similar connections to several Democrats and Republicans in Congress. But the sheer volume of Enron connections to the executive branch offers testimony to the long reach of a powerful campaign contributor and aggressive corporation.
Democrats in Congress on Thursday questioned another role that Lindsey played, saying his actions may have violated federal conflict-of-interest regulations.
Lindsey led a White House ``review'' that monitored the effect of Enron's woes on energy markets, according to the White House. Lindsey said it was merely part of an ongoing monitoring of the energy markets and that his work was not ``Enron-specific.'' Cheney also met with Lay to discuss development of the administration's national energy policy. In all, the vice president's office disclosed, the energy task force met six times with Enron representatives.
There were these other developments:
Stock cashed in
Internal memos from Enron's longtime accounting firm, Arthur Anderson, were released Thursday by congressional investigators. They indicate Lay disposed of stock within days of receiving a letter warning him of Enron accounting problems.
That letter, from Sherron S. Watkins, a senior Enron employee, sparked an investigation by Enron's outside law firm, which concluded that the accounting issues could be embarrassing to the company. As part of that investigation, Lay met with Watkins.
Until Thursday, it had not been clear when Watkins wrote her letter warning of accounting problems or when Lay received it. But her lawyer, Philip Hilder, said Thursday that the letter was written Aug. 15, and one of the newly disclosed Andersen memos obtained by congressional investigators indicates her meeting with Lay had been scheduled for Aug. 22 and it had been scheduled by Aug. 20.
It was on Aug. 20 and Aug. 21 that Lay exercised options on 93,620 shares of stock for $2 million. At the time, the shares were worth $3.5 million. Lay did not report selling the stock, but a lawyer for Enron disclosed this week that some shares had been used to repay a previously undisclosed loan from Enron. Enron would not discuss the details.
Enron fired Arthur Andersen on Thursday, saying the accounting firm failed to tell Enron that it had serious bookkeeping concerns as early as February.
Enron, which once had a market value of $70 billion, filed for bankruptcy Dec. 2 after acknowledging that it had overstated its profits by nearly $600 million.
Review board proposed
Responding to growing pressure over Enron's collapse, SEC Chairman Pitt proposed the most significant change in the way accountants are regulated since the Depression.
A new oversight board would be set up, funded by the private sector, but kept separate from the American Institute of Certified Public Accountants, a lobbying and trade group that has long been responsible for professional discipline. The SEC would continue to handle cases involving legal violations, and it would also review disciplinary actions taken by the new board.
Debt collection help
Cheney tried to help Enron collect a $64 million debt from a giant energy project in India, the New York Daily News reported in today's editions, quoting government documents.
``Good news is that the veep mentioned Enron in his meeting with Sonia Gandhi yesterday,'' a National Security Council aide wrote in a June 28 e-mail, referring to the Indian opposition leader.
The new documents, obtained under the Freedom of Information Act, indicate Cheney took a key role in pushing the Maharashtra State Electricity Board to make good on the huge debt claimed by Enron for a gas project in Dabhol, India.
Mercury News wire services contributed to this report.
Legalized BriberyEmployee Advocate – DukeEmployees.com – January 21, 2002
In the New York Times article, “Multiple Safeguards Failed to Detect Problems at Enron,” this description was used: "This was like a nuclear meltdown where the core melted through all the layers."
That was not an overstatement by Robert Litan, director of economic studies at the Brookings Institution.
He also said: "You can look at the system as a series of concentric circles, from management to directors and the audit committee to regulators and analysts and so forth.”
But is it realistic to expect management and directors to be a safeguard? In general, they look to stuff more money in their pockets by any means possible! When everyone from the auditors to the U. S. president was in Enron’s pocket, there were no safeguards!
The Securities and Exchange Commission sought to block the type of dual role that Arthur Andersen played. But Arthur Andersen defeated the attempt through lobbying against it!
Enron lobbied to be exempt from electricity derivatives reporting requirements, and got everything that they wanted. The asked for the key to the candy store, and it was handed over to them. It just does not get any easier than this.
And then there are the Wall Street analysts. Call them analysts if you wish, but the term Wall Street “shills” would be more appropriate.
There will never be any safeguards as long as companies are allowed to write the rules that supposedly govern them. They do this through lobbying, or more correctly stated, legalized bribery.
Enron Crashed Multiple SafeguardsNew York Times – by R. Stevenson, J. Gerth – January 21, 2002
WASHINGTON, Jan. 19 — The system of safeguards that was put in place over the years to protect investors and employees from a catastrophic corporate implosion largely failed to detect or address the problems that felled the Enron Corporation , say regulators, investors, business executives and scholars. The breakdown in checks and balances encompassed the company's auditors, lawyers and directors, they say. But it extended to groups monitoring Enron from the outside, like regulators, financial analysts, credit- rating agencies, the media and Congress, which in the coming week will open a blizzard of hearings into the company's downfall.
The company's demise seems sure to bring not just legislative changes but sweeping reviews by regulators, accounting and law firms and corporate boards, all in search of how to assure that investors, employees and other constituencies can have faith in what companies tell them.
In Enron's case, the questions extend to the political influence wielded by the company. But increasingly the focus has turned to the entire framework of legislation, regulation and self-governance in which it operated.
"This was a massive failure in the governance system," said Robert E. Litan, director of economic studies at the Brookings Institution, the research organization. "You can look at the system as a series of concentric circles, from management to directors and the audit committee to regulators and analysts and so forth. This was like a nuclear meltdown where the core melted through all the layers."
It could be months before criminal, civil and Congressional investigations unearth all the facts of Enron's collapse, and there is likely to be plenty of blame to go around.
But much of the early attention has focused on the performance of Enron's accounting firm, Arthur Andersen, whose primary function was to assure that the company was accurately and completely disclosing its financial results and condition.
At the back of Enron's last annual report were two statements from Arthur Andersen. One attested to Arthur Andersen's opinion that Enron's internal accounting system "was adequate to provide reasonable assurance as to the reliability of financial statements." The other stated its opinion that Enron's financial reports "present fairly, in all material respects, the financial condition" of the company and its subsidiaries. The statements — a version of which appears in the annual reports of all healthy publicly traded companies — amounted to a Good Housekeeping Seal of Approval for Enron's books.
Arthur Andersen may have had reason to view Enron through a flattering lens, given its symbiotic relationship with the company, one sure to be examined in depth in the corporate autopsy. At the same time that it was acting as Enron's auditor, it was seeking and getting lucrative consulting work from Enron, mirroring a trend among the five big accounting firms.
Andersen was also successfully lobbying against the Securities and Exchange Commission's effort two years ago to limit just that type of dual role; some regulators felt it created a conflict of interest by raising questions about whether an auditor would challenge the management of a company from which it sought more business.
Moreover, Enron turned over to Andersen some responsibility for its internal bookkeeping, blurring a fundamental division of responsibilities that companies employ to assure the honesty and completeness of their financial figures. Further obscuring the line between an independent auditor and corporate management, many of Enron's financial executives had moved there from Andersen.
Other safeguards had little effect. When Andersen was subject to a peer review of its general auditing practices last year under the industry's self-regulation program, its competitor Deloitte & Touche gave it a clean bill of health.
In the end, Enron was forced to restate earnings for the last five years by nearly $600 million, mocking Andersen's assurances that the original numbers were complete and accurate. Questions raised in a whistleblower letter made public this week suggest that more reported earnings will have to be re-examined as the company and its creditors unravel the web of partnerships it set up to carry much of the company's debt. Enron dismissed Andersen as its auditor this week.
Arthur Andersen's chief executive, Joseph F. Berardino, has defended his firm's conduct and denied wrongdoing.
From a government and regulatory perspective, Enron, as one of its executives said late last year, thrived in a "regulatory black hole" that the company labored to create.
At the Federal Energy Regulatory Commission, Enron lobbied in the 1990's for a rule that exempted trading in electricity contracts from reporting requirements.
The lack of scrutiny by the energy regulatory commission was one reason that William A. Rainier, the chairman of the Commodity Futures Trading Commission, told Congress in 2000 that he was "deeply concerned" about a bill that would exempt energy trading from his commission's review because dealers in energy derivatives had no other regulator. His objections were largely ignored, and the exemption, heavily backed by Enron, became law.
The 2000 law built on a 1993 ruling by the futures commission that exempted energy trades. The chairwoman at the time was Wendy L. Gramm. Soon after she left the commission, Ms. Gramm became a well- paid director of Enron.
Because Enron was publicly traded, its financial reports were subject to scrutiny by the Securities and Exchange Commission, at least in theory. In practice, the commission has enough staff to review corporate reports only on a limited basis, and Enron's have not gotten a thorough vetting by the commission at least since 1997, people familiar with the commission's work said.
Because one of its main businesses was buying and selling contracts to supply electricity to utility companies, Enron was required to file quarterly reports with the energy commission. A review of the reports last year by The New York Times revealed inconsistencies in the way Enron subsidiaries accounted for some transactions. But commission officials acknowledged that they did not closely examine the Enron filings.
Enron was not shy in making its views known on Capitol Hill, at the White House and among the regulatory agencies — or in spreading campaign contributions around to Republicans and Democrats alike to ensure it would get a hearing. Since 1989, Enron has given $5.95 million to the two parties, with 74 percent going to Republicans, according to figures compiled by the Center for Responsive Politics, a watchdog group.
"Money allowed the Enron leadership to come to town," said Charles A. Bowsher, who as comptroller general of the United States during the Reagan administration led the General Accounting Office, Congress's auditing and investigative agency. "Everyone says they didn't get anything, that the secretary of the treasury turned them down, that the secretary of commerce turned them down," said Mr. Bowsher, who himself worked for Arthur Andersen, decades ago. "But if you look back over the last five years, what they did get was no oversight."
The board of directors has ultimate responsibility for any company's performance and conduct. Within the board, special responsibility falls on the outside directors, whose job is to cast a skeptical eye on management and to oversee issues that speak to the company's credibility, including its financial audits. Enron's board consists of Kenneth L. Lay, the chairman and chief executive, and 14 nonmanagement members. The company's former chief executive, Jeffrey K. Skilling, was a member until he resigned in August.
The close ties between management and the outside directors also raise questions about the board's independence. Twice in 1999 — on June 28 and on Oct. 12 — the board approved a waiver of the company's conflict of interest rules to allow Andrew S. Fastow, the chief financial officer, to set up private partnerships that would do business with Enron, according to a review by Enron's law firm, Vinson & Elkins.
Those partnerships and others are at the heart of the inquiry into whether company executives profited at the expense of shareholders and employees. Enron has estimated that Mr. Fastow made more than $30 million from the two partnerships set up in 1999. The partnerships masked Enron's mounting debts. Enron's outside directors were among the best paid. Enron has also made donations to causes associated with some directors. For example, Enron and Mr. Lay, through foundations they control, gave nearly $600,000 to the University of Texas M. D. Anderson Cancer Center over the last five years. The center's president, John Mendelsohn, and its president emeritus, Charles A. Lemaistre, are on Enron's board.
The Legal Advice
A company's outside lawyers can also be an important check on corporate misbehavior. Enron was the largest client of Vinson & Elkins, one of the largest law firms in Houston.
The ties between the firm and its client were close. James V. Derrick Jr., the executive vice president and general counsel of Enron, joined the company from the firm. As Enron grew bigger and more sophisticated, the firm's billings rose substantially.
The firm gave advice to Enron about the partnerships the company was setting up as it remade itself into a trading company in the late 1990's. It was asked by Enron to review those partnerships after Mr. Lay received a letter from a senior Enron executive, Sherron S. Watkins, raising questions about the company's financial structure.
In her letter to Mr. Lay, Ms. Watkins specifically suggested that the company not use Vinson & Elkins to review the issues she was raising, noting the overlapping roles the law firm would then be playing. "Can't use V&E due to conflict — they provided some true sale opinions on some of the deals," she wrote. When the firm reported back to Enron in October, it concluded that the issues raised by Ms. Watkins "do not, in our judgment, warrant a further widespread investigation by independent counsel and auditors." Only later, as the company began to collapse, did a special committee of the board hire another firm, Wilmer, Cutler & Pickering, to review the company's structure.
Vinson & Elkins said it had acted properly at all times.
"In a very general sense the law firm is highly confident, very confident that everything it did in its representation of Enron and any of its engagements was performed to the highest of ethical and professional standards," said Joe Householder, a spokesman for Vinson & Elkins.
The Financial Seers
Enron's collapse has focused new attention on the Wall Street analysts, whose judgments about stocks are widely assumed to be driven as much by a desire to help their firms win investment banking business from the companies they follow as to give investors sound guidance.
Not only were most of the big Wall Street firms bullish on Enron over the past few years as its stock went up, but they also kept the faith as cracks started to appear in Enron's foundations last summer and fall.
Analysts at firms like Goldman Sachs, Lehman Brothers, Salomon Smith Barney and UBS Warburg recommended the stock to investors well into the fall, after Enron's problems started to become public.
Early last year, Jim Chanos, president of Kynikos Associates, an investment firm that sells stocks short — that is, it bets that a stock is overvalued and will fall — decided to bet against Enron. To assure himself that he had not misjudged the company, he invited analysts from the big firms to come in and tell him why he was wrong.
"It's not that they didn't see what we saw," Mr. Chanos said. "They either chose to come to the wrong conclusion because it suited them for a variety of other reasons, or to put their faith in management."
Some experts have leveled criticism at the credit-rating agencies, which review the bonds and other debt securities issues by companies. One issue is that the companies being rated pay the agencies — Moody's Investor Service, Standard & Poor's and Fitch are the biggest — for their services. But the biggest problem, analysts say, is that the agencies have not had a good record of scouting out problems before they become apparent to investors.
In Enron's case, it was only the two months before the company entered bankruptcy last fall that the agencies were threatening to deem the company a serious credit risk by dropping it to a below-investment grade rating.
All the big agencies have defended their record on Enron. But the credit- ratings analysts, like their counterparts who rate stocks, are already coming under increased scrutiny.
While the press took note of Enron's high political profile and ties to the Bush campaign in 2000, the company's financial profile in the media was largely flattering until last year. In March, an article in Fortune by Bethany McLean delved into the unanswered questions about the sources of the company's profits.
Her article was published after Enron's spokesman and Mr. Fastow flew to New York to meet with two top Fortune editors in an unsuccessful effort to cast the company in a more favorable light.
But not until after Mr. Skilling's unexpected resignation in August did a sharply questioning tone become the rule in Enron coverage.
"I don't know if the press could have broken through" the maze of Enron's hidden finances, said Michael Useem, a professor of management at the Wharton School at the University of Pennsylvania.
But, Mr. Useem added, "a normal dose of skepticism might have been more in order."
Did Treasury Help Enron Conceal?Public Citizen – January 21, 2002
WASHINGTON, D.C. -- Public Citizen today called on Treasury Secretary Paul O’Neill to explain evidence indicating that he helped Enron continue hiding information about its financial condition and took actions enabling it to funnel potentially billions of dollars belonging to shareholders and employees into offshore tax havens.
In a letter to O’Neill, Public Citizen President Joan Claybrook said she is "deeply concerned" about O’Neill’s actions. She asked the secretary to provide detailed information about his communications with Enron executives and Bush administration officials about the tax havens.
"The secretary owes the public an explanation," Claybrook said. "His actions have created a tremendous appearance of impropriety. He has a duty to taxpayers, Enron shareholders and Enron employees to clarify this matter."
In 1998, the Clinton administration began making moves to crack down on countries whose lax banking regulations permit U.S. companies to hide money in offshore tax havens. Clinton threatened strict economic sanctions on all nations with lax banking regulations, effective July 2001, in an effort to create a global trend toward increased financial transparency.
But on Feb. 17, 2001, O’Neill announced that the Bush administration was going to review the matter, effectively delaying it. As a result, Enron and other companies could continue to hide money in the Cayman Islands and other offshore accounts. Enron has 874 subsidiaries registered in the Cayman Islands and other nations with weak bank disclosure laws.
On Nov. 27, 2001, O’Neill’s office announced that according to an agreement with the Cayman Islands, that nation would not have to tighten its banking laws until 2004. That would give enough time for companies to move their assets and destroy their records.
O’Neill’s efforts must be viewed in the context of the more than $1.1 million Enron contributed to Bush’s presidential campaign and inauguration, Claybrook wrote. She noted that O’Neill’s responsibility is to collect owed taxes -- not to facilitate tax avoidance -- and that if Enron and other companies are hiding money in the Cayman Islands, he has an obligation to end that abuse.
Public Citizen first raised questions about the offshore tax havens in a report about Enron issued in late December, Blind Faith: How Deregulation and Enron’s Influence Over Government Looted Billions from Americans.
In the letter, Public Citizen asks O’Neill to answer detailed questions about his decisions regarding the tax havens; provide a comprehensive list of his contacts with Enron executives, President Bush, Vice President Dick Cheney and their staffs about the issue; explain the extent of his knowledge about tax havens being used by terrorists to hide money; explain why he took the steps; and more.
Enron's Arrogant Game of FootsieThe Charlotte Observer – by Glenn Burkins – January 21, 2002
In his classic short story, "The Snows of Kilimanjaro," Ernest Hemingway proclaimed through one of his characters, "The very rich are different from you and me."
Apparently, the same can be said of big business.
How else can one explain the temerity of Enron Corp., which called officials in the Bush administration seeking special favors just as the scandalized company was slipping down the tubes?
For those who missed that chapter, a brief primer:
According to the White House, an Enron executive called a Treasury Department official six to eight times in late October and early November, seeking help in staving off a possible downgrade of the company's credit rating.
A downgrade would have forced Enron to pay higher interest rates to raise badly needed funds - cash it needed to forestall bankruptcy.
A Bush spokesman said the Treasury official never acted on Enron's behalf. Neither, apparently, did Treasury Secretary Paul O'Neill or Commerce Secretary Donald Evans, both of whom were contacted by Enron Chairman Kenneth Lay.
"If I had stepped in, I think it would have been an egregious abuse of the office of the secretary of commerce," Evans said last week on Meet the Press.
Still, a bigger point should not go unnoticed - namely that Enron officials, as leaders of one of the nation's largest corporations, apparently felt no dishonor in asking administration officials to, in effect, help them deceive Wall Street and Main Street.
Credit-rating agencies play a vital role in our financial markets, so the veracity of the reports they issue must be maintained. Aside from helping lenders assess the creditworthiness of corporate borrowers, they provide investors (many of them moms and pops) with information needed to make key investment decisions.
By asking the Bush administration to intervene, what Enron officials sought was an unfair (and unethical) advantage. They wanted help persuading the credit-rating agencies to lie by omission.
In some ways, Enron's actions say much about big business in the 21st century.
When issuing quarterly reports, too many firms think nothing of misleading investors by touting "pro forma" and "operating" earnings, conveniently downplaying data that would yield a truer picture of their financial positions. In all this, the federal government has remained complicit.
No one should wonder, therefore, how Enron could muster the courage to make such a despicable request. Somewhere during the booming '90s, it seems, we created a climate where business ethics took a back seat to profit and share price. Overpaid executives took on rock-star status. And the federal government, under the guise of protecting our economy, deemed some private-sector enterprises too important to fail.
When Long-Term Capital Management L.P. was teetering on collapse a few years back, Fed Chairman Alan Greenspan acted with all haste to bail it out. Never mind that Long-Term Capital was a risky hedge fund run by and for the super-rich.
And even today, as big business demands less federal oversight, many of those same companies are all too eager for government intervention - directly or indirectly - when it suits executive whim.
On a diplomatic trip to India with President Clinton in 2000, I was surprised to learn the extent to which the president's team spent much of its time trying to resolve business disputes for individual U.S. companies. Most involved tax disputes with the Indian government.
PepsiCo Inc. and Coca-Cola Co. had complained to the Clinton administration about a 40-percent tax the Indian government charged them to bottle soda in that country. Procter & Gamble Co. had groused to the feds about Indian companies that sold cheap knockoffs of P&G products.
The federal government is right, of course, to take an aggressive role in ensuring fair international commerce. But should your tax dollars and mine be spent lobbying a foreign government on behalf of individual companies? And how many of those same companies would sit still for even a minute while federal OSHA inspectors perused their plants abroad?
A double standard appears to exist in too many boardrooms.
Over the coming months, the Enron scandal is sure to yield many more unpleasant surprises. Partisan politics will see to that.
What should not be lost amid all the congressional hearings and finger-pointing is a chance to bring badly needed reforms out of one of the nation's biggest and ugliest financial debacles.
Enron and Social SecuritySeattle Post-Intelligencer – by Marianne Means – January 19, 2002
WASHINGTON -- After the Enron scandal, you'd have to be pretty dense to fall for the Bush administration's dream of transforming the Social Security system from a government-guaranteed program into a plan under which workers could use some of their retirement savings to play the stock market.
The warning signals are right up there in neon lights: Even the biggest companies can't be trusted to tell the truth about the value of their stocks, insiders hold all the cards and the laws don't protect investors against fraud.
Yet President Bush's economic adviser, Lawrence Lindsey, vowed last weekend that privatizing the retirement safety net remains a high priority.
Even before Enron collapsed, the recession had seriously undercut the president's argument that to keep the program financially stable it would be necessary to put workers at the mercy of Wall Street financiers.
When stocks were booming, dangling potential profits in front of ordinary people had a certain appeal. But the realization that stocks that go up can also go down definitely had a chilling effect.
Yet the idea stuck, especially with conservative ideologues, who see the marketplace as the perfect economic engine and government regulation as an abomination. Columnist George Will calls privatization "the most direct path to participation in the economy's wealth creation."
It also can be the most direct path to the loss of retirement benefits and starvation in old age.
Top Enron executives sold stock for millions while the company was still riding high and gave themselves big bonuses as bankruptcy neared. Meanwhile, they lied to employees and stockholders about the company's finances and ultimately forbade workers to bail out of 401(k) retirement plans that held Enron stock. Thousands lost not only their jobs but their savings.
The cruelty of greedy Enron executives may not be typical of other companies, but the public is likely to suspect such practices are more common than previously believed. The opportunity for corruption certainly seems to be widespread.
Regulatory oversight is pitiful. Disclosure requirements are easily manipulated. Insiders possess vast power to hoodwink uninformed investors. Accountants often have a vested interest in toadying up to officials for whom they are supposed to produce independent audits.
In theory, executives of publicly traded companies have legal and moral responsibilities to produce honest books. But Enron executives got rich by deceiving the world with secret deals not recorded on their balance sheets. By the time they were exposed, it was too late.
Enron's collapse, the largest corporate bankruptcy in American history, doesn't seem to bother Treasury Secretary Paul O'Neill. An early supporter of privatizing Social Security, O'Neill dismisses stock market losses as just a normal part of doing business. "Companies come and go. It's part of the genius of capitalism - people get to make good decisions or bad decisions and they get to pay the consequence or enjoy the fruits of their decisions," he said.
That's OK if the stocks are meant to supplement your living expenses rather than provide the essentials for survival. But it's callous if you are talking about a government policy that would encourage ordinary people to take risks with their pension and retirement benefits.
The administration's hand-picked commission on Social Security reform recently issued a report warning that to overcome future financial shortfalls, the system should be radically overhauled by creating private investment accounts. Individuals would handle their own investments instead of relying solely on benefits that are now automatically calculated by the government.
This assumes financial acumen most working Americans do not possess. And it is such drastic medicine that the commission couldn't agree on the details of a new plan.
The real winners in the privatization proposal would be the mutual fund companies, insurers, banks and stock brokerage firms that would pick up business from the government. Lusting after the fat fees that would be involved, the financial community has contributed millions to the political campaigns of privatization supporters.
The well-being of the organized financial community, however, is not necessarily synonymous with the fiscal security that workers and their families need upon retirement and death. Today, Social Security supports more than 38 million retirees and their surviving spouses and children, plus nearly 7 million disabled workers and their families.
Enron has done great damage to its own employees and stockholders, but the collapse of the company could help future retirees. Social Security as we have always known it may now be safe.
Enron Aided DoleEmployee Advocate - DukeEmployees.com - January 19, 2002
The Enron chairman was greasing the political wheels to the very end, according to The Charlotte Observer.
He hosted a fund-raiser for Elizabeth Dole in September, netting her about $20,000.
But Enron has become so unclean that even politicians no longer want their money! That is akin to saying that hogs no longer want slop.
$5,000 of the money, which was donated by Kenneth Lay and family, is to be given to Enron employees.
Her opponent for North Carolina senator, Erskine Bowles, in not aware of any contributions from Enron.
Federal Horse TradingTomPain.com - by Steven Rosenfeld – January 19, 2002
Reporters waited and waited on Thursday, January 17 for the appearance of Federal Trade Commission Chairman Timothy Muris, but he never showed. Muris had been set to make an important announcement that was suddenly called off: the FTC would shift its longstanding responsibility for overseeing corporate mergers to the Department of Justice.
But just before the scheduled announcement, FTC Commissioner Mozelle W. Thompson released a strongly worded statement objecting to the change. He said the agreement would "deprive consumers of the benefit of the Commission’s independence, expertise, and knowledge," particularly in the field of media mergers and "dynamic 'new economy' industries" that present "novel" antitrust issues.
In other words, the Bush administration wants less-stringent, narrower oversight of mega-mergers and so will shift authority from the FTC to DOJ, which is more susceptible to political manipulation.
Thompson deplored what he called "private 'horse trading'" between Bush administration appointees at the FTC chairman and DOJ. "Chairman Muris failed to consult with, or provide meaningful opportunity for, other Commissioners to proved any input. In fact, I was not even provided with a copy of the completed Agreement until immediately before Chairman Muris executed the Agreement on behalf of the Commission."
"This is an example of the kinds of permutations that the Bush administration will go through to help big business," said Jeff Chester, a public interest activist who follows media issues at the Center for Media Education. "I'm not saying Clinton was different. But this administration wants to give big business a free pass."
The Federal Trade Commission is an agency that most Americans never deal with. But it has anti-trust jurisdiction over merger-happy American corporations, including the media companies that deliver content to millions of people. AOL and Time-Warner, Microsoft, Sony, Random House -- all these companies have come before the FTC when they had merger plans. And as in the case of AOL-Time-Warner, the FTC gave the go-ahead, but the fine print of its ruling showed at least some sensitivity to small-and-medium size businesses, and the need for competition in the field.
The by-the-books Department of Justice, however, especially its anti-trust division, isn’t as sensitive to these concerns -- which is why big businesses apparently wanted DOJ to assume greater anti-trust jurisdiction.
It’s no secret the Bush White House wants to please its corporate constituents. Look at the tax cuts in the House-passed economics stimulus plan. Look at what’s about to unfold before the Federal Communications Commission, where Bush’s appointed chairman, Micheal Powell, is poised to deregulate media ownership restrictions, on the one hand, while adopting new regulations giving cable companies permission to limit Web surfers’ "open access" to the Internet.
True to form, the Bush administration wants to muscle the FTC out of the oversight business. It wants to unilaterally shift scrutiny of major anti-trust activities, without approval of FTC commissioners or the Congress, to the more politically attuned Justice Department. And if anybody thinks DOJ doesn’t operate with strings attached, consider the revolving door that ushered many top anti-trust officials in the Clinton DOJ into the executive ranks of the very companies they were charged with regulating while in government.
According to the rumor mill, Thursday’s coup at the FTC was called off, for now, because one very irate U.S. senator called the Attorney General and told him to shut it down. Another rumor says the transfer is still a go, but that a Senate committee will first hold hearings. Stay tuned.