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From: Ishgooda <[EMAIL PROTECTED]>
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Sent: Wednesday, January 16, 2002 9:36 AM
Subject: [NativeNews] Enron, Bush Officials Face Serious Legal Questions
Enron, Bush Officials Face Serious Legal Questions
by William Rivers Pitt
t r u t h o u t | 01.15.02
http://www.truthout.com/01.16A.Pitt.Enron.htm
"The wish to acquire more is admittedly a very natural and common thing; and
when men succeed in this they are always praised rather than condemned. But
when they lack the ability to do so and yet want to acquire more at all
costs, they deserve condemnation for their mistakes."
- Niccolò Machiavelli
The Enron cloud hanging over the Bush White House has yet to take any solid
shape, yet the implications are becoming clear. At the very least, Mr. Bush
is sullied by association to the scandalous deeds of the giant energy
corporation. If the perception develops inertia that Enron is Bush's
favorite company, something that history indicates is quite accurate, the
administration and its economic policies have what the spinners call an
'image problem.'
Perception, however, may prove to be the least of Mr. Bush problems in the
coming months.
Enron filed for the largest bankruptcy claim in history on December 2nd.
Since the implosion, revelations have come fast and furious that Enron
executives hid some $600 million in losses within personal
'off-balance-sheet' accounts that kept the company's bottom line
illegitimately in the black. This was done to preserve the health of the
company's credit rating, an essential component for so large a business, and
to keep the value of Enron's stock from collapsing.
Enron's chairman, Kenneth Lay, appears certain to have violated Securities
and Exchange Commission laws during his stewardship of the company. For
example, Rule 10b-5 (Employment of Manipulative and Deceptive Devices) of
the Securities Exchange Act of 1934 reads as follows:
"It shall be unlawful for any person, directly or indirectly, by the use of
any means or instrumentality of interstate commerce, or of the mails or of
any facility of any national securities exchange,
1. To employ any device, scheme, or artifice to defraud,
2. To make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the light
of the circumstances under which they were made, not misleading, or
3. To engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any person, in connection with the
purchase or sale of any security."
On August 14th, months before Enron's collapse became a matter of public
knowledge, Lay wrote the following email to his employee/stockholders: "Our
performance has never been stronger; our business model has never been more
robust. ... We have the finest organization in American business today." On
August 27th, Lay wrote another email to his employee/stockholders extolling
the value of an employee stock option program, describing a "significantly
higher price" the stock would bring in the near future.
In an attempt to save his failing company, Lay contacted Treasury Secretary
Paul O'Neill and Commerce Secretary Don Evans last fall in search of some
sort of governmental assistance. According to O'Neill and Evans, these
requests were rebuffed. The fact that Lay even made the calls, however, is
prima facie evidence that Lay was fully aware that the emails he sent to his
employee/stockholders were based upon incorrect assumptions regarding the
strength of Enron and the viability of its stock. In exhorting them to buy
into the employee stock option program, he was effectively defrauding them
under Rule 10b-5.
Defenders of the Bush administration point to the fact that Lay's pleas for
assistance drew no response from O'Neill, or from Bush, who was likewise
informed of Enron's impending collapse last fall. These defenders claim that
their inaction is proof of their purity; they let the chips fall where they
may, and let the "genius of capitalism," in O'Neill's words, determine the
fate of Enron.
O'Neill's inaction, however, could prove to have been a serious violation of
the duties of his position as Treasury Secretary. According to the Duties
and Functions of the Treasury Office, O'Neill is responsible for "enforcing
Federal finance and tax laws." Within the bailiwick of this lies the
responsibility for the "development of policies and guidance in the areas of
financial institutions, Federal debt finance, financial regulation and
capital markets."
Treasury Secretary O'Neill was aware of Enron's impending collapse and did
nothing to warn or protect the stockholders. A man so intimate with Wall
Street, and with Kenneth Lay, could not have missed the disparity between
Enron's stock value and the dire financial news he was getting from Enron's
chairman. Rather than perform the duties of his office and step in to
protect the thousands of Americans who would lose their life savings within
the capital market that deserved and expected his guidance, O'Neill chose
only to inform Mr. Bush and then remain silent. This was a dire breach of
the clearly stated requirements of his position, one that cost a lot of
people a lot of money.
Given the conversations between Treasury Secretary O'Neill and Enron
chairman Kenneth Lay, questions about the possibility of insider trading
violations come to the forefront. A significant number of Bush
administration officials had a great deal of money invested in Enron stock.
One such official is Mark Weinberger, Assistant Secretary of Tax Policy in
the Treasury Department. Mr. Weinberger was in an excellent position to
learn of Enron's approaching doom, and may have used this information to get
out while the getting was good.
Considering the number of Enron investors within the administration, it is
not so farfetched to ask the questions: Did O'Neill truly keep silent about
what he knew? If not, did Weinberger become aware of Enron's situation? Did
he use this information to dump his Enron stock before the hammer came down?
Did he warn other administration officials to do the same? Given the clear
timeline of events, the SEC should have no trouble running down these
possibilities.
Mr. Bush, unlike his friends and administration officials, may well prove to
be legally inoculated from harm in the growing Enron scandal. This does not,
however, save him from the shame of his association, and the association of
his officials, with Kenneth Lay and his failed company.
Mr. Bush promised to return honor and integrity to the White House, and put
his oath to paper with the release of a memorandum entitled "Standards of
Official Conduct." Dated January 20, 2001, the day of Bush's inauguration,
the memorandum outlined the moral expectations for all personnel within his
government.
No. 2 on the list of expectations following this preamble reads, "Employees
shall not hold financial interests that conflict with the conscientious
performance of duty." Given the fact that Mr. Bush owed his years of
political success to the millions of campaign finance dollars provided to
him by Enron, it is fair to say that he had a distinct financial interest in
the health of the company. It is also fair to say that Treasury Secretary
O'Neill was acutely aware of this when he received Kenneth Lay's phone
calls. Did this conflict of interest keep him from acting on behalf of Enron
stockholders, an action that would have hastened the demise of Bush's main
financial backer?
Whether or not Bush and his administration violated the precepts of
expectation No. 8, "Employees shall act impartially and not give
preferential treatment to any private organization or individual," remains
to be seen. One thing does seem painfully clear: a number of high-ranking
Enron executives, including Mr. Lay, will soon face serious charges for
criminal and SEC violations. In addition, Bush's Treasury Secretary must
answer for his failure to act in accordance to the duties outlined in his
department's charter. Questions regarding possible insider trading among
administration officials who held Enron stock will also be addressed.
At some point, Mr. Bush himself must find a way to explain to the American
people, especially those who lost their life savings in this debacle, what
any of it has to do with honor and integrity.
======================================================================
William Rivers Pitt is a contributor to t r u t h o u t. For additional work
by him visit : http://www.willpitt.com
WAXMAN Addresses Crucial E-Mails | His Letter to Ken Lay and Copies of the
E-mails
**(Non PDF Versions. No Special Software needed.)
WAXMAN'S Letter -- http://www.truthout.com/01.16B.Waxman.2.Lay.htm
COPY of E-Mail #1 -- http://www.truthout.com/01.16B.Enron-E-mails_01.htm
COPY of E-Mail #2 -- http://www.truthout.com/01.16B.Enron-E-mails_02.htm
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