Enron is the kind of company that gives capitalism a bad name. Many of Enron's top executives, who cashed-in at the expense of stockholders and company employees, are now taking the Fifth Amendment in a futile attempt to avoid incriminating themselves in a complex accounting and stock fraud scheme. But some of them will end up in federal prison anyway.
On Friday, attorneys for former Enron CEO Kenneth Lay notified the Senate Commerce Committee that Lay will testify at a congressional hearing this week. That was after Lay sent his wife out to tell TV interviewers what a wonderful guy he really is. As columnist Maureen Dowd observed in the New York Times, "In Houston's testosterone-fueled energy circles, many men watched Linda Lay crying on TV and muttered that in Texas, there's nothing lower than sending your wife out to fight your battle." Ms. Dowd speculated that Hollywood is now trying to figure out how to turn the Enron fiasco into a TV movie starring blonde actress Renee Zellweger as whistle-blower Sherron Watkins. Shades of Erin Brockovich!
But seriously, the burgeoning Enron scandal illustrates what happens when capitalism runs amuck -- when the government fails to exercise its oversight responsibilities and national accounting firms violate their own professional ethics and rules. In the end, although Enron executives may spend a few months in an upscale federal prison for white-collar criminals, it is the small stockholders and former Enron employees who are paying the price for the executives' Gordon Gekko-like greed.
The Washington Post profiled Cathie and Wayne Stevens of Portland, OR, who lost their life savings on the verge of retirement. Together, the Stevens have 28 years of employment with Portland General Electric, a utility company purchased by Enron in 1997. After Enron bought PGE, their retirement savings peaked at $720,000; however, by the time Enron declared bankruptcy on Dec. 2, 2001, their retirement funds were worth only $2,300. Closer to home, the Nevada Public Employees Retirement System lost $22 million due to the Enron collapse.
We now know that CEO Lay and other senior Enron executives were selling off $1.1 billion worth of company stock last year even as they were urging employees to pour their life savings into Enron's shaky 401(k) retirement plan. Workers received e-mails from Lay last summer reassuring them that the company was stable. "Remember that the Enron Savings Plan is an investment vehicle for your long-term financial needs," Lay told gullible employees just weeks before the company declared bankruptcy and its stock plunged from $40 per share to around one dollar per share (It had been as high as $85 in 2000). As Sen. Richard Durbin, D-Ill. put it, "When the corporate insiders at Enron realized the ship was sinking, they grabbed the lifeboats and left the women and children, their workers and investors, to drown." It's not a pretty picture.
Now, the Stevenses have turned their thermostat down to 62 while the Enron executives who cashed-in before the company collapsed are living the good life at Houston area country clubs. In his Senate appearance this week, Ken Lay will be asked what he knew about the "special partnerships" that concealed hundreds of millions of dollars in debt and overstated the company's profits by more than $1 billion. Meanwhile, congressional Democrats are attempting to turn the Enron debacle into a Bush administration scandal, which will be difficult because both major parties received hundreds of thousands of dollars worth of Enron largesse during the 2000 election campaign.
What we have heard in Washington so far is shocking. On Thursday Jeffrey Skilling, Lay's predecessor at Enron, told skeptical congressmen that he knew nothing about the complex web of partnerships that brought down the company. Skilling testified that he "absolutely, unequivocally thought the company was in good shape" before Lay replaced him last August. Earlier, University of Texas Law School Dean William Powers issued a report criticizing the company's chaotic accounting practices and describing how one senior executive had managed to turn a $25,000 investment into a $4.6 million windfall profit. Another Enron insider explained how top executives -- aided by the Arthur Andersen accounting firm -- had used the partnerships to reap tens of millions of dollars in profits while hiding the company's increasingly desperate financial condition.
Arthur Andersen CEO Joseph Berardino attempted to defend his company's dubious accounting practices before a House subcommittee. "I don't know with authority what we knew and when we knew it," he said. "I did not do the audit of this company (Enron)." But congressmen weren't buying his story. "You're not some innocent," retorted Rep. Paul Kanjorski, D-Pa. "We've been listening to you for a while, and we've basically gotten nothing," added Rep. Gary Ackerman, D-N.Y.
Berardino also disputed Powers' conclusion that Andersen played an active role in setting up the questionable special partnerships. Meanwhile, the Justice Department is considering criminal charges and federal regulators are looking into the issue of whether accounting firms should be permitted to provide management advice to companies they are auditing in an apparent conflict of interest.
So is Enron a Bush administration scandal? Not yet, according to Fred Barnes, executive editor of the conservative Weekly Standard. "Enron's campaign contributions assured it would have no influence at all," he wrote last week. "Republicans are desperate to show they aren't tools of big business (and) Democrats are trying to figure out what the scandal is." Stay tuned; things can only get worse in this election year.
Guy W. Farmer, a semi-retired journalist and former U.S. diplomat, resides in Carson City.