Sen. Gramm's wife gets Enron subpoena

WASHINGTON, Jan. 12 (UPI) -- A Senate panel probing energy conglomerate Enron Corp.'s sudden collapse sent a subpoena Friday to Texas Republican Sen. Phil Gramm's wife, Wendy Gramm, panel sources confirmed, while a new contact with a Bush administration official -- by a prominent Democrat -- was disclosed by the Treasury Department.

Wendy Gramm has been a member of Enron's board of directors for eight years and of the crucial Audit and Compliance Committee as the giant company's financial condition was deteriorating.

Her subpoena is among 51 issued by the Senate Permanent Subcommittee on Investigations chaired by Sen. Carl Levin, D-Mich., seeking documents from Enron, the Arthur Andersen LLP accounting firm, and current and former officers, employees and board members of Enron.

Of the 51 subpoenas, 49 went to individuals, one to Enron Corp. and one to the Andersen firm seeking documents as far back as January 1999.

Phil Gramm is the second-largest recipient in the Senate of financial contributions from Enron, receiving $97,350 from the company between 1989 and 2001, according to data provided by The Center for Responsive Politics. The senator receiving the largest contribution from Enron is Sen. Kay Bailey Hutchinson, R-Texas, who received $99,500.

The subpoenas came as government and congressional scrutiny of the collapse intensified.

Friday evening, the Treasury Department disclosed that Clinton administration Treasury Secretary Robert Rubin contacted a department under secretary in early November to suggest he call ratings agencies who were poised to downgrade Enron's credit rating.

A Treasury spokesperson said Rubin, now chairman of the executive committee of a banking conglomerate with hundreds of millions of dollars of exposure to the Enron collapse, Citigroup, called Under Secretary for Domestic Finance Peter Fisher to ask what he thought of Fisher contacting the ratings agencies to encourage them to "worth with" Citibank and other Enron banks.

The spokesperson said Fisher responded negatively, saying he did not think such a call was appropriate and Rubin responded that he thought that was a reasonable position. "Fisher made no such call," the Treasury spokesperson said.

It was Fisher to whom Enron President Lawrence Whalley made six to eight calls in late October and early November, calls a Treasury spokesperson earlier Friday said Fisher took to be suggestions he call Enron's banks.

Over Thursday and Friday, it was disclosed that Enron's chairman, Kenneth Lay, contacted top Bush Treasury Secretary Paul O'Neill, Commerce Secretary Don Evans and Alan Greenspan, chairman of the Federal Reserve, in October about Enron's financial difficulties.

Secretary of Commerce Evans said Lay sought assistance from the federal government, but Lay said in a statement late Thursday that he only sought to alert top financial leaders that his mammoth firm was having difficulties. O'Neill said he agreed with Evans that nothing was to be done.

President Bush, who has received political and financial support from Enron and Lay in all his political races, said the Enron chief did not contact him.

Several prominent Democrats have attempted to use the various Enron entreaties as evidence of a close association with the Bush administration but no one has accused White House officials of wrongdoing.

When Enron received no outside financial assistance and as the ratings agencies ultimately downgraded its credit standing, the company reported to stockholders that it had $500 million of previously unreported debt. The subsequent selloff of Enron stock was swift and dramatic -- and left many of the company's 21,000 employees with life savings that diminished to near nothing as the stock fell below a dollar a share.

As several employees later told a congressional hearing, they were prohibited from selling their Enron stock from their 401K retirement plans even though top executives sold $1 billion in shares while they still retained their value.

The company sought protection under Chapter 11 of the U.S. Bankruptcy Code on Dec. 2.

Arthur Andersen, the company's auditing firm, reported in testimony in December that it told Enron officials that some of their financial transactions might be illegal. Joseph Berardino, Andersen chairman, also testified that Enron withheld financial information from Andersen. He admitted that his firm's accountants may also have made some mistakes.

Then Thursday, Andersen disclosed that a "significant" number of correspondence, electronic files and other data may have been destroyed, some of it after investigations had begun.

Well before the Enron debacle began gathering steam, on Sept. 5, Sen. Gramm announced that he would not seek re-election after serving 18 years in the Senate. During his retirement announcement, Gramm said that he had achieved his goals as a senator and would move on to another career.

Gramm's spokesman, Larry Neal, declined comment on the subpoenas, but said Enron had nothing to do with Gramm's decision not to seek another term.

"He outlined in detail in his retirement announcement his reasons for leaving, and those were his only reasons," Neal said.

The House Energy and Commerce Committee, run by Republican Rep. Billy Tauzin, R-La., also wants to talk to Wendy Gramm. Tauzin requested the interview with Wendy Gramm by name in a Dec. 10 letter to Enron.

The spectacular financial collapse of Houston-based Enron has drawn broad scrutiny from a host of federal agencies and congressional committees.

On Wednesday, it was revealed that the Justice Department had opened a criminal investigation into the Enron matter.

On Thursday both U.S. Attorney General John Ashcroft in Washington and U.S. Attorney Michael T. Shelby in Houston recused themselves from the investigation. Selby's office announced that he and several other attorneys had relatives who were employed by Enron.

Ashcroft received a $25,000 contribution from Enron during his run for re-election to the Senate from Missouri and in an unsuccessful attempt to win the Republican presidential nomination.

The Securities and Exchange Commission also has opened a probe into whether Enron officers were capitalizing on their knowledge of the firm's financial condition when they sold millions of dollars in stock prior to its nosedive.

The agency also wants to determine whether Enron financial claims to investors were misleading and whether Arthur Andersen's audit of those statements was proper.

The House Energy and Commerce Committee led by Tauzin and Ranking Minority Member John Dingell, D-Mich., Friday announced that it was demanding a host of financial records -- including some that Arthur Anderson says were destroyed -- as well as interviews with Enron's financial oversight officials.

That request covers 43 areas of Enron's finances and corporate behavior including all earnings-related documents and memos, details about the finances and discussions related to several outside investment vehicles operated outside the company's normal procedures.

In the Senate, a Commerce Committee subcommittee -- led by North Dakota Democrat Byron Dorgan -- already has held a hearing on the loss of pension funds when the stock price collapsed. At that hearing, a top Arthur Andersen official said he thought there was a possibility that criminal acts had been committed by the company.

Dorgan plans more hearings into the loss of the retirement funds but so far has been unsuccessful in getting Lay to appear before the committee.

The Senate Government Affairs Committee also announced an investigation on Jan. 2 into the collapse, choosing to focus on whether government agencies failed to detect, or ignored, signs of the impending collapse. The committee plans a hearing on Jan. 24, according to Chairman Joe Lieberman, D-Conn.

The House Government Reform Committee has been slower to formally step into the fray, but its ranking member, California Democrat Henry Waxman, has been vocal about the possibility that Enron used undue influence on administration officials to avoid additional scrutiny of its finances and practices before the collapse. Waxman also has been engaged in a fight with the Bush administration over releasing details of meetings between Enron officials and high-ranking Bush administration officials, when the White House was preparing a national energy policy.

On Jan. 3 the vice president's office provided Waxman with a list of contacts between the vice president or his staff and Enron officials. The letter, from David S. Addington, the vice president's counsel, said that neither the vice president nor his staff had ever discussed Enron's financial status with the company's representatives.

(Mark Benjamin is UPI's chief congressional correspondent, and Nicholas M. Horrock is UPI's chief White House correspondent.)

Red, I have no idea if your claims about 20,000 directors of various S&L being sued is accurate. Nevertheless, I think you draw the right conclusion--albeit, for all the wrong reasons.

Now, I have never, nor do I ever expect to breathe the rarefied air that those who are directors on boards of Fortune 500 companies do. Nevertheless, these directors are responsible for selecting and keeping the CEO (and no doubt other major officers) and are well-compensated for what they do. Therefore, they have a responsiblility to earn their keep. In my view, it is incumbent upon them to scrutinize what the company is doing. No doubt, many directors are "hired" for political reasons, and have little sense for what they ought to be doing. That is insufficient reason, however, for them to abrogate their responsibilities.

I've always thought (still do) that Phil Gramm is a straight shooter and I'll be sorry to see him go. But, if Ms. Gramm shirked her responsibilities as a member of the BOD of Enron, then shame on her. If she's liable, she will (and should) pay for it.

With her education/experiences, she should be able and qualified to read financial statements and ask questions and run a few numbers in her own mind whether things add up or not or if just too good to be true.

I was executive secretary to a board of directors of a cooperative and I cringe at the state of affairs when I first started working with the Board. All decent guys, but absolutely 'yes' men to the general manager.

I was with them 9 years and help closed the company down....it was only during the last roughly year and half, when there were 2 new board members who came on board that questions began to be asked, different ways of looking at things analyzed, etc., including another auditing firm.

Monitoring the details and the work produced is also needed.

Auditors decide what work they think is necessary in order to render their opinion. Its our profession and only we are experts as to what the scope of our audit should be.

If we see a MATERIAL weakness in internal controls then we are obligated to pass that on preferably in writing.

Assuming material weaknesses were found, a company the size of Enron would have had a staff that would have followed it up and yes, she would be held responsible if that wasn't followed up. Mostly large accouting firms turn any follow up on stuff like this into a consulting engagement.

However, even a reportable weakness would not be all that big a deal because the auditors share concerns because if the weakness is too big they won't sign off on the statements.

If she has a

some of those 20,000 were negligent, some were not, but the government had a policy of sueing ALL of them, 100%, not one single person escaped. One fellow as I said was in a coma at the time when the critical decisions were made. He came out of the coma and had to hire a lawyer to defend him from what was done at the board meeting when he was in the hospital. This is the Bush justice and I'm merely remarking that if the same standard is held today, then Wendy Gramm will be targeted.

Also, it is a subjective opinion as to whether they were irresponsible or negligent.

So, what's the point of having an audit committee, or even a board of directors for that matter?

THe key to the audit committee is so the audit function can bypass normal management. It gives another chain of command for audit matters that bypasses or circumvents the CEO, the Treas, etc.

Lets say I am the auditor in charge and I discover a potential malfeasance. The second thing I do (The first is to contact my own lawyer because the auditor gets sued no matter how it plays out in these cases)is to contact the audit committee. I don't have to worry that I was hired by the CEO or worry that the CEO might be involved.

That said, with the kind of dollars involved here and the ability of the creditors involved, its absolutely nuts to think that the outcome would have been different had Mrs. Gramm been a CPA. Unless of course she ignored explicit warnings from company members, other directors or AA.

I'm in favor of witch hunts against the American elite if the American elite do such things to ordinary Americans. Bush is a Republican, he perpetrated terrible injustices against Americans who were in a similar situation to Wendy Gramm. Gramm's husband is a republican from Texas, I say no mercy whatsoever and if justice is sacrificed, then that's too bad.

Bring out the tar, bring out the feathers, bring out the pitchforks, throw the bums out whether they be republican or democrat.

I doubt seriously that much we be secured from these hearings as most of those called will have to respond with the "no answer" due to the pending criminal investigations. Now that won't stop them from holding hearings as long as they can dictate whom they call and what the subject matter to be discussed. With the dems in charge in the Senate look for those to focus on the Bush connections. In the House maybe the other way around, who knows...

But as long as televised hearings get them some positive sound bites look for them to continue. I personally hope the criminal investigations search far and wide and bring to justice all those involved regardless of which party they reside in.

I take it you're an accountant. It's good to chat with someone who knows what they're talking about.

Assuming material weaknesses were found, a company the size of Enron would have had a staff that would have followed it up and yes, she would be held responsible if that wasn't followed up.

Although all the facts aren't in yet, it seems the auditors either missed the elephantine problems, or passed them along to Enroners who, in turn, turned a blind eye.

Mostly large accouting firms turn any follow up on stuff like this into a consulting engagement.

By all accounts, the auditors did this, and it was a highly lucrative arrangement for them.

However, even a reportable weakness would not be all that big a deal because the auditors share concerns because if the weakness is too big they won't sign off on the statements.

But they DID sign off. Am I missing something?

Do you understand the difference between creditors and stockholders?

Yes I do and I have helped many distressed companies so I am fully aware of who has power and control.

Any loan document worth its salt is going to have what are called covenants. These covenants are going to give the creditor certains rights and powers under certain conditions. These conditions generally attempt to define in quatitative terms "The company is at risk of not paying us".

When those conditions are met the creditor will have remedies which are normally very broad and can include taking full control of the company.

As a practical matter, it never comes to a physical takeover. What ussually happens is the creditor is following everything very closely. I wouldn't be surprised if Citigroup didn't have staff on the premises. As things disintegrate, the owners begin renegotiating the terms of the deal. The creditor at this point has practical control. If the debtor wants a reasonable deal they will do whatever the creditor wants. If they don't they won't get a deal from the creditor.

So, in summary when the company is at risk of default the creditor controls the company.

Every member of the Board of Directors of Enron is in trouble over this. Mrs. Gramm is just very public because she is married to Senator Gramm. It is also the reason that she got the seat on the Board.

The Board had to approve the creation of all the "off balance sheet" subsidiary companies. That action was a fraud that the auditors should have caught but the Board had to approve the acts.

Also Author Anderson collected more fees from Enron for consulting than for auditing. One has to wonder if there was any internal pressure on the auditors to overlook the fraud to protect the consulting contracts. One also has to wonder if any of the consultants came up with the idea of forming the "off Balance sheet" subsidiaries.

Mrs. Gramm had a fiduciary duty to the stock holders to know what was going on in the company. All Board members had that responsibility. She cannot get out of that duty now by saying that she didn't know what was going on inside the company.

The creation of the "off balance sheet" subsidiaries to hide debt is a fraud. Mrs. Gramm is in a bad position whether or not she knew it was fraud. If she didn't know she was negligent or incompetent. If she knew, she has other problems.

I take it you're an accountant. It's good to chat with someone who knows what they're talking about.

I am an accountant who did audits of small business and nonprofits for about 15 years up until about 5 years ago.

Although all the facts aren't in yet, it seems the auditors either missed the elephantine problems, or passed them along to Enroners who, in turn, turned a blind eye.

Wouldn't be the first time. My fellow profesionals will probably study this when the facts come out. Based on history, my bet is that some of the auditors at a partner level (who may have been angling for a job at Enron) were inclined to pass on items. The difficult part is to prove their was intent or it was just the auditors judgement. I have not followed what the reporting issue was. Its quite possible the issue that caused the bankruptcy was properly handled and reported. The problem with the lower level staff hired by the big firms is two-fold. One is they hire high IQ types who would never believe that management is smarter than them or they hire quota people who haven't got a clue which side the debits are on.

By all accounts, the auditors did this, and it was a highly lucrative arrangement for them.

Part of the game is turning auditor comments in consulting jobs but I understand the consulting end is so large now that the Audit end is becoming bothersome to the larger firms. The best and brightest are consulting and have less of a need for the auditor. When I first read this I thought this will be the begining of the consultants leaving the audit firms.

But they DID sign off. Am I missing something?

No, the point I am trying to make is the auditors rely on internal control in order to issue their statement. For them to rely on internal control they need to take enough steps to insure that the internal control is adequate. The fact they issued an opinion with no qualifiers indicates they felt good enough about the controls.

I have already opined that Mrs. Gramm and the other directors will be sued. That is without question. My only point is I doubt that her role in being on the audit committee will have any bearing.

As for what got signed off on by the BOD, you make a good point. There is normally an executive committee with broad powers also. It will be interesting which group approved the creation of off balance sheet entities. Assuming it was documented in the minutes its also interesting how the auditors missed them.

But if fraud was involved, all bets are off.

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