The Enron Scandal




F

or many people familiar with
Enron’s meteoric rise and subsequent downfall four years ago,
the high-flying energy company and its crooked “E” logo
has come to represent corporate greed, corruption, and excess at
its worst. Enron was the first in a long list of corporate scandals
involving the Bush administration and numerous members of Congress. 


In August 2001, two months before Enron imploded in a wave of accounting
scandals in which thousands of employees lost their jobs and their
pensions and which wiped out $60 billion in shareholder value, an
Enron lobbyist tipped off the Bush administration about the company’s
financial problems. 


A former Enron executive, who was then under congressional investigation,
explained how CEO Jeffrey Skilling’s abrupt resignation raised
red flags and worried insiders. “It was very well known that
Enron faced a financial meltdown,” the former executive said
at the time. When interviewed again for this story the executive
repeated those remarks: “The day that Jeff resigned, our stock
plummeted. We knew it wouldn’t rally. What we didn’t know
was how the financial problems at Enron would impact the energy
markets in the U.S.” 


Enron’s ties to Washington lawmakers were stronger than disgraced
lobbyist Jack Abramoff’s. There was a time when Ken Lay—
known as “Kenny Boy” to Bush— could pick up the phone
and speak with the president, vice president, or any number of senior
officials.







The two months prior to Enron’s downfall was one of those times.
On August 15, 2001, one day after Skilling resigned from the company,
Lay sent Enron lobbyist Pat Shortridge to meet with White House
economic advisor Robert McNally. Shortridge warned Mc- Nally that
Skilling’s resignation could lead to a fiscal crisis that could
cripple the country’s energy markets. 


The White House acknowledged that the meeting between Short- ridge
and McNally took place in documents released to reporters and Senator
Joe Lieberman (D-CT), chair of the Senate Governmental Affairs Committee,
which in 2002 investigated the fall of Enron. The documents noted,
“Mr. McNally met with Mr. Shortridge and another individual
who was not from Enron.” When asked whether Enron’s future
had been discussed, White House spokesperson Anne Womack said at
the time, “If the meeting was about that, I would assume there
wouldn’t be anyone else there besides Mr. McNally and Mr. Shortridge.” 


What’s troubling about the meeting between Shortridge and Mc-
Nally is that the White House was tipped off to Enron’s financial
troubles months before it acknowledged them and well in advance
of the warning letter former Enron executive Sherron Watkins delivered
to Lay, in which she said that the firm’s Byzantine partnerships
could destroy the company. 


One question that is still unanswered in the Enron debacle is, “What
did President Bush know and when did he know it?” In May 2002
the White House complied with a subpoena and turned over more than
2,000 pages of documents pertaining to Bush administration contacts
with Enron to various Senate and Congressional committees investigating
Enron’s demise. The documents revealed the close relationship
between Enron and the White House and how the company was able to
influence President Bush’s political agenda by recommending
people to various posts within the Administration. 


Buried deep within the documents was a letter Lay sent January 8,
2001 to Bush’s personnel director, Clay Johnson, recommending
seven candidates to the Federal Energy Regulatory Commission. Two
of the candidates Lay recommended, Pat Wood and Nora Brownell, were
appointed to FERC by Bush; Wood was appointed chairperson. 


Another document revealed that Lay called the White House incessantly
for help. Lay called Treasury Secretary Paul O’Neill on October
28, 2001 to advise him that Enron was heading toward bankruptcy.
The next day Lay asked Commerce Secretary Don Evans for help in
keeping a major Wall Street ratings agency from downgrading Enron’s
credit rating, which would push the company into bankruptcy. A week
later, Enron president Greg Whalley called Treasury Under Secretary
Peter Fisher six to eight times, seeking help in getting banks to
lend more money to Enron. 


Following these revelations, the White House was forced to admit
in January 2002 that it had asked Lawrence B. Lindsey, former head
of Bush’s National Economic Council, to conduct a review in
October 2001—before Lay called O’Neill and Evans—to
see whether an Enron collapse could have a strong impact on the
U.S. economy. Critics were in an uproar following the admission
because President Bush and his senior aides had vehemently denied
having any prior knowledge of Enron’s financial status or impending
troubles. 


Jennifer Palmieri, a spokesperson for the Democratic National Committee,
said at the time, “It shows once again that the Administration
did a lot of thinking about the fact that the company was going
to collapse, but they did absolutely nothing to make sure that 50,000
Enron employees would not lose their life savings.” 


The intimate relationship between Enron and the Bush administration
is also clearly shown by these documents. Lindsey had been a paid
consultant for Enron, receiving $50,000 in 2000. He is just one
of the top White House and Republican Party officials with close
Enron ties, including Robert Zoel- lick, the United States trade
representative who sat on an Enron advisory board in 2000; Karl
Rove, senior White House political strategist, who held more than
1,000 Enron shares before selling them in June 2001; and Marc Racicot,
chair of the Republican National Committee (RNC), who worked as
an Enron lobbyist the year before his RNC appointment in 2002. 








Then
there are Enron’s close financial ties to the Bush campaign.
Enron and its employees gave more than $1 million to Bush’s
2000 election campaign, the Republican Party, and the Bush Inaugural.
Bush aides also used the Enron corporate jet during the post-election
fracas in Florida. 



P

erhaps the most egregious
crime is how President Bush and Vice President Cheney allowed Enron
to rip off California. On May 29, 2001, when the California energy
crisis reached its peak—resulting in nearly a week of rolling
blackouts, bankruptcies, and several deaths—Governor Gray Davis
met with Bush and pleaded with him to enact price controls on electricity
sold in the state, which had skyrocketed to more than $200 per megawatt-
hour. 


Davis asked Bush for federal assistance, such as imposing federally
mandated price caps, to rein in soaring energy prices. But Bush
refused, saying California legislators had designed an electricity
market that left too many regulatory restrictions in place, which
then caused electricity prices in the state to skyrocket. 


It was up to the governor to fix the problem, Bush said, adding
that the crisis had nothing to do with energy companies manipulating
the market. Bush’s response, in hindsight, appeared to be part
of a coordinated effort launched by Lay to have Davis shoulder the
blame for the crisis, which ultimately led to an unprecedented recall
of the governor and Republican-funded attack ads on Davis’s
handling of the energy crisis. 


A couple of weeks before the Davis and Bush meeting, the PBS news
program “Frontline” interviewed Cheney and asked him whether
energy companies were acting like a cartel and using manipulative
tactics to cause electricity prices to spike in California. “No,”
Cheney said. “The problem you had in California was caused
by a combination of things—an unwise regulatory scheme, because
they didn’t really deregulate. Now they’re trapped from
unwise regulatory schemes plus not having addressed the supply side
of the issue. They’ve obviously created major problems for
themselves and bankrupted PG&E in the process.” 


In April 2001, a month before the “Frontline” interview
and Bush’s meeting with Davis, Cheney, who chaired Bush’s
energy task force, met with Lay to discuss Bush’s National
Energy Policy. Lay recommended some energy policy initiatives that
would financially benefit his company and gave Cheney a memo that
included eight recommendations for the energy policy. Of the eight,
seven were included in the energy policy’s final draft. The
energy policy was released in late May 2001, after the meeting between
Bush and Davis and Cheney’s “Frontline” interview. 


What many people have failed to realize is that Davis was right
in his assessment that energy companies, including Enron, were manipulating
the state’s wholesale power market. To this day, neither Cheney
nor Bush has acknow- ledged that their inaction helped fuel the
California energy crisis. 


It appears that Lay and Skilling will not be held responsible for
the scams Enron’s traders pulled on California either. The
federal court judge presiding over the criminal case against Lay
and Skilling ruled in January that the smoking gun transcripts and
audiotapes showing how Enron traders caused shortages and blackouts
in California could not be introduced by the prosecution as evidence
during the trial because it would prejudice the jury. 


One of the more infamous audio tapes captured an Enron trader admitting
that his manipulative trading tactics in California helped him rip
off “Grandma Millie” to the tune of $1 million a day. 


 





Jason
Leopold is a freelance writer covering Washington politics.