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Lay and Skilling in the Dock

by JASON LEOPOLD

For many people familiar with Enron’s meteoric rise and sudden downfall four years ago, the high-flying energy company and the company’s crooked “E” logo have come to represent corporate greed, corruption and excess at its worst.

But more important, Enron should be symbolic for something else: it was the first in a long list of corporate scandals involving the Bush administration and numerous members of Congress.

Back in August 2001, just 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 impending financial problems.

A former Enron executive who was then under congressional investigation in relation to the company’s collapse explained at the time how Skilling’s abrupt resignation from the company raised red flags within Enron and worried insiders.

“It was very well known that Enron faced a financial meltdown,” the former executive said at the time, and when interviewed again for this story last week 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 US. That’s why Pat met with Mr. McNally.”

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 Dick Cheney or any number of senior administration 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 McNally that Skilling’s resignation could lead to a fiscal crisis that could possibly cripple the country’s energy markets, a former Enron executive told this reporter three years ago.

The White House acknowledged that the meeting between Shortridge and McNally took place in documents released to reporters and Sen. Joe Lieberman, D-Conn., chair of the Senate Governmental Affairs Committee, which in 2002 investigated the fall of Enron. The documents noted that “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 spokeswoman Anne Womack said at the time that “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 McNally is the fact that the White House was tipped off to Enron’s financial troubles months before it had previously 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.

As with the 9/11 attacks, one question that is still left 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.

What the documents revealed was the close relationship that Enron enjoyed with 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 pages of those 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 chairman. Another document revealed Lay calling 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 American 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.

As Jennifer Palmieri, a spokeswoman 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. And he is just one of the top White House and Republican Party officials with close Enron ties, including Robert Zoellick, 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, chairman of the Republican National Committee, who worked as an Enron lobbyist last year.

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, and Bush aides used the Enron corporate jet during the post-election fracas in Florida.

But perhaps the most egregious crime is how President Bush and Vice President Cheney sat by and 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, Gov. Gray Davis met with Bush at the Century Plaza Hotel in West Los Angeles, and pleaded with him to enact much-needed 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 and that it was that which had 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.
But 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’ handling of the energy crisis.

A couple of weeks before the Davis and Bush meeting, the PBS news program Frontline interviewed Cheney. Cheney was asked by a correspondent from Frontline 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 after 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 acknowledged that they got it wrong and that their inaction helped fuel the California energy crisis.

It appears that neither Lay nor Skilling will 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 earlier this month 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 the author of the explosive NEWS JUNKIE, to be published in April on Process/Feral House books.

 

JASON LEOPOLD is the former Los Angeles bureau chief of Dow Jones Newswires where he spent two years covering the energy crisis and the Enron bankruptcy. He just finished writing a book about the crisis, due out in December through Rowman & Littlefield. He can be reached at: jasonleopold@hotmail.com

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