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American Morning

New Evidence Suggests Enron Executives Hiding Losses and Reaping Benefits of Company's Inflated Net Worth

Aired January 15, 2002 - 08:05   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA ZAHN, CNN ANCHOR: Up front this morning, new evidence suggests Enron executives were hiding losses and reaping the benefits of the company's inflated net worth. Congressional investigators released a letter from an Enron employee to company chief, Kenneth Lay, expressing fear that Enron will -- quote -- "implode in a wave of accounting scandals" -- end of quote.

According to several published reports this morning, that letter was written by Sharon Watkins, a vice president of corporate development, and it came months before the company declared bankruptcy. The bankruptcy took with it the savings of thousands of employees. Some of them are still struggling to pick up the pieces of their personal and professional lives.

Here is Ed Lavandera.

(BEGIN VIDEOTAPE)

JOHN ALLARIO, FORMER ENRON EMPLOYEE: I'm a man (ph), and I am also trying to work this meeting here.

ED LAVANDERA, CNN CORRESPONDENT (voice-over): John Allario is working the phones trying to get his professional career back on track. He is one of 4,000 former Enron employees looking for a new job.

ALLARIO: I had a little bit of time on my hands, and I...

LAVANDER: So Allario's imagination took him online.

ALLARIO: I sat up or I founded this Web site, which kind of pokes fun.

LAVANDERA: That Web site, laydoff.com, spelled L-A-Y-D-O-F-F, as for the head of Enron, Kenneth Lay, has become his best source of income, selling T-shirts.

ALLARIO: The big seller in Texas is the Texas styled justice, which is "investigate him, prosecute him and incarcerate him."

LAVANDERA: Allario found out he was wired while sitting at his desk. The phone rang, and the voice on the other end told him he had 30 minutes to leave the building. That wasn't as painful as watching his retirement savings melt away; 40 percent of his 401K was tied into Enron stock.

ALLARIO: It was incredible to sit there -- actually sitting in your desk, looking up and watching the stock fall $10 at a time, sometimes within five minutes.

LAVANDERA (on camera): Dreams of financial security, stock options and big bonuses lured thousands of people to Enron during the 1990s. They could have bailed last year during the slide, but no one ever really thought this company could collapse. Now, almost every former employee you talk to is just trying to salvage whatever they can.

(voice-over): The Enron layoffs didn't just hit the rank-and- file. Allan Sommer was a vice president in charge of a 220-person department. On the day Enron declared bankruptcy...

ALLAN SOMMER, FORMER ENRON EMPLOYEE: We were getting by fax actually. Nobody came over with it. We'd get it by fax, written instructions on what to say.

LAVANDERA: ... he summoned 220 people into an auditorium and told everyone their careers at Enron were over. Seven days later, someone else told him the same thing. In Sommer's words, he was kept on long enough to do the dirty work.

SOMMER: I had never been in a situation where I experienced this much pressure. I've never been in a situation where there has been so little regard for the human side of people.

LAVANDERA: John Allario, who was a Georgetown University graduate, now selling T-shirts on the Internet at $14 apiece. He says he feels like a kid opening a lemonade stand on the street corner.

ALLARIO: And it's simple, but it gets to the point.

LAVANDERA: Ed Lavandera, CNN, Houston.

(END VIDEOTAPE)

ZAHN: The Enron investigations have only just begun, and there are many questions concerning the political influence company executives wield in Washington. Last January, President Bush appointed Curtis Hebert, Jr. as chairman of the Federal Energy Regulatory Commission. Well, shortly thereafter, Hebert apparently refused to comply with Enron chief, Ken Lay's, request to change his position on energy regulation in the south. Well, in the summer, Hebert resigned when it became clear the president was about to replace him. Curtis Hebert, Jr. joins me now from New Orleans -- it's great to have you with us this morning -- welcome.

CURTIS HEBERT, JR., FORMER FERC CHAIRMAN: Good to be here. Thank you.

ZAHN: Do you think that if you had done what Ken Lay of Enron had asked you to do, you would be heading up FERC today? HEBERT: Well, we certainly don't know that, and let me make it clear. I was never asked by the president or the vice president to leave FERC. Actually, there were two new commissioners that came in that had somewhat different policies than I had, which gave them a three-vote majority. I no longer had control over the commission as to the policies that I thought were important for America, and that's why I left. Actually, I still support President Bush.

ZAHN: OK. But we're not really talking about President Bush here. We're talking about the actions of Ken Lay. How much of what he asked you to do ultimately led to your resignation?

HEBERT: Well, I don't know. You know, certainly I think a lot of people see executives like Ken Lay who attempt to wield power throughout Washington and states. I never saw Ken Lay as a huge energy player, Paula. I think a lot of people did. I saw him as a trading company. That's why I never really allowed him to exert any type of influence over me on what power companies or what utility companies should be doing in this energy industry.

ZAHN: But isn't it...

HEBERT: As you remember...

ZAHN: Sorry to cut you off, but I just wanted to pick up on...

HEBERT: That's OK.

ZAHN: ... a thought you just mentioned. Isn't it true that he asked you to support electricity deregulation in the south?

HEBERT: Well, as you know, I do support electricity deregulation. We're in the middle of that. What he wanted me to do was to mandate regional transmission organizations, which I've told him there was no legal basis for under the Federal Power Act. And at the same time, even if there was a legal basis, I told him it was not the right thing for America. As you know at that time, we had prices skyrocketing in the West and California. We were trying to correct that and make certain that we were on the right path, not the wrong path.

ZAHN: So once you made it clear to Mr. Lay you didn't think that was the right thing to do, then what happened?

HEBERT: Well, when I told him that I didn't think it was the right thing to do, and also that there was no legal basis for it under the Federal Power Act, he told me that he and his company, Enron, could no longer support me as chairman.

ZAHN: And how did you accept that? Was that a threat as far as you were concerned?

HEBERT: Well...

ZAHN: What exactly did that mean? HEBERT: Well, you know, I guess I found it somewhat discomforting that I would be in a phone conversation, and that would come up and be said. But the same time, I didn't give Ken Lay any more weight than I would the CEO of a co-op in Tallahatchie, Mississippi.

ZAHN: So you said you found it discomforting, but at the same time, you knew you didn't have the support of that guy. That obviously made you realize then perhaps your days were numbered?

HEBERT: Well...

ZAHN: Or am I reading too much into this?

HEBERT: Well, again, I mean, what he told me was that he and his company could no longer support me. That didn't surprise me. Enron was never probably a supporter of mine. Enron was always -- if you looked at their executives, Ken Lay, Jeff Skilling, the whole group, they were never in it for the energy sector. They were in it for the trading opportunities. Everything they espoused to Congress and to state leaders was always what's in the best interest of Enron, never what's in the best interest of American energy companies.

ZAHN: Well, Curtis, you say you never perceived him as a major energy player, and yet, a lot of people say he clearly wielded influence when it came to energy policy. What kind of imprint do you think he left relative to other corporate executives in his industry?

HEBERT: I think he left a valuable lesson to corporate executives that integrity matters, that quite frankly you can work awfully hard if you want to to fooling the public. But when you're trying to set up a competitive marketplace, which is exactly what Ken Lay said he was trying to do through Enron, it is really amazing that the competitive marketplace was actually his undoing. Because if you look to see what happened when Enron took the slide, actually the competitors in the marketplace, including my company, Entergy (ph), stepped up to the plate and filled that void, and you never as much as saw a flicker of a light bulb. The seventh largest company in America, and that tells you the robustness of this energy sector.

ZAHN: So, Curtis, against your own personal story, did it come to any surprise to you what had happened to this company? I know you are bitter about how Mr. Lay treated you.

HEBERT: You know, personally, I've dealt with people like Ken Lay. I always just kind of pushed them aside and saw them as individuals who, quite frankly, weren't looking after the best interests of all, but themselves singularly. We deal with people like that, you and I, all of the time, so it's not a big deal. I think probably the sad news is what I heard you reporting on earlier, the people with Enron that were left there without jobs, that lost their opportunities for the future that they had bet on, that they had saved for.

But I do think it's important for us to understand that, as you look at competitive markets, not only do they give choices to Americans, but they root out evil and wrongdoing, as you saw right here, because in a best case, the executives at Enron did not fully disclose. In a worst case, they didn't tell the truth, and I think that's important for us to understand, because it's not only important to have good people working at energy companies or trading companies, as you see Enron, it's important to have good leadership. And when they are deceptive, it means you have a deceptive company, and that's a bad thing.

ZAHN: Curtis Hebert, Jr., thank you very much for sharing a part of your story with us this morning. We very much appreciate your time.

HEBERT: Thank you, Paula.

ZAHN: Continued good luck to you.

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