January 11, 2002
Enron Contacted 2 Cabinet Officers Before Collapsing
By ELISABETH BUMILLER
ASHINGTON, Jan. 10 — The White House disclosed today that Kenneth L. Lay, the chairman of the Enron Corporation (news/quote) 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.
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 (news/quote) "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 (news/quote) 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."