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For Enron's cast, here are 10 little questions

By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times, published January 27, 2002

We're barely out of Act One of Enron, the hottest business melodrama to hit the nation in many years. But it's already getting hard to remember the expanding cast of stars.

We're barely out of Act One of Enron, the hottest business melodrama to hit the nation in many years. But it's already getting hard to remember the expanding cast of stars.

The latest sad scene: former Enron executive J. Clifford Baxter, 43, who shot himself in an apparent suicide Friday. Baxter had challenged Enron's questionable financial practices before resigning in May.

Some names in the Enron play will stick around. Many will fade away. Still more await their cue to appear on stage. How can a too-busy audience keep up?

Just keep your eye on 10 individuals involved in the collapse of Houston's Enron, the nation's biggest corporate bankruptcy and a creeping cancer in the U.S. economy. To each of the 10, here's a question awaiting an answer:

1. To Ken Lay, 59, who resigned last week as chairman and chief executive of Enron: A month after you were warned that Enron faced potential accounting scandals, how could you urge your employees to buy Enron stock and assure them company finances were sound?

More than anyone else, Lay set the tone at Enron and loyal (at least until last fall) employees marched in lockstep. "The third quarter is looking great," Lay messaged an Enron worker on Sept. 26, three weeks before the company announced $638-million in third-quarter losses.

A month after Lay's e-mail, a less swaggering Enron chief asked Bush administration officials for aid. "If there's any kind of support you could give us, we would welcome that," Lay begged Commerce Secretary (and fellow Texan) Donald Evans on Oct. 29. No help arrived.

When Enron collapsed, many of its 20,000 employees lost their retirement savings. And 5,000 of them lost their jobs, too. By contrast, Lay made $205-million in stock-option profits in the past four years.

The silver lining? Lay, the biggest money contributor to George W. Bush throughout his political career, once was considered a leading candidate to become U.S Treasury secretary. Fortunately, that did not occur.

2. To Jeff Skilling, 48, Enron CEO until he suddenly resigned in August: Since you showed contempt for those who did not "get" Enron's "smarter" business strategy, what would you say now to those businesses that are picking through the Chapter 11 remains of your company?

Sure, Skilling -- a former McKinsey consultant -- was smart. Maybe too smart. Obviously too aggressive. More than any other exec, Skilling turned Enron from a basic power company into a full-of-itself high-tech trader that matched buyers and sellers of natural gas, electricity, broadband telecommunications, water, TV advertising and a dozen other commodities. Then poof! He abruptly quit Enron barely a month before the company's death spiral became apparent.

So far, Skilling has avoided much of the harsh scrutiny aimed at Lay and the Arthur Andersen accountants. Odds are, we'll be getting to know him much better in the coming months.

3. To Andrew Fastow, 40, Enron chief financial officer until he was ousted in October: What did you most admire at Enron: the partnerships you set up to try to remove Enron's massive debt from its balance sheet, or the way the partnerships were structured so you personally earned more than $30-million from them?

Like CEO Skilling, Fastow was a young, cocky, table-pounding CFO who felt right at home in Enron's run-and-gun culture. When he wasn't arm-twisting Wall Street firms eager for fees from Enron deals, Fastow was busy creating the complex, unorthodox off-balance-sheet financing that at first fueled Enron's growth -- but later triggered the controversy over Enron's accounting.

Fastow's lawyers say these partnerships, which the CFO ran and had stakes in, were approved by top Enron management and the board. Gee, does that make us want to forgive Fastow's greed or, rather, wonder how so many senior Enron executives and directors chose to wear blinders in the face of such an obvious conflict of interest?

Fastow reportedly has been the target of death threats. But he certainly can afford top legal representation. He's hired David Boies' firm, which represented the Justice Department in its suit against Microsoft and argued (with less success) before the highest court that Al Gore should have won the presidential election.

4. To David Duncan, the now-fired Arthur Andersen partner in charge of auditing Enron: We know you can shred lots of financial documents. So how good are you at shredding lettuce?

Barring a miraculous career reversal, Duncan's next shredding may be for a job dressing burgers at a fast-food chain. Fired from his accounting job and hauled before a congressional panel last week, Duncan chose to take the Fifth Amendment.

Was Duncan too busy caving to pushy Enron executives to notice the company was a financial house of cards? Or is he the fall guy for top Andersen officials who did not want to rock the boat on an Enron relationship that generated more than $50-million a year from accounting and consulting fees? Andersen, which had more than 100 staffers devoted to client Enron, blames Duncan for ordering the rapid destruction of Enron documents after learning the SEC was looking into Enron's iffy numbers. Duncan's attorney says he just followed orders.

Congressional investigators think Andersen's well-timed memos reminding Duncan's team of its policy on disposing of documents were meant to hide details of Enron's audits. We'll be hearing from Duncan again, sooner or later.

5. To Joseph Berardino, CEO of the Arthur Andersen accounting firm: Are you familiar with Darwin's concept of survival of the fittest?

He'd better be. Andersen's inability, again, to properly audit a major corporation has left us with the biggest business scandal in years. Andersen's future is clearly in jeopardy. Andersen missed or ignored Enron's debt-hiding deals. Now it's blaming a massive paper-shredding campaign at Enron on its Houston auditor, David Duncan.

In public, Berardino's strategy is damage control. He told Congress that his firm had made an "error in judgment." He testified Andersen was not too chummy with Enron, but that the Houston company had misled Andersen by withholding information.

Andersen's cause is not helped by the accounting firm's past auditing stumbles at Sunbeam and Waste Management. Berardino's last act as Andersen chief just might involve selling the accounting firm to a competitor.

6. To George W. Bush, president of the United States: Enron's demise may not become a major political scandal, but how deeply are you indebted to Ken Lay, your biggest campaign contributor?

Here's one clue. Bush used to call Lay "Kenny Boy." Now Bush refers to him as "Mr. Lay." The president even complained last week that his own mother-in-law lost $8,000 on Enron stock. It's all part of the plan to create some major distance, pronto, between the White House and the now-damaged political goods better known as Ken Lay.

To the Bush administration's short-term credit, Lay's phone calls to Treasury Secretary Paul O'Neill and Commerce Secretary Donald Evans did not result in any obvious help for Enron.

But what about a year ago? California, facing electricity blackouts and staggering costs for out-of-state power, begged the White House to set price caps. Bush at first ignored California, allowing vast sums of money to flow to Enron and other Texas power producers. Eventually, the White House stepped in to avert a power emergency. But in May, the federal government's top electricity regulator, Curtis Hebert Jr., reportedly said Lay had offered to support his continued tenure if he changed his skeptical views toward energy deregulation. Hebert declined and Bush replaced him months later.

On Friday, the White House again took a tough stance. It ordered a review of $70-million worth of federal contracts with Enron and Arthur Andersen to determine whether the struggling companies merited further government business.

7. To Dick Cheney, vice president of the United States: Given Enron's chummy ties to the Bush administration and Enron's big contributions to most of Washington's politicians, why not make public White House records showing who in the oil industry helped develop the administration's recent national energy policy?

Fat chance. But worth asking. Cheney has refused multiple requests from Congress to disclose who attended the private meetings of the vice president's energy task force.

Cheney, who ran the Texas oil field-services provider Halliburton Co. before he was elected vice president, did meet with Enron CEO Lay last year to discuss energy policy. Both the Bush administration and Enron were keen on deregulating the energy industry. With Enron in bankruptcy, however, efforts to deregulate electricity will face tougher questions.

Enron's cozy White House ties do not stop there. The Washington Post reported last week that the White House's National Security Council briefly acted last year as a "sort of concierge service" to help Enron chief Lay get an audience with officials of India's government to discuss one of the company's power plants based in that country.

8. To Wendy Gramm, Enron board member: As a director on Enron's audit committee, how did you condone the company's strange accounting?

Frankly, we expected more from Gramm, an economist and Washington insider (she's married to Sen. Phil Gramm, R-Texas, and once chaired the Commodity Futures Trading Commission). As an outside director and senior member of Enron's audit committee, she was on the front line of monitoring any potential financial shenanigans in the company.

Here's a big conflict. Of the $5.77-million in contributions to candidates that Enron has made since 1989, nearly three-fourths went to Republicans. And who got the most? Sen. Gramm, and Texas' other Republican senator, Kay Bailey Hutchison, each received almost $100,000.

The Gramms deny wrongdoing, but we haven't heard the last of their names in the Enron probe. Barron's, the weekly financial newspaper, has dubbed the Gramms "Mr. and Mrs. Enron."

9. To Army Secretary Thomas White, a former top Enron executive: Some former employees of Enron Energy Services, a division you helped run, alleged the division overstated its profits by hundreds of millions of dollars in recent years. Isn't this possible, given Enron's other accounting woes?

White, a vice chairman of Enron for 11 years, became secretary of the Army in May. A New York Times story last week quotes former employees at White's Enron division who claim profits were overstated, and senior Enron executives were warned almost a year ago of the division's "illusory" earnings. Enron says the profits were real.

Enron Energy Services' chairman, Lou L. Pai, sold $353-million in Enron stock in the past three years. That's more than any other Enron executive.

White acknowledged he had several conversations with friends at Enron in recent months, including Lay. While no one asked him to intervene on Enron's behalf with the Bush administration, White says he briefly discussed Enron's plight late last year with Secretary of State Colin Powell and Defense Secretary Donald H. Rumsfeld.

10. To Frank Savage, an executive with investment adviser Alliance Capital Management: How could you sit on Enron's board of directors while Alliance made ill-timed purchases in the energy company's stock for Florida's state pension fund?

That conflict of interest is all the more glaring since Alliance's Enron deals resulted in a $306-million loss to the pension fund. Alliance says Savage played no part in the Enron stock purchases for the Florida fund. (Maybe he should have!) But that surely does not explain Alliance's poor judgment in purchasing more Enron stock when it was so obviously in trouble. Lawsuits already abound. The sad outcome: Florida's state retirement system holds the unhappy distinction of being the biggest loser of all in the Enron debacle.

This is a dense drama. Let's see what Act Two of Enron brings us.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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