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Enron's Bust:
Was it the result of Over-Confidence or a Confidence Game?


"Enron never understood that business is not just about numbers and the balance sheet:
it's about your brand, and the confidence you inspire."
- Chuck Watson, Dynegy Corporation


by Judith Haney

USNEWSLINK/December 13, 2001

The decline of Enron Corporation, formed in July 1985 as a result of the merger of Houston Natural Gas and InterNorth of Omaha, Nebraska, is not just another over-hyped story about entrepreneurial intentions gone bad.

The rise and fall of Enron is unique to corporate America. Corporations rise and fall with the economic tides. Stockholders lose money. But there is something different and compelling about Enron's story.

What renders the Enron story irresistible reading is the manner in which the corporation's leaders regularly and flagrantly bought and wielded political power and influence within the United States government and the Texas state government. 

And, of equal interest is what Enron is doing now, post Chapter 11 petition, to avoid liability for its acts of harm to its stockholders and former employees.

The watchful observer can gain clear insight into Enron's well established reputation for unethical business standards and practices by simply following the attendant lawsuits filed against it subsequent to its filing a Chapter 11 petition for bankruptcy protection from its creditors and stockholders.

In retrospect Enron's collapse should and could have been predicted. The grandiose schemes conjured up by ambitious executives and offered up to powerbrokers and politicians should have alerted mature observers to the fact that Enron would need unprecedented amounts of capital to fund its proposed acquisitions and fast-track expansion across the globe.

But as ridiculous and unrealistic as its premature vision of global expansion was in lieu of having no cash to make it happen, Enron executives were able to dodge and weave their way, undetected, into a position of political influence among government officials by painting a less than honest picture of Enron's capital resources and its available cash to fund growth.  To sum it up, at a certain juncture in Enron's history, a high profile confidence game was launched using billions and billions of dollars belonging to Enron stockholders.

Those who needed Enron's money bought, or pretended to buy, the story. Politicians hungry for donations to pay off campaign debts wanted to believe Enron's plans for global expansion and Enron's vision of breaking up smaller companies with grandiose merger schemes that never came to fruition.

Politicians on both sides of the isle became so dependant upon Enron's cash to fund their campaigns that they were hamstrung to stop the Enron train from careening out of control. At a certain point in mid-2000, those in the Enron inner circle, like former Texas Senator Phil Gramm's wife, who is a current Enron board member,  simply stood by and watched the precarious dealings unfold.

It is no secret that between Jan. 1999 and Jan. 2001, George W. Bush, #43, depended heavily upon Kenneth L. Lay, Enron's Chairman and CEO, for soft and hard money donations to his campaign for President.  Lay, as a member of Bush's elite group of fundraisers, the "Pioneers", was expected to keep campaign coffers full. He did so in spades, raising an unprecedented amount of campaign dollars on behalf of Bush within a short span of a year and a half.

The following is an excerpt from a 1999 biography of Kenneth Lay, Chair & CEO, Enron Corp, whose 1999 salary & perks amounted to $42.4 Million:

"The $550,025 that the Enron Corp. gave Bush over the years makes it his No. 1 career patron, according to the Center for Public Integrity. “Virtually every … aspect of Enron’s operations is overseen by the federal government,” a ’96 Dallas Morning News story noted.

Not surprisingly, this global natural gas giant and its top executive are big political contributors who keep revolving doors whirling. Lay hired President Bush’s cabinet members James Baker and Robert Mosbacher as they left office.

After President Bush’s ’93 Gulf War victory tour of Kuwait, Baker and other members of his entourage stayed on to hustle Enron contracts.

The Clinton administration also threatened to cut Mozambique’s aid in ’95 if the world’s poorest country awarded a pipeline contract to a different company.

Enron got Bush to contact Texas’ congressional delegation in ’97 to promote a corporate welfare program in which U.S. taxpayers finance political risk insurance for the foreign operations of corporations such as Enron.

Enron plants around Houston—which surpassed LA for the title to the nation’s worst air—are “grandfathered” air polluters that exploit a loophole in state law to avoid installing modern pollution-control technologies.

Earlier this year the Houston Astros inaugurated their new Enron Field, which was financed with $180 million in public tax dollars and $100 million from Enron. In return, Enron landed tax breaks and a $200 million contract to power the stadium.

Topping Enron’s political wish list in Texas was deregulation of the state’s electrical markets. Bush signed this dream into law in ’99."

But can Enron's relationship to Bush save it from further exposure to investigations and potential indictments?

Maybe. Consider this: Enron has timed its filing for Chapter 11 bankruptcy protection precisely at a time when it has in place a formidable defense team, i.e., the politically powerful Lloyd Cutler, who has family connections to the SEC's Enforcement Director as of 10/29/2001, one Stephen Cutler, (Cutler Named SEC's Enforcement Director) who is a former partner in Lloyd Cutler's firm of Wilmer, Cutler & Pickering.

Simultaneously with the appointment of Stephen Cutler to the top enforcement position at the SEC, was the announcement of the SEC's new policy that the commission may not take enforcement action against a company it investigates -- if the company cooperates fully with the authorities. 

Is it a mere coincidence that the SEC has adopted its no-prosecution policy precisely at the time that Enron collapses, or that Stephen Cutler is elevated to the position of Enforcement Director of the SEC a month before Enron collapses? It is more likely part of a larger Bush administration plan to protect Enron executives and board members from prosecution and financial ruin.

In lieu of these circumstances, it is doubtful that an ongoing investigation by the SEC will yield meaningful results or indictments of Enron and/or its various corporate leaders.

Ruling out the SEC taking remedial action, stockholders victimized by the doings of Enron can next look to the pending private lawsuits and pending congressional investigations to ferret out the truth about what went wrong inside Enron. And this process will take years. Certainly long enough for Enron to be dissolved and its assets distributed to its various debt-holders.

Notwithstanding the SEC's new flaccid policy of not prosecuting violators and offending corporations, certain facts appear to support the conclusion that various oversight roles were unexplainably ignored by Arthur Anderson, the accounting firm responsible for auditing Enron's various subsidiaries; and, Enron's past and present board of directors; and, its past and present corporate executives, all of whom bore a fiduciary responsibility for identifying and remediating areas of potential loss to Enron's stockholders. That all backup systems failed in concert induces speculation of a conspiracy and cover-up of wrongdoing by those involved in the company's operations. This theory is supported by Chuck Watson, CEO of Dynegy Corporation.

Watson pulled the plug on a cash infusing deal with Enron following Enron's filing its 10-Q form with the SEC on 11/19/2001, which disclosed previously undisclosed financial facts concerning the deteriorating condition of the company. During its negotiations with Dynegy, Enron failed to disclose the company's real condition, preferring to supply fraudulent financial statements and inflated values of assets to Watson.

Upon discovering the real facts, Watson pulled out of the deal with Enron, but too late to recover Dynegy's $1.5 Billion Dollars advanced to Enron mid-way through the negotiations.

In an effort to point attention away from the company's questionable doings, and re-route adverse public opinion toward an unwitting scapegoat, Enron filed suit against Dynegy, on the same day it filed Chapter 11, claiming breach of contract. Meanwhile Enron has kept Dynegy's $1.5 Billion Dollars AND the Northern Natural Gas Company.

Curiously the circumstances surrounding Enron's desperate wooing of Dynegy in the 11th hour of its financial collapse, coupled with its failure to disclose its true financial condition, points to a conspiracy by and between desperate Enron executives charged with overseeing the operation. These executives were in possession of evidence that the formidable Enron ship was sinking and sinking fast but they hid it from Charles Watson and grabbed Dynegy's $1.5 Billion Dollars like bandits in the night. According to Watson, within three weeks of receiving the $1.5 Billion Dollars, Enron executives were unable to account for the money's whereabouts or how the money was spent.

But, no matter how the case(s) against Enron turns out, the truth will ultimately emerge. And when it does, the future(s) of high profile political leaders who have thus far been untouchable in their associations with Enron "could" be swept away by the same tide that swept away Enron.

And, henceforth and forever more, no amount of Enron money will buy back Enron's prior position of global influence and prevent ambitious politicians from distancing themselves from its high profile confidence games. And then what will Enron have to show for its grandiose dealings? Only a trail of victims left in the dust of illusions of power and dreams of global domination. What a waste of political influence that was.

ADDITIONAL READING:


Enron Traders Caught On Tape
June 1, 2004

When a forest fire shut down a major transmission line into California, cutting power supplies and raising prices, Enron energy traders celebrated, CBS News Correspondent Vince Gonzales reports.

"Burn, baby, burn. That's a beautiful thing," a trader sang about the massive fire.

Four years after California's disastrous experiment with energy deregulation, Enron energy traders can be heard – on audiotapes obtained by CBS News – gloating and praising each other as they helped bring on, and cash-in on, the Western power crisis.

"He just f---s
California," says one Enron employee. "He steals money from California to the tune of about a million."

"Will you rephrase that?" asks a second employee.

"OK, he, um, he arbitrages the California market to the tune of a million bucks or two a day," replies the first.

The tapes, from Enron's West Coast trading desk, also confirm what CBS reported years ago: that in secret deals with power producers, traders deliberately drove up prices by ordering power plants shut down.

"If you took down the steamer, how long would it take to get it back up?" an Enron worker is heard saying.

"Oh, it's not something you want to just be turning on and off every hour. Let's put it that way," another says.

"Well, why don't you just go ahead and shut her down."

Officials with the Snohomish Public Utility District near
Seattle received the tapes from the Justice Department.

"This is the evidence we've all been waiting for. This proves they manipulated the market," said Eric Christensen, a spokesman for the utility.

That utility, like many others, is trying to get its money back from Enron.

"They're f------g taking all the money back from you guys?" complains an Enron employee on the tapes. "All the money you guys stole from those poor grandmothers in
California?"

"Yeah, grandma Millie, man"

"Yeah, now she wants her f------g money back for all the power you've charged right up, jammed right up her a------ for f------g $250 a megawatt hour."

And the tapes appear to link top Enron officials Ken Lay and Jeffrey Skilling to schemes that fueled the crisis.

"Government Affairs has to prove how valuable it is to Ken Lay and Jeff Skilling," says one trader.

"Ok."

"Do you know when you started over-scheduling load and making buckets of money on that?

Before the 2000 election, Enron employees pondered the possibilities of a Bush win.

"It'd be great. I'd love to see Ken Lay Secretary of Energy," says one Enron worker.

That didn't happen, but they were sure President Bush would fight any limits on sky-high energy prices.

"When this election comes Bush will f------g whack this s--t, man. He won't play this price-cap b------t."

Crude, but true.

"We will not take any action that makes
California's problems worse and that's why I oppose price caps," said Mr. Bush on May 29, 2001.

Both the Justice Department and Enron tried to prevent the release of these tapes. Enron's lawyers argued they merely prove "that people at Enron sometimes talked like Barnacle Bill the Sailor."


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The collapse of Enron: Timeline of events

Energy companies' exposure to Enron financial woe's
AES reports under $15-mil in Enron exposure
TXU 'immaterial' exposure to Enron less than $20-mil
Aquila's, UtiliCorp's Enron exposure both under $40-mil
US' Spinnaker says has $3.4-mil pre-tax Enron exposure
International Power: Enron exposure less than GBP2-mil
Calpine owes Enron $145-mil for gas swaps contracts
Westport Resources says Enron exposure below $4-mil
Allegheny Energy says exposure to Enron less than $5-mil
AEP exposure to Enron less than $50-mil
Cinergy says has 'net payable position' to Enron Corp
US' Wiser Oil lists $6.08-mil in exposure to Enron
Dutch ING Group has $195-mil exposure to Enron
Major Australian banks have $350-mil exposure to Enron
Gaz de France says no exposure to Enron through Gas Elys
EdFT says no exposure to Enron in European power markets
Chicago distributor Peoples has $12-mil Enron exposure
BP's exposure to Enron around $20-mil: sources
Shell says no 'material' exposure to Enron
UK bank Abbey National's Enron exposure GBP115-mil
Japanese nickel traders unaffected by Enron exposure
Seneca says pending deals with Enron total $10.4-mil
Houston Exploration pegs Enron exposure less than $4-mil
KeySpan says exposure to Enron less than $4-mil
BHP Billiton says it has no financial exposure to Enron
USWC traders fear exposure to Enron meltdown
Most e&p companies' exposure to Enron minimal: analyst
Reliant Resources says Enron exposure is near $80-mil
Williams will suffer less than $100-mil from Enron
Electrabel's exposure to Enron "negligible": spokesman
Distrigas' exposure to Enron "under assessment"
Duke exposed for $100-mil to Enron; sees no earnings hit
UK's Innogy comfortable with Enron exposure: CE Count
TotalFinaElf says has $25-mil exposure to Enron
UK's Centrica says has $43-mil trading exposure to Enron
ScottishPower exposure to Enron "not material:" spokesman
J.P. Morgan reveals $500-mil unsecured exposure to Enron
BP, Statoil say Enron exposure risk has been minimized
UK Powergen's exposure to Enron "not material" concern
Germany's RWE says exposure to Enron demise 'minimal'
Utility Exelon's net exposure to Enron less than $10-mil
Mirant says it limited its Enron exposure to $50-$60 mil
Sempra says Enron-related exposure is less than $15-mil

Houston, We Have a Problem: More on the Enron Shakeup

Circuit Breaker: Enron Dumps CFO Amid Conflict Questions

Related Party Crashers? SEC Looking Into Possible Conflict on Interest at Enron

SEC Names Beller New Corporate Finance Head

Balancing Act

The Amazing Disintegrating Firm

It's Official: Everyone Looking Into Enron Fiasco

ANDREW S. FASTOW - ENRON CORP.

Washington-based Association for Competitive Technology, confirmed it has been invited to file a “friend of the court” brief on behalf of Microsoft. " Lloyd Cutler was a party to the brief on behalf of Microsoft.

BACKGROUND ON ENRON: Enron, a Houston, Texas-based wholesale power marketer, reported a third-quarter loss of $618-mil Oct 16, and the US Securities and Exchange Commission subsequently announced an investigation into Enron's dealings with two partnerships involving its ex-CFO Andrew Fastow. In an announcement late Nov 9, Dynegy and Enron unveiled their $7.8-bil merger agreement. Dynegy called off the merger Nov 28 after S&P's Enron rating eroded confidence in Enron. Financially besieged Enron filed Dec 2 for Chapter 11 Bankruptcy Code protection in the US.

Lawsuits filed in December, 2001, against Enron and its corporate executives, by its former employees allege:

1. that the defendants issued false and misleading information that materially misstated the company’s condition and prospects to the investing public. Moreover, the suits argue that the company failed to disclose material information necessary to make its prior statements not misleading.

2. that Enron issued a series of statements concerning its business, financial results, and operations which failed to disclose, among other things:

3. that the company's Broadband Services Division was experiencing declining demand for bandwidth, and the company's efforts to create a trading market for bandwidth were not meeting with success, as many of the market participants were not creditworthy.

4. that the company's operating results were materially overstated, since Enron failed to write down in a timely fashion the value of its investments with certain limited partnerships — the partnerships that were managed by Fastow.

5. that Enron failed to write down impaired assets on a timely basis in accordance with GAAP.

SEC Commission File Number 1-12473 ENRON CAPITAL TRUST FORM 10-Q, November 19, 2001

12/3/01: Dynegy CEO Calls Enron Lawsuit "Frivolous and Disengenuous"

11/30/01: Dynegy Clarifies Northern Natural Gas Investment

11/28/01: Dynegy Terminates Merger With Enron

Information for Enron Alumni Affected by Chapter 11 Filing

Enron Chapter 11 Reorganization Filings

ENRON ANNOUNCES INFORMATION REGARDING DIVIDEND PAYMENTS -12/11/2001

ENRON RECEIVES APPROVAL OF “FIRST DAY ORDERS” -12/03/2001

ENRON ARRANGES $1.5 BILLION OF DEBTOR-IN-POSSESSION FINANCING-12/03/2001

ENRON FILES VOLUNTARY PETITIONS FOR CHAPTER 11 REORGANIZATION; SUES DYNEGY FOR BREACH OF CONTRACT, SEEKING DAMAGES OF AT LEAST $10 BILLION -12/02/2001

EOTT ENERGY PARTNERS, L.P. ANNOUNCES INTERIM CREDIT AGREEMENT -11/30/2001

NORTHERN BORDER PIPELINE COMPANY REASSURES STAKEHOLDERS REGARDING ENRON EXPOSURE -11/29/2001

NORTHERN BORDER PARTNERS REASSURES INVESTORS REGARDING ENRON EXPOSURE -11/29/2001

ENRON ANNOUNCES INFORMATION REGARDING DIVIDEND PAYMENTS -11/29/2001

ENRON ANNOUNCES NOTIFICATION BY DYNEGY OF MERGER TERMINATION; CREDIT RATING DOWNGRADED; TAKES ACTION TO PRESERVE CORE FRANCHISE-11/28/2001

ENRON APPOINTS RAYMOND S. TROUBH TO BOARD-11/28/2001

ENRON ANNOUNCES PROGRESS IN EFFORTS TO BOOST LIQUIDITY; REAFFIRMS COMMITMENT TO MERGER WITH DYNEGY; WORKING WITH MAJOR LENDERS TO RESTRUCTURE DEBT OBLIGATIONS-11/21/2001

ENRON FILES 10-Q WITH SEC; PROVIDES MORE INFORMATION ON -11/19/2001

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THE FALLOUT:
Lies, damned lies, and Enron


Enron is one of the world's leading electricity, natural gas and communications companies. The company, with revenues of $40 billion in 1999 and $30 billion for the first six months of 2000, produces electricity and natural gas, develops, constructs and operates energy facilities worldwide, delivers physical commodities and financial and risk management services to customers around the world, and is developing an intelligent network platform to facilitate online business. Fortune magazine has named Enron "America's Most Innovative Company" for five consecutive years, the top company for "Quality of Management" and the second best company for "Employee Talent." In addition, Enron ranks in the top quarter of Fortune's "Best 100 Companies to Work For in America." Enron's Internet address is www.enron.com. The stock is traded under the ticker symbol ENE.      --  from an Enron press release, 4 October 2000

 

"Enron paid no income taxes in four of the last five years, using almost 900 subsidiaries in tax-haven countries and other techniques, an analysis of its financial reports to shareholders shows. It was also eligible for $382 million in tax refunds."      --  New York Times, 17 January 2002

This full-text search includes all static pages on the PIR site, as well as 14 SEC reports from Enron (unfortunately, the interesting material is already shredded). The first eight reports are split into two because some search engines won't index large files.

1994 Enron DEF 14A [a]       1995 Enron DEF 14A [a]       1996 Enron DEF 14A [a]       1997 Enron DEF 14A [a]
1994 Enron DEF 14A [b]       1995 Enron DEF 14A [b]       1996 Enron DEF 14A [b]       1997 Enron DEF 14A [b]

1998 Enron DEF 14A [a]       1999 Enron DEF 14A [a]       2000 Enron DEF 14A [a]       2001 Enron DEF 14A [a]
1998 Enron DEF 14A [b]       1999 Enron DEF 14A [b]       2000 Enron DEF 14A [b]       2001 Enron DEF 14A [b]

Reports from Enron Oil & Gas, 1994-1999:

1994 EnronOG DEF 14A       1995 EnronOG DEF 14A       1996 EnronOG DEF 14A
1997 EnronOG DEF 14A       1998 EnronOG DEF 14A       1999 EnronOG DEF 14A

Talking heads, wonks, scribblers and wise men

Who got blood money from Enron in the war of words?

    "Enron 'collected visible people' by gathering up pundits, journalists and politicians and placing them on lucrative retainers. For a couple days spent chatting about current events with executives at Enron's Houston headquarters, advisers could walk away with five-figure payments."    -- Washington Post, 10 February 2002

        Bill Kristol             $100,000
        Paul Krugman         $50,000
        Larry Kudlow          $50,000
        Lawrence Lindsay   $50,000
        Peggy Noonan         over $25,000 for minor speechwriting
        Irwin Stelzer            $50,000
        Robert Zoellick       $50,000



This list below matches names from the above documents (directors, some officers, and major shareholders) with names from NameBase. It appears that unlike the BCCI scandal, there are no major spook connections with Enron. What we have here, apparently, is an assortment of talented wheelin', dealin', cheatin' Texas oil cowboys.

The absence of a spook connection is good news. It means that Congressional investigators won't be derailed as easily as they were with BCCI and Iran-Contra.


The names on the left are from the document, and the names on the right are matches, and the number of pages cited, from NameBase.

 

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