Government announces criminal investigation of Enron
Thursday, January 10, 2002
WASHINGTON -- The Justice Department has opened a criminal investigation into Enron Corp., whose employees lost billions when the company barred them from selling plummeting Enron shares from their retirement accounts.
The department has formed a national task force, headed by the criminal division and made up of federal prosecutors in Houston, San Francisco, New York and several other cities, said a Justice Department official, speaking on condition of anonymity.
The Labor Department and the Securities and Exchange Commission are conducting civil investigations.
Enron attorney Robert Bennett said the company was pleased with the prospect of a Justice Department investigation that would "bring light to the facts."
"It's a positive development," Bennett said. "As I understand it, this means there will be a centralized investigation at the Justice Department. ... It's important that we not let the Washington scandal machine take over, which will have as a consequence that every move will be politicized and the facts will be trivialized."
While ordinary employees were prohibited from selling company stock from their Enron-heavy 401(k) accounts, Enron executives cashed out more than $1 billion in stock when it was near its peak.
In addition to retirees and some 4,500 out-of-work employees, countless investors around the country have been burned by Enron's rapid descent into federal bankruptcy court in recent weeks.
Seventh-largest in revenue
Enron, which was the nation's seventh-biggest company in revenue and admired by Wall Street as a technological innovator, has acknowledged it overstated profits for four years.
The chief executive of its longtime auditor, Arthur Andersen LLP, told a House hearing last month that the accounting firm notified Enron's audit committee on Nov. 2 of "possible illegal acts within the company."
Enron, which was formed in 1985 and has 20,000 employees, was once the world's top buyer and seller of natural gas and the largest electricity marketer in the United States. It also marketed coal, pulp, paper, plastics, metals and fiber-optic bandwidth.
One likely focus of the Justice Department investigation: Possible fraud based on Enron's heavy reliance on off-balance-sheet partnerships which took on Enron debt. The partnerships masked Enron's financial problems and left its credit ratings healthy so it could obtain the cash and credit crucial to running its trading business.
The Houston-based company went bankrupt after its credit collapsed and its main rival, Dynegy Inc., backed out of an $8.4 billion buyout plan late last year.
Just a year ago, stock of the nation's largest buyer and seller of natural gas traded at $85 per share. Today, it is less than $1.
The company played a key role earlier this year when a White House task force met with business executives and other interest to fashion an energy policy. Kenneth L. Lay, the chairman, has close ties to the president, as he did with his father, former President Bush.
Last week, the president said: "I think the life savings' issue is something we need to look into. ... The government will be looking into this."
The news of the criminal investigation comes amid questions about the White House's dealings with Enron, whose executives contributed heavily to President Bush's election campaign.
The White House has acknowledged that Enron representatives met six times with Vice President Dick Cheney or his aides on energy issues last year.