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Published: Tuesday, 1/15/2002

Enron's house of cards

The U.S. Justice Department is the latest agency to investigate Enron Corp., whose reputation falters virtually daily and whose ties to the Bush administration become more politically embarrassing.

As the largest corporate bankrupcy in history unfolds, some Democrats are calling it “the perfect storm” for this congressional election year, and the White House is assuming a defensive posture.

Consider that thousands of Enron employees who had their 401(k) funds heavily invested in their company, and who weren't allowed to sell as prices dropped from a high of $90.75 in 2000 to 67 cents on Jan. 10, lost their shirts. Enron executives, however, including CEO Ken Lay - a friend of George W. Bush who has donated $550,000 over the President's political career - sold shares high, clearing more than $1 billion.

Consider, too, that Enron officials met with Vice President Dick Cheney on several occasions to help form the administration's narrow energy policy, and one gets the political picture. Attorney General John Ashcroft, whose failed senatorial campaign benefited from Enron largesse, his chief of staff, and the entire U.S. Attorney's office in Houston have recused themselves from the Justice probe, further clarifying the focus. It also makes evident how the tentacles of Enron, which spent $2 million on lobbyists last year, warped the political fabric of the nation.

Add to the mix two cabinet members and Federal Reserve Chairman Alan Greenspan, who knew of Enron's impending collapse, plus the fact that the administration did nothing as thousands of Americans bellied up. Add the corrupting influence of big business on government and the Republican Party, and the crying need for campaign finance reform shows up starkly. The GOP and its candidates got 73 percent of Enron's political contributions.

Another consideration: Enron's auditor, Arthur Anderson & Co., conveniently destroyed many of its audit records related to Enron.

The focus of the Justice Department inquiry is likely to be whether any officers or auditors misrepresented Enron's finances, and what led the firm to encourage employees to buy company stock in their retirement program, only to bar many of them from selling.

Given the cozy relationship between Enron and the White House, investigators must have freedom to do what must be done without political interference. Through a spokeswoman, the President has said that will be the case.

The Justice inquiry won't replace those in progress by four congressional committees, the Labor Department, and the Securities and Exchange Commission. But it does add the risk of jail time and/or fines, and hefty lawyer fees to Enron and its principals.

Enron's situation is one in which duplicity figures largely. The firm's balance sheet and profit and loss statements did not reflect its financial position. Its auditors warned in November of “possible illegal acts within the company.” Some involved the transfer of company debt to “off-balance sheet partnerships.”

The result hid Enron's financial weaknesses, overstated its profits by $580 million since 1997, and encouraged banks to lend it money to fund its trading business and investors to bank on its future. A withdrawal of credit led to the downward spiral of Enron stock in November and the firm's collapse.

Hope remains that a trimmed-down Enron will survive bankruptcy and thrive. But with a name historically associated with duplicitous shenanigans and sleazy behavior toward employees, who will trust it, or the politicians its donations made grateful?



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