Posted on 02/14/2003 7:28:47 AM PST by Liz
WASHINGTON, Feb. 13 — Wall Street banks, acting on the advice of leading lawyers and accounting firms, helped Enron devise shelters that let the company operate tax-free for years while exaggerating its reported profits by billions, the Senate Finance Committee was told today.
Senators said that the findings, in a three-volume report by the staff of the Joint Committee on Taxation, raised disturbing questions about the reliability of corporate financial reporting.
Senator Charles E. Grassley, the Iowa Republican who is chairman of the committee, said that "the report reads like a conspiracy novel." He and Senator Max Baucus of Montana, the ranking Democrat, pledged to campaign for legislation closing abusive tax shelters and to push for further reform of accounting rules and enforcement of ethical standards governing accountants and lawyers.
At a hearing on the report today, Lindy L. Paull, chief of the joint committee staff, said that Enron's tax department "was converted into an Enron business unit, complete with annual revenue targets."
The tax shelters were intended to allow Enron to book $2 billion of profits almost immediately, even as the company was saving $2 billion of federal income taxes over a period of years, according to the report.
The tax savings and the manufactured profits "were mostly from internal machinations where we couldn't find any benefit to the company," Ms. Paull said.
The front page of one tax shelter deal, known as the Steele Project, was titled "Show Me the Money!"
The transactions, according to the report and testimony at the hearing today, relied on technical interpretations of the differences between tax and accounting rules to allow Enron to deduct some dollars from its tax liabilities more than once, treat some of the company's capital as an expense and generate tax losses while creating the appearance of profits.
Most of the shelters were put together in the 1990's by Wall Street firms, led by Bankers Trust, which has since been purchased by Deutsche Bank. It was paid more than $40 million by Enron for the shelters, according to the report.
One shelter used a "triad" of Cayman Islands entities to hide money from the Internal Revenue Service, an example of what the report said were transactions so complex that the I.R.S. lacked the capacity to deal with them.
The report also found that Enron's board was so lax in overseeing compensation for the company's 200 top executives that it appeared that no request for a bonus or other extra pay was ever turned down.
One executive, Lou L. Pai, was given part ownership of a Hawker corporate jet, although the chairman of the board's compensation committee said he could not recall approving that deal, the report said. Supporting records for many payments could not be found, it said, though Enron cooperated with the Congressional investigators.
"Enron's very top executives essentially wrote their own compensation," Ms. Paull said.
The use of tax shelters has become so widespread among the 10,000 largest corporations that their effective tax rate was just 20 percent in 1999, according to the I.R.S. That was far below the statutory rate of 35 percent and well below the tax rate of the next 31,000 companies, which experts say are too small to attract much interest from tax shelter promoters. Several studies by economists have suggested that tax shelters allow companies to deprive the government of about $50 billion annually in tax revenues.
The report, the first detailed look by the government at Enron's tax practices, found that the company paid huge fees to banks, law firms and accounting firms to set up the shelters, often in what Ms. Paull said was a collusive manner. She said that the tax and accounting opinion letters that Enron obtained from top-flight advisers ignored or glossed over accounting and legal issues that made the deals untenable.
Akin, Gump, Strauss, Hauer & Feld, one of the most influential law firms in Washington, was paid a $1 million fee for an opinion letter for one of three shelters it advised on, the report said, adding that the firm was to be a participant with Enron. The law firm apparently was replaced at the last minute.
"We would question the independence of the advisers" in these deals, Ms. Paull said. "We would say at a minimum that they turned a blind eye to some critical facts."
Kristin White, an Akin, Gump spokeswoman, said that the firm would not comment.
In her testimony, Ms. Paull also criticized an 85-page opinion letter by William S. McKee and James D. Bridgeman of McKee, Nelson, Ernst & Young, a tax boutique set up by the Ernst & Young accounting firm. Ms. Paull said that letter, for which Enron paid more than $1 million, skirted crucial issues that made the deals improper. The report said that one part of the opinion "may not be patently false, but it understates" a crucial issue.
From top to bottom, the US government under the corrupt Clintons was a criminal enterprise.
The Clinton Crime Family encompasses a whole range of entities and individuals all of whom are listed on the Democrat donor lists at the DNC.
Not only that, Clinton sanctioned wrongdoing b/c he got a cut of the dirty dealings.
Yeah, me too.....only let's not hold our breath......
Typical of the NY Slimes they really failed to document the years that Enron did this.
Ooops the years were 1996 to 1999, and who was president with his Wookie Bull Dyke Lesbo, Jake Reno in charge of no justice.
There is another thread on FR where BBC has documented this story. BBC clearly notes the dates that Enron was able to not pay any taxes. (link to BBC article on this story)
The networks made money from ENRON too. Remember all the ads with the big E? I recall asking why a company like that (wasn't sure what it did at the time) would advertise on national television. Now I know: so people would buy stocks and inflate its value on the exchange.
I still say those involved in this debacle learned from the best. Mr. & Mrs. Whitewater-Cattlefutures.
That name is familiar. A Clinton cronie is from there but which one ?
No. Tax shelters and dodges have existed since the creation of taxes and will continue regardless of who controls the system or what the tax is.
These guys are too smart for the I.R.S. and too rich and well-connected to be reined in by politicos or the law. The only time they ever get caught is when their greed becomes so great that they overreach. Wall St. even has a bon mot for their kind of behavior
You can make money as a bull or a bear...but not as a pig
A spot-on description of a corrupt, third-world Banana Republic.
Try to remember, will you, that this is a democracy..... majority rules......(snicker).
IMO - this low-life TV turd Springer - to be actually considered as a potential Congressional candidate would truly be the end of Western civilization as we know it.
On this I respectfully disagree. Springer's said he's given voice to the low-lifes - and he has. But he, himself, isn't a low-life - as is, for example, Howard Stern.
This creep hasn't done enough damage to our nation, now he's got the unmitigated gall to raise a trial balloon to see if he can get himself elected to Congress.
The very fact that this turd thinks he should get elected is an indication of his own depravity and how low-lifes like him (including Stern) have brought this country.
Makes viewers believe his staged televised crap is realtime.
Everything he does is tinged with dishonesty.
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