White House tells of contacts with Enron

WASHINGTON -- The White House revealed on Thursday that Enron Corp., an energy firm closely tied to President Bush, sought the administration's help shortly before collapsing with the life savings of many workers. In a separate disclosure, the company's auditors said they had destroyed many Enron documents.

In the rapid swirl of events, each one raising questions about potential conflicts of interest, Attorney General John Ashcroft disqualified himself from the criminal inquiry into Enron's conduct. The company donated thousands of dollars to Ashcroft's Senate campaign in 2000.

Bush, who counts Enron as one of his biggest political contributors, pledged to aggressively pursue the investigation into whether the Texas-based firm defrauded investors, including 401(k) plan holders, by concealing vital information about its finances.

"Ken Lay is a supporter," the president said of Enron chairman Kenneth L. Lay. "But what anybody's going to find is that this administration will fully investigate issues, such as the Enron bankruptcy, to make sure we can learn from the past and make sure that workers are protected."

Bush said he saw Lay twice last year, but they did not discuss Enron's financial problems. Lay did seek help last fall from Commerce Secretary Don Evans, Bush's chief political fund-raiser and confidant, and contacted Treasury Secretary Paul O'Neill about the firm's financial woes, O'Neill and Evans said. And Enron revealed that Lay also called Fed chairman Alan Greenspan about the company's problems.

Lay, however, denied that he sought assistance from the government. Enron said that Lay's calls to O'Neill, Evans and Greenspan were merely to give them a "heads up" about Enron's problems.

"He felt an obligation to let them know what was going on," Enron said in a statement. "At no time did he ask for any assistance from the government nor did he intend to leave the impression that he was asking for assistance."

Dave Skidmore, a spokesman for the Federal Reserve Board, said that Lay contacted Greenspan on Oct. 26 and that "the chairman did nothing in response to the call. It would have been inappropriate." Skidmore declined to characterize the conversation. Lay also first reached out to Evans on Oct. 26. The two eventually spoke on Oct. 29. The first of Lay's two conversations with O'Neill took place on Sunday, Oct. 28.

Enron's bankruptcy, already the subject of criminal, civil and congressional investigations, threatens to pull the White House into a political quagmire even as Bush's approval ratings reach near-record levels because of the war against terrorism.

"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 Rep. Henry Waxman, D-Calif.

Firing back, Bush spokesman Ari Fleischer urged Democrats to avoid "partisan witch hunts, endless investigations or fishing expeditions." Democrats hope to make a political issue out of the administration's many ties to Enron.

The bankruptcy has forced White House officials to face questions once posed to the scandal-tainted Clinton White House.

Would Bush support naming a special prosecutor to investigate? Fleischer said no. He also said he did not know any White House aides who had hired lawyers.

And there was a development reminiscent of Clinton's Whitewater: missing documents.

The firm that audited Enron's books, Arthur Andersen LLP, notified investigators that it had destroyed a "significant but undetermined" number of documents related to the company.

Underscoring the conflicts issue, the entire U.S. attorney's office in Houston disqualified itself from the investigation. U.S. Attorney Michael Shelby said Thursday he and a number of other prosecutors "have family relationships with individuals who are arguably affected by the Enron bankruptcy."

As for the company's contacts last fall, administration officials said Lay told Evans on Oct. 29 that he would welcome any support in helping the company deal with a bond-rating firm that was considering downgrading Enron, administration officials said. Enron's credit rating was critical because if it was lowered, $3.9 billion in debt would come due. Of that amount, $2.4 billion previously had been hidden in partnerships that were created to keep debt off Enron's books.

Evans quoted Lay as saying, "I would appreciate any support you could give," and said Lay was not more specific. "I did nothing," Evans said of his response to the plea. "It was a no-brainer." Evans said he didn't tell the president about the call because, "I didn't think he needed to know."

In one of two conversations with O'Neill, Lay discussed a past example in which the Federal Reserve pressured several large financial institutions to bail out a Connecticut hedge fund, O'Neill said.

"I thought it was business as usual," O'Neill said of his calls with Lay, adding that he often talks to "big players" in the business world.

The calls to Evans and O'Neill came after investors and the general public learned of the extent of Enron's problems, when the company posted major losses Oct. 16.

Enron filed for bankruptcy Dec. 2, after months of speculation about its finances.

Administration officials dismissed suggestions that Evans or O'Neill should have disclosed Enron's troubles as soon as they were brought to their attention last fall. That might have given more notice to investors about to lose their savings.

"This is not the first bankruptcy and will not be the last bankruptcy" in America, Fleischer said.

Other aides said Enron's problems were well known at the time of the telephone calls, and the administration's duty was to make sure troubles at Enron didn't have a broader economic impact.

Bush raised nearly $114,000 in political action committee money and individual donations from Enron during the presidential campaign, making the company one of his biggest financial supporters. In addition, Enron gave hundreds of thousands of dollars to Bush's two gubernatorial campaigns in Texas.

Independent analysts show that Enron employee donated nearly $800,000 from 1999 to 2001 to Bush, members of Congress and both parties. The bulk went to GOP causes.

With criticism mounting, Bush summoned economic advisers to the Oval Office and announced a review of federal rules on pension security and financial disclosure by companies.

"There have been a wave of bankruptcies that have caused many workers to lose their pensions and that's deeply troubling to me," Bush said.

Lay met with Vice President Dick Cheney or his aides six times last year before the release of the administration's energy plan. A Cheney spokeswoman said he last talked to Lay in June, and never about Enron's financial status.

Senior adviser Karl Rove, owned Enron stock at the beginning of Bush's term but sold it under federal ethics rules. Economics adviser Larry Lindsey earned $50,000 from Enron for serving on a company board last year.

Four congressional committees are investigating Enron matters. In one inquiry, Senate investigators are issuing 51 subpoenas for documents from Enron's current and former directors and senior managers and from its auditing firm.