News; Domestic
Interview with General Tommy Franks
Aaron Brown, John King, Bill Hemmer, Bob Franken, Sheila MacVicar, Jason Bellini

01/11/2002
CNN: Special Report With Aaron Brown 
(c) Copyright eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.). All Rights Reserved. 

We said last night that the collapse of Enron had been largely underreported. That has now changed, as you will hear tonight, and it is that story, Enron that begins our whip around the world. We start at the White House and our Senior White House Correspondent John King. John, a headline from you, please. 
JOHN KING, SENIOR WHITE HOUSE CORRESPONDENT: Aaron, because of Enron's political connections, the nation's top prosecutor, the Attorney General John Ashcroft and his chief of staff, today had to recuse themselves from the growing criminal investigation into the company's bankruptcy. Why? Because John Ashcroft took a lot of money from Enron and its chief executives. 
The administration also, for the first time today, acknowledged the Enron CEO called two cabinet members before the company filed for bankruptcy and asked for help. The administration insists it didn't help him and that it did nothing wrong. Aaron. 
BROWN: John, a lot on Enron tonight. We'll be back with you shortly. 
(COMMERCIAL BREAK) 
BROWN: Enron exploded today. It's been a while since the energy company, the trading company, a Fortune 500 giant went bankrupt, costing investors including the company's employees billions of dollars. 
The story has simmered around for a while, overwhelmed by the war, waiting its time in the way a good story does, and the time has finally come. Last night, we reported the Justice Department was opening a criminal investigation, and today the case took a political turn as well, a turn that could well be the first real threat to the Bush Administration. 
Developments to report, lots of them. We go back to the White House and Senior White House Correspondent John King. John, good evening. 
KING: Good evening to you, Aaron. A complicated story anyway because of the facts, even more so because of the politics. If you brought together senior officials in the Bush Administration and said, everyone with ties to Enron raise your hands, a lot of hands would go up. 
The President knows the CEO quite well. He's an old family friend. So does the Vice President and his Chief of Staff. The President's top political adviser is close to Enron, so is his top economic adviser. Several members of the cabinet too. The White House insists though, there has been no questionable behavior. There are though, a lot of questions. 
(BEGIN VIDEOTAPE) 
KING (voice over): Attorney General John Ashcroft is recusing himself from the criminal investigation of Enron, as is his Chief of Staff. The reason, $60,000 in political contributions from Enron and its top executives in Campaign 2000, when Ashcroft was running for reelection to the Senate. 
Another reflection of the political stakes in the Oval Office, the President himself announcing two new cabinet level reviews to determine if the government needs stronger disclosure laws to protect shareholders and investors in 401 (k) and other retirement plans. 
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I have great concern for the stories, for those I read about in the stories who put their life savings aside and for whatever reason, based upon some rule or regulation, got trapped in this awful bankruptcy and have lost life savings. 
KING: Energy giant, Enron, first gave a public hint of its financial troubles last October, and then filed for bankruptcy in early December, a major economic story in any event and a major political story too because Enron and its CEO, Ken Lay, have deep connections to the Bush family and in both political parties in Congress. 
BUSH: I have never discussed with Mr. Lay the financial problems of the company. 
KING: But Lay did alert top Bush deputies that Enron was in trouble, and asked for help well before the December bankruptcy filing. He called Treasury Secretary Paul O'Neill, and Commerce Secretary Don Evans, in late October and O'Neill a second time in early November. 
Sources say Lay wanted help shoring up the company's bond rating. Aides say Secretaries O'Neill and Evans decided there was nothing the government could or should do. The White House says they did not pass the news on to the President or any other senior administration officials. 
ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: The President is pleased with the actions that his cabinet secretaries took. He thinks they acted wisely and properly. 
Lay is an old Bush family friend, and he and his company a major donor to both political parties. In the 2000 campaign cycle alone, Enron and its executives contributed more than $2.2 million to federal candidates and political committees; $74,000 went to the Bush Campaign; $1.5 million to other Republican campaigns and committees; and $640,000 to the Democrats. 
Four Congressional committees are also investigating Enron, and Democrats want more information on the company's contacts with the Bush White House. 
(END VIDEOTAPE) 
KING (on camera): In hindsight, and there is always hindsight it seems in such cases, top Bush Administration officials say yes, they wish word of those contacts between Ken Lay, the Enron CEO, and Bush cabinet secretaries came out sooner, but they say in the end, any investigation will show this, that a top Bush fundraiser asked for help and was told no, and that this President now is showing no hesitancy at all in investigating a man who's not only a top political supporter, but a long-time family friend. Aaron. 
BROWN: You could almost hear Democrats smacking their lips a little bit on this one. Was the White House, in the briefings today and around the building, defensive about this or did they seem, people seem comfortable that they're OK? 
KING: Quite defensive about it, Aaron. Some phone calls after the White House briefing by officials saying, why so many questions about this? This is an administration of unquestioned integrity. Why do you want to know all these things? 
But they also understand now, many Democrats in the Congress saw the investigations of the Clinton Administration, subpoenas for documents in cases that the Clintons thought were way out of bounds, no questions should be asked. The Democrats will ask questions about this. So will reporters. 
The Bush Administration I think got the message today that they have to be quicker and more forthcoming in releasing any, any details at all of consultations or conversations with this company. Again, they say in the end, they will be proven that the President did nothing wrong, and that in fact, his two cabinet secretaries, one Don Evans a very close friend of Ken Lay, said no when this man asked for help. 
BROWN: And just one other quick thing, the decision to have a White House -- are these White House investigations into Enron, or White House discussions about disclosure laws dealing with investments and investors generally? 
KING: There are a number of investigations, so it gets confusing. The Justice Department, even though the Attorney General and the U.S. Attorney and most of his staff in Houston, have recused themselves because of political relationships or other relationships. The Justice Department is having a criminal investigation. 
The Labor Department oversees pensions. It has a separate investigation into the pension programs. Now there will be two cabinet level taskforces headed by the Treasury Department, that involve other departments including the Securities and Exchange Commission, to see if the government did something wrong here, if you will, if there should be stronger rules that require an Enron, when its finances are going south, to tell its shareholders and especially to tell its employees who have so much stock in those 401 (k) plans. All the Enron executives who knew about this sold their stock. The employees lost their life savings. The President wants to know if the government needs to make sure that doesn't happen again. 
BROWN: John, the old wire service reported that you are -- you probably want to chase the fire that's going on somewhere in D.C. 
KING: We get those out here. 
BROWN: Yes, thank you for your work tonight. Senior White House Correspondent John King. We said that the Enron collapse is both a political story and a business story. It's a complicated story to be sure. Tonight, we're joined by someone who can help us understand both the business and the politics of this. Jim Glassman writes a weekly Washington Post investment column. He's also a Fellow at the American Enterprise Institute. He joins us tonight from New York. Jim, good evening. 
JAMES GLASSMAN, HOST, TECHCENTRALSTATION.COM: Good evening, Aaron. 
BROWN: How could so many -- I mean if you looked at all of the mutual funds and all the investment houses that recommended Enron, the stock price shot way up. It looked like a terrific company. How could so many smart people have been so dumb? 
GLASSMAN: They didn't just recommend it, they owned it. I mean companies like Janus, Fidelity. There are a lot of analysts that have conflicts of interest, but many of them, who did not, really praised this company to the sky. Fortune named it six years in a row, the most innovative company in America. 
Basically, what was going on was that Enron was deceiving investors, deceiving analysts, overstating the profits it was making, hiding some of the loans that it had taken out, and as soon as this was found out, the company basically got capital punishment, which in my opinion it deserved. And I think it's a good lesson to other companies not to deceive investors. 
Now, the question of whether it did something illegal or not, is another matter. Just the fact that it was very clearly trying to say that it was in much better shape than it was. Unfortunately, a lot of little people got hurt. 
BROWN: I want to talk about that, but are you telling me that a company can mislead investors, mislead the public about how much money it's actually making or how much debt it actually has, and that is not in and of itself a crime? 
GLASSMAN: Well, what Enron was doing specifically about the debt was, it was reporting that it had $14 billion in debt. It really had about three times that much, and the other debt was pushed off onto other related entities, and it was very, very difficult for any analyst or the public to find out about it. 
Now, it's very difficult to pass enough accounting rules to take care of every shenanigan that a company's going to come up with. What you need is a market and investors who will crack down really, really hard on companies that are being deceptive, if not dishonest, and that's what's happened in this case. But yes, it's not hard to hide things. It's not hard at all to hide things. 
BROWN: That's comforting to know for those of us who have money in the market. 
GLASSMAN: But you know, Aaron, really the way to prevent yourself from getting burned is by being diversified. Things are going to happen like Enron, and there have been other cases. There are not that many of them, but there are other cases. And if you have a huge chunk of your retirement savings in one company, this kind of thing can happen, a company that looks good in all of its aspects and bang, it turns out that it's not on the level. 
BROWN: But that's exactly what happened to the employees, that their 401 (k) money -- 
GLASSMAN: Yes. Yes. 
BROWN: -- was going into the company and worse, they were not allowed to sell it. 
GLASSMAN: Yes, and I think that's a much more serious problem, and that's what some of the policymakers in Washington are looking into, and I think there's a lesson for your viewers. You know, most companies make it easy for you, as an employee, to buy corporate stock and the problem that you get into is that if you lose your job, not only have you lost your everyday livelihood, but you also may have lost a big chunk of your retirement savings if your company goes out of business, as Enron did. 
The lock-in, the fact that employees could not sell their stock for a certain period, was not good, and the fact that apparently executives had access to information that employees did not was also not good. 
BROWN: Jim, next time, and I expect there's going to be one, we need to talk about the politics of this. Thanks for joining us tonight. 
GLASSMAN: Love to do that. Thank you, Aaron. 
BROWN: Thank you, sir. 
GLASSMAN: OK. 
BROWN: Jim Glassman in New York. When we return, gunfire at the Kandahar Airport and more. NEWSNIGHT from Atlanta continues in a moment. ..................................................................................................................................... 

USA: Enron's Lay called Greenspan in October.

01/11/2002
Reuters English News Service 
(C) Reuters Limited 2002. 

WASHINGTON, Jan 11 (Reuters) - Enron Corp.'s Chairman Kenneth Lay telephoned Federal Reserve Chairman Alan Greenspan on Oct. 26, a Fed spokesman confirmed on Friday. 
The spokesman would not say what was discussed during the conversation but he did say that Greenspan did not follow up the call with any action.
"He did nothing in response to the call. It would have been inappropriate," the spokesman said. 
The White House has said Lay called U.S. Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans in the autumn. The White House said the two officials opted to do nothing about their calls. 
The Justice Department on Wednesday announced it had opened a criminal investigation into the energy trading company, whose December bankruptcy threw thousands out of work, devastated investors and wiped out the pension plans of many employees when its stock price plunged.

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Trading of Enron shares halted; judge delays announcement on auction process
By ALAN CLENDENNING
AP Business Writer

01/11/2002
Associated Press Newswires 
Copyright 2002. The Associated Press. All Rights Reserved. 

NEW YORK (AP) - Beleaguered Enron Corp. planned to select one of two suitors to buy its wholesale energy trading operation in an auction expected to end late Friday morning, a source familiar with the situation said. 
The auction was being held in private and the selection of a buyer was expected to be announced at a bankruptcy court hearing that was originally scheduled for 10 a.m., but was delayed until noon.
Trading in Enron shares was delayed Friday morning on the New York Stock Exchange as negotiations for a sale continued pending an anticipated announcement. 
Enron said late Thursday that negotiations for a sale were continuing through the night. 
The source, who spoke on condition of anonymity, said early Friday that the talks were continuing and the field had been narrowed to two, but declined to name the suitors. Investment banks that reportedly have an interest in buying into Enron include Citigroup Inc. and UBS Warburg. 
In a related matter, Judge Arthur Gonzalez said he expected to rule Friday on a request to transfer the bankruptcy case to Houston. 
Gonzalez will have the final word Friday on any sale that takes place as a result of the auction. More than a dozen Enron creditors have filed objections to the sale, essentially because they want a better explanation of how the proceeds will be divvied up. 
Dissatisfied creditors will have 10 days to appeal Gonzalez's ruling. 
Before its collapse late last year, Enron was the world's largest energy merchant, accounting for roughly 25 percent of all trades in a market it helped pioneer. Enron differed from competitors in its penchant for complex bets on everything under the sun - advertising space, broadband, paper, the weather and more than 1,000 other products.

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Widening probe of Texas-based Enron could dog Bush as Whitewater plagued Clinton
By TOM RAUM
Associated Press Writer

01/11/2002
Associated Press Newswires 
Copyright 2002. The Associated Press. All Rights Reserved. 

WASHINGTON (AP) - The expanding investigation into the collapse of Enron Corp. and the company's close ties to the Bush administration could quickly turn into a consuming political liability for President George W. Bush in spite of his currently high approval ratings. And Democrats are pressing hard for just that. 
At this point, no one is alleging wrongdoing by Bush or top members of his administration in the bankruptcy of the Houston-based energy trading company, a failure that cost thousands of jobs and ravaged the retirement savings of many employees.
But such investigations tend to take on a life of their own. And Democrats, sensing a congressional election-year opportunity, are working hard to turn up the heat. 
Some Democrats are likening the probe to the Whitewater and campaign fund-raising investigations that plagued former President Bill Clinton. 
"The reason this is so potentially devastating to Bush is that it brings to life in very real terms the notion that when push comes to shove, he's for the big business special interests and not for the little guy," said former Clinton press secretary Joe Lockhart. 
The controversy deepened on Thursday with the disclosure by the White House that Enron Chairman Kenneth L. Lay, a longtime friend of the president, called two of Bush's Cabinet officers - Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans - before the company filed for bankruptcy late last year. 
The disclosure came a day after the Justice Department announced it was opening a criminal investigation of the energy company's collapse, including whether it defrauded investors by deliberately concealing information about its finances. 
Attorney General John Ashcroft, who received campaign contributions from Enron executives during his failed 2000 senatorial bid, stepped aside from the investigation. 
The collapse, the largest corporate bankruptcy ever, is also being probed by the Labor Department and by the Securities and Exchange Commission, which is looking into the company's destruction of possibly key financial documents; and by five congressional committees. 
Sen. Joseph Lieberman, leading one of those inquiries, is promising "a search for the truth, not a witch hunt." 
But some Republicans - including White House spokesman Ari Fleischer - used just that term, "witch hunt," on Thursday in describing the widening investigation. 
"There's not even smoke here, let alone a fire," said Charles Black, a veteran Republican consultant. 
"They can keep it going in terms of probing Enron, looking into what happened to those people who lost their pensions, what happened to the accounting. All those are legitimate issues," said Black. "But there's no evidence that any elected officials did anything for Enron." 
Bush, a former Texas oilman himself, on Thursday told reporters, "I have never discussed with Mr. Lay the financial problems of the company." And Fleischer said that no one in the administration offered to intervene on Enron's behalf. 
"This is hardly going to be a scandal that brings down President Bush, but it will be a nagging problem for the Bush administration for some time to come," said Larry Sabato, a University of Virginia political scientist. 
But Sabato said it has all the ingredients to become all-consuming "because the Bush administration is so laden with corporate types and people with ties to the energy industry. It's understandable to the American people. It's the big boys versus the little guys who got hurt." 
"These things can be an enormous distraction. But by the end of the Clinton administration, we learned that the best thing to do is assign a team to disclose everything, and to keep everyone else out of it," said Paul Begala, a former Clinton political adviser. 
Lanny Davis, who was special counsel to Clinton from 1996 to 1998, urged Democrats to not take the same low road he claims Republicans took in pursuing the Whitewater and related inquiries. 
He said so far he sees nothing in the Enron case to link Bush administration officials to the collapse other than innuendo. "Let's go after the serious stuff," including why Enron employees were prevented from unloading their Enron stock in their company-managed retirement plans as the share prices plunged from over dlrs 80 to under dlrs 1, Davis said. 
--- 
EDITOR'S NOTE - Tom Raum has covered national and international affairs for The Associated Press since 1973.

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Judge To Announce Enron Change Of Venue Motion Later Fri
By Kathy Chu

01/11/2002
Dow Jones News Service 
(Copyright (c) 2002, Dow Jones & Company, Inc.) 

Of DOW JONES NEWSWIRES 

NEW YORK -(Dow Jones)- A federal bankruptcy judge here delayed a much-awaited hearing on Enron Corp.'s (ENE) motion to sell some of its energy-trading assets until noon Friday - signaling that the company may still be working to cement a last-minute deal with bidders.
The hearing, before Judge Arthur J. Gonzalez in the bankruptcy court of the Southern District of New York, was originally scheduled for 10 a.m. EST. 
The judge said he plans later in the day to decide upon a motion by some of Enron's creditors to transfer the bankruptcy case to Houston, where the company is headquartered. 
-By Kathy Chu; Dow Jones Newswires; 201-938-5394

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USA: Enron slated to decide today on trading unit bidder.

01/11/2002
Reuters English News Service 
(C) Reuters Limited 2002. 

NEW YORK, Jan 11 (Reuters) - Enron Corp. said it aims to make a decision by 11:00 a.m. EST (1600 GMT) on which company was the successful bidder for its trading operations. 
Martin Bienenstock, an Enron attorney, said Enron is still choosing between two bidders to take control of Enron's trading operations. He didn't name the companies. A decision is expected to be presented for approval to U.S. Bankruptcy Court Judge Arthur Gonzalez at a morning hearing in New York, he said.
Citigroup and UBS Warburg have been in the running to buy up to 51 percent of Enron's energy trading unit, which was put up for auction this week after the Houston-based energy trader declared bankruptcy Dec. 2. London based oil company BP said it was also interested in some parts of the unit. 
"I suspect we will have a decision by 11:00 a.m., but the auction is continuing," said Bienenstock in an interview. Negotiators worked late into the night on Thursday to haggle the best possible offer for the trading operations, Enron said.

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USA: Enron shares halted for news pending.

01/11/2002
Reuters English News Service 
(C) Reuters Limited 2002. 

NEW YORK, Jan 11 (Reuters) - Trading in shares of troubled energy giant Enron Corp. was halted early on Friday on the New York Stock Exchange and over-the-counter. 
Enron stock was halted for news pending at 67 cents per share on the NYSE as well as over the counter.
Enron, once the dominant energy trader in North America, declared bankruptcy after admissions of murky dealings in early December, which all but closed down trading operations. 
In recent developments, Arthur Andersen, Enron's accounting firm, has said it destroyed papers relating to Enron's finances. 
Enron's chairman, Ken Lay, also was said to have approached two top Bush administration officials before filing for bankruptcy.

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Enron Fall Renews Interest In Electricity Clearinghouse
By Kristen McNamara

01/11/2002
Dow Jones Energy Service 
(Copyright (c) 2002, Dow Jones & Company, Inc.) 

Of DOW JONES NEWSWIRES 

NEW YORK -(Dow Jones)- Energy companies' increased concern about exposure to their trading partners following the meltdown of former energy giant Enron Corp. (ENE) has renewed interest in the development of clearinghouses for the North American electricity markets.
It's long been thought that the continent's power markets could benefit from a formal clearing function, in which a central institution extends financial guarantees on trades. Impediments that frustrated past efforts remain, but Enron's rapid collapse and the tighter credit standards faced by the rest of the industry have given clearinghouse backers new ammunition. 
"The idea was already in people's heads that it was something good to have," said Jim Walker, senior analyst at Forrester Research Inc., a technology research firm in Cambridge, Mass. "The Enron situation made people think we need to get it faster." 
Enron, formerly the largest wholesale trader of electricity and natural gas, filed for bankruptcy protection Dec. 2. The former titan's fall stunned the industry and led to increased scrutiny of power companies' credit by ratings agencies and trading partners. 
The U.S. power markets - which Forrester Research estimates traded $446 billion worth of wholesale electricity in 2001 - lack a central exchange. Most power is traded over the counter, with companies contacting each other directly and left on the hook if their counterparty defaults. 
A clearinghouse would protect against counterparty default and reduce the amount of collateral companies must post to back their trades, analysts said. Under such a system, the clearinghouse sets margin requirements and acts as counterparty to every trade. It collects fees and in return steps in to cover defaults. 
A number of energy companies, including Sempra Energy (SRE), Williams Cos. (WMB), Mirant Corp. (MIR) and Consolidated Edison Inc. (ED) said they welcome the idea. 
"We certainly support that idea and think it would be beneficial and would go a long way toward helping to manage the credit risk of the counterparties," Sempra spokesman Doug Kline said. 
Clearing For Takeoff 

Anticipating increased demand for insulation against trading risk, several organizations plan to roll out clearing services for electricity markets this year. 
The New York Mercantile Exchange, the world's largest energy marketplace, hopes to offer clearing services to power traders sometime in 2002, spokeswoman Nachamah Jacobovits said. Nymex began extending clearing services to the over-the-counter markets for natural gas products in November. 
"We have accelerated because of the Enron problems," Jacobovits said. 
IntercontinentalExchange, a fast-growing Internet-based marketplace backed by a number of leading energy companies and banks, is also exploring the possibility of expanding its clearing function to include electricity, Senior Vice President David Goone said. 
"There's tremendous demand to start coming up with a clearing solution for the electricity marketplace," Goone said. "Clearing would allow more participants to trade." 
Because the exchange is still hammering out the details, Goone wouldn't say which electricity products might be covered or when clearing services would be in place. 
ICE, which last year bought London's International Petroleum Exchange, the world's second-largest energy futures exchange, has an agreement with the London Clearing House to provide clearing services for natural gas and crude oil trades done on ICE beginning in the first quarter of 2002. 
A third company called EnergyClear, based in Houston, plans to launch a clearinghouse for electricity and natural gas in the next three to six months, according to Jimmy Wright, senior vice president of business development. 
Energy companies will own and govern the clearinghouse itself. The Bank of New York (BK) and brokers Prebon Yamane and Amerex own a unit that will operate the clearinghouse. 
EnergyClear has the technology and regulatory approval to clear trades, but must get its membership and governing rules in place before it can begin operating, Wright said. The effort was stalled as energy companies shifted their attention to sorting out their exposure to Enron, Wright said. 
"We lost probably weeks or a month, if not more, of productive time," he said. 
The Hard Part 

Despite the support, analysts said it's difficult to estimate how much business a clearinghouse could actually do. Developing a clearing function for electricity will be more complicated than for other commodities because of the volatility of power prices and the Balkanized nature of the electricity markets - with rules, products and liquidity varying from region to region, energy experts said. 
Nymex tried and failed to create a market for electricity futures - standard products traded on a regulated exchange with clearing and settlement services. Electricity futures failed to catch on with energy companies as a risk-management tool, in part because there isn't a national benchmark to use as reference point. 
"As liquidity develops in highly traded benchmark products, they will want to have a clearinghouse for those products," Walker said. 
Thus far, companies have been reluctant to pay for clearing services in the electricity markets, said Ken Nichols, president of NexClear Inc. NexClear spent two years trying to develop an electricity-market clearinghouse, but gave up last summer when it couldn't secure enough money to start up. 
"The willingness to pay has not been there," Nichols said. "How many more examples does the industry need to realize the cost of mitigating credit risk?" 
A standard set of rules governing the trading operations of each region might be necessary before a clearinghouse could begin operating, said Joseph Oates, vice president for energy management, at Consolidated Edison Co. 
Federal energy regulators are pushing utilities and grid operators to develop uniform regional markets with standard rules. It's not clear how quickly these could be up and running. But the independent power-grid managers around the country generally offer clearing and settlement services in the markets they operate, and those could be expanded as the so-called independent system operators and regional transmission organizations grow. 
"It is these ISOs, these RTOs that are right in the middle of these markets and probably need to take on the function of not just being the traffic cop in these markets but also the referee and auctioneer that makes these markets work," Larry Makovich, senior director for electric power research at the Cambridge Energy Research Associates said. 
-By Kristen McNamara, Dow Jones Newswires; 201-938-2061; kristen.mcnamara@dowjones.com 
(Jon Kamp in Chicago contributed to this article.)

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WHITE HOUSE WATCH: Enron Story Heats Up At White House

01/11/2002
Dow Jones International News 
(Copyright (c) 2002, Dow Jones & Company, Inc.) 

(This article was originally published Thursday) 
By Alex Keto 
A Dow Jones Newswires Analysis 

WASHINGTON -(Dow Jones)- The long-simmering story over the collapse of Enron (ENE) and its political contributions to President George W. Bush heated up considerably Thursday with the revelation that Enron Chairman Kenneth Lay pleaded for help from the administration while his company was going down in flames.
Administration officials turned Lay down, but the news brings the issues of political contributions and political favors into uncomfortably close proximity. 
For his part, Bush said he was out of the loop. 
"I have never discussed with Mr. Lay the financial problems of the company. The last time that I saw Mr. Lay was at my mother's fund-raising event for literacy in Houston. That would have been last spring," Bush said. 
Bush went on to say he wants to see a full investigation into Enron's bankruptcy, the largest in U.S. history. 
"What anybody's going to find out is that this administration will fully investigate issues such as the Enron bankruptcy, to make sure we can learn from the past and make sure workers are protected," Bush said. 
Nevertheless, the White House appeared to be buffeted by fast-moving events with White House spokesman Ari Fleischer denying at midday there was any conflict of interest in having Attorney General John Ashcroft, who received political contributions from Enron as a Senate candidate, oversee a criminal probe of the company's bankruptcy. Less then two hours later, Ashcroft and a top aide recused themselves from the investigation. 
Shortly after the Ashcroft announcement, Arthur Andersen LLP, the company that served as Enron's auditors, announced that a "significant" number of the company's documents and records had been destroyed. Both federal and congressional investigators have been seeking the documents. 
Fleischer said that during the autumn Lay called Treasury Secretary Paul O'Neill to warn him that Enron was on the verge of collapse, and Lay said the bankruptcy of his company could be as destabilizing as the implosion of the Long-Term Capital Management hedge fund in the late 1990s. 
However, upon investigation, the Treasury Department rejected Lay's arguments. 
Later, Lay called Commerce Secretary Don Evans to say "he (Lay) was having problems with his bond rating and he was worried about its impact on the energy sector." 
Evans then called O'Neill but "they both agreed no action should be taken to intervene with their bond holders," Fleischer said. 
Even before the latest revelations, the White House had confirmed Vice President Dick Cheney or his aides met with Enron officials six times last year to discuss energy issues while the White House was drawing up its energy plan . 
However, Fleischer said the fact that Lay and others were talking to top officials isn't in and of itself a crime. 
"I want to remind you that communication is not a wrongdoing. What took place here was, they received phone calls and took no action. The charge has been, did the government take any action? And the answer from these two officials is no," Fleischer said. 
"I think it should surprise no one that people in the administration receive phone calls from people who are either in business or at unions. It happens everyday," Fleischer said. 
However, some of Fleischer's assertions were, to be blunt, surprising. 
To begin with, Fleischer said Thursday morning was the first time that O'Neill and Evans mentioned to Bush they had been in contact with Lay in the weeks just ahead of the company's bankruptcy. 
In addition, Fleischer said no one in the administration briefed Bush about Enron's woes and he was hard pressed to say how the president learned the company had gone belly up late last year. 
"He learned last fall. And I couldn't tell you if he learned as a result of the media accounts when everybody wrote that Enron had gone bankrupt or through any other mechanism. He learned last fall," Bush said. 
However, this explanation appeared to be rather thin considering that Bush was fully informed and deeply involved in the financial bailout of the nation's airlines at the same time in part because thousands of jobs were at risk. Enron employed 20,000 workers. 
Asked if, in hindsight, the president wished he had been better informed of the developments at Enron and among his top officials, Fleischer said, "No." 
Adding to the White House's discomfort is the fact that Democrats on Capitol Hill are gearing up for hearings on Enron. Fleischer warned them against going too far. 
"It's appropriate to take a look into what led to the bankruptcy of Enron and whether or not anything was done wrong in the process of Enron going bankrupt. But if that's a politically charged, a politically motivated effort, then I think the American people are going to say that this is just another fishing expedition, another endless investigation, the type that they soured on over the last many years," Fleischer said. 

Bush Warns Iran Not To Shelter Fleeing Al-Qaida 

Following reports that Iran may be sheltering small numbers of fleeing al-Qaida or Taliban fighters and trying to control Afghanistan's western provinces, Bush bluntly warned Tehran it will be held accountable for any moves to terrorism or terrorists. 
"Any nation that thwarts our ability to rout terror out where it exists will be held to account one way or the other," Bush said. 
"We had some positive signals early - early in this war from - from the Iranians. We would hope that they would continue to be a positive force in helping us bring people to justice. We would hope, for example, they wouldn't allow al-Qaida murderers to hide in their country. We would hope that if that be the case, if someone tries to flee into Iran, that they would hand them over to us," Bush added, 
Bush also told Tehran to keep its hands off of Afghanistan's fragile government and hinted the U.S. response could be sharp. 
"If they, in any way, shape or form, try to destabilize the government, the coalition will be - will deal with them in, you know, in diplomatic ways, initially," Bush said. 
For what its worth, Iran denied it was either undercutting the Kabul government or hiding terrorists. 
"It has been our policy not to allow terrorist groups such as al-Qaida in Iran," Vice President Mohammad Ali Abtahi told The Associated Press. 
The U.S. has long considered Iran a major backer of international terrorism. 
Certainly, Abtahi's comments didn't sway Secretary of Defense Donald Rumsfeld. 
"We know that (Afghanistan-Iran) has a porous border and we know people have moved back and forth throughout history. And we also know they've been moving back and forth in recent history," Rumsfeld said. 
-By Alex Keto, Dow Jones Newswires; 202-862-9256; Alex.Keto@Dowjones.com

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POINT OF VIEW: A New Champion For Disclosure: Bush

01/11/2002
Dow Jones News Service 
(Copyright (c) 2002, Dow Jones & Company, Inc.) 

(This article was originally published Thursday.) 

By Neal Lipschutz 
A Dow Jones Newswires Column 

NEW YORK -(Dow Jones)- Corporate disclosure found a high-profile champion Thursday: the president of the United States.
It's not often that the chief executive of the world's most powerful nation concerns himself with issues such as what public companies should have to tell investors. That's what cabinet officers and federal agency heads are for. 
But President George W. Bush was provoked Thursday to announce the creation of a high-level working group to study disclosure rules to see if they need to be improved. 
The reason for this comes down to one word: Enron. 
In light of the Chapter 11 filing by former high-flying Enron Corp., Bush said Thursday that he was forming a working group consisting of representatives of the Treasury, the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission to review disclosure rules, Dow Jones Newswires reported. 
Many of Enron's woes stemmed from lightly reported off-balance-sheet transactions. Now, it's unlikely that the SEC needs the help of all these other
agencies 
to get the job done. It embarked, pre-Enron, on a broad effort to
improve and make "current" corporate disclosure of material
developments. This might be a case of too many cooks. 

But it still has to be counted as a silver lining of the Enron mess that a better disclosure regime will now get the crisis-induced impetus often needed to create real change. 
Assuming this working group brings back a plan that really will make companies disclose more of their pertinent financials in a timely and understandable way, Bush will have no choice but to back it. 
After all, he formed the working group. And it's in his political interest, given his and the administration's relationship with Enron's leaders, to back some regulatory lessons from the company's downfall and impose a more transparent regimen of accounting. 
For its part, the SEC, under Chairman Harvey L. Pitt, should tell its colleagues at the other agencies joining the working group that it already has a plan. The SEC then needs to flesh it out in an appropriate way and win the backing of the other agencies. 
Enron's failure is an opportunity to overcome the business-as-usual objections that are bound to rise from a proposal that would significantly alter and improve the way companies report important developments to investors. 
Notwithstanding the bureaucratic drag of a working group, the support of a popular president for such a usually obscure effort has got to be a big plus in getting something done. 

Neal Lipschutz is senior editor, Americas, for Dow Jones Newswires. 
-By Neal Lipschutz, Dow Jones Newswires, 201 938 5152 
neal.lipschutz@dowjones.com

..................................................................................................................................... 

Enron Confirms CEO Lay Made Calls To Top Govt Officials
By Christina Cheddar

01/11/2002
Dow Jones News Service 
(Copyright (c) 2002, Dow Jones & Company, Inc.) 

Of DOW JONES NEWSWIRES 
(This report was originally published Thursday.) 

NEW YORK -(Dow Jones)- Enron Corp. (ENE) Thursday confirmed its chairman and chief executive, Kenneth Lay, contacted top Bush administration officials to warn that bankruptcy was a possibility for the Houston energy trader.
Earlier Thursday, White House officials said Lay contacted Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans prior to the company's bankruptcy filing in early December. 
"Lay made phone calls to tell senior government officials about the situation at Enron," an Enron spokesman said. "He told them that we were working to avoid bankruptcy, but it couldn't be ruled out. He didn't ask for anything. He was giving information." 
According to the spokesman, Lay thought the officials needed to know of the looming threat of bankruptcy because Enron was one of the nation's leading companies and was heavily involved in national energy markets. 
Lay wanted them to know so they could "do anything they needed to," the spokesman said, adding that he didn't know when the calls were made. 
Enron and Lay have been leading contributors to the President George W. Bush, as well as to a long list of Democratic and Republican candidates. 
When asked if Lay had a personal connection to either Evans or O'Neill, the spokesman said he "had no idea." 
Prior to his appointment as Commerce Secretary, Evans served as chief executive of Tom Brown Inc. (TMBR), a Denver natural gas company. A longtime friend of Bush, Evans also served as general chairman of his presidential campaign. 
Meanwhile, O'Neill headed Alcoa Inc. (AA), a Pittsburgh aluminum company, prior to his appointment. 
Bush Thursday called for two working groups from his cabinet and other agencies to review matters related to events at Enron. The investigations would be in addition to the criminal investigation launched by the Department of Justice. 
One group, from the Labor, Commerce and Treasury Departments, will look into Enron's pension rules and regulations. Another group, drawing from the Treasury Department, the Federal Reserve, the Securities and Exchange Commission, and the Commodities Futures and Trading Commission, will investigate corporate disclosure rules and regulations. 
-By Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina.cheddar@dowjones.com

..................................................................................................................................... 

US O'Neill Focuses On Regulatory Reform In Enron Review

01/11/2002
Dow Jones Capital Markets Report 
(Copyright (c) 2002, Dow Jones & Company, Inc.) 

(This article was originally published Thursday) 

NEW YORK -(Dow Jones)- U.S. Treasury Secretary Paul O'Neill said Thursday that he would focus on regulatory reform as part of President George W. Bush's newly announced probe of Enron Co. (ENE).
O'Neill told Fox News Channel that he would be part of two task forces stemming from the issue. 
In the first, he would join Commerce Secretary Don Evans and Labor Secretary Elaine Chao to look at the impact of recent corporate bankruptcies on pension benefits. 
In the second, he would join Federal Reserve Chairman Alan Greenspan, Commodities Futures and Trading Commission Chairman James E. Newsome and Securities and Exchange Chairman Harvey Pitt in looking into disclosure rules. O'Neill said they will determine whether changes are needed "to assure that investors and markets have all the information they are entitled to have to make our free-market economy work properly." 
In ordering the probe, Bush particularly pointed at the loss of pension benefits by employees at Enron, which filed for bankruptcy last month. As Enron's stock collapsed, employees were barred from selling the company's shares while the energy trading company was changing pension administrators and the accounts were frozen. 
Asked for specific solutions, O'Neill suggested that the government needed to see if 401(k) and other pension accounts need to be locked up when new administrators come in. 
"We need to look at that and see if that is a sensible thing to do," he said. 
But beyond that, the Treasury secretary refused to be pinned down on possible remedies. "I think we need to do a study and we need to do analysis," he said. 
"We need to do analysis before we do prescription. It's a pretty good idea to figure out what disease exists before we start cutting off arms and legs," he added. 
O'Neill also stressed that this effort is motivated by Bush's concern for Enron's employees. The Treasury secretary said the president is "just hurting a lot for people who apparently accumulated all of their savings in a 401(k) plan and then lost it all in a couple of months." -By Paul Rekoff, Dow Jones Newswires; 201-938-4370;
paul.rekoff@dowjones.com

..................................................................................................................................... 

Business
Arthur Anderson is Under the Microscope
Deborah Marchini

01/11/2002
CNNfn: Before Hours 
(c) Copyright Federal Document Clearing House. All Rights Reserved. 

DEBORAH MARCHINI, CNNfn ANCHOR, BEFORE HOURS: As we`ve been reporting this morning Arthur Anderson is under the microscope. The accounting firm admitted yesterday, employee had destroyed key records of its audits of Enron. 
I`m joined by Howard Schilit, president of the Center for Financial Research and Analysis, a Washington, D.C. firm that provides research on just such incidences for institutional investors.
Thanks for being here this morning. 
HOWARD SCHILIT, CENTER FOR FINANCIAL RESEARCH & ANALYSIS: Good morning. 
MARCHINI: First, question I have for you is, if documents were destroyed at Arthur Anderson, the firm`s auditors, was a crime necessarily committed? 
SCHILIT: Well, it`s too early to conclude what happened, and what did not, why the records were destroyed. But it certainly raises some very serious questions about the internal controls that the accounting firm. When they were destroyed? It`s certainly a very serious matter. 
MARCHINI: If these documents were destroyed after the company became the subject of civil and criminal investigations, that would be obstruction of justice, I presume? 
SCHILIT: Well, again, I`m an accountant by training, not an attorney. But the role of the auditor is to raise assurance amongst investors in the competence of the company. And auditors more than any other profession, understands the importance of documentary evidence, and the work papers are an essential part of that. 
MARCHINI: So, what you`re saying here is that it`s suspicious, they should have known better than to do this? 
SCHILIT: Oh, I think this is a very serious situation, which certainly is going to be investigated very closely. 
MARCHINI: Is there any precedent for the destruction of documents in a case like this, where an audit is being questioned? 
SCHILIT: I have never heard of any situation where work papers have been destroyed. Very often when there had been frauds. And there have been very major frauds in the last few years. (INAUDIBLE), for example, in order to piece together what happened, there were years of documents. And in the case of Enron, it`s going to simply make the investigation much more difficult. 
MARCHINI: Make the investigation much more difficult for both the criminal, the Justice Department and the Securities and Exchange Commission, I presume? 
SCHILIT: That`s right. 
MARCHINI: What are the potential penalties for Arthur Anderson, if it turns out they have broken the law? 
SCHILIT: Again, that`s more of a legal question. In the case of past investigations by the SEC, and Arthur Anderson in particular has had several of those recently. One with Waste Management (URL: http://www.wastemanagement.com/) . The other with Sunbeam (URL: http://www.sunbeam.com/) . There are monetary penalties and it could be very substantial. 
The Securities and Exchange Commission may not permit this auditing firm to take on any new clients. So it could be very substantial. Monetary and certainly individuals involved who may have been obstructing justice, there certainly can be criminal penalties. 
MARCHINI: What are the ramifications for Arthur Anderson`s business? You mentioned the prospect that they might be barred from not taking on any new auditing clients for awhile, if it turns out there`s a criminal violation. But, they also run a rather large management consulting business. And I wonder what this does to their ability to win business now in the free markets? 
SCHILIT: I`m sure it`s very difficult out there. Again, you probably want to speak to people at the company, to find out what their business wins (INAUDIBLE) have been. But I`d be very surprised if this were not a very difficult period for them to keep, and win new accounts. 
MARCHINI: Understood. Howard Schilit, with the Center for Financial Research and Analysis. 
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..................................................................................................................................... 

O'Neill: Enron Situation `Just Another Piece Of Business'

01/11/2002
Dow Jones International News 
(Copyright (c) 2002, Dow Jones & Company, Inc.) 

NEW YORK -(Dow Jones)- U.S. Treasury Secretary Paul O'Neill said Friday that the Enron (ENE) situation was "just another piece of business" to him when the company's chief executive talked to him about its difficulties. 
In an interview on ABC's "Good Morning America," O'Neill said it was "quite appropriate" for Enron chief executive Kennethy Lay to talk to him Oct. 28 and "give me a heads-up" about its difficulties.
O'Neill said Lay had alerted him to Enron's difficulties to make sure that capital markets weren't disrupted. 
The Treasury secretary said "he never asked me to help him at all." O'Neill said Lay hadn't told him that Enron had overstated its profits and he hadn't heard anything from Lay that he hadn't already read in newspapers or seen on television. 
O'Neill said he hadn't then told President George W. Bush about the conversation because Bush was busy with the war on terrorism. 
The Treasury secretary said "I'm a cabinet secretary. I know what my responsibilities are" and he doesn't have to run across the street to the president all the time. 
O'Neill said Enron may be important but this "was just another piece of business." O'Neill said he was also busy with the financial war on terrorism. 
The Treasury secretary said it looks as if Enron was operating within the existing rules for 401K plans and if that was the case then the government will have to see if changes should be made in the rules. He said Bush doesn't want employees' 401K plans harmed by such situations.

..................................................................................................................................... 

O'Neill says Enron pension policies appear to have stayed within rules

01/11/2002
AFX News 
(c) 2002 by AFP-Extel News Ltd 

WASHINGTON (AFX) - Treasury Secretary Paul O'Neill said it appears Enron Corp was within the rules in managing its corporate pension affairs. 
"At first blush it looks like Enron operated within the rules and regulations that existed, and still exist today with regard to how they managed their 401(k) plan," O'Neill said in an interview on ABC's Good Morning America.
O'Neill was addressing allegations that top corporate executives were able to cash out of stock while most employees' corporate pensions held as fixed, untradeable investments in Enron stock. 
He noted he has been tasked by President George Bush to look at possible reforms of the corporate pension system, which currently allows companies to limit sales of company stock held within the funds, to prevent further cases like Enron, where many employees lost most of their personal savings. 
Yesterday, O'Neill said employees should ultimately be able to make decisions on their corporate pension investments, and should have a choice of assets to invest in. 
cxa/jad

..................................................................................................................................... 

Business
Enron's Auditor Says It Destroyed Documents Related to Case
Jack Cafferty, Brooks Jackson

01/11/2002
American Morning with Paula Zahn 
(c) Copyright eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.). All Rights Reserved. 

Enron's auditor says it destroyed documents related to the case. The attorney general, John Ashcroft, says he can't take part in the investigation. 
JACK CAFFERTY, CNN ANCHOR: Let's go back to the story of Enron for a moment. The "Wall Street Journal" this morning, they have said it best -- quote -- "The storm cloud hanging over Enron and its long-time auditor, Arthur Andersen, just got darker" -- unquote.
The company's auditor says it destroyed documents related to the case. The attorney general, John Ashcroft, says he can't take part in the investigation. He has a conflict of interest. Enron executives talked to two members of the president's cabinet just before the company collapsed. 
CNN's senior correspondent Brooks Jackson joins us now from Washington with a detailed look at the timeline of the fall of an energy giant -- Brooks, good to have you with us. 
BROOKS JACKSON, CNN SENIOR CORRESPONDENT: Good morning, Jack. Yes, those developments, just a flurry of them here in the last 24 hours. You mentioned the Arthur Andersen destruction of documents. Potentially the most serious new development, the Securities and Exchange Commission took the unusual step of saying they consider this extremely serious. And, boy, are they right, because if any of those documents were destroyed after investigations began, it could be criminal obstruction of justice. 
As for Attorney General John Ashcroft's stepping aside, Democrats are saying he did the right thing in doing that. He got something like $57,000 in campaign contributions from Enron for his senate campaign, before he was attorney general. Also, many attorneys in the U.S. Attorney's Office in Houston are stepping aside. A lot of them have family ties to Enron executives and Enron employees. That's, of course, where Enron is headquartered. Some of the family members even lost money in 401Ks down there. So it's -- the Justice Department is still sorting out exactly who is going to be conducting this criminal investigation. 
Those contacts with the White House -- or rather with the Bush administration are interesting. Secretary O'Neill got two calls from Ken Lay, the Enron chairman. O'Neill says those were just informational calls. He wasn't asked for any help. But Commerce Secretary Don Evans is saying that he was told by Lay that Lay would welcome any help in preserving Enron's bond rating with Moody's. Now -- and Lay's attorney is saying that he didn't ask for help. In any case, no help was forthcoming, and the White House says they weren't informed of this and that Lay and -- or excuse me -- that O'Neill and Don Evans did the right thing. 
Latest development today: 51 subpoenas are going out from the Permanent Subcommittee on Investigations of the U.S. Senate. Lay will get a subpoena. Other Enron and Arthur Andersen officials will get a subpoena, all of the board members for the last several years of Enron, including -- and this is very unusual -- wife of U.S. Senator Phil Gramm -- Wendy Gramm, who was on the board and on the audit committee of Enron -- Jack. 
CAFFERTY: Unbelievable. And of course, lost in all of this discussion -- not yours and mine -- but in the discussion about Enron in general is the fact that so many small investors and employees of the company lost their life savings. 
Brooks, we've got to move along. I thank you for that report very much -- Brooks Jackson joining us from Washington. 
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Content and programming copyright 2002 Cable News Network, Inc. ALL RIGHTS RESERVED. Prepared by eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.) No license is granted to the user of this material other than for research. User may not reproduce or redistribute the material except for user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon Cable News Network, Inc.'s copyright or other proprietary rights or interests in the material; provided, however, that members of the news media may redistribute limited portions (less than 250 words) of this material without a specific license from CNN so long as they provide conspicuous attribution to CNN as the originator and copyright holder of such material. This is not a legal transcript for purposes of litigation.
..................................................................................................................................... 
Business
Many Enron Documents Destroyed
Carol Costello, Allan Chernoff

01/11/2002
CNN: Live at Daybreak 
(c) Copyright eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.). All Rights Reserved. 

Failing energy giant Enron's chairman is a long-time major contributor to President Bush's career and to the Republican party. Adding to all of that, the company's accounting firm has revealed its employees destroyed documents sought in the investigation. 
CAROL COSTELLO, CNN ANCHOR: And now to the monster fallout from the collapse of energy giant, Enron. The White House admits Enron officials sought the administration's help last fall, shortly before the company collapsed. Enron's chairman is a long-time major contributor to President Bush's career and to the Republican party. And Attorney General John Ashcroft has disqualified himself from the criminal investigation of Enron because of campaign donations he received from the company.
Adding to all of that, the company's accounting firm has revealed its employees destroyed documents sought in the investigation. For details on that, here's CNN Financial News Correspondent Allan Chernoff. 
(BEGIN VIDEOTAPE) 
ALLAN CHERNOFF, CNN FINANCIAL NEWS (voice-over): Four investigators from the House and Energy Commerce Committee arrived at Andersen offices in Houston yesterday to interview Enron auditors and collect documents. But they were told there's a problem. Thursday afternoon, Andersen admitted material was missing. 
In recent months, individuals in the firm involved with the Enron engagement disposed of a significant but undetermined number of electronic and paper documents and correspondence relating to the Enron engagement. Potentially thousands of documents that were part of Enron audits, according to the House Committee. Most of them, electronic, that were deleted in September, October and November, the three months prior to Enron's bankruptcy filing. 
FRANKLIN VELIE, FORMER FEDERAL PROSECUTOR: This is a surprising, though, and very disappointing development. You would not ordinarily expect a major loss of documents by an accounting or auditing firm with respect to the affairs of its -- of its client. 
CHERNOFF: Securities and Exchange Commission Enforcement Chief Stephen Cutler said, "Destruction of documents is an extremely serious matter," which he pledged, "will be included within the scope of our investigation." As the company's auditor, Andersen had given a thumbs-up to Enron's financial statements. The SEC and Justice Department are investigating whether those very statements were used to hide Enron's financial condition from investors. 
JOSEPH BERARDINO, CEO, ARTHUR ANDERSEN: If my firm has made errors in judgment, we will acknowledge them. We will make the changes needed to restore confidence. 
CHERNOFF: Andersen has hired former Senator John Danforth to review the company's records management policy and ensure that remedial and disciplinary actions are taken. 
(on camera): Next Wednesday, House investigators plan to meet with the Andersen partner in charge of the Enron audit. Said one committee staffer, "We plan to hold his feet to the fire." 
Allan Chernoff, CNN Financial News, New York. 
(END VIDEOTAPE) 
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..................................................................................................................................... 

Enron's Ken Lay says he only gave Washington a `headsup'
By PETE YOST
Associated Press Writer

01/11/2002
Associated Press Newswires 
Copyright 2002. The Associated Press. All Rights Reserved. 

WASHINGTON (AP) - Transformed in just one day from the nation's biggest bankruptcy to a major political controversy, some of the players in the Enron affair are already giving conflicting versions of who said what to whom. 
Did Enron's Ken Lay ask for help or didn't he when he called Commerce Secretary Don Evans, Treasury Secretary Paul O'Neill and Fed Chairman Alan Greenspan in a four-day span in late October?
If Lay didn't ask for anything, why did he call? 
"To give them a heads-up about the situation at Enron," company spokesman Mark Palmer said. 
"At no time did he ask for any assistance from the government nor did he intend to leave any impression that he was asking for assistance," said Palmer. 
Evans's memory of his Oct. 29 phone call is that Lay said "I would appreciate any support you could give." 
"I did nothing" and the decision to do nothing "was a no-brainer," Evans said in a brief interview Thursday with The Associated Press. 
O'Neill insists Lay didn't ask for anything, but the context of their conversation is intriguing because the two men discussed another financial disaster in which Greenspan's intervention was very much in evidence, the near-failure in 1998 of a Connecticut-based hedge fund, Long Term Capital Management. 
Greenspan's spokesman, Dave Skidmore, declined to say whether Lay asked for anything. 
Evans said the context for the call from Lay was the ongoing review of Enron's financial status by Moody's, the bond-rating firm. 
A severe lowering of Houston-based Enron's bond rating would mean that $3.9 billion in company debt would come due. Enron would have to pay what it owed in cash if it could not pay in stock, which was plummeting in value. 
Palmer, the Enron spokesman, says he doesn't know whether the Moody's review was the subject of the Lay-Evans conversation but that the company was concerned because the bond-rating firm was taking a long time "and we were wanting a decision." 
In the end, Moody's dropped Enron's rating, creating still more trouble for the world's largest energy trader as it headed toward collapse. The company went to bankruptcy court on Dec. 2. 
Lay spoke to Evans the day after a Sunday, Oct. 28, phone call with O'Neill and a phone call the previous Friday with Greenspan. 
"The chairman did nothing in response to the call. It would have been inappropriate," said Skidmore, the Greenspan spokesman. 
Skidmore refused to discuss the contents of the Greenspan call, but in one of Lay's two conversations with O'Neill, the discussion turned to the case of the Connecticut hedge fund that had been in danger of failure until Greenspan and other Federal Reserve officials pressured several large financial institutions to bail it out. 
Fed officials feared severe harm to the country's financial system if Long Term Capital Management had been allowed to crumble. It nearly tanked during the Asian financial crisis in the fall of 1998. 
O'Neill "expressed his concern about the experience that Long Term Capital went through when Long Term Capital went bankrupt," said White House spokesman Ari Fleischer. 
In an interview with CNBC, O'Neill said that after one of their conversations, "I subsequently asked the undersecretary of the Treasury to speak with the Enron people, which he did, so we could satisfy ourselves that the Enron affairs were not going to have a negative impact on the U.S. capital markets." 
So why did Lay make the flurry of calls if he didn't want anything? 
He "just felt an obligation to give them information important to the markets and perhaps to the government," said Palmer. 
While the information may have been important, the only action resulting from it appears to have been a decision by the two Cabinet secretaries not to tell President Bush. With Lay at the helm, Enron and its executives had been George W. Bush's most generous campaign donors over the course of two Texas governor's races and the presidential campaign. 
When did Bush find out of the conversations between Lay, Evans and O'Neill? 
"This morning," Fleischer said Thursday. 
--- 
AP business writer Brad Foss in New York contributed to this story.

..................................................................................................................................... 

Revelations about Enron, dealings with Bush officials, raise prickly questions
By MARCY GORDON
AP Business Writer

01/11/2002
Associated Press Newswires 
Copyright 2002. The Associated Press. All Rights Reserved. 

WASHINGTON (AP) - A cascade of revelations about the bankrupt Enron Corp. and its dealings with Bush administration officials is raising questions about potential conflicts of interest as the Justice Department investigates the politically connected company. 
The White House revealed Thursday that Enron officials sought the administration's help last fall shortly before the energy-trading company melted down along with the life savings of many of its employees. Several administration officials - and Federal Reserve Chairman Alan Greenspan - received telephone calls from the Enron chairman, Kenneth Lay.
Enron's auditing firm, whose work is under investigation by federal regulators, disclosed that its employees had destroyed a "significant" number of documents - which a congressional source said was thousands of pages - related to Houston-based Enron. 
In another startling development in a day brimming with them, Attorney General John Ashcroft disqualified himself from Justice's criminal inquiry into Enron's conduct. The energy-trading company donated thousands of dollars to Ashcroft's Senate campaign in 2000. In Houston, Enron's hometown, U.S. Attorney Michael Shelby announced that his entire office disqualified itself from the investigation because he and other local prosecutors "have family relationships with individuals who are arguably affected by the Enron bankruptcy." 
Bush, who counts Enron among his biggest political contributors, pledged to pursue aggressively the investigation into whether the company defrauded investors, including 401(k) plan holders, by concealing vital information about its finances. 
"Ken Lay is a supporter," the president said. "But what anybody's going to find is that this administration will fully investigate issues, such as the Enron bankruptcy, to make sure we can learn from the past and make sure that workers are protected." 
Treasury Secretary Paul O'Neill said Friday: "On first blush it looks like Enron operated within the rules and regulations ... with regard to how they managed their 401(k) plan, and if they did, then we need to look and see if there are appropriate changes we could make." He was interviewed on ABC's "Good Morning America." 
Bush said he saw Lay twice last year, but they did not discuss Enron's financial problems. Lay sought help last fall from Commerce Secretary Don Evans, Bush's chief political fund-raiser and confidant, and contacted O'Neill about the firm's financial problems, O'Neill and Evans said Thursday. Enron also revealed that Lay called Greenspan, the independent Fed chairman, about the company's problems. 
Lay denied that he sought help from the officials. Enron said Lay's calls to O'Neill, Evans and Greenspan were simply to give them a "heads-up" about Enron's problems. 
"He felt an obligation to let them know what was going on," Enron said in a statement. "At no time did he ask for any assistance from the government, nor did he intend to leave the impression that he was asking for assistance." 
Dave Skidmore, a spokesman for the Federal Reserve, said Lay contacted Greenspan on Oct. 26, and "the chairman did nothing in response to the call. It would have been inappropriate." Skidmore would not characterize the conversation. Lay also first reached out to Evans on Oct. 26. The two eventually spoke three days later. The first of Lay's two conversations with O'Neill was Sunday, Oct. 28. 
Enron's bankruptcy, already the subject of criminal, civil and congressional investigations, threatens to pull the White House into a political quagmire even as Bush's approval ratings reach near-record levels because of the war against terror. 
"It is now clear the White House had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings," said Rep. Henry Waxman, D-Calif. 
Firing back, Bush spokesman Ari Fleischer urged Democrats to avoid "partisan witch hunts, endless investigations or fishing expeditions." Democrats hope to make a political issue out of the administration's many ties to Enron. 
The bankruptcy has forced White House officials to face questions once posed to the scandal-tainted Clinton White House. 
Would Bush support naming a special prosecutor to investigate? Fleischer said no. He also said he did not know any White House aides who had hired lawyers. 
And there was a development reminiscent of Clinton's Whitewater: missing documents. 
The big accounting firm that audited Enron's books, Arthur Andersen LLP, notified investigators that it had destroyed a "significant" number of documents related to the company. Andersen said it didn't know whether its directive to preserve documents demanded by government investigators was violated. 
At the Securities and Exchange Commission, already investigating Andersen's auditing work for Enron, Enforcement Director Stephen Cutler said destruction of documents was "an extremely serious matter" but would not deter the SEC from pursuing its probe. 
As for the company's contacts last fall, administration officials said Lay told Evans on Oct. 29 that he would welcome any support to help the company deal with a bond-rating firm that was considering downgrading Enron. Enron's credit rating was critical because, if lowered, $3.9 billion in debt would come due. Of that amount, $2.4 billion previously had been hidden in partnerships that were created to keep debt off Enron's books. 
In a brief interview, Evans said Lay told him: "I would appreciate any support you could give." Evans said Lay was not more specific. In response to the plea, Evans said, "I did nothing." 
Evans said he didn't tell the president about the call because "I didn't think he needed to know." 
In one of two conversations with O'Neill, Lay discussed a past example in which the Federal Reserve pressured several large financial institutions to bail out a Connecticut hedge fund, Fleischer said. 
The calls to Evans and O'Neill came after investors and the public learned of the extent of Enron's problems, when the company posted major losses Oct. 16. 
Enron filed for bankruptcy Dec. 2, after months of conjecture about its finances. 
Other Enron-Bush administration ties: 
-Bush raised nearly $114,000 in political action committee money and individual donations from Enron during the presidential campaign. Enron also gave hundreds of thousands of dollars to Bush's two gubernatorial campaigns in Texas. Independent analyses show that Enron employees donated almost $800,000 from 1999 to 2001 to Bush, members of Congress and both parties. Most went to GOP causes. 
-Lay met with Vice President Dick Cheney or his aides six times last year before release of the administration's energy plan. A Cheney spokeswoman said he last talked with Lay in June, and never about Enron's financial status. 
-Senior Bush adviser Karl Rove owned Enron stock at the beginning of Bush's term but sold it because of federal ethics rules. Economics adviser Larry Lindsey earned $50,000 from Enron for serving on a company board last year. 
-Marc Racicot, whom Bush has appointed chairman of the Republican National Committee, was a lobbyist for Enron last year. Racicot said he will do no more lobbying work after he takes the GOP's top job.

AP Photos, NY839-840 
..................................................................................................................................... 

Enron says wholesale trading auction continuing; conclusion seen today

01/11/2002
AFX News 
(c) 2002 by AFP-Extel News Ltd 

LONDON (AFX) - Enron Corp said that the auction of its wholesale trading operation is continuing as scheduled. 
"Since the sealed bids were received on Monday, we have been negotiating with the parties," said Enron Chief Financial Officer Jeff McMahon.
"These discussions are expected to continue into the night. We hope to have a conclusion Friday morning, which would be announced when Enron plans to make a recommendation to the Bankruptcy Court." 
bam

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Recycling plant defends Enron deal following criticism by Senate leader
By STEPHEN SINGER
Associated Press Writer

01/11/2002
Associated Press Newswires 
Copyright 2002. The Associated Press. All Rights Reserved. 

HARTFORD, Conn. (AP) - The head of a quasi-public, statewide trash authority is defending the agency's $220 million deal with the now-bankrupt Enron Corp., following stepped-up criticism by a state Senate leader. 
The Connecticut Resources Recovery Authority held a news conference Thursday to rebut comments by Senate Majority Leader George Jepsen, D-Stamford, a candidate for the Democratic nomination for governor.
CRRA President Robert E. Wright said the agency did nothing wrong in the energy distribution deal with the Houston-based energy giant that declared bankruptcy last month. 
"There's no information that will show it was anything but a very, very good deal for CRRA," Wright said. "I thought we had discussed this with him, but if Senator Jepsen wants it explained again, it will be explained again." 
Jepsen, who first questioned the CRRA-Enron relationship last month, called a news conference at his Capitol office Thursday to repeat his criticism. 
"It's incomprehensible to me they put all their eggs in one basket," Jepsen said. 
Jepsen has questioned why the state made a $220 million upfront, lump-sum payment in the deal with Enron. The company formed in 1985 and grew into the nation's seventh-biggest company in revenue by buying electricity from generators and selling it to consumers. 
Enron's collapse will force CRRA to raise by as much as 60 percent the cost charged to towns to dispose of trash, Jepsen said. 
Wright disputed Jepsen's cost estimate. "I can't see that under any circumstances," he said. 
Jepsen has called the CRRA-Enron deal the largest loss of public money in Connecticut history. State Attorney General Richard Blumenthal is investigating. 
The U.S. Justice Department said Wednesday it had begun a criminal investigation of Enron Corp. 
In Connecticut, United Illuminating Co. announced last week it replaced Enron as the utility's energy supplier, signing a $600 million power supply agreement with Dominion Resources. 
CRRA, which accepts recyclable trash from 70 towns, struck a good deal with Enron for the use of a 90-acre site in Hartford, Wright said. The site includes a trash-to-energy plant. 
The deal with Enron was part of a complex transaction that also involved Connecticut Light & Power Co., which owned the 90-acre site in Hartford's South Meadows area. 
Under the state's electricity deregulation law, CL&P was mandated to divest all its power-generating assets, including the South Meadows property. 
To divest, CL&P had to buy its way out of a contract to buy steam power from CRRA. That contract had 11 years left. The buy-out price was $280 million. 
Using state bond funds given to power companies to help them buy out of contracts and divest holdings under deregulation, CL&P sent $220 million to Enron and $60 million to CRRA. 
The money given to Enron was payment for the company taking over the obligations of the steam purchasing contract with CRRA that CL&P relinquished. 
CRRA used part of its $60 million to buy the 90-acre site, clean pollution from the site and insure the property. 
Wright, responding to Jepsen's criticism that CRRA made a mistake by failing to require Enron to post collateral or other security, said such a practice does not exist in the industry. 
He refused to rule out the possibility that CRRA will seek a bailout from the state. 
"We'd be crazy to say no to anything," he said. 
Dean Pagani, a spokesman for Gov. John Rowland, said the governor is not worried that CRRA's financial loss will jeopardize the state's finances. 
"He's confident that CRRA has a plan to work its way out of this situation," he said. 
The recycling agency is politically well connected. Its chairman, Peter Ellef, is co-chief of staff for the Republican governor. Rep. Brian J. Flaherty, R-Watertown, is a spokesman for the agency and Sen. Thomas Gaffey, D-Meriden, heads the agency's recycling, environmental and education division. 
Wright said the episode is the result of deregulation and a new competitive energy market. 
"You can't force a utility to take back an energy contract," he said.

..................................................................................................................................... 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	


Recycling plant defends Enron deal following criticism by Senate leader
By STEPHEN SINGER
Associated Press Writer

01/11/2002
Associated Press Newswires 
Copyright 2002. The Associated Press. All Rights Reserved. 

HARTFORD, Conn. (AP) - The head of a quasi-public, statewide trash authority is defending the agency's $220 million deal with the now-bankrupt Enron Corp., following stepped-up criticism by a state Senate leader. 
The Connecticut Resources Recovery Authority held a news conference Thursday to rebut comments by Senate Majority Leader George Jepsen, D-Stamford, a candidate for the Democratic nomination for governor.
CRRA President Robert E. Wright said the agency did nothing wrong in the energy distribution deal with the Houston-based energy giant that declared bankruptcy last month. 
"There's no information that will show it was anything but a very, very good deal for CRRA," Wright said. "I thought we had discussed this with him, but if Senator Jepsen wants it explained again, it will be explained again." 
Jepsen, who first questioned the CRRA-Enron relationship last month, called a news conference at his Capitol office Thursday to repeat his criticism. 
"It's incomprehensible to me they put all their eggs in one basket," Jepsen said. 
Jepsen has questioned why the state made a $220 million upfront, lump-sum payment in the deal with Enron. The company formed in 1985 and grew into the nation's seventh-biggest company in revenue by buying electricity from generators and selling it to consumers. 
Enron's collapse will force CRRA to raise by as much as 60 percent the cost charged to towns to dispose of trash, Jepsen said. 
Wright disputed Jepsen's cost estimate. "I can't see that under any circumstances," he said. 
Jepsen has called the CRRA-Enron deal the largest loss of public money in Connecticut history. State Attorney General Richard Blumenthal is investigating. 
The U.S. Justice Department said Wednesday it had begun a criminal investigation of Enron Corp. 
In Connecticut, United Illuminating Co. announced last week it replaced Enron as the utility's energy supplier, signing a $600 million power supply agreement with Dominion Resources. 
CRRA, which accepts recyclable trash from 70 towns, struck a good deal with Enron for the use of a 90-acre site in Hartford, Wright said. The site includes a trash-to-energy plant. 
The deal with Enron was part of a complex transaction that also involved Connecticut Light & Power Co., which owned the 90-acre site in Hartford's South Meadows area. 
Under the state's electricity deregulation law, CL&P was mandated to divest all its power-generating assets, including the South Meadows property. 
To divest, CL&P had to buy its way out of a contract to buy steam power from CRRA. That contract had 11 years left. The buy-out price was $280 million. 
Using state bond funds given to power companies to help them buy out of contracts and divest holdings under deregulation, CL&P sent $220 million to Enron and $60 million to CRRA. 
The money given to Enron was payment for the company taking over the obligations of the steam purchasing contract with CRRA that CL&P relinquished. 
CRRA used part of its $60 million to buy the 90-acre site, clean pollution from the site and insure the property. 
Wright, responding to Jepsen's criticism that CRRA made a mistake by failing to require Enron to post collateral or other security, said such a practice does not exist in the industry. 
He refused to rule out the possibility that CRRA will seek a bailout from the state. 
"We'd be crazy to say no to anything," he said. 
Dean Pagani, a spokesman for Gov. John Rowland, said the governor is not worried that CRRA's financial loss will jeopardize the state's finances. 
"He's confident that CRRA has a plan to work its way out of this situation," he said. 
The recycling agency is politically well connected. Its chairman, Peter Ellef, is co-chief of staff for the Republican governor. Rep. Brian J. Flaherty, R-Watertown, is a spokesman for the agency and Sen. Thomas Gaffey, D-Meriden, heads the agency's recycling, environmental and education division. 
Wright said the episode is the result of deregulation and a new competitive energy market. 
"You can't force a utility to take back an energy contract," he said.

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Financial Post: Canada
Enron Canada 'critical' to auction in U.S.: Unit remains solvent: Part of package to sell trading business, Milnthorp says
Claudia Cattaneo, Calgary Bureau Chief
Financial Post; with files from Bloomberg News

01/11/2002
National Post 
National
FP4
(c) National Post 2002. All Rights Reserved. 

CALGARY - Enron Canada Corp. cut half its staff and halted its trading operations while waiting for an auction in the United States that could yield a buyer today for Enron's trading business, the president and chief executive of the Canadian unit said yesterday. 
Robson Milnthorp said the Canadian arm will be "critical" to a deal to sell Enron Corp.'s trading business because it has been the most profitable in the company.
The unit remains solvent, with more than $220-million in cash and more than $100-million owed by counterparties -- partners with whom it has contracts -- that are refusing to honour their obligations, he said in an interview. 
If there's no bid for the Canadian operation, Enron Canada will look for a white knight of its own, he said. 
"We have been very careful not to jeopardize the efforts made on Houston's part with respect to the [auction]. But if that was to fall through, Canada would attempt to find its own white knight, so to speak. We had numerous expressions of interest and none of those have been pursued at this time." 
Houston-based Enron Corp. was negotiating yesterday with at least six potential buyers for its wholesale trading business in an auction that was part of efforts to reorganize itself under Chapter 11 bankruptcy protection. The auction was expected to continue into the evening. 
In Manhattan, U.S. bankruptcy judge Arthur J. Gonzalez scheduled a hearing for today to approve the sale. 
Enron Canada was Canada's largest market maker of natural gas and power until it was swept up in the failure of its indirect parent, which unraveled after disclosures that Enron Corp. had shifted billions of dollars in debt off its books. It was left saddled with at least US$40-billion in debt. 
Enron Corp.'s troubles deepened this week with revelations that the U.S. Justice Department has begun a criminal investigation. There was also an admission yesterday by the firm that audited Enron's books, Arthur Andersen LLP, that a "significant but undetermined" number of documents related to the company had been destroyed. 
Mr. Milnthorp said the investigation "has nothing to do with Enron Canada." 
The Canadian unit attempted last month to distance itself from the parent and re-emerge as an independent company but gave up after losing a bid in an Alberta court to keep counterparties from unwinding contracts, its major asset. 
Mr. Milnthorp said the Canadian arm was packaged as part of a deal to sell Enron's overall trading business, which buys and sells oil, petroleum products, natural gas, electricity, metals, coal, forest products and steel, and a variety of contracts and derivatives. The company would get cash and a 49% stake in a new partnership called "Netco," short for New Energy Trading Company, under the proposed sale. The trading unit generated about 90% of Enron Corp.'s US$100.8- billion in revenue in 2000. 
Mr. Milnthorp said 75 employees in Calgary and Toronto were laid off after last month's court proceedings and trading was suspended because of lack of confidence in the market. 
"To be successful in this business, you need a very solid balance sheet that creates the confidence necessary to enter into long-term transactions. That's been one of the key criteria through the auction process," he said. 
Enron Canada's remaining employees are "trying to manage the estate and trying to work hard to co-operate with our customers to get them paid," he said. 
The unit is cash rich from the sale last month of its interest in the Sundance B power-generating plant outside of Edmonton. 
Bidders for all or parts of the trading operation include Citigroup Inc., the largest financial services company, UBS AG, the largest Swiss bank, and BP PLC, one of the largest oil and gas companies.

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World
Enron files destroyed, auditor says: White House tries to insulate Bush from growing scandal
Jan Cienski
National Post

01/11/2002
National Post 
National
A14
(c) National Post 2002. All Rights Reserved. 

WASHINGTON - The White House moved quickly yesterday to contain growing questions about the collapse of energy trader Enron, hoping to insulate George W. Bush, the U.S. President and former oil executive, from any political fallout from the scandal. 
Seeking to get out in front of the story, the White House yesterday acknowledged that senior administration officials received calls for help from Enron as the company went into a death spiral that ended with its bankruptcy on Dec. 2.
Mr. Bush called Enron's fall "deeply troubling" and ordered Paul O'Neill, his Treasury Secretary, to review U.S. pension and disclosure rules to prevent a repeat of the Enron situation, in which employees' pensions were destroyed as the company fell. 
Among a series of other developments, John Ashcroft, the U.S. Attorney-General, recused himself from the criminal probe into the largest bankruptcy in U.S. history because Enron had given him US$25,000 for his failed bid last year to keep his U.S. Senate seat. 
Enron's auditor, Arthur Andersen LLP, disclosed that a significant number of documents and electronic files related to Enron had been destroyed. 
Enron, once the seventh-largest company in the United States and its largest energy trader, was ruined when the company announced on Nov. 8 it had overstated earnings by US$638-million from 1997 to 2000. The company's share price fell from more than US$90 to less than a dollar, wiping out the retirement savings of about 20,000 employees who were forbidden to sell their holdings. 
Meanwhile, many of the company's senior directors, including Kenneth Lay, Enron's chairman and chief executive, became fabulously wealthy when they cashed in large chunks of their shares before the stock price cratered. 
Houston-based Enron and its executives have been the largest political donors during Mr. Bush's political career, giving him more than US$623,000, according to the Center for Public Integrity. 
Almost US$2-million more was given to the two leading political parties, although Republicans got 73% of the total. 
Enron has ties to Republicans such as Senator Phil Gramm of Texas, whose wife, Wendy, is a company director, Tom DeLay, the House majority whip, and Dick Armey, the House majority leader. 
Mr. Bush's senior advisor, Karl Rove, came under fire last year for not selling his Enron shares quickly enough under federal conflict of interest guidelines. 
Mr. Lay met six times with Dick Cheney, the Vice-President, when he was putting together Mr. Bush's national energy policy. 
Despite Enron's links to Washington, there has been no evidence it received special favours. 
"Ken Lay is a supporter," Mr. Bush said yesterday. "But what anybody's going to find is that this administration will fully investigate issues, such as the Enron bankruptcy, to make sure we can learn from the past and make sure that workers are protected." 
The President said he had never discussed Enron's situation with Mr. Lay and said the last time he had seen the disgraced executive was in Houston last spring. 
The U.S. Justice Department has launched a criminal probe and the Department of Labor is investigating the firm, as are four committees from both the U.S. Senate and the House. 
Nonetheless, the Enron quagmire is threatening to suck in Mr. Bush, who has enjoyed near-record popularity ratings because of his wartime leadership. 
"It's now clear the White House had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings," said Henry Waxman, a Democratic congressman from California. 
Mr. Bush's press secretary warned Democrats against "partisan witch hunts, endless investigations or fishing expeditions." 
Ari Fleischer said Mr. O'Neill and Don Evans, the Commerce Secretary, had both been contacted by Mr. Lay as his company began to go under. Both men agreed to take no action to intervene and protect the company's bondholders and Mr. Bush was not notified of the phone calls, Mr. Fleischer said, rejecting the suggestion that the President had intentionally been kept "out of the loop." 
Enron closed yesterday at 67 cents, down 12 cents on the New York Stock Exchange.

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City - Andersen check on Enron pulp.
By Simon English.

01/11/2002
The Daily Telegraph 
P33
(c) Telegraph Group Limited, London, 2002 

in New York 
ARTHUR Andersen, auditors to Enron, admitted last night it destroyed thousands of internal documents in the run-up to the disgraced energy company's $70 billion collapse and could now face prosecution.
It told US lawmakers and watchdogs that staff had "disposed of a significant" amount of paperwork relating to its work for Enron, for which it was paid more than $1m a week. 
This includes emails and documents requested by the US Justice Department and the Securities and Exchange Commission as their investigation into America's biggest ever bankruptcy gains momentum. 
Andersen is ordering an inquiry into the shredding party, which occurred "in recent months", according to the accountancy firm. 
Senator Billy Tauzin, chairman of the House Energy and Commerce Committee, said: "Anyone that destroys records to try to subvert our investigation should be prosecuted." 
Michael Donovan, a Philadelphia lawyer who is mounting a class action lawsuit against Andersen on behalf of investors was shocked. "Auditors save everything," he said. 
Last month, Andersen's chief executive Joe Berardino turned on his biggest client, accusing Enron of withholding key financial information that made doing a proper audit on the business impossible. 
He also admitted that Andersen, one of the biggest accountancy firms in the world, had made "honest errors" in its assessment of Enron's financial strength. 
As embarrassment mounts for George Bush because of his close links to Enron and friendship with chairman Kenneth Lay, the President ordered a review of US pension laws. 
More than 20,000 employees saw their pension funds, often largely invested in Enron shares, devastated by the company's plunge into bankruptcy. 
"In light of the most recent bankruptcy, there needs to be a full review of disclosure rules to make sure that the American stockholder is protected," said Mr Bush.

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News Business
Enron scandal reaches White House
BARRIE McKENNA
With a report from Lily Nguyen in Calgary

01/11/2002
The Globe and Mail 
Metro
A1
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved." 

WASHINGTON -- Reports of missing Enron Corp. documents and secret White House meetings have deepened the political intrigue surrounding the launch of a criminal probe into the largest corporate failure in U.S. history. 
The Bush administration scrambled yesterday to distance itself from the Enron debacle as the collapsed company's auditors disclosed that key documents have gone missing and White House officials confirmed the company unsuccessfully sought an 11th-hour rescue.
The case is already drawing comparisons to the Whitewater scandal, which dogged former president Bill Clinton and triggered a $50-million (U.S.) investigation by a special counsel into the failed Arkansas real-estate venture. 
Enron's legal and financial problems have also raised questions whether the Bush administration can conduct an objective investigation into one of its largest and most loyal political contributors. 
Late last year and with the Houston-based company teetering on the brink of failure, chairman Kenneth Lay -- a key campaign donor to President George W. Bush and other top Republicans -- talked to Treasury Secretary Paul O'Neill and Commerce Secretary Donald Evans about a possible rescue, the White House disclosed yesterday. U.S. Vice-President Dick Cheney has acknowledged he met with top Enron officials a half-dozen times last year as he was preparing the Bush administration's energy policy. 
Mr. Lay's appeals were rejected, White House spokesman Ari Fleischer told reporters. 
Meanwhile, the accounting firm that audited Enron's books, Arthur Andersen LLP, disclosed yesterday that some of its employees destroyed a "significant but undetermined" number of paper and electronic documents related to the company. 
Officials at the U.S. Securities and Exchange Commission, which is also probing the Enron bankruptcy, said Arthur Anderson's destruction of documents is an "extremely serious matter." 
Federal law-enforcement agencies and congressional investigators are seeking the documents as part of their inquiries into the bankruptcy of the giant energy-trading company. The destroyed documents include electronic files and other documents related to its audit of Enron. Also yesterday, Attorney-General John Ashcroft said he has stepped down from the criminal investigation launched by his department after acknowledging that he took a campaign donation from Enron during his failed 2001 U.S. Senate bid in Missouri. 
Mr. Lay and Enron contributed a total of $57,499 to Mr. Ashcroft's campaign, according to the Washington-based Center for Public Integrity. The Justice Department insisted Mr. Ashcroft has taken the high road by stepping aside as the sweeping nationwide probe gets under way. 
"The Attorney-General has not been involved in any aspect of initiating or conducting any investigation involving Enron," the Justice Department said in a statement. 
The investigation is being conducted by U.S. Attorneys in New York, Houston, San Francisco and elsewhere. 
Mr. Bush, who received hundreds of thousands of dollars in contributions from Mr. Lay and other Enron executives for his presidential bid, pledged to get to the bottom of the stunning collapse. 
"What anybody's going to find out is that this administration will fully investigate issues such as the Enron bankruptcy, to make sure we can learn from the past and make sure workers are protected," Mr. Bush said, making his first public comments on the case. 
Mr. Bush said he never discussed Enron's financial problems with Mr. Lay. The President said he last saw Mr. Lay in Texas at a spring fundraiser for a Barbara Bush (his mother) literary foundation. 
The Enron chairman was also among a group of about 20 business leaders who came to the White House early in the Bush administration to discuss the state of the economy, Mr. Bush said. 
Thousands of Enron employees lost their life savings when the company filed for bankruptcy Dec. 2. 
Enron was the largest marketer of electricity and natural gas in the United States before a crisis of confidence among investors forced the company to file for bankruptcy protection in December. The company had a stock-market value of nearly $80-billion and more than $100-billion in sales last year, making it one of the largest companies in the world. But the empire started to unravel last October after Enron revealed a series of large and previously undisclosed debts to private partnerships, controlled by some of its own executives. 
Since the 1989-90 election cycle, Enron and its employees have made $2.4-million in contributions to U.S. federal political campaigns, the bulk of that to Republicans. The Justice Department is believed to want to discover whether Enron executives intentionally misled investors about those transactions and the company's deteriorating financial condition. 
The Justice probe isn't the only problem facing the company. The Securities and Exchange Commission launched its own investigation. The company is also facing probes by the U.S. Department of Labour, the House of Representatives and the Senate. 
Meanwhile, creditors, clients and others caught in the Enron fallout continued to await the outcome of an auction of the company's trading empire. 
Enron's bankruptcy lawyer, Martin Bienenstock of Weil Gotshal & Manges, told Bloomberg News Agency that there are six bidders vying for the trading assets in the private auction being held at the firm's New York offices. Published reports have named large financial services companies. 
Citigroup Inc. and UBS AG are among the bidders for Enron's Canadian trading unit, Enron Canada Corp., which is also on the block.

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Business
Enron threatens to taint Bush --- Auditors say they destroyed many company papers
Ron Fournier
ASSOCIATED PRESS

01/11/2002
The Toronto Star 
Ontario
E11
Copyright (c) 2002 The Toronto Star 

The White House revealed yesterday that Enron Corp., an energy firm closely tied to U.S. President George W. Bush, sought the administration's help shortly before collapsing with the life savings of many workers. The company denied it sought such help. 
In a separate disclosure, the company's auditors said they destroyed many Enron documents in the months before the U.S. Securities and Exchange Commission subpoenaed the firm.
In the rapid swirl of events, each raising questions about potential conflicts of interest, Attorney General John Ashcroft disqualified himself from the criminal inquiry into Enron's conduct. The company donated thousands of dollars to Ashcroft's Senate campaign in 2000. 
Bush, who counts Enron as one of his biggest political contributors, pledged to aggressively pursue the investigation into whether the Texas-based firm defrauded investors, including pension contributors, by concealing vital information about its finances. 
"Ken Lay is a supporter," the president said of Enron chairman Kenneth Lay. "But what anybody's going to find is that this administration will fully investigate issues, such as the Enron bankruptcy, to make sure we can learn from the past and make sure that workers are protected." 
Enron's bankruptcy, already the subject of criminal, civil and congressional investigations, threatens to pull the White House into a political quagmire even as Bush's approval ratings reach near-record levels because of the war against terrorism. 
"It is now clear the White House had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings," said Rep. Henry Waxman, D-Calif. 
Firing back, Bush spokesperson Ari Fleischer urged Democrats to avoid "partisan witch hunts, endless investigations or fishing expeditions." 
Democrats hope to make a political issue out of the administration's many ties to Enron. 
The bankruptcy has forced White House officials to face questions once posed to the scandal-tainted Clinton White House. 
Would Bush support naming a special prosecutor to investigate? Fleischer said no. He also said he did not know any White House aides who had hired lawyers. 
And there was a development reminiscent of Clinton's Whitewater affair: missing documents. 
The firm that audited Enron's books, Arthur Andersen LLP, notified investigators that it had destroyed a "significant but undetermined" number of documents related to the company. After the Securities and Exchange Commission subpoenaed the accounting firm, it issued an instruction to preserve documents, it said. 
As for Enron's contacts last fall, administration officials said U.S. Commerce Secretary Don Evans and Treasury Secretary Paul O'Neill received calls from Lay seeking help for his company. 
Lay told Evans he would welcome any support in helping the company deal with a bond-rating firm that was considering downgrading Enron, administration officials said. 
Enron's credit rating was critical because if it was lowered, $3.9 billion (U.S.) in debt would come due. Of that amount, $2.4 billion previously had been hidden in partnerships that were created to keep debt off Enron's books. 
Evans quoted Lay as saying, "I would appreciate any support you could give," and said Lay was not more specific. "I did nothing," Evans said of his response to the plea. "It was a no-brainer." Evans, one of Bush's oldest friends, said he didn't tell the president about the call. "I didn't think he needed to know," he said. 
In one of two conversations with O'Neill, Lay discussed a past example in which the U.S. Federal Reserve Board pressured several large financial institutions to bail out a Connecticut hedge fund. 
Lay, for his part, said his calls to O'Neill and Evans were merely to give them a "heads up" about Enron's problems. "He felt an obligation to let them know what was going on," Enron said in a statement. "At no time did he ask for any assistance from the government nor did he intend to leave the impression that he was asking for assistance." 
The calls came after investors and the general public learned of the extent of Enron's problems, when the company posted major losses Oct. 16. 
Enron filed for bankruptcy Dec. 2, after months of speculation about its finances. 
Administration officials dismissed suggestions that Evans or O'Neill should have disclosed Enron's troubles as soon as they were brought to their attention last fall. That might have given more notice to investors about to lose their savings. 
"This is not the first bankruptcy and will not be the last bankruptcy" in America, Fleischer said. 
Other aides said Enron's problems were well known at the time of the telephone calls, and the administration's duty was to make sure troubles at Enron didn't have a broader economic impact. 
Bush raised nearly $114,000 in political action committee money and individual donations from Enron during the presidential campaign, making the company one of his biggest financial supporters. In addition, Enron gave tens of thousands of dollars to Bush's two gubernatorial campaigns in Texas. 
Independent analysts show that Enron employees donated nearly $800,000 from 1999 to 2001 to Bush, members of Congress and both parties. The bulk went to GOP causes. 
With criticism mounting, Bush announced a review of federal rules on pension security and financial disclosure by companies. 
"There have been a wave of bankruptcies that have caused many workers to lose their pensions and that's deeply troubling to me," Bush said. 'It is now clear the White House had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings.' 
Rep. Henry Waxman, D-Calif.

..................................................................................................................................... 
Threat to Bush in Enron inquiry.
By Matthew Engel in Washington and David Teather in New York.

01/11/2002
The Guardian 
P1
Copyright (C) 2002 The Guardian 

President Bush moved rapidly yesterday to distance himself from the collapsed Enron Corporation as speculation grew that the bankruptcy of the giant energy trading company could turn into his administration's most dangerous scandal. 
Hours after the justice department announced it was setting up a nationwide team of prosecutors as part of a criminal inquiry into Enron, the White House ordered a review of rules affecting pension rights and corporate disclosure. Mr Bush told reporters he had not seen Enron's chairman, Kenneth Lay, since last spring and had never discussed the company's financial problems with him.
Enron, the seventh ranked company on the Fortune 500, collapsed last month - the biggest bankruptcy in corporate history. About 6,000 workers were laid off, many also losing their pensions because they subscribed to a retirement plan based on Enron shares, which dropped from $90 ( #62) to pennies in a year. The list of creditors runs to 54 pages but senior executives were able to sell their stock before the price plummeted. 
The company is believed to be the largest donor to Mr Bush's campaign funds over the course of his career, and Mr Lay is an old Texas friend of the president. He was named as one of the president's energy advisers last year. 
The links between the administration and the company operate on many levels. Marc Racicot, Enron's Washington lobbyist, was named last week as chairman of the Republican national committee. The president's chief economic adviser, Lawrence Lindsay, and the trade negotiator Robert Zoellick were advisers to the company. 
Vice-president Dick Cheney, who also has strong links with the oil industry, is known to have met Mr Lay in April to discuss energy policy. And staff from Mr Cheney's energy taskforce met Enron executives at least six times, with one meeting only six days before the company's troubles became public in October. The administration, however, insists that the meetings covered only policy matters and not Enron's financial position. 
The White House spokesman, Ari Fleischer, was peppered with questions yesterday about whether Mr Bush and Mr Cheney were aware of the situation and if not, why not. 
"Conversation is routine between people in this country and government," he said at the daily briefing. "There's a difference between corporate contact and wrongdoing." 
Mr Fleischer said that Mr Lay called the treasury secretary, Paul O'Neill, and the commerce secretary, Don Evans, before the company's downfall to warn them. The two cabinet members "agreed no action should be taken to intervene". 
Enron, whose interests extend to ownership of Wessex Water in Britain, is mainly in the business of creating markets between buyers and sellers of energy. The investigations already launched have highlighted the company's use of offshore entities, apparently to hide its debts. 
A justice department investigation on this scale into a single entity is thought to be unprecedented, and officials said it was an indication of the case's potential significance. 
Congressional Democrats, conscious of the efforts poured into the largely abortive investigation into Bill Clinton's property dealings at Whitewater, are beginning to crank up their own investigations. 
"Enron makes Whitewater look like peanuts," the syndicated columnist Bill Press said. 
The affair has also called into question the role of energy and financial regulators in the US. And it has done nothing for the reputations of Wall Street analysts who advised clients to put money into the company.

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Business
Andersen back in hot seat ; Accounting giant says Enron audit papers destroyed
Delroy Alexander, Tribune staff writer

01/11/2002
Chicago Tribune 
North Sports Final ; N
1
(Copyright 2002 by the Chicago Tribune) 

A Chicago-based accounting giant that has faced significant embarrassments recently now may face unprecedented scrutiny. 
Andersen took center stage in a potential scandal Thursday after disclosing that its employees had destroyed a "significant" number of documents related to the sudden collapse of Enron Corp.
For a company that has weathered damaging disclosures over its audits of Houston-based Waste Management Inc. and Sunbeam Corp., the latest brouhaha could be a further threat to credibility. 
"This is a deeply troubling development. It should never have happened," said Billy Tauzin (R-La.), whose House Energy and Commerce Committee is investigating Enron's collapse. "Anyone who destroyed records simply out of stupidity should be fired; anyone who destroyed records intentionally to subvert our investigation should be prosecuted." 
Observers said destruction of the files made no sense, and that the records might have provided clues for investigators probing the Enron case, the largest bankruptcy in U.S. history. 
"I have never in my life heard of people in an accounting firm doing something like this," said Lynn Turner, a former chief accountant for the Securities and Exchange Commission. "People in these accounting firms are well-educated professionals and supposedly well aware of their professional responsibility to the public." 
For its part, Andersen said in a statement that its company policy "required in certain circumstances the destruction of certain types of documents." However, officials added that the firm is still "working to gather the facts and determine appropriate disciplinary actions" against employees. 
Several observers suggested that the missing files likely were noticed only after the SEC issued subpoenas in mid-December calling for Andersen to hand over documents related to its Enron audits. 
Andersen said the documents were discarded months before it received the subpoenas. "After receiving the SEC subpoena, the firm issued an instruction to preserve documents. At this time, we have not been able to determine whether that instruction was violated," the firm said. 
Andersen said that millions of Enron documents still exist and that it had successfully retrieved some of the deleted electronic files. It is continuing efforts to "fully learn and understand all the facts related to this issue," according to the statement. 
Auditors typically keep records for years, experts say. Most top accounting firms keep records for more than seven years after work is completed, in case of lawsuits. 
It also is customary for audit firms to scan and file client documents at a central electronic database or warehouse, according to analysts. Once that is completed, original hard copies are often destroyed. 
Policy suspended 
Andersen said it had "suspended its current records management policy effective immediately and instructed all partners and personnel to retain all existing documents until further notice." 
Furthermore, Andersen said it has asked former U.S. Sen. John Danforth to review its policies and recommend potential improvements. 
Andersen has been in the spotlight before for its audits. 
In June, Andersen reached a $7 million settlement with the SEC in which it neither admitted nor denied allegations of fraud in its audit of Houston-based Waste Management Inc. Andersen and the waste hauler also paid $220 million in 1999 to settle class-action lawsuits relating to the case. 
Last year, Andersen agreed to pay $110 million to settle class- action litigation brought on behalf of shareholders of another client, Sunbeam Corp., which had misstated its financial results during the 1990s. 
However, the record payout for audit problems remains $335 million paid by Ernst & Young to Cendant Corp. shareholders in 1999. 
Public concern over the veracity of audits has heightened since Enron's debacle, with regulators focusing on Andersen's performance. 
The news is a blow not only to Andersen, but also to the profession, which said it would come up with new rules to help regulate itself after Enron's problems emerged. 
Just last week, the self-regulatory process was called into question after rival Big Five firm Deloitte & Touche gave Andersen's auditing practice a clean bill of health. 
Problems for claim 
The news may also present problems for Andersen's claim that it was misled by Enron executives, experts said. 
In mid-December, Andersen's chief executive, Joseph Berardino, told the first congressional hearing into the collapse that it warned Enron about "possible illegal acts," saying the energy-trading giant withheld crucial data about its complex finances. 
Some observers warned that the credibility of that claim may now have been damaged as a result of the missing documents. 
"Essentially, they've already claimed that management committed a fraud on them," said Mark Cheffers, a former PriceWaterhouse auditor who now runs AccountingMalpractice.com, a liability training Web site that caters to 20,000 accountants. 
"Evidence that documents have been destroyed that relate to the very events that are under investigation represents a terrible blow for the defense that management misled them," he added.

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Business
Andersen gap starts shredding trust all around
David Greising

01/11/2002
Chicago Tribune 
North Sports Final ; N
1
(Copyright 2002 by the Chicago Tribune) 

Now the Enron debacle has its own 18 1/2-minute gap. 
The famous gap arose during the Watergate investigation when part of a troublesome Richard Nixon conversation was "accidentally" erased from a White House tape.
Enron's auditor, Chicago-based Andersen, disclosed its own smelly blank space Thursday. Andersen employees created a huge gap when they destroyed thousands of files that arose from Andersen's Enron audits. 
File shredders and computer delete keys went into overdrive from September to November of last year. Strange coincidence. That's the period of Enron's straight-line depreciation from world's largest energy trader to nation's largest bankruptcy. 
Think the Watergate comparison overreaches? Well, I doubt a president will fall because of it. Shredded documents at an accounting firm hardly mean scandal will reach the oval office. 
As scandals go, this looks more like a Teapot Dome. About oil and money first, and politics second. 
Even so, at this early stage, the Enron case has stronger connections at higher levels than the scandal that started as a "third-rate burglary." 
Atty. Gen. John Ashcroft and a top aide stepped out of the criminal investigation because Ashcroft got $60,000 in Enron contributions during his 2000 senate campaign. The entire U.S. attorney's office in Houston recused itself because of family and professional ties to Enron. 
Other administration officials took Enron money, too. President Bush heads the list, with $2 million in donations from Enron Chairman Ken Lay and company employees since 1993. 
Money buys access. We'll find out over time if it bought improper influence. 
Ken Lay last fall contacted Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans as Enron broke down around him. He reportedly asked O'Neill about a possible government-orchestrated bailout like the one that limited damage from the collapse of Long Term Capital Management. 
Enron didn't get a bailout. But there surely will be other influence questions as the Enron saga unfolds. 
For example, what emerged from Lay's private meetings with Vice President Cheney during development of the administration's energy policy? What did Lay want from Cheney, anyway--extra room in the strategic petroleum reserve where Andersen could store damaging Enron documents? 
An administration's first instinct is to minimize the scandal and deflect attention. 
The Bush White House chose to spin this scandal as a possible oversight failure, and a sign regulations can't keep up with an increasingly complex economy. 
"This is not about Enron," Treasury's O'Neill told Lou Dobbs on CNN. "This is about making sure that the rules and regulations that govern the way our economic system works are worthy of the conditions in the market today." 
Nice try. But it won't work any better for O'Neill than it did for Andersen chief Joe Berardino, who tried a similar argument late last month when he first stepped into the sights of one of the congressional committees investigating the Enron mess. 
I'd say Berardino and O'Neill are reading from the same playbook. Except, any playbooks Andersen had probably have been shredded by now. 
There are loopholes in oversight, particularly in the mostly self- regulated accounting industry. But O'Neill and Berardino are dead wrong. This scandal certainly is about Enron. 
It's about thousands of employees who have lost their jobs and pensions. Investors who have lost their money. 
Executives who dumped their stock just before the scandal hit. 
And that's just for starters. 
Andersen already was at the heart of the scandal. And with Thursday's revelations, it's clear that the Bush administration will be knee-deep in discussing--or maybe denying--its Enron questions for a good long time. 
Here's another memorable Watergate reference: The toothpaste really came out of the tube Thursday. 
It's never going back in. For President Bush's administration and for Chicago's Andersen, the key question now is how big a mess it will make. 
---------- 
Contact dgreising@tribune.com.

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NATIONAL
EXPERTS SAY WILLFUL INTENT TO DECEIVE IS DIFFICULT TO PROVE IN FINANCIAL FRAUD PROSECUTION A TOUGH CHORE
ROBERT MANOR AND MELITA MARIE GARZA, CHICAGO TRIBUNE

01/11/2002
Pittsburgh Post-Gazette 
REGION
A-11
(Copyright 2002) 

Government attorneys face major obstacles in their investigation of Enron Corp., legal experts say, and while prosecution is possible, it could take many months to find evidence of crime. 
The Justice Department, the Securities and Exchange Commission and other authorities are examining the collapse of Enron, an energy conglomerate that entered bankruptcy late last year. Enron had failed to disclose heavy debts it had taken on through a complex series of partnership agreements, leading investors to believe the company was financially strong.
Despite Enron's spectacular downfall, experts say it is extremely hard to prove criminal wrongdoing when corporate executives engage in deceptive accounting practices. 
"Criminal liability requires a willful attempt to deceive," said Jeffrey Gordon, a professor at Columbia Law School. "Financial fraud cases are very difficult to prosecute because it is difficult to prove to a jury that the irregularities were willful in their intent to deceive." 
While prosecutors may find it tough going to develop a case against Enron executives, the government does have vast resources to tap. The high-profile nature of Enron's failure -- and the fact that executives sold $1 billion worth of stock before the company announced its accounting problems -- means investigators are likely to use every tool to determine what happened and who is responsible. 
Even in the absence of criminal charges, the Justice Department's moves could have a strong impact in Washington, embroiling the Bush administration and others with ties to Enron in a firestorm of damaging disclosures. 
Enron, once the nation's seventh largest company in terms of its stock capitalization, was the leading market-maker in energy. It bought power from generators and sold it to consumers. It also traded in coal, fiber-optic bandwidth, plastic and other commodities. 
The Justice Department is interested in partnerships Enron set up, allegedly to keep debt off its balance sheet and out of the eyes of investors. Enron recently admitted it had overstated profits by $580 million beginning in 1997. 
"They created limited partnerships where Enron was the master partner in control of the money," said Rob Plaza, a stock analyst with Morningstar. "Then using Enron stock as collateral, they went out and found investors" to lend the partnership money. 
The money went to Enron; but the debt remained, at least in Enron's way of accounting, with the partnership. Plaza said the arrangement, disclosed only late last year, was typical of Houston- based Enron's corporate behavior. 
But that does not mean Enron executives are guilty of any crime, and if they are, that the government can prove it to a jury. 
"There may not be a clear rule of law" that applies to any particular accounting scheme, said Douglas Baird, a professor at the University of Chicago Law School. "These aren't very well defined offenses." 
Baird spoke in general and not specifically of Enron. It is rare for a corporate executive to be led away in handcuffs, even in major instances of fraud. 
A new problem for investigators emerged yesterday. Chicago-based Andersen, which had audited Enron, said it cannot find a "significant but undetermined number of electronic and paper documents and correspondence relating" to Enron. 
One securities lawyer said the loss of the Enron documents could hobble the government's case. 
"If Andersen were withholding documents and they were sloppy, that makes it harder for the government to use them as a witness," said Brad Bennett, an SEC criminal defense lawyer in Washington, D.C. "The defense lawyers for Enron could use the loss of the documents to suggest that Andersen was part and parcel of the conspiracy." 
But John Coffee, a Columbia University Law School professor who testified before Congress on the Enron case, said the government can still use Andersen. 
"The source of testimony most damaging to Enron would be Andersen, "Coffee said. "Andersen has said there were errors, and that they made only honest mistakes."

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News
Enron auditor destroyed files ; Top Bush aides talked with CEO about bankruptcy, its implications
William Neikirk and Jeff Zeleny, Washington Bureau Naftali Bendavid of the Tribune's Washington Bureau contributed to this report

01/11/2002
Chicago Tribune 
North Sports Final ; N
1
(Copyright 2002 by the Chicago Tribune) 

The investigation into the collapse of Enron Corp. widened Thursday as the company's auditor, Arthur Andersen LLP, admitted destroying an untold number of documents relating to the Houston energy firm while the White House disclosed that Enron Chairman Kenneth Lay last fall contacted two Cabinet officers about the firm's pending bankruptcy. 
As the White House sought to contain election-year political damage from the company's extensive ties with the Bush administration, Atty. Gen. John Ashcroft and the entire U.S. attorney's office in Houston recused themselves from a newly opened criminal investigation into Enron's failure.
Ashcroft had received campaign contributions from Enron during his unsuccessful re-election bid for a U.S. Senate seat from Missouri. In Houston U.S. Atty. Michael Shelby said many prosecutors in his office, including himself, "have family relationships with individuals who are arguably affected by the Enron bankruptcy." 
For the first time, the White House disclosed that Lay, a close friend of the president, had called Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans last fall to confirm that Enron "was heading into bankruptcy." He also raised the prospect that the collapse could have major financial implications around the world, similar to those from the demise of a 1998 hedge fund, Long-Term Capital Management. 
O'Neill told CNN that in the conversations on Oct. 28 and Nov. 8 Lay did not seek government assistance despite making reference to the investment company, which was the subject of a private bailout engineered by the Federal Reserve Board. O'Neill said he and Evans agreed that the administration should not come to Enron's rescue. The two Cabinet officers did not tell Bush of their conversations, White House spokesman Ari Fleischer said. 
Enron revealed that Lay also called Federal Reserve Chairman Alan Greenspan about the company's problems. In a statement, the company said Lay "felt an obligation" to let Greenspan, O'Neill and Evans know about Enron's difficulties and did not seek government aid. 
Bush said he was unaware of the precarious state of the company that had helped bankroll his Texas and presidential careers. 
"I never discussed with Mr. Lay the financial positions of the company," Bush said Thursday in the Oval Office after ordering a review of pension disclosure rules to protect workers in other companies. 
The president said he saw Lay twice last year. 
"Ken Lay is a supporter," he said. "But what anybody's going to find is that this administration will fully investigate issues, such as the Enron bankruptcy, to make sure we can learn from the past and make sure that workers are protected." 
Enron filed for bankruptcy protection in December, a move that proved financially devastating for employees who lost billions of dollars when the company prohibited them from selling Enron shares in their retirement accounts as the shares' value plummeted. 
Auditor's destruction policy 
Chicago-based Arthur Andersen, which is also the subject of congressional and government probes, said a "significant but undetermined" number of electronic and other documents related to its auditing of Enron had been destroyed or deleted. It said its company policy "required in certain circumstances the destruction of certain types of documents." 
Even though Andersen said it had retained millions of documents on Enron, the Securities and Exchange Commission called the destruction of documents "extremely serious." The SEC is investigating Andersen's conduct in connection with Enron's failure. 
Rep. Billy Tauzin (R-La.), chairman of the House Energy and Commerce Committee, which also is investigating Enron, said thousands of documents had been destroyed. His spokesman, Ken Anderson, said that anyone who destroys records "to try to subvert our investigation should be prosecuted." 
The White House sought to get out in front of a story that seems likely to grow larger and more threatening to the administration. Congress returns Jan. 23 and will begin a series of hearings into the Enron collapse and its effect on workers. 
Democrats have begun using the word "scandal" in connection with Enron and its connections with the Bush administration. 
James Jordan, spokesman for the Democratic Senatorial Campaign Committee, fundraising arm of the party for the upcoming 2002 Senate elections, said Democrats will emphasize that the Bush administration had close political ties with Enron, whose executives were cashing in their stock as many of the company's workers were losing their lifetime savings. 
Rep. Henry Waxman (D-Calif.), who has been pushing the White House to disclose more about its contacts with Enron, said the administration could have done more to help the company and its workers. 
"The White House had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings," he said. "I am deeply troubled that the White House stood by and let this happen to thousands of families." 
White House sympathy 
At the White House, Bush also expressed his sympathy for the plight of the families. 
"The administration is deeply concerned about its effects on the economy. We are also deeply concerned about the effects on the lives of our citizenry," he said. 
The new disclosures about Lay's contacts with O'Neill and Evans, who was Bush's campaign chairman in 2000, and the destruction of documents at Arthur Andersen created new political fodder for several panels investigating Enron. A Senate investigations subcommittee planned to issue subpoenas Friday for documents at Enron and Arthur Andersen, as well as from directors and executives of Enron. 
Sen. Carl Levin (D-Mich.), chairman of the panel, said: "Because these are document subpoenas, the criminal investigation will have no effect on our investigation at this time. Hearings of the subcommittee will be scheduled after the subcommittee's review of the documents." 
Ashcroft's recusal, along with that of his top aide, David Ayers, who was his campaign manager in the 2000 Missouri Senate race, also could lead to fallout the administration would find undesirable. Ashcroft received $57,499 from Enron and its executives in that race, according to the Center for Responsive Politics. 
Pressure is beginning to build for appointment of a special prosecutor to look into the case. Although the independent counsel law expired in 1999 after the impeachment of President Bill Clinton, the attorney general has wide discretion to name a special counsel. 
Larry Noble, executive director of the Center for Responsive Politics, said an outside counsel is needed now. 
"With Ashcroft's involvement and now recusal, and with President Bush's relationship with Ken Lay, there are real concerns about the Department of Justice being able to handle the investigation," Noble said. 
White House spokesman Fleischer said Bush trusts the Justice Department to handle the case. 
"The Department of Justice has conflict-of-interest rules, and if there is anything that the attorney general is aware of that would trigger it, the president knows he will take responsible action," he said. 
In seeking to control political damage from Enron's collapse, Fleischer said the American people don't have the tolerance to endure "a partisan witch hunt." He said that Enron contributed to Democratic and Republican candidates. 
Enron generous to GOP 
The Center for Public Integrity, a non-partisan campaign-finance watchdog group, said top Enron executives contributed nearly $800,000 to Bush, the Republican and Democratic Parties and members of Congress. Only one-tenth of that money went to Democrats, the center said. 
During his daily briefing, Fleischer was placed on the defensive as questions mounted about the broadening investigation into how the world's largest buyer and seller of natural gas fell into financial ruin. He downplayed the telephone calls to O'Neill and Evans, saying it was not uncommon for administration officials to be asked for help for a struggling company or industry. 
"Bankruptcies happen in our economy," he said. "It's not uncommon for people who are in the community, business community or in the labor community, to talk to a Cabinet secretary to tell the financial status of their business."

PHOTOS 3 GRAPHIC; Caption: PHOTO (color): President Bush on Thursday described Enron CEO Kenneth Lay (above) as a "supporter" but said, "I never discussed with Mr. Lay the financial positions of the company." PHOTOS: Enron's CEO called Treasury Secretary Paul O'Neill (left) and Commerce chief Don Evans. GRAPHIC: Questions and answers on the collapse of Enron Sources: Associated Press, Center for Public Integrity. Chicago Tribune. See microfilm for complete graphic. 
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News
Enron auditor destroyed files ; Enron's accounting may prove hard to criminalize
Robert Manor and Melita Marie Garza, Tribune staff reporters

01/11/2002
Chicago Tribune 
North Sports Final ; N
1
(Copyright 2002 by the Chicago Tribune) 

Government attorneys face major obstacles in their investigation of Enron Corp., legal experts say, and while prosecution is possible, it could take many months to find evidence of crime. 
The Justice Department, the Securities and Exchange Commission and other authorities are examining the collapse of Enron, an energy conglomerate that entered bankruptcy late last year. Enron had failed to disclose heavy debts it had taken on through a complex series of partnership agreements, leading investors to believe the company was financially strong.
Despite Enron's downfall, experts say it is hard to prove criminal wrongdoing when corporate executives engage in deceptive accounting practices. 
"Criminal liability requires a willful attempt to deceive," said Jeffrey Gordon, a professor at Columbia University Law School. "Financial fraud cases are very difficult to prosecute because it is difficult to prove to a jury that the irregularities were willful in their intent to deceive." 
While prosecutors may find it tough going to develop a case against Enron executives, the government does have vast resources to tap. The high-profile nature of Enron's failure--and the fact that executives sold $1 billion worth of stock before the company announced its accounting problems--means investigators are likely to use every tool to determine what happened and who is responsible. 
Even in the absence of criminal charges, the Justice Department's moves could have a strong impact in Washington, embroiling the Bush administration and others with ties to Enron in damaging disclosures. 
Enron, once the nation's seventh-largest company in terms of its stock capitalization, was the leading marketmaker in energy. It bought power from generators and sold it to consumers. It also traded in coal, fiber-optic bandwidth, plastic and other commodities. 
The Department of Justice is interested in partnerships Enron set up, allegedly to keep debt off its balance sheet and out of the eyes of investors. Enron recently admitted it had overstated profits by $580 million beginning in 1997. 
"They created limited partnerships where Enron was the master partner in control of the money," said Rob Plaza, a stock analyst with Morningstar. "Then using Enron stock as collateral, they went out and found investors" to lend the partnership money. 
The money went to Enron, but the debt remained, at least in Enron's way of accounting, with the partnership. Plaza said the arrangement, disclosed only late last year, was typical of Houston- based Enron's corporate behavior. 
"Almost everything was a closely guarded secret," Plaza said. "You had a company of sharks. In their culture, they pushed everything to the limit." 
But that does not mean Enron executives are guilty of crime, and if they are, that the government can prove it to a jury. 
"There may not be a clear rule of law" that applies to any particular accounting scheme, said Douglas Baird, a professor at the University of Chicago Law School. "These aren't very well-defined offenses." Baird spoke in general and not specifically of Enron. 
Rarely are corporate executives led away in handcuffs, even in major cases of fraud. Many of the insider trading convictions of the 1980s, for example, were overturned on appeal. 
But Baird said prosecution becomes more likely when deceptive accounting practices hurt many people, involve large sums of money and yield huge profits to conspirators. 
A new problem for investigators emerged Thursday. Chicago-based Andersen, which had audited Enron, said it cannot find a "significant but undetermined number of electronic and paper documents and correspondence relating" to Enron. 
One securities lawyer said the loss of the Enron documents could hobble the government's case. 
"If Andersen were withholding documents and they were sloppy, that makes it harder for the government to use them as a witness," said Brad Bennett, an SEC criminal defense lawyer in Washington, D.C. "The defense lawyers for Enron could use the loss of the documents to suggest that Andersen was part and parcel of the conspiracy." 
But John Coffee, also a Columbia University Law School professor, who testified before Congress on the Enron case, said the government can still use Andersen. 
"The source of testimony most damaging to Enron would be Andersen," Coffee said. "Andersen has said there were errors, and that they made only honest mistakes. If they said, `We were lied to by the various officers we relied on'--that kind of testimony would be very strong and the kind of testimony needed to prove criminal intent. It already has been said to a degree by Andersen in congressional testimony." 
Coffee acknowledged that Andersen would look a "little strange" if unable to find the Enron documents. "But Andersen accountants had long face-to-face meetings with Enron executives that may buttress their assertions about potential misrepresentations. 
"The jury could sit there and say both Enron and Andersen are crooks and still believe Andersen was lied to," Coffee said.

..................................................................................................................................... 

National Desk
THE NATION Ashcroft Recuses Himself From Probe Into Fallen Energy Giant Investigation: Enron's vast connections in D.C. and Texas have created an obstacle to the Justice Department's inquiry.
JOSH MEYER; JAMES GERSTENZANG
TIMES STAFF WRITERS

01/11/2002
Los Angeles Times 
Home Edition
A-22
Copyright 2002 / The Times Mirror Company 

WASHINGTON -- Enron's many financial and political ties to the Bush administration and other government officials are already complicating a nascent criminal probe by the Justice Department into the bankrupt energy company. 
And Enron's entrenched network of connections at the White House and on Capitol Hill--forged by political contributions, lobbying and personal ties--are making it difficult for politicians to keep at arm's length the growing furor engulfing the company.
The most obvious example is Atty. Gen. John Ashcroft's announcement Thursday that he and his chief of staff, David Ayres, are recusing themselves--removing themselves from any involvement in what will surely be one of the Justice Department's highest-profile criminal investigations of the year. 
The reason: Ashcroft and Ayres didn't want anyone to think that they--or the Justice Department--would go easy on Enron because the company's chief executive, Kenneth L. Lay, other Enron employees and the company's political action committee had contributed more than $57,000 in 2000 to Ashcroft's failed senatorial campaign, which Ayres managed. 
Ashcroft insisted that he has not been involved in any aspect of the Enron investigation. He said his deputy, Larry Thompson, would take his place if and when high-level consultations are needed. 
In Houston, Enron's hometown, U.S. Atty. Michael T. Shelby recused not only himself Thursday but also his entire office of federal prosecutors, who were expected to play a prominent role in the criminal investigation. 
In Shelby's case, the recusals came for the opposite reason: Too many prosecutors--himself included--had friends and family members who had worked for Enron and had suffered numbing financial losses when its stock price plummeted. 
"We might be viewed as being overly aggressive because we know people, and in some cases are married to people, who lost substantial amounts of money as a result of the collapse of the company," Shelby said in an interview. "In my case, it's my wife's brother who works there." 
Whether they fear being perceived as going too easy or too hard on Enron, the prosecutors' ties to the company could well hamper the investigation in its early stages, some Justice Department officials and outside legal experts said Thursday. Because of the likelihood of conflicts in the Houston office, the Justice Department this week convened a task force out of its Washington headquarters in an effort to determine whether any laws were broken as the company collapsed late last year, shredding billions of investor dollars and costing thousands of jobs. 
"This investigation needs to go forward, and it needs to go forward in an expeditious and focused way," Shelby said. "And there needs to be a seamless transition between this office and the Department of Justice." 
Enron has long sought to be influential in Texas and Washington, and it has succeeded through political contributions to both parties, extensive lobbying and personal ties. 
Although few, if any, elected officials have said they will recuse themselves from the congressional investigations into the Enron collapse, many have connections to the company. 
The most obvious example is Sen. Phil Gramm of Texas, the senior Republican on the Senate Banking Committee, which is investigating the Enron matter. Gramm's wife, Wendy, has served on Enron's board of directors. 
And Enron has deep links to President Bush and others in his administration. 
It was disclosed Thursday that Lay called two Cabinet members, Treasury Secretary Paul H. O'Neill and Commerce Secretary Don Evans, late last year to discuss the company's financial problems. O'Neill, through a spokeswoman, acknowledged being an acquaintance of Lay's. Evans, a former oil company executive, has long-standing connections to the Texas political and business worlds as well. 
Overall, Enron's political action committee and the company's employees and directors contributed a total of $5.7 million to candidates and the two political parties--73% of that to Republicans--in the last seven election cycles, according to an analysis conducted by the Center for Responsive Politics. Bush received $113,800 for his presidential campaign, Gramm received $97,350, and Texas' other Republican senator, Kay Bailey Hutchison, received $99,500. 
Enron's employees and directors have given $623,000 to Bush during his political career, according to the Center for Public Integrity. 
Bush's chief economic advisor, Lawrence B. Lindsey, served on an Enron advisory board and, according to documents the White House made public last year, received $50,000 from the company before he joined the administration a year ago. 
Karl Rove, Bush's senior advisor, delayed selling his significant portfolio of Enron stock for several months after taking office, to avoid having to pay capital gains taxes on his profits, and met with Lay while holding the stock. 
Former Montana Gov. Marc Racicot, soon to become chairman of the Republican National Committee, was recently a lobbyist for Enron. 
Some Democrats plan to take up the issue of the Bush administration's connections to Enron as the various investigations progress. 
"The White House has to do a complete disclosure of all the contacts administration representatives had with Enron," said Phil Schilero, chief of staff to Rep. Henry A. Waxman (D-Los Angeles). 
* 
Times researcher Robert Patrick contributed to this report.

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National Desk
THE NATION Destruction of Records 'Unusual,' Experts Say
JAMES F. PELTZ
TIMES STAFF WRITER

01/11/2002
Los Angeles Times 
Home Edition
A-23
Copyright 2002 / The Times Mirror Company 

The disclosure Thursday by Andersen, the accounting firm, that it destroyed a "significant" number of documents of client Enron Corp. in recent months came as a surprise to the accounting industry, which typically keeps such records for years even though there aren't strict rules regulating an auditor's paperwork storage. 
Anderson's action "is unusual," said Jonathan Hamilton, editor of the Public Accounting Report, a trade publication. "Usually in the case of an ongoing client relationship, you find it useful" to keep nearly all documents, he said.
And if there's even a hint that the accounting firm or its client might be involved in litigation down the road, "the general rule is that you keep everything," Hamilton said. 
In November, Houston-based Enron said it had inflated profits by $586 million since 1997. The energy company is operating under bankruptcy court protection and is under criminal investigation by the Justice Department, an inquiry expected to focus on possible accounting fraud. 
The company also is being investigated by the Securities and Exchange Commission and several congressional committees. 
The SEC's director of enforcement, Stephen Cutler, said in a statement that the destruction of Enron-related documents and electronic files by Andersen, formerly known as Arthur Andersen, are "an extremely serious matter" because documents "are an essential ingredient in our investigations." 
But he didn't say whether Andersen's action was illegal, and the SEC declined further comment. Andersen said it still has "millions of documents related to Enron" but that its policy for record storage--a policy that Andersen said it has now suspended--required that some documents be destroyed. 
The Financial Accounting Standards Board, which issues guidelines for how accounting firms should audit a company's books, doesn't offer set rules for saving documents, said spokeswoman Sheryl Thompson. Another trade group, the American Institute of Certified Public Accountants, recommends that accounting firms keep documents for as long as they serve the needs of the firm. 
But that guideline is open to broad interpretation, and the storage of documents varies from firm to firm. 
Even so, most accounting firms keep their audit records for at least three to four years, Arthur Bowman, editor of the industry newsletter Bowman's Accounting Report, told Reuters. 
None of the other big accounting firms could immediately be reached for comment, but industry insiders said some firms have a standard practice of keeping records for a minimum of six years. 
Hamilton said it's not the first time that an accounting firm has raised questions by destroying corporate documents. 
"It's come up from time to time in the profession, especially when we had the dot-com shakeout," he said. 
The collapse of many high-technology companies sparked shareholder lawsuits that led to accounting firms saying they had destroyed the auditing documents in certain cases "because they're not our client anymore," Hamilton added.

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Business
Enron called on Bush cabinet Lay sought advice
CP Wire

01/11/2002
Winnipeg Free Press 
Metro
b3
All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved. 

WASHINGTON -- Enron chairman Kenneth Lay reached out to two of President George W. Bush's cabinet officers when the Houston-based energy company was collapsing, the White House disclosed yesterday as the Justice Department opened a criminal investigation of Enron's bankruptcy. 
Bush, who received significant campaign contributions from Lay and other Enron executives, said he himself has never discussed Enron's financial problems with its embattled corporate chairman. The president said he last saw Lay in Texas at a spring fund-raiser for former first lady Barbara Bush's literacy foundation.
Lay also was among a group of some 20 business leaders who came to the White House early in the Bush administration to discuss the state of the economy, Bush said. 
Many Enron employees lost their life savings when the company filed for bankruptcy Dec. 2. 
"What anybody's going to find out is that this administration will fully investigate issues such as the Enron bankruptcy, to make sure we can learn from the past and make sure workers are protected," Bush said. 
But Lay did seek the ear of other top-level administration officials last fall. 
According to White House press secretary Ari Fleischer, Lay telephoned Treasury Secretary Paul O'Neill amid Enron's collapse "to advise him about his concern about the obligations of Enron and whether they would be able to meet those obligations." 
Lay also told O'Neill that Enron "was heading to bankruptcy," Fleischer said. 
O'Neill received calls from Lay on Oct. 28 and Nov. 8, said Treasury spokeswoman Michele Davis. It was on Oct. 16 that Enron made its stunning disclosure of a $638-million US third-quarter loss. 
In a separate phone call to Commerce Secretary Don Evans, Lay similarly worried that the company might have to default on its obligations. He brought to the secretary's attention "that he was having problems with his bond rating and he was worried about its impact on the energy sector," Fleischer said. 
After that conversation, Evans spoke to O'Neill "and they both agreed no action should be taken to intervene with their bond holders," Fleischer said. 
The firm that audited the books of collapsed Enron Corp., Arthur Andersen LLP, disclosed yesterday that a "significant but undetermined" number of documents related to the company had been destroyed. 
Andersen's auditing work for Enron, which entered last month into the largest corporate bankruptcy in U.S. history, is being investigated by the Securities and Exchange Commission. 
-- Associated Press

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Business
Outlook: Enron/pensions

01/11/2002
The Independent - London 
FOREIGN
15
(Copyright 2002 Independent Newspapers (UK) Limited) 

THE US President, George W Bush, has ordered a review of US pension regulations following the collapse of Enron. One of the most disturbing aspects of the insolvency was that employees had more than half their pension fund assets invested in Enron shares, which are now worthless. 
Worse, due to an administrative change in the scheme, employees were prevented from divesting their Enron holdings during a crucial 10 day period of bad news in late October and early November when the stock lost nearly a third of its value. Forget the now active criminal investigation into false accounting at Enron. The real scandal is that as directors piled out of the stock they had been so active in promoting, their downtrodden staff were locked in to face the music.
Many employees have thus suffered a double blow of both losing their jobs and the great bulk of their retirement nest egg. In Britain's last big corporate scandal, Robert Maxwell stole from the pension fund in order to prop up his ailing business empire, but in the end no one suffered as badly as Enron employees seem likely to. Nearly all the stolen Maxwell millions were eventually recovered, and job losses were minimal. 
The lax audit, banking and management practices that allowed the Maxwell scandal to happen were much mocked on the other side of the Atlantic at the time, in apparent disregard of the mote in America's own eye. Indeed, in recent years it has become fashionable to praise the 401k pension plans that sanction such reckless investment in the employer's own stock. Many respectable British voices have been heard to lobby for the same thing here. 
Not much danger of that now. As it happens, Enron is by no means the worst case of incest in the pension fund. Coca-Cola, General Electric and McDonald's all have more than 75 per cent of their 401k pension plans invested in their own stock, and jolly proud of it they were too until the Enron collapse so painfully demonstrated the downside of having all your eggs in one basket. On this side of the Atlantic, where on the whole we are much more cautious about the way our pension money is invested, it's hard to understand how such a high risk strategy could ever have been allowed. 
In part it's cultural. US companies actively encourage employees to buy into every aspect of the sales pitch. And although the 401k plans are meant to empower employees to make their own decisions on where their pensions are invested, in practice they tend to offer only a very limited range of options, prominent among which is naturally the company's own stock. In Enron's case, the employers' pension contribution was made not in cash, as it is in Britain, but stock. For every dollar invested, there would be 50 cents of Enron stock. Again this is pretty much standard practice across a large number of big US corporations. 
A painful period of adjustment is now in prospect as new laws are introduced limiting exposure to any one asset to, say, 10 per cent of the total. The excesses of the last bull market are not so easily buried, it would seem.

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NATIONAL
ENRON MESS GETS MESSIER DONOR ASKED WHITE HOUSE TO HELP WARD OFF BANKRUPTCY
DANA MILBANK AND PETER BEHR, THE WASHINGTON POST

01/11/2002
Pittsburgh Post-Gazette 
REGION
A-1
(Copyright 2002) 

Bush administration officials yesterday disclosed that the top official of Enron Corp., one of President Bush's biggest campaign donors, sought help from the administration to avoid bankruptcy in the weeks before the giant energy concern collapsed last year, wiping out the pensions of thousands of workers. 
Enron chief executive Kenneth L. Lay had conversations about his company's dire finances with Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans, telling Evans, Bush's former campaign manager, that he would welcome help stopping a private credit-rating agency from downgrading Enron debt -- an event that could force Enron into bankruptcy. Administration officials said yesterday that Evans did not intervene. Enron's bankruptcy, filed on Dec. 2, is the largest in U.S. history.
Also yesterday, Enron's auditor, Arthur Andersen, informed the government that employees at the accounting firm had destroyed a "significant" number of Enron-related documents -- thousands of records, according to congressional investigators. The Securities and Exchange Commission took the unusual step yesterday of saying it is widening its investigation of Enron Corp. to include the destruction of records. 
As the controversy grew yesterday, Attorney General John Ashcroft and one of his top aides recused themselves from the Justice Department's just-announced criminal investigation into Enron's collapse. Ashcroft's political committees had received $57,499 in the last election cycle. The entire U.S. attorney's staff in Enron's hometown of Houston also recused themselves because of Enron ties. 
The drumbeat of developments significantly expanded the controversy over Enron and its ties to the administration at a time when the White House has been seeking to limit the political damage. Earlier this month, the White House disclosed that the energy task force met six times with Enron officials but said the company's finances were not discussed. 
Until yesterday, the White House spokesman had said he had no knowledge of contacts between Bush officials and Enron about the events leading to its demise. The White House said O'Neill and Evans, who was Bush's campaign manager, did not notify Bush until yesterday of their contacts with Lay about Enron's trouble. 
Bush yesterday commissioned task forces to provide recommendations to reform pension laws "to make sure that people are not exposed to losing their life savings as the result of a bankruptcy" and "to analyze corporate disclosure rules and regulations." 
On Capitol Hill, Republicans joined Democrats in calling for probes into Enron. The Senate Governmental Affairs Committee will hold hearings on Jan. 24 and the Senate Commerce Committee will begin hearings on Feb. 4. The House Energy and Commerce Committee, whose investigators discovered that Andersen had destroyed Enron documents, will also have hearings in "early February," a committee spokesman said yesterday. 
The White House faces increased pressure from Congress to disclose all meetings its energy task force had with energy industry officials when it developed the administration's energy policy last year. Congress's General Accounting Office said that it would decide within the month whether it would take the administration to court over its refusal to provide information on which groups it met with to develop the energy policy. 
Lay, whose name appeared on early lists of possible Bush Cabinet secretaries, was one of the Bush "Pioneers" who raised at least $100,000 for the presidential campaign. According to the Center for Public Integrity, a watchdog group, Lay contributed $44,000 to Bush's presidential campaign, part of $220,700 in contributions to Bush's presidential efforts by top Enron executives. Between 1999 and 2001, Enron made $1.9 million in unregulated soft-money contributions, mostly to Republicans. 
The president yesterday said he "never discussed with Mr. Lay the financial problems of the company." Bush added that his "administration will fully investigate issues such as the Enron bankruptcy to make sure we can learn from the past and make sure that workers are protected." 
Administration officials said Lay discussed Enron's plight with O'Neill on Oct. 28 and Nov. 8, and Evans on Oct. 29. On Oct. 16, Enron reported a $638 million loss and the first in a series of damaging errors in its accounting. 
White House press secretary Ari Fleischer said Lay called O'Neill "to advise him about his concern about the obligations of Enron." Lay suggested the case of Long-Term Capital Management LP could be a model. In 1998, that firm, a hedge fund, benefited from a government- coordinated bailout by other financial institutions after losing more than $4 billion in derivatives, a complex securities transaction. 
"Long Term Capital was unable to meet its obligations and headed to bankruptcy, and he wanted Secretary O'Neill to be aware of that, the Long Term Capital experience as a guide," Fleischer said. "Secretary O'Neill then contacted Undersecretary [Peter] Fisher, Undersecretary Fisher looked at that and concluded there would be no more impact on the overall economy." Fisher had been involved in the Long-Term Capital bailout as a Federal Reserve official. 
O'Neill said he considered his two conversations with Lay to be "business as usual." O'Neill told CNN: "I get calls every day from the big players in the world. Enron was the biggest trader of energy in the world." 
In addition, Fleischer said Lay brought to Evans' attention "the problems with the obligations and the bankruptcy. He was having problems with his bond ratings and was worried about its impact on the energy sector." Commerce spokesman Jim Dyke said Lay indicated "he would welcome any support the secretary thought was appropriate" persuading Moody's Investor Services not to downgrade Enron's debt. Evans talked to his general counsel and conferred with O'Neill over lunch on Oct. 29 and decided not to take action, Dyke said. 
At the time Lay approached Evans, Moody's Investors Service was considering downgrading the credit rating on billions of dollars in Enron debt, an action that was certain to drive Enron's stock down further and cut deeply into its trading business, financial analysts had warned. On Nov. 28, Moody's and other rating services did downgrade Enron's bond to junk status, forcing it into bankruptcy. 
Enron's attorney, Robert Bennett, said Lay believed he had an obligation to alert the administration to Enron's increasingly precarious condition and the possibility that the nation's largest energy trader could fall into bankruptcy. "He asked them for nothing," Bennett said. 
Federal and congressional investigators are probing whether senior Enron executives exaggerated its profits and concealed rapidly- mounting debts through a labyrinth of hundreds of investment partnerships and offshore corporations, thus making the company appear stronger than it really was. 
Andersen's disclosure of destroyed records, which led the firm to hire former senator John Danforth to examine Andersen's records management, infuriated lawmakers. Sen. Carl Levin, D-Mich., who heads a Senate Governmental Affairs subcommittee investigation of Enron, said the destroyed records would be a new priority. 
"This a deeply troubling development," House Commerce Chairman Billy Tauzin, R-La., said of the lost documents. "Anyone who destroyed records simply out of stupidity should be fired. Anybody who destroyed records to try and subvert our investigation should be prosecuted." 
Investigators for the House Energy and Commerce Committee first requested the records on Dec. 13. But Enron's lawyer, Bennett, said Enron was unaware that Andersen was destroying records. "The first they heard of it was today," Bennett said, after checking with a senior Enron executive.

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NATIONAL
DEMOCRATS ASK: WHAT DID BUSH KNOW, AND WHEN DID HE KNOW IT?
DON VAN NATTA JR., THE NEW YORK TIMES

01/11/2002
Pittsburgh Post-Gazette 
REGION
A-1
(Copyright 2002) 

The exploding Enron saga presents all the elements of earlier Washington scandals, including carefully phrased denials and accusations of improper influence. And in a matter of hours yesterday, it sent the White House into a full-scale effort to contain the potential damage to President Bush at a time when he wants to focus on the war on terrorism and the flagging economy. 
The White House spent much of the day trying to distance the president from a torrent of bad news about the fall of the Houston energy conglomerate.
Although no one has suggested that Bush has done anything wrong, the connections between his presidency and Enron are uncomfortably close. The company's chairman, Kenneth L. Lay, has been a close friend of Bush for many years, and Lay and other Enron executives have contributed more to Bush over his political career than anyone else -- an amount exceeding $550,000. 
Those connections were made vividly clear yesterday when the White House disclosed that Lay sought government aid last fall from Treasury Secretary Paul O'Neill and from Bush's best friend and presidential campaign chairman, Commerce Secretary Donald L. Evans. 
The day began with Bush expressing sympathy for Enron employees whose retirement accounts were wiped out by the collapse of the company's stock, and ended with calls from Congress for a criminal investigation of the company's auditors for destroying documents. 
Throughout the day, White House officials denied that Bush had been aware of the company's precarious finances or had ever been asked to come to Enron's rescue. 
But on Capitol Hill, Democrats were already beginning to ask of the president, "What did he know and when did he know it?" And questions were being raised about whether the criminal inquiry should be led by a special counsel rather than by the Justice Department, because Attorney General John Ashcroft received $57,499 in campaign contributions from Enron and Lay, according to the Center for Responsive Politics. 
Ashcroft and his chief of staff recused themselves from the criminal investigation that will attempt to determine whether the company or its executives committed fraud before Enron went bankrupt. But critics still questioned whether the department, which includes many other political appointees, could independently investigate the company. 
Scandal pieces in place 
Just as Enron's collapse was stunning because it occurred so quickly and so completely, the latest disclosures have reawakened Washington's now-familiar scandal machinery, which had remained practically dormant since Sept. 11. Washington may once again face months, if not years, of yet another investigation of the White House featuring the volatile mix of money, influence, access and politics. 
All the elements of a classic political scandal are here: A Texas corporation, led by Bush's most generous campaign contributor, files the largest bankruptcy petition in American history. A handful of Enron executives are able to sell $1 billion worth of the company's stock before its collapse, but thousands of employees are barred from selling, losing their life's savings and their retirement accounts. 
And just this week, the White House disclosed that Enron executives, and its chairman, had meetings and discussions with Cabinet members, White House officials and Vice President Dick Cheney before and during the corporation's implosion. 
On top of everything else, the accounting firm that audited Enron's books, Arthur Andersen LLP, disclosed yesterday that a "significant but undetermined" number of documents related to the company had been destroyed. 
"This is the perfect storm," said Phil Schiliro, the press secretary for Rep. Henry A. Waxman, D-Calif. "It's the biggest bankruptcy in American corporate history -- a bankruptcy where a small number of executives enriched themselves to the tune of hundreds of millions of dollars while thousands of employees were left with worthless stock. And in 2001, Enron is the most influential company in Washington. When you piece it all together, there are many questions that need to be answered." 
Bush said yesterday that he had never discussed Enron's financial woes with Lay, who has supported Bush politically since his unsuccessful campaign for Congress in 1978. Bush said he last saw Lay in Texas at an April 30 fund-raiser for former first lady Barbara Bush's literacy foundation. At the time, Enron's share price was nearly $60 a share; its closing price yesterday was 67 cents per share. 
Both Republicans and Democrats on Capitol Hill have pledged to work together to get to the bottom of the matter. But some Democratic officials expressed glee that questions about White House influence- peddling seemed to be emerging as a major political story of 2002. 
"If their goal was to give this story a head of steam, they have succeeded," Jennifer Palmieri, the press secretary of the Democratic National Committee. 
Five separate congressional committees have sent out subpoenas on the Enron matter. The first of many congressional hearings expected this year is scheduled for Jan. 24 by the Senate Government Affairs committee, which is chaired by Sen. Joe Lieberman, D-Conn., who may be thinking of running for president in 2004. 
Several congressmen demanded again yesterday for the White House to release records of all its contacts with Enron executives, including phone messages and e-mails. 
"In contrast to the six contacts the White House disclosed," Waxman said, "I suspect there were dozens of conversations between administration officials and Enron representatives during the past year. The public and Congress should have this information, especially since it is now clear the White House had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings."

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National Desk
THE NATION Auditor Says It Destroyed Enron Records Finance: The admission angers investigators of the energy firm's messy bankruptcy. Its chief sought help from two Cabinet members, the White House reveals.
RICHARD SIMON; JAMES GERSTENZANG
TIMES STAFF WRITERS

01/11/2002
Los Angeles Times 
Home Edition
A-1
Copyright 2002 / The Times Mirror Company 

WASHINGTON -- The accounting firm Andersen acknowledged Thursday that it destroyed a "significant" number of documents related to its audit of Enron Corp., as the White House disclosed that Enron's chief executive contacted Bush Cabinet members for help when the energy company was collapsing. 
Treasury Secretary Paul H. O'Neill and Commerce Secretary Don Evans said they listened to Enron Chairman Kenneth L. Lay's description of the firm's dire financial problems last fall but took no action.
Both revelations deepened the controversy over Enron's sudden failure--one that has financial, legal and political overtones. The disclosure by Andersen, until recently known as Arthur Andersen, prompted outrage in Congress and could complicate federal investigations into the massive bankruptcy. 
Andersen said in a statement that it had disposed of a "significant but undetermined number of electronic and paper documents and correspondence" relating to Enron. Investigators could not immediately say what documents were destroyed. A company spokesman said the matter is under review and would not say whether the destruction was accidental or intentional. The company said millions of documents related to Enron still exist. 
A congressional aide said Andersen notified investigators that "potentially thousands of records" were destroyed in September, October and November. Investigators plan to meet with the head of Andersen's Houston office next week and question him on the matter. 
Despite the administration's efforts to distance itself from the Enron fiasco, the company's huge political footprint continued to create problems. Atty. Gen. John Ashcroft, his chief of staff and the entire U.S. attorney's office in Houston, where Enron is based, recused themselves from the criminal probe of the company because of potential conflicts of interest. 
Ashcroft received campaign contributions from Enron for his failed 2000 Senate campaign, and the U.S. attorney in Houston said many on his staff have family members who could be affected by the Enron bankruptcy. 
The fallout touched the White House, as President Bush ordered senior officials to recommend reforms of the pension system and to examine federal rules governing corporate disclosures. Investigators are probing whether company officials withheld financial information from investors who, along with employees in the company pension plan, suffered huge losses in the firm's collapse. 
"Ken Lay is a supporter," the president said of the Enron executive, a generous donor to Bush's political campaigns. "But what anybody's going to find is that this administration will fully investigate issues, such as the Enron bankruptcy, to make sure we can learn from the past and make sure that workers are protected." 
The latest twist in the Enron saga came one day after the Justice Department launched a criminal probe of the company, investigating, among other matters, whether Enron knew of problems but failed to disclose them. In congressional testimony last month, the head of Andersen said he had warned Enron that the company might be guilty of "possible illegal acts" for withholding financial information from auditors--an allegation Enron denied. 
Andersen's destruction of records drew angry reactions from members of Congress investigating the accounting methods used by the auditor. 
Chairman W.J. "Billy" Tauzin (R-La.) of the House Energy and Commerce Committee called the loss "deeply troubling" and vowed to investigate. 
"It should never have happened," Tauzin said. "Clearly this is a very serious matter. Anyone who destroyed records simply out of stupidity should be fired; anyone who destroyed records intentionally to subvert our investigation should be prosecuted." 
"The list of problems and problem people involved in this entire tawdry affair seems destined to grow," said Rep. John D. Dingell of Michigan, the top Democrat on the House Energy and Commerce Committee. "The seriousness of this matter cries out for further investigation." 
Stephen Cutler, director of the Securities and Exchange Commission's enforcement division, called the record destruction an "extremely serious matter" but added that it "will not deter us from pursuit of our investigation and will be included within the scope of our investigation." 
The SEC is investigating whether Enron used loopholes in accounting regulations to hide debt. In addition, Congress is looking into Andersen's interpretation of accounting rules that allowed Enron to exclude losses at several partnerships from its reporting. Enron and Andersen dispute who is to blame for the faulty accounting. 
On Oct. 16, Enron reported a third-quarter loss of $638 million and disclosed a $1.2-billion reduction in shareholder equity. On Nov. 8, it announced it had overstated its earnings by $586 million during the last four years, sending the company's stock tumbling from more than $90 a share a year earlier to less than a dollar. The meltdown cost more than 4,000 employees their jobs and destroyed the retirement savings of employees with company-sponsored savings plans. 
Because, as the company said, the retirement plan was changing administrators, those employees were locked out of selling their shares at the time the stock began its most precipitous descent. However, many executives managed to sell their shares just before the stock's plunge. 
The company filed for protection from its creditors Dec. 2. 
At the White House, Press Secretary Ari Fleischer said Lay called O'Neill and Evans separately, reporting "his concerns about whether or not Enron would be able to meet its obligations." 
O'Neill said in the two calls he received--on Oct. 28 and Nov. 8, according to an aide--Lay expressed concern about the implications for the capital markets and also that a possible downgrading of the company's credit rating might ruin a pending merger prospect. 
Lay did not ask for anything specific, O'Neill said. "As secretary of the Treasury with responsibility for the U.S. capital markets, I get calls every day from the big players in the world" warning about important financial events, he told CNN. 
But Treasury spokeswoman Michele Davis said Lay did draw a comparison with Long Term Capital Management, a large investment firm that was saved from collapse in 1998 by a federally orchestrated private bailout. 
Lay "expressed a concern that if Enron went bankrupt, it would affect the credit markets the way the Long Term Capital Management problems a few years earlier affected the credit markets, that it would have ripple effects throughout the whole banking sector," she said. 
Davis said O'Neill never discussed a bailout or any other kind of aid for Enron. 
Evans said Lay was hoping for high-level "support." 
Fleischer said that the secretaries decided not to inform Bush of the calls and that Bush did not learn of them until Thursday morning. 
Fleischer said Evans and O'Neill handled the matter appropriately. Communication "is not a wrongdoing. What took place here was they received phone calls and took no action." 
However, Rep. Henry A. Waxman (D-Los Angeles) said the calls show that the administration had advance word of Enron's collapse and did nothing to protect shareholders or employees. 
Fleischer dismissed the criticism as partisan rhetoric, "what people have become so used to in Washington, which is a politically charged, politically motivated effort to blame one party or to look only at one party." Enron, he said, has given hundreds of thousands of dollars to both parties. 
Bush said he had not spoken with Lay about his company's financial problems and had not seen him since last spring, when they met at a Houston theater where the president's mother was the sponsor of a book-reading fund-raiser by celebrity authors. 
Lay was a so-called pioneer in Bush's presidential campaign, which meant he committed to raising at least $100,000. 
Lay also personally contributed more than $275,000 to the Republican National Committee during the 2000 election cycle, part of overall donations from company employees and directors to the RNC that exceeded $1.1 million. Enron gave $100,000 to help pay for Bush's inauguration. In that cycle, Enron employees and directors gave $530,000 to the Democratic National Committee; Lay made no personal contributions to the DNC. 
In calling for an examination of the pension rules, Bush said he directed O'Neill, Evans and Labor Secretary Elaine Chao to determine "the effects of the current law on hard-working Americans and to come up with recommendations of how to reform the system to make sure that people are not exposed to losing their life savings as the result of a bankruptcy, for example." 
In addition, he said that O'Neill, along with the SEC, the Federal Reserve and the Commodity Futures Trading Commission would study corporate disclosure rules and regulations in light of the Enron bankruptcy. 
"There needs to be a full review of disclosure rules to make sure that the American stockholder, or any stockholder, is protected," Bush said. 
Enron grew from a small natural-gas pipeline operator into the world's largest energy-trading operation. At its peak, it handled 1 in 4 wholesale deals for electricity, gas and other energy products. 
The company championed energy deregulation and tried to influence the way California structured its energy markets and how the state steered through its electricity crisis. It became a target of attacks from politicians, regulators and consumer activists for its aggressive business tactics. 
* 
Times staff writers Josh Meyer in Washington, Thomas S. Mulligan in New York and James F. Peltz in Los Angeles contributed to this report.

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EDITORIAL
WORK FOR CONGRESS ISSUES DEMAND ATTENTION ON SEVERAL FRONTS

01/11/2002
Pittsburgh Post-Gazette 
REGION
A-14
(Copyright 2002) 

Congress is scheduled to return to its duties in Washington on Jan. 24 after a month off. Its agenda is filling up rapidly with urgent business. 
The first item on the agenda is to complete work on an economic stimulus package, dropped because of a stalemate before Christmas. National economic indicators are sufficiently mixed as to suggest that such a bill would still serve a useful purpose, even though it should have been passed before Congress adjourned for the holidays for more timely impact. Unemployment continues to rise, by another 0.2 percent in December to 5.8 percent, the highest it has been since 1995.
Hearings are being scheduled for next month to look into the failure of the U.S. intelligence community regarding Sept. 11. Its budgets amount to $30 billion annually. Yet it failed to detect the scheming that terrorists were carrying out under America's nose for probably a year before the attacks. 
A third useful piece of business that needs to be addressed urgently -- given that 2002 is a congressional election year -- is campaign finance reform, currently stuck in the House. Republican and Democratic Congressional Campaign committees have both reported fund- raising in eight figures already for the 2002 campaign. 
Continued foot-dragging, for example, on the Shays-Meehan bill banning soft money leads past more elegant arguments to only one conclusion -- that our representatives like to have access to as much unlimited "soft" money as possible to use in persuading the voters to re-elect them. Failure to pass campaign finance reform legislation is, in fact, a very good reason not to re-elect them. 
The Post-Gazette also welcomes congressional plans to conduct hearings to shed light on the collapse of Enron, America's seventh- largest company before its fall. Matters that need to be made clear include Enron's corporate and individual executives' campaign contributions -- an accounting of how much, to whose campaign and the timing of various gifts and whether they correlated to the progressive collapse of the company. 
In advance, there seems nothing wrong in Enron executives making recommendations to Bush administration energy policy-makers. It would be normal to consult a company of that size in such a market. The problem would be if those recommendations were accepted and thus contributed to what turned out to be Enron's deception of stockholders and the market. 
The special task force that the Justice Department is putting together will look closely into that and other important subjects. It will investigate whether Enron's top executives engaged in criminal activity by selling off $1 billion of their Enron stock held in 401(k) retirement plans in advance of the declaration of bankruptcy - - while forbidding lower-level employees to sell theirs. Congressional examination of these issues can suggest whether new legislation is required.

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Companies: U.S. Task Force Will Pursue Enron Investigation --- Criminal Probe to Target Possible Accounting Fraud
By Rebecca Smith
Staff Reporter

01/11/2002
The Wall Street Journal Europe 
4
(Copyright (c) 2002, Dow Jones & Company, Inc.) 

The U.S. Justice Department said a task force has been formed to pursue a criminal investigation of Enron Corp., confirming a probe that is expected to center on possible accounting fraud. 
The investigation will be run by the department's criminal division coordinating among U.S. Attorneys in New York City, San Francisco, Houston and elsewhere. The Wall Street Journal first reported the criminal investigation in early December.
Enron, the U.S.'s biggest marketer of electricity and natural gas, filed for bankruptcy-court protection following a crisis of confidence among its investors. The problems have resulted largely from Enron's dealings with private partnerships, run by some of its own executives. The company saw its market value plunge recently to about $540 million (606 million euros) from more than $77 billion last year. 
The U.S. Securities and Exchange Commission, which has been investigating Enron since October, and the Justice Department could both file cases alleging violations of securities laws if Enron is found to have intentionally misled investors about its financial condition. Several congressional committees also have begun inquiries into various aspects of Enron's collapse. 
Enron acknowledged that it is the target of a criminal investigation by the Justice Department. "It has been the posture of the company to fully cooperate with government investigations," said Robert Bennett, an attorney with Skadden, Arps, Slate, Meagher & Flom, which represents the company. "At the end of day, I'm pretty optimistic . . . an objective person will see that many of the things said and written (about Enron) aren't true." 
Confirmation of the probe came even as nearly two dozen firms asked a U.S. bankruptcy-court judge to temporarily block Enron's intended sale of its energy-trading business, until recently the earnings juggernaut for the entire company. 
The court approved an auction process on Dec. 19 that was to have resulted in the announcement of the winning bidder as early as Friday. 
Bidders for pieces of Enron's energy-trading business, which still has a staff of about 1,000 people, include Citigroup Inc., UBS AG and BP PLC, people familiar with the matter have said. 
But a host of creditors have asked the court to delay the sale indefinitely. The list includes institutions such as Royal Bank of Scotland PLC and GE Capital Corp. as well as power-trading rivals such as Mirant Corp., El Paso Merchant Energy LP and Aquila Inc., a unit of Utilicorp United Inc. 
Aquila said it doesn't oppose the sale, per se, but wants guarantees that Enron will put the proceeds in an escrow account until a determination has been made about how it will be split among creditors. 
Mirant in its pleadings with the U.S. Bankruptcy Court for the Southern District of New York, said the sales materials circulated by Enron lacked "significant material information that is essential . . . to make an informed decision regarding the wisdom of the transaction." 
The materials lack a minimum bid, which "begs the question," Mirant said, "as to whether there is a bid that is simply too low to accept or whether the debtors are preparing to sell at any price." Challengers also questioned who would be responsible for liabilities excluded from the sale. 
Enron's energy-marketing unit, which includes its once-mighty EnronOnline Internet-based trading platform, traded dozens of products until recently and generated roughly 90% of the firm's earnings in the most recent quarter. It also was responsible for the bulk of Enron's 2001 revenue of $101 billion.

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Companies: White House Confirms Contact With Enron Chief --- Fleischer Says Lay Rebuffed; Auditor Destroyed Documents
Dow Jones Newswires

01/11/2002
The Wall Street Journal Europe 
UK4
(Copyright (c) 2002, Dow Jones & Company, Inc.) 

WASHINGTON -- The Bush administration has confirmed that Kenneth L. Lay, chairman and chief executive of Enron Corp., contacted two top officials last autumn and warned that the Houston energy trader was headed toward bankruptcy, White House spokesman Ari Fleischer said. 
He noted the government rebuffed Mr. Lay's appeal for help with Enron's financial situation. Mr. Fleischer previously told reporters Wednesday he wasn't aware of anyone in the White House who discussed Enron's finances.
Separately, Enron auditor Arthur Andersen LLP said in a statement Thursday that individuals at the firm "disposed of a significant but undetermined amount" of documents relating to its work for Enron. The documents, which include e-mail correspondence, had been sought by federal law-enforcement officials. 
Arthur Andersen said it has notified the Justice Department, which has launched a criminal investigation into Enron, as well as the Securities and Exchange Commission. Enron was one of Andersen's largest clients, generating $25 million (28.1 million euros) a year in audit fees and $27 million of fees for consulting. 
Arthur Andersen has asked former Sen. John Danforth to conduct "an immediate and comprehensive review" of the company's policies on document handling and recommend improvements. 
The company said the destruction of the Enron documents occurred "in recent months" by individual employees involved in auditing Enron. 
Michael Donovan, a Philadelphia attorney whose firm has filed a class-action lawsuit against Arthur Andersen on behalf of Enron shareholders, said document destruction by an audit firm is shocking. 
"Auditors save everything," including all work papers for audit clients, he added. 
Meanwhile, Attorney General John Ashcroft and his chief of staff, David Ayres, recused themselves from the Justice Department's investigation of Enron, citing "the totality of the circumstances of the relationship between Enron and the Attorney General." 
The department's statement Thursday didn't elaborate further, but the Center for Responsive Politics, a group that tracks campaign-finance filings, said Enron and Mr. Lay made more than $50,000 in campaign contributions toward Mr. Ashcroft's bid for re-election to the Senate in 2000. 
Deputy Attorney General Larry Thompson will oversee the investigation in Mr. Ashcroft's absence, the Justice Department said. 
Mr. Ashcroft's recusal is another indication of the company's ties with the Bush administration. Enron also contributed to President Bush's election campaign, and the White House has acknowledged that Vice President Richard Cheney or his aides met six times with Enron representatives on energy issues last year, with the final meeting held six days before the company's financial condition was revealed. 
Earlier Thursday, President Bush said he wants to see a thorough investigation into the sudden collapse of Enron, and has ordered a review of the U.S. laws governing pensions. The president's comments came during a hastily arranged event in the Oval Office as the political heat mounted over Enron's collapse. 
Mr. Fleischer said: "What was told to me this morning was [Treasury] Secretary Paul O'Neill said that he had been contacted by Mr. Lay in the fall of last year, and Mr. Lay brought to the secretary's attention his concerns about whether or not Enron would be able to meet its obligations. And he expressed his concern about the experience that Long-Term Capital Management went through when the hedge-fund firm went bankrupt.

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Foreign News
Enron affair explodes around White House
Rupert Cornwell in Washington

01/11/2002
The Independent - London 
FINAL
12
(Copyright 2002 Independent Newspapers (UK) Limited) 

THE ENRON affair exploded around the Bush presidency last night, as his administration's top legal officer was forced to remove himself from the newly launched criminal investigation and the accounting firm that audited the failed energy giant's books admitted it had destroyed thousands of documents relating to the case. 
Yesterday, the White House shifted into full scandal defence mode. Mr Bush intervened in the affair directly for the first time, ordering the Treasury Department to review federal pension regulations. He also denied he had ever discussed the company's difficulties with Kenneth Lay, Enron's chairman and a long-time friend and benefactor of the President.
An especially shocking aspect of the Enron debacle has been how senior executives were able to cash in up to $1bn (pounds 700m) of Enron stock and options in the 18 months before the company began to unravel last autumn - while many employees, obliged to hold stock in pensions schemes, saw retirement funds virtually wiped out. 
Already, civil suits have been filed against 29 Enron directors and executives, charging they sold shares while knowing the company was in dire trouble. The Justice Department inquiry will examine whether Enron, in the last few years, was no more than a giant fraud. 
It was disclosure of unreported debts shielded by secret partnerships run by senior Enron executives, and its October admission that it had overstated its profits by $586m in the previous four years, that created the crisis of investor confidence that drove Enron into bankruptcy at the start of December. In the process, what was once the seventh-largest US corporation saw its shares plunge from $85 to under $1 apiece, in the largest corporate collapse in world history. 
Last night, Andersen, Enron's accountants, stunned the US financial community by revealing its employees had destroyed a "significant" number of paper and electronic documents relating to its audit had been destroyed. The Securities and Exchange Commission, Wall Street's top regulatory body, described the admission as an "extremely serious matter". 
In a separate embarrassment for Mr Bush, Attorney General John Ashcroft, head of the Justice Department and thus the country's top law enforcement official, announced he would have no involvement in the investigation. Mr Ashcroft reportedly accepted up to $60,000 to help his failed 2000 Senate campaign. 
In the short term, the probe could take some of the sting out of the Congressional hearings due to start next month into the collapse. Scheduled witnesses, including Mr Lay and other senior executives, are likely to be the object of the federal investigation and under threat of criminal indictment, they may be able to say little to interrogators on Capitol Hill. 
Even so, the once-close relationship between Mr Lay and Mr Bush will come under ever-fiercer scrutiny. Denying he had ever discussed Enron's finances with Mr Lay, Mr Bush said he had not seen him since last May. He expressed "great concern" for the people who had entrusted their money to Enron, and then "for whatever reason, based upon some rule or regulation, got trapped in this awful bankruptcy". 
The real target for Democrats will be the large donations Enron made to the Republican party, including more than $100,000 to Mr Bush's election campaign, and a similar contribution to his inaugural gala.

..................................................................................................................................... 

Foreign News
Bush snared as Enron becomes criminal case
Rupert Cornwell in Washington

01/11/2002
The Independent - London 
FOREIGN
12
(Copyright 2002 Independent Newspapers (UK) Limited) 

THE LAUNCH of a Justice Department criminal investigation into Enron, the energy conglomerate, has turned the biggest financial collapse in US history into a major, and probably long-lasting, embarrassment to President George Bush and his administration. 
Yesterday, with the White House visibly shifting into defensive scandal mode, Mr Bush intervened in the affair directly for the first time, ordering the Treasury Department to review federal pension regulations.
An especially shocking aspect of the Enron debacle has been the way in which senior executives were able to cash up to $1bn (pounds 700m) of Enron stock and stock options in the 18 months before the company began to unravel last autumn - while many employees, obliged to hold stock in pensions schemes, in some cases saw these schemes virtually wiped out. 
Already civil suits have been filed against 29 Enron directors and senior executives, charging that they sold shares while knowing the company was in dire trouble. The main focus of the government probe, however, will be the collapse itself - whether Enron committed criminal offences in concealing debt and misstating its financial position. 
It was disclosure of unreported debts shielded by secret partnerships run by senior Enron executives, and its October admission that it had overstated its profits by $586m in the previous four years that created the crisis of investor confidence that drove Enron into bankruptcy at the start of December. 
In the process, what was once the seventh-largest US corporation saw its shares plunge from $85 to under $1 apiece, wiping out the value of many of its employees' retirement funds. The Justice Department investigation, bringing together the work of federal prosecutors in California, New York and Enron's home base of Houston, will examine whether Enron in the last few years was no more than a giant fraud. 
In the short term, the investigation could take some of the sting out of the Congressional hearings due to start next month into the collapse. Scheduled witnesses, including Kenneth Lay, Enron's chairman and other senior executives, are likely to be the object of the federal investigation, so, under threat of criminal indictment, they may be able to say little to interrogators on Capitol Hill. 
Even so, the once-close relationship between Mr Lay and the President will be subjected to ever-fiercer scrutiny. Questioned by reporters at a White House ceremony yesterday, Mr Bush denied he had ever discussed Enron's finances with Mr Lay, and said had not seen him since last May, at a charity event in Texas organised by his mother. 
Mr Bush said he had "great concern" for the people who had entrusted their money to Enron, and then "for whatever reason, based upon some rule or regulation, got trapped in this awful bankruptcy." But he tried to distance himself from the fellow Texan he used to call "Kenny Boy," saying it was his predecessor, not he, who had appointed Mr Lay to the Texas Governor's Business Council. 
But the real target for Democrats will be major political donations Enron made to Texas Republicans. Mr Lay and his company also gave more than $100,000 to Mr Bush's election campaign. 
It has emerged that shortly before the collapse last autumn, Mr Lay spoke by phone with the Commerce Secretary, Don Evans, and Paul O'Neill, the Treasury Secretary, to warn them of Enron's problems.

..................................................................................................................................... 
THE AMERICAS - Lifetime's savings lost in a corporate scandal.
By ALISON BEARD, SHEILA MCNULTY and ELIZABETH WINE.

01/11/2002
Financial Times 
(c) 2002 Financial Times Limited . All Rights Reserved 

Few have been hit harder by Enron's bankruptcy than Tom Padgett. 
The 59-year-old, who was only six months away from retiring, saw his assets fall from $615,000 to $11,000.
He was a victim of Enron's questionable accounting to hide debts. The energy trading company, a favourite of investors and analysts, filed for the largest corporate bankruptcy in US history in December. 
Thornton House, 51, and his wife, Barbara House, 54, had $430,000 in retirement savings tied up in Enron. Mr House worked for the company for 20 years until 1993. Ms House left in 1991 after 13 years with the company. 
"Both of us lost a chunk," Mr House said. "We believed in the company. We believed in Ken Lay (Enron's chairman and chief executive). We were all duped by them. 
"I may have to go back to look for work. Now there are 4,000 former Enron employees looking for these jobs." 
The problems centred on Enron's 401(k) employee retirement programme. 401(k) accounts are employee-directed investment accounts that companies help fund and administer. 
Enron's programme, worth about $2.1bn a year ago, was 60 per cent invested in the company's own stock, and employees were prevented from selling even as shares plummeted. 
President George W. Bush has now promised that in the investigation he ordered yesterday the Treasury Department will "come up with recommendations on how...to make sure that people are not exposed to losing their life savings". 
In an effort to prevent another scandal of this magnitude, a working group on financial markets, which includes members of the Securities and Exchange 
Commission, Treasury Department, Federal Reserve and the Commodity Futures Trading Commission, will review disclosure rules to make sure the American stockholder is protected. 
All this comes too late for Enron's employees. Robin Harrison, counsel in the 401(k) plan participants class action lawsuit, said: "The people who worked for the company the longest are the people the most hurt. They have the least amount of time to recoup their lost savings." 
However, pension fund reform could be the silver lining to the company's collapse. In particular, industry experts hope that the Bush administration and Congressional investigations will change the law that exempts company shares from the diversification rules applied to all other retirement account holdings. 
"They can look all they want at making more disclosure to employees, or exhorting them to diversify, but the bottom line is the way the law is structured, it encourages companies to load people up on company stock," said Eli Gottesdiener, one of the attorneys representing Enron's 401(k) participants. 
"People will not police themselves because they want to show loyalty by loading up on company stock. It's another disaster waiting to happen and it needs to be stopped. There is only one way to do it." 
Democratic Senators Barbara Boxer and Jon Corzine have already introduced legislation that would cap the amount of company stock in pension funds at 20 per cent. 
Another important reform would be to prevent companies from setting restrictions on when and how much company stock employees can sell from their retirement plans, said David Certner, director of federal affairs at AARP, the non-partisan retirees lobbying group. In Enron's case, employees could not sell until they were 50. 
"Everything Enron put in had to go into company stock," Mr Padgett said. "The lesson is, 'Don't trust your company'." 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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National Desk; Section A
ENRON'S COLLAPSE: NEWS ANALYSIS
A Familiar Capital Script
By DON VAN NATTA Jr.

01/11/2002
The New York Times 
Page 1, Column 4
c. 2002 New York Times Company 

WASHINGTON, Jan. 10 -- The rapidly exploding Enron inquiry presents elements reminiscent of earlier Washington scandals, including carefully phrased denials and accusations of easy access. And in a matter of hours today, it sent the White House into a full-scale effort to contain the potential damage to President Bush at a time when he wants to focus on the war on terrorism and the flagging economy. 
The White House spent much of the day trying to distance the president from a torrent of bad news about the fall of Enron, the Houston energy conglomerate.
Although no one has suggested that Mr. Bush has done anything wrong, the connections between his presidency and Enron are uncomfortably close. The company's chairman, Kenneth L. Lay, has been a close friend of Mr. Bush for many years, and Mr. Lay and other Enron executives have contributed more money to Mr. Bush over his political career than anyone else, an amount exceeding $550,000. Mr. Lay contributed an additional $100,000 for the Bush inaugural committee. 
Those connections were made vividly clear today when the White House disclosed that Mr. Lay discussed his company's precarious financial condition last fall with Treasury Secretary Paul H. O'Neill and sought assistance from Mr. Bush's best friend and presidential campaign chairman, Commerce Secretary Donald L. Evans. 
Throughout the day, White House officials denied that Mr. Bush had been aware of the company's troublesome finances or had ever been asked to come to its rescue. 
But on Capitol Hill, Democrats were already beginning to ask of the president, ''What did he know and when did he know it?'' And questions were being raised about whether a criminal inquiry into Enron's collapse should be led by a special counsel rather than by the Justice Department, because Attorney General John Ashcroft received $57,499 in campaign contributions from Enron and Mr. Lay, according to the Center for Responsive Politics. 
Mr. Ashcroft, as well as his chief of staff, recused themselves from the criminal investigation, which will try to determine whether the company or its executives committed fraud before it went bankrupt. But critics still questioned whether the Justice Department, which includes many other political appointees, could independently investigate the company. 
Just as Enron's collapse was stunning because it occurred so quickly and so completely, the latest disclosures have reawakened Washington's scandal machinery, which had been practically dormant since Sept. 11. The capital may once again face months, if not years, of yet another investigation of the White House featuring the volatile mix of money, influence, access and politics. 
Elements of a classic political scandal are here: A Texas corporation, led by Mr. Bush's most generous campaign contributor, files the largest bankruptcy petition in American history. A handful of executives are able to sell $1 billion worth of the company's stock before its collapse, but thousands of employees are barred from selling, losing their life's savings and retirement accounts. 
And just this week, the White House disclosed that Enron executives, and the company chairman, had meetings and discussions with cabinet members, White House officials and Vice President Dick Cheney before and during the corporation's implosion. 
On top of everything else, the accounting firm that audited Enron's books, Arthur Andersen LLP, disclosed today that a ''significant but undetermined'' number of documents related to the company had been destroyed. 
''This is the perfect storm,'' said Philip M. Schiliro, the chief of staff for Representative Henry A. Waxman, Democrat of California. ''It's the biggest bankruptcy in American corporate history, a bankruptcy where a small number of executives enriched themselves to the tune of hundreds of millions of dollars while thousands of employees were left with worthless stock. And in 2001, Enron is the most influential company in Washington. When you piece it all together, there are many questions that need to be answered.'' 
President Bush said today that he had never discussed Enron's financial woes with Mr. Lay, who has supported Mr. Bush politically since his unsuccessful campaign for Congress in 1978. Mr. Bush said he last saw Mr. Lay in Texas at an April 30 fund-raiser for the literacy foundation of the former first lady Barbara Bush. At the time, Enron's price per share was nearly $60; its closing price today was 67 cents. 
On Capitol Hill, Republicans and Democrats alike have pledged to work together to get to the bottom of the matter. Some Democratic officials also expressed glee that questions about White House influence peddling seemed to be emerging as a major political story of 2002. 
''If their goal was to give this story a head of steam, they have succeeded,'' Jennifer Palmieri, the press secretary of the Democratic National Committee, said of the White House's handling of the Enron matter. ''I think they are very spooked by this.'' 
Five Congressional committees have sent out subpoenas on the matter. The first of many hearings expected this year is set for Jan. 24 by the Senate Governmental Affairs Committee, which is headed by Senator Joseph I. Lieberman, Democrat of Connecticut, who may be thinking of running for president in 2004. 
Several congressmen demanded again today that the White House release records of all its contacts with Enron executives, including telephone and e-mail messages. 
''In contrast to the six contacts the White House disclosed,'' Mr. Waxman said, ''I suspect there were dozens of conversations between administration officials and Enron representatives during the past year. The public and Congress should have this information, especially since it is now clear the White House had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings.'' 
Political operatives and advocates of campaign finance reform said the Enron matter's staying power would depend in large measure on how the administration handled it in the coming days and weeks. 
''The Enron scandal clearly moved to a new stage today,'' said Fred Wertheimer, president of Democracy 21, a public policy group, ''and it has reached a point where it will now demand serious national attention.'' 
Just as the Congressional committees and the news media are gearing up for what promises to be an inquiry that could last months, if not years, the principals have hired lawyers with golden tongues and lengthy experience in dealing with scandals. 
David Boies, a leading trial lawyer, represents Andrew S. Fastow, Enron's former chief financial officer. W. Neil Eggleston, a prominent Washington lawyer, represents Enron's outside directors. 
And Robert S. Bennett, the Washington lawyer who represented President Bill Clinton in the Paula Jones matter, is now Enron's lead Washington lawyer. 
Mr. Bennett said today that he welcomed the criminal inquiry because it would ''bring light to the facts.'' But he also warned that the Congressional inquiries could easily degenerate into a ''circus atmosphere.''

Photos: Among the lawyers hired: Robert S. Bennett, left, who has represented President Bill Clinton; W. Neil Eggleston, lawyer for former Labor Secretary Alexis M. Herman, and David Boies, who represented Al Gore. (Associated Press); (Paul Hosefros/The New York Times); (Agence-France Presse); Representative Henry A. Waxman, left, and Senator Joseph I. Lieberman, both Democrats, are on committees investigating Enron. (Susana Raab); (Associated Press)(pg. C5) 
..................................................................................................................................... 

National Desk; Section A
ENRON'S COLLAPSE: THE OVERVIEW
ENRON CONTACTED 2 CABINET OFFICERS BEFORE COLLAPSING
By ELISABETH BUMILLER

01/11/2002
The New York Times 
Page 1, Column 6
c. 2002 New York Times Company 

WASHINGTON, Jan. 10 -- The White House disclosed today that Kenneth L. Lay, the chairman of the Enron Corporation and one of President Bush's biggest political contributors, telephoned two cabinet officers last fall, and one of them said Mr. Lay had sought government help with its dire financial condition. 
Both said they declined to offer government aid.
In a day of rapid-fire developments, Attorney General John Ashcroft excused himself from all matters involving Enron because of campaign contributions he received from it. 
In addition, Enron's auditors said they had destroyed numerous company documents and electronic communications. [Page C1.] 
The Justice Department said on Wednesday that it had created a nationwide task force to conduct a criminal investigation into the collapse of Enron, an energy trading company with close ties to Mr. Bush and many top administration officials. 
Today, the entire United States Attorney's office in Houston recused itself from the investigation, saying many of its approximately 100 lawyers, including the chief prosecutor, Michael T. Shelby, had family or other relationships with people affected by Enron's filing on Dec. 2 for reorganization under Chapter 11 of the bankruptcy law. 
The White House moved quickly to contain the damage. The White House spokesman said Mr. Bush was made aware of the phone calls to the cabinet members only this morning during an Oval Office meeting. 
''What you have here is a case where a contributor called up and asked for something but did not get it,'' said Ari Fleischer, the White House press secretary. 
Yet the two cabinet secretaries who received calls from Mr. Lay described somewhat different conversations. Commerce Secretary Donald L. Evans said that Mr. Lay had indicated he would welcome any government help with its bond ratings, while Treasury Secretary Paul H. O'Neill said the Enron chairman requested no assistance at all. 
Enron officials disputed the White House version of events this evening and said Mr. Lay was not asking for assistance from the Bush administration in calling Mr. O'Neill and Mr. Evans, Mr. Bush's presidential campaign chairman and chief fund-raiser. Enron officials also said Mr. Lay had called Alan Greenspan, the chairman of the Federal Reserve, to alert him to the company's problems. 
Mr. Lay was simply informing the government about the possible bankruptcy filing of the nation's seventh largest company, Enron officials said, as has been the practice of executives of other large companies whose collapse could affect worldwide financial markets. 
''He did not ask for anything,'' said Mark Palmer, an Enron spokesman. 
Enron's troubles and its numerous links to the Bush administration threatened to consume the president's time and attention even as he enjoys high approval ratings for his conduct of the war on terrorism. 
As morning newspapers announced the expanding Justice Department investigation today, Mr. Bush summoned reporters to the Oval Office to declare that he had instructed his economic advisers to develop a plan to protect workers' pensions from similar corporate failures. Thousands of Enron employees lost their life savings and much of their retirement accounts when the company's stock became virtually worthless last November. 
Enron's auditor, the giant accounting firm Arthur Andersen, then said that it had destroyed a ''significant'' volume of documents related to Enron. The firm said it was still gathering information about the episode before deciding if it would discipline the employees involved. 
The Securities and Exchange Commission, which is investigating both Enron's collapse and Andersen's conduct, said its inquiry would be expanded to include the destruction of documents, in addition to looking into whether it had created off-the-books private partnerships that disguised the true financial condition of the company. 
Almost simultaneously, Attorney General Ashcroft said he was recusing himself from oversight of the criminal investigation of the company's collapse because of his relationship with Enron. Common Cause reported today that a canvass of federal election records showed that Mr. Ashcroft had received a total of $54,499 from the company and Mr. Lay for his 2000 Senate campaign. 
Enron, which pioneered deregulation of the nation's power business and grew to be one of the world's largest energy companies before its sudden fall, has long nurtured close ties to Mr. Bush. But in the Oval Office today, the president went to some length to distance himself from Mr. Lay, who he said had been a supporter of Governor Ann Richards of Texas when Mr. Bush defeated her in 1994. 
''And she named him the head of the Governor's Business Council,'' Mr. Bush said. ''And I decided to leave him in place, just for the sake of continuity. And that's when I first got to know Ken and worked with Ken.'' 
Mr. Bush said that he had never discussed the financial problems of Enron with Mr. Lay and that he had last seen him in the spring, at a fund-raising event in Houston. Mr. Fleischer said Mr. Bush had not talked to Mr. Lay since the spring. 
It was Mr. Fleischer who first told reporters this morning, almost as an afterthought at a sparsely attended early news briefing, that Mr. Lay had called both Mr. O'Neill and Mr. Evans last fall to alert them about the company's financial straits. 
Officials at the Treasury and Commerce Departments said Mr. Lay had spoken to Mr. O'Neill about Enron's condition on Oct. 28 and Nov. 8 and had spoken to Mr. Evans on Oct. 29. Although Mr. Lay had maintained until late October an optimistic public face about Enron's future, on Oct. 16 the company reported a third-quarter net loss of $618 million. On the same day, Moody's Investors Service announced that Enron's long-term debt obligations were on review. 
The dates of the calls and the announcements of the bad financial news about the company are significant. If Mr. Lay had made the calls earlier in October, before the state of the company was widely known, the Bush administration would have been aware of the true condition of Enron while Mr. Lay was promoting a different story on Wall Street. 
In an interview on CNBC tonight, Mr. O'Neill said Mr. Lay had not asked for a government bailout or other intervention to save the company. 
''He called me to advise me that Enron's problems were mounting and to offer access for our technical people to talk with his technical people about the contracts that they had that were causing them problems,'' Mr. O'Neill said. ''I subsequently asked the undersecretary of the Treasury to speak with the Enron people, which he did, so that we could satisfy ourselves that the Enron affairs were not going to have a negative impact on U.S. capital markets.'' 
Asked whether Mr. Lay asked for government assistance, Mr. O'Neill said ''Absolutely not.'' 
On the same CNBC program, Mr. Evans said Mr. Lay had told him that Moody's Investors Service was likely downgrade its rating of the company's debt. 
Mr. Lay then said that if there was anything Mr. Evans could do to help the company deal with Moody's ''we would welcome that.'' But, Mr. Evans added, Mr. Lay did not ask him specifically to intervene with Moody's. 
''I listened to him and listened to their condition and listened to the issues he wanted to raise,'' Mr. Evans said. ''Subsequent to that I talked to Secretary O'Neill and told him I had the call. It was a pretty easy decision to make. I don't think there was anything for us to do. Secretary O'Neill agreed with me there was not so we didn't do anything.'' 
A Commerce Department official said today that in Mr. Lay's call with Mr. Evans, ''there was no information discussed that wasn't already in the public domain.'' 
Mr. Fleischer said that Mr. Bush was first told this morning in the Oval Office by Mr. O'Neill and Mr. Evans that Mr. Lay had made the calls to them and that they had not been willing to intervene to help. The president then told Mr. O'Neill and Mr. Evans, according to Mr. Fleischer's account, ''You did the right thing.'' 
Mr. Fleischer said the president expressed no surprise, regret or annoyance that he had not been informed of the calls from Mr. Lay until more than two months after they occurred. 
''Bankruptcies happen in our economy,'' Mr. Fleischer said. ''And it's not uncommon for people who are in the community, business community or in the labor community, to talk to a cabinet secretary to tell them about the financial status of their business and it ends there.'' 
Democrats on Capitol Hill moved immediately to question the White House statements. ''It is now clear the White House had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings,'' said Representative Henry A. Waxman, the California Democrat who is his party's senior member on the House Government Reform Committee. 
Mr. Fleischer said that he hoped that any Congressional inquiry would be even-handed and that if it became ''a one-party witch hunt, I think the Congress is going again to remind the country on why people soured and tired of those types of partisan investigations.'' 
Mr. Lay and Enron executives have given more than $550,000 to Mr. Bush's various campaigns, and Mr. Lay also gave $100,000 to Mr. Bush's inaugural committee. 
But Mr. Lay does not appear to have been a frequent recent visitor to the White House, based on publicly available records. He visited the White House only twice during the first five months of Mr. Bush's presidency, according to Secret Service access control records obtained by The New York Times under the Freedom of Information Act. The first visit occurred on Feb. 22, 2001, the day Enron officials met with the staff of Vice President Dick Cheney's energy task force. 
The second visit, the records show, was on April 17, the day Mr. Lay and other Enron officials met with Mr. Cheney for about a half-hour. Enron officials freely discussed the meeting last year with reporters, providing a copy of the memorandum on electricity issues the company presented to Mr. Cheney. 
One month later, Mr. Cheney's energy policy task force issued its final report. In the section on deregulation of the electricity markets, the report's recommendations resembled much of what Enron had advocated. They also tracked with policies advocated by Mr. Bush during the 2000 presidential campaign. 
Mr. Cheney, in an interview last year, denied that Enron had improperly influenced the task force's deliberations, saying the task force would ''make decisions based on what we think makes sound public policy,'' not what ''Enron thinks.''

Photos: Treasury Secretary Paul H. O'Neill and President Bush in the Oval Office yesterday. The White House said Mr. O'Neill told Mr. Bush that Kenneth L. Lay, Enron's chairman, had called him last fall. (Associated Press); Kenneth L. Lay, Enron's chairman and one of President Bush's biggest campaign contributors, called two cabinet secretaries last fall in what one secretary said was a bid to secure government help. (Paul Howell/The Dallas Morning News)(pg. C4) Chart: ''Contacts With Washington'' Before the Enron Corporation collapsed late last year, the company and its chief executive, Kenneth L. Lay, were very influential in Washington. Last fall, as the company faltered, its contacts with Washington became more frequent. FEB. 22 Mr. Lay and other Enron officials met with Vice President Dick Cheney's energy task force at the White House. MARCH 7 Mr. Lay and other Enron officials met the energy task force staff. APRIL 17 Mr. Lay and other Enron officials met with Mr. Cheney. MAY 17 The energy task force issued its report, which endorsed many but not all proposals favored by Enron. AUG. 7 Officials from a German subsidiary of Enron met with the energy task force staff. OCTOBER: STOCK PRICE FREE FALL OCT. 10 Enron officials met with members of Mr. Cheney's staff to discuss energy. OCT. 16 Enron reported a third-quarter loss of $618 million. OCT. 22 Enron disclosed that the S.E.C. opened an inquiry about the company. OCT. 23 Mr. Lay reassured investors in a conference call. OCT. 28 Mr. Lay talked to Paul H. O'Neill, the Treasury secretary. OCT 29 Mr. Lay talked to Donald L. Evans, the commerce secretary. OCT. 31 Enron announced that the S.E.C. upgraded its inquiry to a formal investigation. NOVEMBER: A CONTINUED INVESTIGATION NOV. 8 Mr. Lay talked to Mr. O'Neill. Enron admitted that it had overstated profits for the previous five years by $586 million. NOV. 29 The investigation expanded to include Arthur Andersen, Enron's auditing firm. DECEMBER: FILING FOR CHAPTER 11 DEC. 2 Enron declared bankruptcy, but its stock continues to be traded. DEC. 12 Joseph F. Berardino, chief executive of Arthur Andersen, testified before Congress, saying Enron might have violated securities laws. YESTERDAY Arthur Andersen disclosed that it destroyed Enron documents in September, October and November. (Source: Bloomberg Financial Markets The New York Times) (pg. C4) 
..................................................................................................................................... 

Audit Nightmare: Arthur Andersen Says It Disposed of Documents That Related to Enron --- `When' Is a Key Question For Accountants in Wake Of the Client's Collapse --- Ex-Senator Hired for Review
By Wall Street Journal staff reporters Jonathan Weil, John Emshwiller and Scot J. Paltrow

01/11/2002
The Wall Street Journal 
A1
(Copyright (c) 2002, Dow Jones & Company, Inc.) 

The storm cloud hanging over Enron Corp. and its longtime outside auditor, Arthur Andersen LLP, just got darker. 
In the latest revelation in the collapse of Enron, Arthur Andersen disclosed to federal agencies investigating the energy trading firm that individuals at the accounting firm in recent months disposed of "a significant but undetermined number" of documents related to its work for Enron.
The terse announcement left many questions unanswered. Who disposed of the documents and how? Why? Did it happen after investigations began? 
In any event, the disclosure appeared likely to further damage the already-tarnished reputation of the nation's fifth-largest accounting firm. The Securities and Exchange Commission, which is investigating Enron, said destruction of documents is "an extremely serious matter." 
Andersen officials were called late last year to testify to a congressional committee about why the firm failed to detect the financial woes that contributed to Enron's downfall. The Justice Department said this week that it had formed a task force to pursue a criminal investigation of Enron. A department spokesman wouldn't say whether the agency knew of document destruction or whether Andersen was a target of criminal investigation. 
Andersen's disclosure will increase pressure on the firm to fully disclose its handling of the Enron account. Dec. 12 congressional testimony by Joseph F. Berardino, Andersen's managing partner and chief executive officer, may have mischaracterized part of one Enron deal and understated Andersen's knowledge about it, people familiar with the matter say. Andersen says the testimony was truthful but based on incomplete information. 
White House spokesman Ari Fleischer said yesterday he had no knowledge that the Bush administration got advance word from Andersen of the document destruction. But President Bush called for a government review of the Enron case, amid disclosure that Enron chief Kenneth Lay lobbied two cabinet secretaries for help as the company was nearing bankruptcy court. Mr. Lay also contacted Federal Reserve Chairman Alan Greenspan around the same time, a Fed spokesman confirmed. 
Yesterday, Attorney General John Ashcroft said he had recused himself from the Justice Department's investigation of Enron, citing a conflict of interest. In addition, the Justice Department said much of the U.S. attorney's office in Houston would be recused because of family ties. 
In Houston, an Enron spokeswoman declined to comment on Andersen's document disposal, other than to say that the accounting firm's announcement was the first Enron had heard about it. The spokeswoman added, "We are not aware of the shredding of any documents that are part of any inquiry, investigation or litigation matter." 
For Andersen, the Enron mess could hardly come at a worse time. In recent years, the firm has approved the financial statements of a series of its high-profile corporate clients, including Sunbeam Corp. and Waste Management Inc., that later proved to be false. Andersen paid tens of millions of dollars in damages to each company's shareholders, without admitting wrongdoing in either case. The deepening investigation into Enron could make it harder for Andersen to attract new clients and seems sure to distract top executives for a time. 
Andersen said it asked former Sen. John Danforth, a Missouri Republican, "to conduct an immediate and comprehensive review of Andersen's records management policy" and to "advise the firm to ensure that all appropriate remedial and disciplinary actions have been taken." 
While Andersen has defended its audits of Enron, critics say the firm failed to identify a number of questionable accounting practices by Enron that contributed to its abrupt downfall. Once the dominant player in energy trading, the Houston company had to file for bankruptcy-court protection after a series of disclosures. 
Enron had transactions with certain partnerships that were run by its own officers -- including its chief financial officer at the time, Andrew Fastow -- but that were treated by Enron as separate. It offered only murky and fragmented information about the partnerships. One of them, whose existence Enron didn't disclose for four years, was part of an arrangement that inflated earnings by several hundred million dollars. 
And Enron's debt level was much higher than it revealed, thanks to the partnerships, which allowed Enron to keep some debt off its books. In November, a restatement by Enron of its financial results -- which Andersen had approved as accurate -- resulted in lowering Enron's reported earnings for the prior four years by $586 million, or 20%. Enron said its previous financial statements for those years could no longer be relied upon. 
Among issues investigators now will doubtless probe is how many and which Enron-related documents were destroyed, and who destroyed them. Andersen said "individuals" had disposed of "a significant but undetermined number of electronic and paper documents and correspondence." It added, "Millions of documents related to Enron still exist, and the firm has successfully retrieved some of the deleted electronic files. The firm is continuing retrieval efforts through electronic backup files, and is continuing in its efforts to fully learn and understand all the facts related to this issue." 
Another issue will be when the documents were destroyed. The firm said it had a policy -- now suspended -- that "required in certain circumstances the destruction of certain types of documents." Many big corporations have similar policies specifying how long employees must retain certain categories of records. 
Under prevailing regulations, auditors are required to "adopt reasonable procedures for safe custody" of their working papers and should keep them for long enough "to satisfy any pertinent legal requirements of records retention." People with knowledge of the Justice Department's Enron probe said Andersen didn't destroy any audit working papers. 
The destruction of documents would be especially troubling to investigators and regulators if some of it occurred after they had begun their inquiries into Enron's downfall. That would raise the question of whether the action was designed to thwart investigators. Andersen said it had confirmed that certain Enron-related documents were destroyed "during the months before" the SEC issued a subpoena to Andersen. It said it hadn't determined whether any were destroyed after the subpoena, but said it had told personnel after the subpoena arrived to preserve Enron-related documents. 
Andersen's revelation about document disposal could raise embarrassing questions for Deloitte & Touche LLP, which this month released results of a "peer review" of Andersen's system of accounting and auditing quality. The review -- which focused on the firm's practices generally and not on its handling of Enron -- concluded that Andersen's system of accounting and auditing quality provided "reasonable assurance of compliance with professional standards." 
A Deloitte official said that the firm's peer review of Andersen included an evaluation of the firm's Houston office, which handled Enron's audits, but that Deloitte wasn't permitted to include Andersen's audit work for Enron because of pending litigation. Neither Deloitte nor Andersen would comment on whether the review would be reopened. 
The unfolding Enron saga could have a detrimental effect overall on Andersen, which employs 85,000 people in 84 countries and last year had U.S. revenue of $9.3 billion. As with all accounting firms, Andersen's ability to attract and retain audit clients depends on having a sterling reputation. The more its reputation comes into question, the more likely it becomes that investors will view an audit opinion by Andersen with skepticism, prompting some clients to switch to other auditors. 
There is no evidence that has happened so far. Asked whether Andersen has been told by any clients that they are switching to other auditors, spokesman David Tabolt said, "Some have been concerned. Some have been supportive. I just don't think that we know yet how people are going to react, but we certainly hope that people will be understanding." More than a dozen companies that use Andersen as their auditor declined to comment on whether they might review their relationship. 
Andersen also has taken heat over its audit of the Baptist Foundation of Arizona. Arizona state authorities are seeking as much as $600 million in restitution from the firm. They are also seeking to place Andersen on probation in the state, which could include restrictions and heightened monitoring. 
Two of the Andersen auditors involved have invoked their Fifth Amendment protections against self-incrimination in civil suits brought in that case. They include one who also was Andersen's lead engagement partner for Lincoln Savings & Loan, the failed thrift once headed by Charles Keating. 
Andersen has said it is cooperating with Arizona officials investigating its audits for the foundation, which filed for bankruptcy protection two years ago, shortly after Andersen left the account in mid-1999. 
--- 
Michael Schroeder and Rebecca Smith contributed to this article.

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Title Page
Enron accountants `destroyed papers'
Rupert Cornwell in Washington

01/11/2002
The Independent - London 
FINAL
1
(Copyright 2002 Independent Newspapers (UK) Limited) 

THE ACCOUNTING firm Andersen last night admitted destroying audit documents relating to the collapse of the American energy giant Enron. 
Less than a day after the Justice Department announced a criminal probe into America's biggest ever corporate failure, Andersen stunned the US political and financial community by saying that its employees had "disposed of or deleted" several documents relating to its audit work.
The documents are said to have been destroyed over the summer and autumn, before Enron's swift slide into bankruptcy in December. 
Enron was a major longtime backer of President George Bush and the Republican Party, and its failure is shaping up as the biggest potential scandal yet to threaten the Bush administration. 
The Securities and Exchange Commission, the Wall Street watchdog, said the disappearance of the documents was an "extremely serious matter".

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White House Reveals Enron Contacts
By RON FOURNIER
AP White House Correspondent

01/11/2002
AP Online 
Copyright 2002 The Associated Press. All Rights Reserved. 

WASHINGTON (AP) - The White House revealed on Thursday that Enron Corp., an energy firm closely tied to President Bush, sought the administration's help shortly before collapsing with the life savings of many workers. In a separate disclosure, the company's auditors said they had destroyed many Enron documents. 
In the rapid swirl of events, each one raising questions about potential conflicts of interest, Attorney General John Ashcroft disqualified himself from the criminal inquiry into Enron's conduct. The company donated thousands of dollars to Ashcroft's Senate campaign in 2000.
Bush, whose own political career has benefited from Enron contributions, pledged to aggressively pursue the investigation into whether the Texas-based firm defrauded investors, including 401(k) plan investors, by concealing vital information about its finances. 
"Ken Lay is a supporter," the president said of Enron chairman Kenneth L. Lay. "But what anybody's going to find is that this administration will fully investigate issues, such as the Enron bankruptcy, to make sure we can learn from the past and make sure that workers are protected." 
Enron's bankruptcy, already the subject of criminal, civil and congressional investigations, threatens to pull the White House into a political quagmire even as Bush's approval ratings reach near-record levels because of the war against terrorism. 
"It is now clear the White House had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings," said Rep. Henry Waxman, D-Calif. 
Firing back, Bush spokesman Ari Fleischer urged Democrats to avoid "partisan witch hunts, endless investigations or fishing expeditions." Democrats hope to make a political issue out of the administration's many ties to Enron. 
The bankruptcy has forced White House officials to face questions once posed to the scandal-tainted Clinton White House. 
Would Bush support naming a special prosecutor to investigate? Fleischer said no. He also said he did not know any White House aides who had hired lawyers. 
And there was a development reminiscent of Clinton's Whitewater: missing documents. 
The firm that audited Enron's books, Arthur Andersen LLP, notified investigators that it had destroyed a "significant but undetermined" number of documents related to the company. 
As for the company's contacts last fall, administration officials said Commerce Secretary Donald Evans and Treasury Secretary Paul O'Neill received calls from Lay seeking help for his company. Lay told Evans he would welcome any support in helping the company deal with a bond-rating firm that was considering downgrading Enron, administration officials said. 
In the conversation with O'Neill, Lay discussed a past example in which the Federal Reserve pressured several large financial institutions to bail out a Connecticut hedge fund. 
Administration officials said O'Neill and Evans took no action to help Enron. 
On two other occasions, Lay called to discuss an Enron energy project in India and did not mention Enron's financial troubles, officials said. 
The calls came after investors and the general public learned of the extent of Enron's problems, when the company posted major losses Oct. 16. 
Enron filed for bankruptcy Dec. 2, after months of speculation about its finances. 
Administration officials dismissed suggestions that Evans or O'Neill should have disclosed Enron's troubles as soon as they were brought to their attention last fall. That might have given more notice to investors about to lose their savings. 
"This is not the first bankruptcy and will not be the last bankruptcy" in America, Fleischer said. 
Other aides said Enron's problems were well known at the time of the telephone calls, and the administration's duty was to make sure troubles at Enron didn't have a broader economic impact. 
Bush raised nearly $114,000 in political action committee money and individual donations from Enron during the presidential campaign, making the company one of his biggest financial supporters. In addition, Enron gave tens of thousands of dollars to Bush's two gubernatorial campaigns in Texas. 
Independent analysts show that Enron employee donated nearly $800,000 from 1999 to 2001 to Bush, members of Congress and both parties. The bulk went to GOP causes. 
With criticism mounting, Bush summoned economic advisers to the Oval Office and announced a review of federal rules on pension security and financial disclosure by companies. 
"There have been a wave of bankruptcies that have caused many workers to lose their pensions and that's deeply troubling to me," Bush said. 
Bush offered the broad outlines of his six-year relationship with Lay, saying he had seen the businessman twice this year. 
"I have never discussed with Mr. Lay the financial problems of the company," Bush said. Fleischer said he knew of no White House aides who had. 
Lay met with Vice President Dick Cheney or his aides six times last year before the release of the administration's energy plan. 
Senior adviser Karl Rove, owned Enron stock at the beginning of Bush's term but sold it under federal ethics rules. Lindsey earned $50,000 from Enron for serving on a company board last year. 
Four congressional committees are investigating Enron matters. In one inquiry, Senate investigators are issuing 51 subpoenas for documents from Enron's current and former directors and senior managers and from its auditing firm.

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Editorial Desk; Section A
The Enron Investigations

01/11/2002
The New York Times 
Page 20, Column 1
c. 2002 New York Times Company 

Washington is suddenly awash with investigations into the demise of Enron, as well it should be. The failure of the politically powerful energy trading company is the biggest corporate bankruptcy in the nation's history. Given the company's close ties to the Bush administration, and its generous campaign contributions to members of Congress, only an exacting and unflinching set of investigations can assure the country that Enron executives are not receiving special treatment from the government. So far, the White House is taking the right steps. We trust its determination will not flag in the months ahead, even if embarrassing questions come up about Enron's ties to the administration. 
The Justice Department decision to create a special task force to determine whether to bring criminal charges against Enron or its officers appears to be a recognition of both the complexity and the importance of this case. Such task forces, based in Washington but involving prosecutors around the country, are usually reserved for potential crimes of national import, and this is certainly that. Thousands of unsuspecting Enron employees lost much of their retirement savings while company officials enriched themselves by dumping their stock before the plight of the company became known.
Placing the investigation directly under the control of the Justice Department's criminal division, however, can invite political interference by top administration officials. President Bush must ensure that that does not happen. Attorney General John Ashcroft and his chief of staff properly recused themselves from Enron-related matters yesterday because Mr. Ashcroft received large contributions from the company while he was in the Senate. The company, long a prophet of deregulating energy markets, and its employees contributed about $800,000 to political candidates in the last two years. 
Enron, based in Houston, has been the most generous corporate benefactor of George W. Bush throughout his political career. The president is now understandably eager to distance himself from the company, its scandal and its chairman, Kenneth Lay. The White House announced yesterday that Mr. Lay had telephoned Treasury Secretary Paul O'Neill and Commerce Secretary Donald Evans last fall to inform them of his company's difficulties. Mr. Lay seemed to hint in these conversations at the possibility of government relief. The two cabinet members say they offered no assistance, but the planned Congressional hearings into the Enron scandal should explore the timing and content of these and all other contacts between the administration and Enron. 
President Bush has directed Mr. O'Neill and others to review regulations affecting company pension plans and financial disclosures with an eye toward averting any future Enron-like debacles. Mr. Bush, however, must do more to show that he understands the full import of the Enron collapse. He should order Vice President Dick Cheney to be forthcoming with the details of the dealings Mr. Cheney's energy task force had with Enron executives last year. The White House disclosed earlier this week that Mr. Cheney or members of his task force had met with Enron officials six times. But so far, Mr. Cheney has not offered detailed information about the agenda of each meeting. He must now do so, in recognition that this is no longer about whether to succumb to the pestering of partisan Democrats on Capitol Hill. It is about reassuring millions of American investors whose confidence in the integrity of financial markets has been shaken. 
Enron is the latest and most spectacular case of a financial implosion that involved accounting irregularities. Many other seeming high fliers eager to impress Wall Street and prop up their stock prices have had to restate erroneous earnings statements, raising questions about the oversight of the accounting profession. Arthur Andersen, Enron's supposedly independent auditor, announced yesterday that a significant number of its Enron-related documents had been destroyed. Andersen's failure to question the appropriateness of Enron's dealings with off-the-books partnerships run by its own officers should figure prominently in the Justice Department's and Securities and Exchange Commission's investigations.

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Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE PENSIONS
Bush Promises a Look at Employee Risks, but Experts Say Solutions Won't Be Easy
By DANIEL ALTMAN

01/11/2002
The New York Times 
Page 4, Column 1
c. 2002 New York Times Company 

Reacting to the destruction of the retirement savings of thousands of employees of the Enron Corporation, President Bush said yesterday that the administration would start looking at ways ''to make sure that people are not exposed to losing their life savings as a result of a bankruptcy.'' 
But without changes in law and corporate behavior, the White House may have a hard time reaching that goal.
Many Enron employees lost their retirement savings because the savings were tied up almost exclusively in company securities. Over half the funds in Enron's 401(k) plans for employees were invested in Enron's own shares. 
That situation is by no means unique, said J. Mark Iwry, a former benefits tax counsel at the Treasury Department. Survey data suggest that more than 30 percent of assets are invested in company stock at those companies that allow their stock to be included in their 401(k) plans. And in companies like Enron, where management has some influence over how employee savings are invested, slightly over half the assets on average are in company stock. 
Why, given the seemingly obvious benefits of diversification, would workers still end up putting so many nest eggs in the same basket? 
By law, companies must offer several options for 401(k) plans. But unlike traditional pension plans, which cannot put more than 10 percent of their assets in any one company, the rules governing 401(k) plans do not set limits. And many companies give their employees big incentives to buy shares with their 401(k) contributions. Companies often match employee contributions only with stock and impose limits on how soon the shares can be sold. 
Secretary of the Treasury Paul H. O'Neill said yesterday that he would consider ways to give American workers, more than 40 million of whom have money in 401(k) plans, more freedom to make investment decisions. 
But Brigitte Madrian, a professor of economics at the University of Chicago, said holders of 401(k) plans generally show little initiative. Most people stick with the default 401(k) plan set up by their company, even if that plan invests solely in the company's shares. And employees are unlikely to keep close tabs on their retirement savings, despite the possibility of a sudden collapse like Enron's. ''Most people aren't in the habit of tracking their 401(k) investments on a daily basis,'' she said. 
The reasons employees buy their own companies' shares may go beyond company rules. People may simply be more confident in their employers than in the rest of the market. James Delaplane, vice president for retirement policy at the American Benefits Council, said that even though Enron employees had opportunities at certain times to diversify their savings, many still chose to invest heavily in the company's stock because of their loyalty to Enron and its past success. 
Sometimes, colleagues' confidence is enough. ''Some employees felt social pressures to put even their own money into company stock,'' Ms. Madrian said. Those workers, she said, suffered the most when Enron's value crumbled. 
Legislation has intensified such trends, according to Mr. Iwry. He cited tax deductions on dividend payments for shares bought through employee stock ownership plans. Such plans can also offer shares at a discount. 
Mr. Iwry warned that measures taken to encourage diversification by employees might discourage companies from making matching contributions. A bill has already been introduced in the House that would limit the portion of a 401(k) plan that may be held in a company's own shares to 10 percent. 
''Legislative changes and regulatory changes can improve things,'' said Eric Lofgren, director of the benefits group at Watson Wyatt, a consulting firm, ''but they have to be really careful. It is possible for them to do more harm than good.'' 
Mr. Lofgren said education could encourage diversification. ''The risk of lack of diversification,'' he said, ''is certainly something you want to communicate to anyone who has the option of going into one stock.'' 
Mr. Delaplane said he also preferred educational steps by companies over legislation. He said some of the damage from Enron's collapse might have been avoided if its employees had received personal financial advice from independent consultants. 
But such advice might not have taken account of the fact that Enron, for what it says were administrative reasons, did not allow employees to sell their stock in the 401(k) plan for a critical period when the stock price was falling. Top executives, by contrast, did not face the same restrictions on the shares they owned outside the 401(k) plan and those they had acquired through stock options. 
Though 401(k) plans may receive the bulk of the attention in the Enron case, at least one authority on retirement saving hopes that Mr. Bush will consider the issue more broadly. ''The biggest need is to try to expand the coverage of the pension system,'' said James Poterba, an M.I.T. economics professor. ''That typically means trying to find ways to get smaller firms and lower-wage firms to adopt more systematic retirement arrangements.'' 
Mr. Bush also promised to focus attention more broadly on disclosure of financial information. 
And Edmund L. Jenkins, chairman of the Financial Accounting Standards Board, said: ''It is important that we have transparency of information for investors. It's a natural reaction to a situation such as Enron's for questions to be asked in this area.'' 
But ''until we know what happened,'' Mr. Jenkins added, ''it's hard to know what to address.''

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Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE AUCTION
Enron's Energy Trading Business Draws Several Potential Buyers
By JONATHAN D. GLATER and ANDREW ROSS SORKIN

01/11/2002
The New York Times 
Page 5, Column 1
c. 2002 New York Times Company 

Lawyers for the Enron Corporation negotiated late into the night yesterday as they tried to extract the best deal from companies interested in buying its once-mighty energy trading business. 
Several lawyers for companies monitoring the auction held, as part of Enron's bankruptcy proceedings, at the Midtown Manhattan offices of the law firm of Weil, Gotshal & Manges said that at various points in the evening, different bidders seemed to be ahead, but that the negotiations were too close to call.
Citibank and UBS both submitted bids this week, BP was bidding for some portions of the business, and lawyers for Enron said that other companies had submitted informal bids this week. 
''The auction is continuing and is expected to go on possibly all night,'' Jeffrey McMahon, Enron's chief financial officer, said in a statement released late last night to placate reporters. ''We hope to have a conclusion and announcement Friday morning.'' 
Enron's flagship energy trading business bought and sold energy-related commodities like gas and electricity as well as more complex financial products to hedge against energy market risk. Included in the businesses for sale was its Internet trading operation, EnronOnline. Since Enron filed for bankruptcy on Dec. 2, the trading business has honored outstanding contracts but has not originated new transactions, according to its lawyers. 
Any deal for the trading operations would not be final. Today, a federal bankruptcy judge is scheduled to approve the transaction, but several creditors have objected to different aspects of the sale in recent weeks. Lawyers for Enron said that if the hearing needs to be postponed, it will be. 
It is unclear how much of a competitor the new trading business will be. For one thing, analysts and industry experts said that the trading business, to be operated by a joint venture with a new investor, would probably be more cautious than Enron was. 
''Enron's operations will probably be more conservatively run within the new structure, with another major investor being a major shareholder,'' said Gordon A. Howald, an energy analyst at Credit Lyonnais. The culture at a financial institution like Citibank or UBS is different from that at Enron, which at its heyday had a reputation for tolerating very high levels of risk, he said. 
''Enron, for example, was involved in a significant number of commodities that were not necessarily very liquid -- coal, metals,'' he said. By serving as a market-maker, Enron risked having to make good on a deal that another company failed to complete, at great potential cost. 
Any buyers, Mr. Howald said, ''would have to seriously consider whether they would want to take on that added risk.'' 
Bidders have not necessarily proposed paying cash for Enron's trading operation, said Martin J. Bienenstock, a lawyer at Weil Gotshal, which represents Enron in its bankruptcy proceedings. Rather, the buyer would provide necessary financial backing and take an ownership stake in a joint venture that would own the trading business, which includes more than 500 employees and the software, computers and necessary facilities. 
Over all, energy trading appears to have become more conservative since Enron's collapse. Traders are scrutinizing the financial health of their trading partners much more closely, said one executive involved in risk management at a major energy company that operates its own trading business. 
The executive, who insisted that his name not be used in an article discussing Enron, said that some traders now require more collateral or have ''triggers'' in contracts, requiring other parties to provide more collateral under certain circumstances. 
''The whole industry is running itself differently,'' said Paul Patterson, an analyst who covers the energy industry for ABN Amro in New York. But the changes in trading practices did not cause Enron's demise, he added. ''What you really had was a run on the bank,'' he said. 
The new trading business, for now known only by its acronym Netco, for New Energy Trading Company, will therefore not instantly become an energy trading powerhouse. It will have to regain the confidence of other energy traders. 
Mr. Howald, the analyst, said that recovery would not come quickly. ''It's going to take a long time to get anywhere close to the volume they traded in the past,'' he said.

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Newscast: Latest developments in the Enron collapse just seem to be getting curiouser and curiouser

01/11/2002
Minnesota Public Radio: Marketplace Morning Report 
(c) Copyright 2002, Minnesota Public Radio. All Rights Reserved. 

KAI RYSSDAL, anchor: Good morning. I'm Kai Ryssdal in Los Angeles. 
There's a line from "Alice in Wonderland" that, for my money, perfectly sums up the way things have been going in the Enron collapse. MARKETPLACE's John Dimsdale has the latest developments in a case that just seems to be getting curiouser and curiouser.
JOHN DIMSDALE reporting: 
With regulators, lawmakers and law enforcement investigators trying to find out how a multibillion-dollar energy company crumbled like a house of cards, the firm that audited Enron's books says the financial history may never be complete. Arthur Andersen revealed that in recent months an undetermined number of Enron's documents and electronic files were destroyed or deleted. Andersen's role in Enron's collapse is already the subject of a Securities and Exchange Commission investigation. The Bush administration's close ties to the Houston-based energy giant became clear yesterday when the White House revealed Enron's CEO discussed his company's financial problems with the Treasury and Commerce secretaries late last year. 
President Bush announced a Cabinet level review of pension laws that were either violated or need to be changed. And finally, Attorney General John Ashcroft recused himself from the Justice Department's criminal investigation following revelations that his Senate campaign received contributions from Enron. In Washington, I'm John Dimsdale for MARKETPLACE. 
RYSSDAL: As you might imagine with things being the way they are in Washington, the game of what did people know and when did they know it has already begun.

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News
Failing Enron sought help at White House
JENA HEATH
COX WASHINGTON BUREAU

01/11/2002
The Atlanta Journal-Constitution 
Home
A.1
(Copyright, The Atlanta Journal and Constitution - 2002) 

Washington --- Enron Corp. Chairman Kenneth Lay telephoned Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans last fall to warn them the nation's largest energy trader was headed for trouble and to seek their help, the White House disclosed Thursday. 
It was the first public indication that high-level Bush administration officials knew the seriousness of the Houston-based company's financial woes before Dec. 2, when it filed the largest bankruptcy in U.S. history, wiping out the retirement savings of many of its employees.
In another development, the accounting firm that audited Enron's books, Arthur Anderson LLP, said its employees had destroyed "a significant but undetermined" number of documents related to Enron. The accounting firm had already been criticized for failing to detect irregularities. 
Also Thursday, Attorney General John Ashcroft recused himself from a wide-ranging criminal investigation of Enron by the Justice Department, which he heads. Various news reports said Enron and Lay contributed thousands of dollars to Ashrcroft's unsuccessful Senate re-election campaign in 2000. 
Meanwhile, President Bush announced the creation of a group to reform disclosure rules regarding pensions. Many Enron employees saw their 401(k) retirement savings evaporate after company officials banned them for a period of time from selling their plunging company stock. 
"Ken Lay is a supporter," the president said of Enron's chairman and one of his 
biggest political backers. "But what anybody's going to find is that this administration will fully investigate issues, such as the Enron bankruptcy, to make sure we can learn from the past and make sure that workers are protected." 
Bush said he and Enron's chairman did not discuss the company's financial situation. 
"I have never discussed with Mr. Lay the financial problems of the company," Bush told reporters in the Oval Office. "The last time that I saw Mr. Lay was at my mother's fund-raising event for literacy in Houston, that would have been last spring. I do know that Mr. Lay came to the White House early in my administration along with . . . 20 other business leaders to discuss the state of the economy." 
Earlier in the day, White House Press Secretary Ari Fleischer said Lay called Treasury Secretary O'Neill in the fall expressing concern about Enron's financial health and fears that the company's problems could affect financial markets. 
Fleischer said Lay brought up Long-Term Capital Management, one of the largest hedge funds in history and whose 1998 collapse was softened when 14 banks agreed to a bailout at the behest of the Federal Reserve. Asked if Lay wanted a bailout, Fleischer said: "I don't characterize it one way or another." 
"What was told to me this morning was Secretary O'Neill said that he had been contacted by Mr. Lay in the fall of last year and Mr. Lay brought to the secretary's attention concerns about whether or not Enron would be able to meet its obligations, and he expressed his concern about the experience of Long-Term Capital," Fleischer said. 
O'Neill assigned a deputy to review the Long-Term Capital case and concluded that a comparison "was not apt," Fleischer said. 
Lay called O'Neill on Oct. 28 and Nov. 8 after Enron reported an eye-popping $618 million third quarter loss. 
"Lay mentioned to the secretary that this might impact credit markets," Treasury Department spokeswoman Michele Davis said. 
O'Neill, in an interview on CNN, said Treasury looked at the question of whether Enron's troubles posed a threat more broadly to U.S. credit markets and concluded it did not. 
He dismissed suggestions that Enron was seeking a federal bailout. 
"If he wanted a giveaway from the government, he surely wouldn't have called me," O'Neill said. "I don't know when we're inclined to make bailouts . . . for companies that have gotten themselves in trouble." 
Lay called Commerce Secretary Evans on Oct. 26, in the days before Moody's Investor's Services was deciding whether to downgrade the Enron's credit rating. Evans returned the call on Oct. 29, the day after Lay called O'Neill. 
Evans told CNN that Lay said, "If there's any kind of support you could give us we would welcome that." Evans said he and O'Neill conferred and determined that no federal government response was in order. 
Later, Evans told reporters at the White House that he did not discuss the decision with President Bush. 
"I didn't think he needed to know," said Evans. "It was a pretty easy decision." 
Enron's financial woes became public Oct. 16, when the company reported the $618 million loss. The next day, the Securities and Exchange Commission announced it was beginning an inquiry into transactions involving partnerships run by Enron's chief financial officer, Andrew Fastow, who was ousted later in October. 
In possibly the only positive development for Enron on Thursday, U.S. District Judge Lee Rosenthal refused to freeze more than $1 billion in Enron assets in response to a lawsuit filed against company executives by Amalgamated Bank and others. The lawsuit charges Enron executives profited illegally by selling millions of shares before the company collapsed. 
The Justice Department announced a wide-ranging criminal probe of Enron's financial transactions Wednesday --- one of several investigations under way. 
On Thursday, Ashcroft recused himself, citing "the totality of the circumstances of the relationship between Enron and the attorney general," according to a Justice Department statement. 
Ashcroft, a Missouri Republican, raised $57,499 for his failed 2000 Senate campaign from Enron; Lay gave $25,000 of the total. The Ashcroft Victory Committee raised another $25,000 in soft money directly from Enron, according to the nonpartisan Center for Responsive Politics. 
Four congressional committees are investigating Enron matters. 
Those probes likely will be hampered by Andersen's announcement that electronic files and other documents related to its audit of Enron had been destroyed. 
Andersen, in a statement, said its company policy "required in certain circumstances the destruction of certain types of documents." 
Millions of Enron documents still exist, the accounting firm said, and it has retrieved some of the deleted electronic files. 
Andersen said it has asked John Danforth, former Missouri attorney general and U.S. senator, to conduct a review of the company's records management policy. 
Rep. Billy Tauzin (R-La.), chairman of the House Energy and Commerce Committee, which is among those investigating Enron's actions, called the destruction of documents "a deeply troubling development." 
"Anyone who destroyed records simply out of stupidity should be fired," Tauzin said. "Anyone who destroyed records to try and subvert our investigation should be prosecuted." 
Enron has deep political ties to Bush and key members of his administration. 
The Bush presidential campaign received $74,200 in contributions from two dozen top current and former Enron executives and board members in the 2000 election cycle. 
Lay also personally contributed $122,500 to Bush's campaigns for governor of Texas, according to a study by the nonpartisan Center for Public Integrity. 
Lay and other Enron officials met six times with Vice President Dick Cheney or his aides last year, before and after the release of the administration's energy plan. 
--- Washington correspondent Bob Deans contributed to this article. 
For a Q&A on Enron issues, go to: ajc.com

Photo Attorney General John Ashcroft is delegating the Enron investigation on ethical grounds. Photo Enron's Kenneth Lay (left) got no bailout from Treasury chief Paul O'Neill. Photo Paul O'Neill 
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Business/Financial Desk; Section C
ENRON'S COLLAPSE: THE BANK
Ties to Enron Leave Banker in an Awkward Spot
By RIVA D. ATLAS

01/11/2002
The New York Times 
Page 1, Column 2
c. 2002 New York Times Company 

Enron's collapse leaves Marc Shapiro of J. P. Morgan Chase in a difficult position. 
As a vice chairman who oversees finance and risk management at the bank, Mr. Shapiro has had to repeatedly explain how the venerable New York institution came to have so much at stake. At last tally, the bank provided $2.6 billion to Enron, the giant energy trading company that fell into bankruptcy last month. The relationship went beyond traditional loans to a variety of complicated financings, including futures contracts involving offshore companies and debt backed by Enron's receivables.
Disclosures about the extent of that exposure have left J. P. Morgan's investors wondering if top management was fully aware of its Enron position before the company's demise. Even now, questions persist about whether there are more surprises to come for J. P. Morgan's investors. 
Not only does Mr. Shapiro have to answer for the financial decisions, but he has to navigate a web of ties to Enron. A native of Houston, Enron's hometown, and a former chief executive of Texas Commerce, Mr. Shapiro has long moved in circles with Kenneth L. Lay, Enron's chief executive. Mr. Lay was once a member of the board of Texas Commerce, a bank that was acquired by a predecessor of J. P. Morgan in 1987. 
Mr. Lay has had ''a long professional relationship with Marc Shapiro and considers him a very good friend,'' said Mark Palmer, an Enron spokesman. 
A relationship with Enron was, until recently, quite prized on Wall Street, Mr. Shapiro said in a conference call with analysts last month. ''It is difficult to remember that four to five months ago, Enron was a very solid investment-grade company with a very positive reputation,'' he said. ''We and lots of other people had that belief.'' 
Even though $2.6 billion would be a manageable loss for Morgan, Mr. Shapiro, 54, may have more at stake personally. He was in the running for the top job at Morgan, which went to William B. Harrison Jr., 58. The Enron debacle -- as political pressures mount and criminal inquiries commence -- could prove to be an embarrassing coda on a highly successful career. 
J. P. Morgan and the banks it acquired have led more than a third of Enron's bank financings since 1991, according to estimates by the Loan Pricing Corporation, a New York research firm. Citigroup led an estimated 45 percent of Enron's loans. The lending relationship probably helped J. P. Morgan gain other Enron business, including the role of merger adviser on the company's ill-fated plan to be acquired by Dynegy. 
Recent lawsuits disclose that the bank engaged in some complicated financings on Enron's behalf. 
On Dec. 11, J. P. Morgan filed a lawsuit demanding that Enron turn over $2.1 billion in assets tied to a financing that was backed by Enron receivables. J. P. Morgan has said that it is owed less than $100 million of this total, because it arranged the loan and then sold the rest to other investors. 
A week later, the bank surprised investors by disclosing that it was owed nearly $1 billion from a group of insurance companies that had backed commodity contracts between J. P. Morgan and Enron. The insurers have refused to pay. 
After it filed suit against the insurers in late December, J. P. Morgan said that its exposure to Enron totaled $2.6 billion. That was $1.7 billion greater than implied in a press release in November, as Enron's financial difficulties became apparent. 
For many analysts, it was not the size of the exposure, but the sharp revision that unnerved them. ''J. P. Morgan has lost some credibility in its risk-management warning systems,'' wrote David Hendler, an analyst with CreditSights, a research firm that tracks the debt markets. ''We are not confident that the latest disclosures will be the final ones.'' 
The Enron situation is a rare embarrassment for Mr. Shapiro, who is well regarded by competitors and investors for his facility with numbers as well as his frankness. At just 29, he became chief financial officer of Texas Commerce. 
Mr. Shapiro did not have direct responsibility for loans to Enron but appears to have taken an interest in the company's struggle for survival. On at least a couple of occasions last fall, he helped along rescue discussions, within the bank and with Dynegy executives, according to executives at J. P. Morgan and at Dynegy. 
According to a recent article in The New York Observer, Mr. Shapiro called a J. P. Morgan investment banker in November and asked him to help the company find a savior. But according to officials at J. P. Morgan, that request was made not at the urging of Mr. Lay but of a Morgan banker in Houston who worked directly with Enron and who knew Mr. Shapiro. 
Mr. Shapiro said such occasional involvement should not be surprising, or suspicious. ''As a leading financial institution, our executives have valuable relationships with many business leaders,'' he said. ''But that doesn't mean there's any difficulty in doing the right thing for our firm. You do what you need to do to protect the interests of the institution.'' 
Mr. Shapiro is probably taking a personal interest in the case, said Deborah Fiorito, who handles communications for Dynegy and who worked for Mr. Shapiro at Texas Commerce. ''Marc's interest in this transcends many levels,'' she said. ''He cares a lot about what happens to Houston. You can't say enough about the impact of this on the city.'' 
Mr. Lay served on the board of Texas Commerce because he was a major customer of the bank and because he had stature among Houston business executives. 
''I respected Ken Lay very much,'' said Ben Love, the longtime chief executive of Texas Commerce who hired and mentored Mr. Shapiro and asked Mr. Lay to join the bank's board. ''I am dumbfounded like everyone else'' about Enron's collapse, he said. 
Mr. Shapiro's ties to Mr. Lay extended beyond the board of Texas Commerce. The men were involved in Houston politics and civic affairs, and they have served on a committee to help burnish the image of the University of Houston. 
However ugly and embarrassing the Enron debacle may be, Mr. Shapiro emphasized to analysts last month that it was unlikely to cripple the bank. Of the $2.6 billion in loans outstanding to Enron, about a fourth, $620 million, is unsecured. Even if the bank loses all of the unsecured amount, that represents less than 1 percent of J. P. Morgan's $460 billion in corporate loans, derivatives, obligations and commitments at the end of the third quarter. 
''The way the information came out was unusual, but there was nothing sinister about it,'' said Thomas K. Brown, who runs Second Curve Capital, which invests in bank stocks. ''They just bungled. We all want neat answers, but in the world we live in, arrangements with large corporations are increasingly complex.'' 
Mr. Brown, who said he thought ''the world of Marc Shapiro,'' suggested that Mr. Shapiro's reputation would weather the Enron debacle. ''Bankruptcies of this size don't happen every day,'' he said.

Photo: Marc Shapiro, who oversees finance and risk management at J. P. Morgan Chase, has had to field many questions about Morgan's involvement with Enron, and about his personal ties to the company. (Justin Lane for The New York Times) 
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Fall of an Energy Giant: Enron's Advisers Seek Higher Bids For Energy Unit
By Mitchell Pacelle and Jathon Sapsford
Staff Reporters of The Wall Street Journal

01/11/2002
The Wall Street Journal 
A4
(Copyright (c) 2002, Dow Jones & Company, Inc.) 

Representatives of Enron Corp. and its creditors were still negotiating yesterday evening in an effort to coax the highest possible offer for parts of the company's once-powerful wholesale trading unit. 
As of yesterday evening, the company hadn't yet selected a winning bid from multiple bidders. Among the bidders are two banks, Citigroup Inc. and UBS AG, and BP PLC, the London-based oil company. The company's advisers spent the day yesterday pressing bidders to improve their original offers.
Enron's advisers and creditors consider it a priority to try to get the energy-trading business, which still has a staff of about 1,000 people, up and running again. Enron's advisers had been aiming to find a creditworthy partner willing to take a 51% stake in the trading unit, which trades dozens of products and once accounted for the bulk of Enron's revenues. 
The details of the bids submitted by Citigroup and UBS haven't been disclosed. 
BP has said it offered $25 million for only the computer settlement support systems of the Enron unit, but that it hadn't submitted a bid for control of the whole unit. A BP spokesman reiterated yesterday, however, that if the bidding process set up by the bankruptcy court "doesn't work out, we did express an interest in negotiating without commitment for other things." 
The earliest Enron is expected to disclose a decision -- if it reaches one -- is at a hearing on the matter scheduled for New York federal bankruptcy court this morning. It remained unclear yesterday evening whether a deal would be cemented in time to present to the court. Alternatively, it is possible that Enron will ask the court for more time to negotiate, or announce that it had found none of the offers acceptable, one person involved in the process said. 
The effort to sell a controlling stake in the unit could be further complicated by the attempt by more than a dozen creditors to temporarily block the sale of the energy-trading business. Those creditors, which include Royal Bank of Scotland and power-trading rivals, have asked for guarantees that Enron will put the proceeds in an escrow account until a determination has been made about how it will be split among creditors. 
Until recently, Enron's energy-trading unit, which includes its EnronOnline Internet-based trading platform, traded dozens of products and generated roughly 90% of the firm's earnings in the most recent quarter. Trading all but dried up in the wake of the company's Dec. 2 bankruptcy filing.

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Newscast: Enron's energy trading operations up for auction

01/11/2002
Minnesota Public Radio: Marketplace Morning Report 
(c) Copyright 2002, Minnesota Public Radio. All Rights Reserved. 

KAI RYSSDAL, anchor: Good morning. I'm Kai Ryssdal in Los Angeles. 
Alongside all the hullabaloo yesterday in Washington over who knew what when about Enron's collapse, the company's energy trading operations are up for auction. MARKETPLACE's Judy Martin looks at what's at stake in the outcome.
JUDY MARTIN reporting: 
Enron went on the auction block with its trading operations for good reason. Fitch credit analyst Ralph Pelleichia says this may be the only way for the company to re-enter the trading business following bankruptcy. 
Mr. RALPH PELLEICHIA (Fitch Credit Analyst): Prior to bankruptcy, the wholesale trading business generated approximately 75 percent of the earnings in cash flow. So this is--is and would be a major contributor for the company and an opportunity for the company to prevent liquidation. 
MARTIN: At least two heavy-hitters, Citicorp and UBS Warburg, reportedly submitted bids for the company's most successful electricity and gas trading operations. But Pelleichia says the stigma of Enron's reputation for earnings overstatement lingers. 
Mr. PELLEICHIA: Whoever they deal with would have to be financially strong with great credibility. 
MARTIN: Regardless of the challenges, Enron made a lot of money in energy marketing and trading, and it's that business those bidders are vying for. In New York, I'm Judy Martin for MARKETPLACE.

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Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.