dictionary

Lawmakers blast Enron's 'culture of corporate corruption'

Enron CEO won't testify Monday before Senate panel

WASHINGTON (CNN) -- Two congressmen on Sunday outlined some of the off-the-books partnerships that are believed to be at the heart of Enron's financial collapse.

U.S. Sen. Byron Dorgan, D-North Dakota, and U.S. Rep. Billy Tauzin, R-Louisiana, said on NBC's "Meet the Press" that an internal report released Saturday by Enron confirmed many of a Senate subcommittee's findings into accusations that the energy trading company misled investors and employees about its precarious financial health and engaged in questionable accounting practices.

The report "suggests massive problems," Dorgan said.

"This is almost a culture of corporate corruption here. ...," he said. "There's just so many tentacles to this story."

"I think we're finding what may clearly end up being security fraud," said Tauzin, chairman of the House Energy and Commerce Committee. "Attempts not to hedge or put debt out of the company, which many companies do, [but] literally fraudulent, phony attempts to do so in violation of current accounting practices, practices that should've been discovered by Enron's auditors at Arthur Andersen."

RESOURCES Document: Powers report 9.5MB (PDF) VIDEO CNN's Kelly Wallace reports on the Enron collapse and the widening investigation in Washington (February 2) Play video (QuickTime, Real or Windows Media)   MORE STORIES Commerce, Treasury told to keep Enron papers     VIDEO/AUDIO   •  Senate unit faults Enron board   •  Corporate corruption in America  MORE STORIES   •  3 Britons charged in Enron fraud   •  Bush pushes for tougher corporate rules   •  Playboy exposes Enron workers  EXTRA INFORMATION   •  Document: Powers report 9.5MB (PDF)   •  CNN/Money Special Report: Your 401(k)   •  Timeline: Shredding through history  RESOURCES   •  In-Depth: The end of Enron?   •  TIME.com: Inside the scandal   LEGAL RESOURCES Latest Legal News Law Library FindLaw Consumer CenterSelect a topicBankruptcyDiscriminationDivorceEstate PlanningLandlord-TenantPersonal InjuryTaxes

The revelations by the congressmen came on the same day that Kenneth Lay, the company's former chairman and chief executive, decided not to appear before a Senate committee on Monday.

Lay was scheduled to appear before the Senate Commerce Committee. It remained unclear whether Lay will still appear as scheduled Tuesday before the House Financial Services Committee.

Enron and accounting firm Andersen are targets of congressional investigations into Enron's business dealings. Thousands of Enron employees lost their retirement savings after investing heavily in the company's stock, the value of which plummeted.

On Sunday, Lay attorney Earl Silbert sent a letter to the Senate Commerce Committee chairman saying that "inflammatory statements" made by some members of Congress indicate that they have already made up their minds.

"He cannot be expected to participate in a proceeding in which conclusions have been reached before Mr. Lay has been given the opportunity to be heard," the letter said, adding that Lay was pulling out of the hearings with the "greatest reluctance and regret."

The Houston, Texas-based energy corporation filed for bankruptcy in December, but critics say Enron executives knew for months of the company's troubled finances and misled employees and Wall Street -- even as they sold Enron stock before it tanked.

At the heart of the Enron report is the finding that company executives reaped millions of dollars from off-the-books partnerships while the energy firm violated basic rules of accounting and ethics. Called the Powers report, the internal review was named after William Powers Jr., head of the special investigative committee that wrote authored it.

Andersen dismissed the report as an "attempt to insulate [Enron's] leadership" but admitted "an error in judgment was made with respect to the consolidation of one of the special-purpose entities." Andersen said that Enron withheld critical information with regard to other partnerships.

As part of a massive re-examination into its auditing practices, Andersen will name former Federal Reserve Chairman Paul Volcker to advise the firm on internal reforms in the wake of the Enron debacle, the firm announced Sunday.

Volcker will chair an independent oversight board to work with Andersen to make changes in its audit practice.

'Shrouded in secrecy'

Based on research of more than 41 boxes of material presented to Congress by Enron, Dorgan explained how one of the nearly 3,000 partnerships, called "Braveheart," worked.

"This partnership borrowed over $110 million from a Canadian bank and that showed up booked as income to the company immediately," Dorgan said. "They were doing almost no business, but they manufactured income from a bank loan under their operative statement. That's the kind of thing that went on over and over and over again, shrouded in secrecy."

Tauzin said a similar deal allowed some employees to became millionaires.

"I investigated, discovered one deal in which one employee of Enron was negotiating for Enron supposedly in one of these partnership deals with another member of Enron," Tauzin said.

"When they signed the deal, they signed as married partners," he said. "We found instances where some employees were invited in on deals ... for a small investment of $6,000. ... Six weeks later that $6,000 investment became $1 million. So some in the corporation were making tens of millions of dollars in some cases, while ... most employees lost their shirts."

Tauzin said key testimony will come Thursday from former Enron CEO Jeffrey Skilling, who is believed to have received $67 million from the sale of Enron stock.

Skilling, unlike former chief financial officer Andrew Fastow, is scheduled to testify instead of invoking his Fifth Amendment right against self-incrimination.

Skilling resigned as CEO in August after a decade at the company, and Lay took over as the company's head.

"We found out that one of the good guys ... [Enron corporate lawyer] Jordan Mintz, who will testify, actually went to Skilling and brought him all these deals to get his signature on them," Tauzin said. "They wanted approval from all the persons involved. The one person who wouldn't sign on the approval sheets ... was Jeff Skilling. What does that say about his knowledge about whether these deals were honest or corrupt?"

Dorgan, the ranking Democrat on the Senate subcommittee, said his panel also would look into how regulators and auditors never raised a red flag before Enron's collapse.

"How could accounting firms have sat by here -- were they brain-dead? Incompetent? What on earth happened?" he asked.

"But there's so many more questions about regulators -- were they asleep at the wheel? Or did they lack the authority? Once you peel the layers of this onion, it gets pretty ugly."