By --Â Source The Chicago Tribune
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A department official confirmed Wednesday that federal prosecutors from around the country have begun probing the company's collapse. The matter has potential political significance because executives of the Texas corporation, once the world's top supplier of natural gas, have close ties to the Bush administration.
A task force comprising U.S. attorneys from Houston, New York, San Francisco and elsewhere has been formed to investigate whether the company or its principals committed fraud before Enron went bankrupt, officials said. The investigation will be run out of the Justice Department's Criminal Division in Washington.
Robert Bennett, an attorney representing Enron, downplayed the development, saying in an interview that his office has been receiving subpoenas and information requests from U.S. attorneys' offices for a while.
"The investigation has been going on for some time; what started today was the consolidation," Bennett said. "I am pleased that they are going to centralize the investigation so I can deal with one entity and not multiple entities. This is a company that, if given a chance, can come out of bankruptcy and return some value to shareholders."
The Justice Department is only the latest agency to launch an investigation into the unraveling of Enron, which was the largest electricity marketer in the U.S. The Labor Department and the Securities and Exchange Commission have begun civil investigations into possible wrongdoing by company executives. Shareholders are also taking legal action.
Congress, too, has begun investigating circumstances surrounding the firm's collapse. A Senate panel has subpoenaed documents from Enron and has scheduled a Jan. 24 hearing.
But the criminal investigation adds a new dimension, raising the specter of prison or fines for those who led the company, first as its innovative business strategy made it a spectacular success, and then as it disintegrated late last year.
White House spokeswoman Jeanie Mamo said Wednesday, "The president is concerned about Enron's bankruptcy and thinks it's important and appropriate for relevant government agencies to investigate as they see fit."
Justice Department officials would not specify what allegations its investigators are pursuing, but several avenues of investigation have presented themselves. High on the list is whether the company, or any of its officers or auditors, misrepresented the firm's financial situation. Enron has been sued by a bank for allegedly pumping up its stock value through phony earnings reports.
In addition, many have complained that Enron's employees were encouraged to buy the company's stock and then prevented from selling it as its value began plunging, yielding enormous losses. Top Enron executives, in contrast, were permitted to sell their stock near the height of its value.
And questionable dealings with energy partnerships, formed by a former Enron employee, may have helped the firm improperly hide its debt.
Bennett, a high-profile Washington attorney whose clients have included former President Bill Clinton, urged the public not to leap to conclusions.
The political side of the Enron story could add a potentially explosive element to the investigation. While the company made contributions to both political parties, it was especially closely identified with the Republicans, and Kenneth Lay, the company's chairman and chief executive officer, is a friend and supporter of President Bush.
Lay was among the top contributors to the Bush campaign, and the White House acknowledged this week that Vice President Dick Cheney or his aides met with Enron representatives six times last year. The meetings occurred as a task force headed by Cheney was crafting a national energy policy.
In addition, Rep. Henry Waxman (D-Calif.) has complained that senior Bush adviser Karl Rove, who owned $100,000 worth of Enron, discussed energy policy with Lay.
White House spokesman Ari Fleischer said Wednesday that to his knowledge no administration officials spoke to the company's executives about the specifics of its finances.
The ties between Enron and the Bush team were evident in the 2000 campaign. Lay was one of 214 Bush "Pioneers," supporters who raised at least $100,000 for the president during the campaign.
Enron worked hard to affect national policy. The firm's lobbying expenses exceeded $2 million last year, according to the Center for Public Integrity, and it got some heavy hitters for the price.
Its lobbyists and consultants included Marc Racicot, the incoming head of the Republican National Committee; Jack Quinn, former White House counsel to Clinton; and Ralph Reed, a former head of the Christian Coalition.
But all this influence could not save the company from an inglorious fate. The once high-flying energy trader filed the largest corporate bankruptcy in U.S. history on Dec. 2.
Enron's troubles were precipitated by reports of soured transactions with a series of energy partnerships run by Andrew Fastow, the company's former chief financial officer.
In November, Enron revealed that the company had shrunk its shareholder equity by $1.2 billion to buy back 55 million shares issued to the partnerships. The charge for unwinding the web of partnerships gave the company a $618 million third-quarter loss.
Indeed, one potential focus of the investigation is likely to be the off-balance-sheet partnerships and the role of Fastow and other Enron executives in developing and managing the partnerships. The partnerships hid Enron's debt, allowing it to obtain additional cash and credit to run EnronOnline, its vaunted energy trading platform.
The Justice Department also is likely to scrutinize Enron executives' handling of stock transactions. While rank-and-file employees were barred from selling Enron stock from their retirement accounts, high-level Enron officials sold more than $1 billion in stock when it was nearly at its price apex.
Allegations of wrongdoing surrounding these stock transactions are contained in a lawsuit filed by Amalgamated Bank of New York. The bank accuses Enron executives and board members of realizing $1.1 billion from the sale of Enron stock.
Enron officials have said they have done nothing wrong.
On Nov. 9, the energy company Dynegy Inc. offered to acquire Enron for $9 billion in stock and the assumption of billions of dollars in debt.
Enron hit Dynegy with a $10 billion lawsuit for allegedly reneging on a merger agreement.
