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Senate Commerce Committee Holds Press Conference

Aired February 4, 2002 - 13:03   ET


DARYN KAGAN, CNN ANCHOR: Meanwhile, let's check with Jonathan Karl to see where the Enron investigations and hearings go from here -- Jonathan, hello.


And what you are going to hear from Byron Dorgan and from Fritz Hollings, who is the chairman of the full committee that Lay was supposed to appear before, they are not taking "no" for an answer. Tomorrow at 9:30 the committee will meet, and will authorize a subpoena to compel him to appear before the Senate Commerce Committee.

Now Daryn, as you know from your Constitution, they can compel him to come before the committee, raise his right hand, get sworn in, but they cannot make him talk, because he still does have a fifth amendment right against self-incrimination. So we are expecting that subpoena to go forward tomorrow. What we don't know now is whether or not Ken Lay will follow up his actions today, and simply invoke his Fifth Amendment.

You can hear right now from Senator Fritz Hollings, he is in the Senate Gallery. He is the chairman of the Senate Commerce Committee. Here is Senator Hollings.


SEN. ERNEST HOLLINGS (D-SC), SENATE COMMERCE COMMITTEE: ...issue a subpoena for his appearance on Tuesday, tomorrow a week, which would be the 12th.

There's no question with respect to the jurisdiction of our committee. Others could also have the jurisdiction if they got a select committee, it would suit me. We're not trying to copper (ph) off anything. But we did start with respect to our employees, those who were the pensioners, those who had trust in Enron, and within that trust kept investing at the solicitation of Mr. Lay, their particular stock in the 401(k) program. And particularly we want to make sure that doesn't happen again.

Otherwise, I am going to yield to Senator Dorgan, but I want to cover not just what he has pointed out in the morning news as a culture of corporate corruption, but there's a culture of government corruption. I've never seen a better example of cash 'n' carry government than this Bush administration and Enron. Specifically, everyone knows how the Bushes got the cash, whether while he was governor, using the planes of largest contributor; as president in his campaign; the largest contributor to the Republican committee running the convention and the inaugural committee and everything else like that.

But you ask about where's the carry? Now, Enron's adviser, Lawrence Lindsey, he was appointed the chairman of the National Economic Council. Enron's adviser Mitch Daniels -- all of these people have been on the payroll of Enron. Mitch Daniels, director of the Office and Management and Budget. Enron adviser Robert Zoellick, he's the U.S. trade representative. Enron adviser Harvey Pitt, he was the auditor of the auditors. He's the chairman now of the Securities and Exchange Commission -- Enron adviser. He was on the payroll prior to his coming here as secretary of treasury, Mr. Paul O'Neill. Enron adviser -- he was actually a vice chairman of one of the divisions, I think -- Tom White, secretary of the Army. Then we got Enron's man, of course, John Ashcroft, the attorney general, who says: Wait a minute, with my $50,000, I've got to recuse myself.

And, sure enough, he's given it to Larry Thompson, who was in the law firm that did all of Enron and Andersen's work. I think we ought to have a special prosecutor, under the law.

Enron's man, Spencer Abraham, he got 30-some thousand, secretary of energy. Enron's man, Pat Wood, he was the guy they put in as head of the Texas Utilities Commission, they brought him up here as chairman of the FERC after the present chairman, at the time they were coming to office, refused to go along with Enron's policies. We can get into that. Enron's lobbyist now is of course the chairman of the party.

But there's plenty of carry. The secretary of the Army, White, he was moving to take over the electric contracts, said that the government ought not to be in the business and let us privatize, let Enron broker that.

Pat Wood was moving to deregulate the electric grid. Secretary O'Neill was canceling the repeal of the offshore tax havens. Now, there's hundreds and hundreds of tax havens there. And the vice president himself, Vice President Cheney, he was either lobbying India or lobbying California or being lobbied by Enron, the six some calls that he got. He wouldn't take any calls from Senator Dianne Feinstein, but he would take a call from the Enron folks.

And go right to the point, and the best pollster I know is Andy Rooney, who on "60 Minutes," he said, the first thing we need out of government is a law to stop corporations from buying politicians. If we don't ourselves show any shame in this particular escapade, we'll never get any kind of campaign finance enacted, so that's one of my main concerns in these hearings, in addition to the consumer.

Let me yield to Senator Dorgan.

DORGAN: Senator Hollings, thank you very much. This morning, in an informal meeting, the chairman and the ranking member of the full committee and myself and the ranking member of the subcommittee met and discussed the word we received late last evening that Mr. Lay would not be attending the committee hearing this morning. We decided that we really had no choice but to issue a subpoena to require his attendance, and we will do that tomorrow at a meeting of the full committee.

I regret that he's not coming to the committee at this point. We had been told for over a month that he was going to be available, was anxious to testify. We were told that on last Friday and last Saturday. And then the Powers report came out, which was the report commissioned by the board of directors of the Enron Corporation. And I think that represents the door through which Mr. Lay escaped. I believe that the report that was issued by the board of directors, the Powers report, is a pretty devastating indictment of a number of things that went on inside that corporation.

In August of last year, a vice president of the corporation wrote a memo to Mr. Lay describing some of the problems in that corporation, using the term accounting hoax.

About two months later, three months later, Enron's accounting firm, Arthur Andersen, publicly indicated there were possible illegal acts that had occurred in that corporation. And then on Saturday the Powers report gave a rather devastating review of what was happening inside that corporation.

So Mr. Lay is concerned that people were using language that described problems in that corporation in a very serious way. Yes, but his own vice president did that, his own accounting firm did that, and his own board of directors did that.

I understand it would be difficult to come and testify, but he should not have expected it would ever be a walk in the park to appear before a congressional committee. These are very serious problems, and the Congress is determined to get to the bottom of what has happened with this corporation and try to find what kind of public policy might be necessary, what kind of changes might be necessary in public policy to prevent this from happening again.

As Senator Hollings indicated, this has so many tentacles, it's very hard to figure out where to stop and start, but Senator Hollings talks about regulatory agencies, were they asleep, brain dead, or did they lack the authority. Accounting firms, how on Earth could they have missed what the board of directors report says existed and what we now know existed?

There are so many questions, and we wanted to start with the chairman and CEO, Mr. Lay, to ask him: What happened, what do you know of what happened, who's accountable and who's responsible? I regret that we weren't given that choice this morning, and as a result of that the committee will seek a subpoena tomorrow at a committee hearing.

WYDEN: Thank you, Mr. Chairman, and I'll be brief. It's not possible to figure out what caused this huge Enron ship to capsize if you can't hear from the captain. And that is why it is so important that we stay at it so that the facts get out.

My constituents at home are bleeding as a result of this. We've got thousands of workers who've been devastated as a result of their 401(k) losses. We now face the prospect that those who subscribe to Portland General Electric are going to have to pay $500 each to pick up the consequences of the bankruptcy loss.

Now, as Chairman Hollings and Chairman Dorgan have noted, we have not arrived at any preconceived notions here. But I will tell you, from an appearance standpoint, it sure appears to me that this company was on the financial equivalent of steroids.

As they were trying to have this hyper-growth agenda, they engaged in some very questionable arrangements that certainly inflated their short-term profits. And they inflated those short-term profits, pumped themselves up, to the detriment of the long-term health of thousands of families in my home state and people across this country.

So we've got to get at the facts; we've got to find out, for example, who invested in these partnerships, that is an absolutely key question. And then I intend to ask what was Enron's contingency plan if things went wrong. It's not acceptable to me, with thousands of my constituents hurt, to just have a contingency plan where the powerful get to sell stock and shred documents. That wouldn't be good enough. And that's why we've got to stay at this, to get the facts.

HOLLINGS: Senator Fitzgerald?

FITZGERALD: Thank you.

As the ranking Republican member on the Consumer Affairs Subcommittee of the Commerce Committee, I agree with Senators Dorgan and Hollings that we ought to subpoena Mr. Lay, and I will be urging Republican members to vote in favor of a subpoena.

I have a background in banking and commercial law. I was the in- house general counsel for a bank holding company that was publicly traded in the Chicago area. I have years of experience dealing with complex financial matters. And in my opinion, based on the countless hours I have spent reviewing Enron documents, Enron Corporation went way beyond all hat and no cattle. It was pure bull.

In my judgment, in my opinion, Enron was running a gigantic Ponzi operation within the confines of a publicly traded corporation, and it does not appear to me to go much further than that. I think it is an elaborate version, in my opinion, of a pyramid scheme that could be going on on the streets in any major city in America, practically any day of the week.

Now, yesterday, Mr. Lay's attorney took aim, I suppose, at Senator Dorgan and me and others and said that we had drawn conclusions. The problem for Mr. Lay is that some of the autopsies have already been done on Enron; some of the documentation is already available to this committee and to others; and the Powers report has already been released and it contains some fairly damning information.

And if Mr. Lay wishes to correct the damning impressions that are coming out of those documents, he ought to come before the American people and try to dispel those misconceptions.

So that's my feeling on this. I would be anxious to hear Mr. Lay's response to the numerous questions. I do think our committee needs to get to the bottom of the issue of how you could have what, in my opinion, was a giant Ponzi operation going on within the confines of a publicly traded corporation, and it broke through all the firewalls and defenses that common investors rely on -- accountants, outside lawyers, Wall Street analysts, and finally, the SEC -- and it went on apparently for many years, over a very long period of time, with numerous transactions going on.

Mr. Lay may contend, and I would stipulate it's theoretically possible that Mr. Lay as CEO did not know what was going on beneath him. But the documents give the impression that there were so many transactions taking place over so long a period of time that to believe that you would have to conclude that Mr. Lay was the most out- to-lunch CEO of any corporation in America and that he literally didn't know how his company was booking a large percentage of their profits.

With that, thank you.

HOLLINGS: Senator Boxer?

BOXER: Thank you very much.

I'm here to support my chairman, Ranking Member McCain, chairman of the subcommittee Dorgan, I'm proud to sit on that subcommittee, and Ranking Member Fitzgerald, and stand with my colleagues in supporting the subpoena request that we will be making.

Let me just say, as the senator on this committee from California, many of us have been saying for a long time that the so- called crisis that we faced wasn't real. It was manipulated. That, in fact, power was taken off line and shortages were created and prices were driven up.

I just want to share one chart with my colleagues and with you, because I was going to show this to Mr. Lay, to get his comments.

This is what happened to the wholesale electricity price in California. You can see when it started to go way up in November of 2000. And you can see how it stayed up there until, finally, FERC took action.

But in all that period, all that period, they were transferring billions of dollars out of California into the Enron Corporation and other corporations in that business. It is our contention that in that period, in that period, Enron was kept afloat with these enormous profits, and while they were kept afloat, the insiders were unloading.

(CROSSTALK) Because what you see here is just Mr. Lay's unloading...


You can see just during those peaks how Mr. Lay was unloading $5 million worth of stock, $6 million, $3 million, all at prices ranging from $54, a low, to $85, a high, and taking out of that just enormous money while they were bleeding California and we were pumping money into Enron. I wanted to ask Mr. Lay about this.

The last point I would make, if you examine the whole history here, you see this company working for years to get out from under any kind of oversight. There was only one commission that had any oversight left, and that was FERC.

And then you have the smoking gun memo that the Chronicle unveiled, which clearly shows that it was Dick Cheney who received, if you will, marching orders from Ken Lay, in writing: Don't do anything about price caps, just let it go. And that's what happened.

And finally, when it got so bad that Republican business community was calling this administration and begging, because now prices are up by 40 percent over where they were before, 40 percent increase, they were going to go even higher without that intervention.

So this is going in a lot of different directions. But I am disappointed, I am saddened, in behalf of the people of my state, that I didn't have a chance to talk to Mr. Lay about this.

NELSON: Well, I had another line of questioning, and that was having to do with the fact that some 20 pension funds, retirement systems, took big hits in what they had purchased the Enron stock for and what they sold it, the largest hit of which was the Florida retirement system lost some $335 million.

Now, that in and of itself may be fine. But when you realize that in a three-week period, from the time that the Securities and Exchange Commission announced that they were doing an investigation, therefore the Enron value of the stock started falling, in a three- week period of time, the outside money manager for the Florida retirement system purchased 3 million Enron shares as the stock was dropping from $32 a share to $9 a share.

And when you realize that that outside money manager firm had as one of its managers a present member of the Enron board of directors, then what I wanted to ask was, was there any direction, any order, was there any knowledge of any direction or order from the company, Enron, to pension funds around the country, like the Florida retirement system, to purchase the stock when it was plummeting in value in order to try to get the value of the stock back up, to bolster the value of the stock, so that their loans would not be called where the stock was being held as collateral for the loans?

Had I been there, I would have held this up as a big chart, but you get the drift. This being the time that the SEC announced their investigation and the stock dropping, and each one of those little white boxes tells you how many shares were purchased by the money manager, Alliance Capital Management, whose former manager, Frank Savage, today is still a member of the board of directors of the Enron Corporation.

In that period of November, for example, this same outside money manager, Alliance Capital, just in the month of November, had purchased for not only Florida but others around the country 43 million shares. So there's a lot of questions that are begging to have answers.

HOLLINGS: We'd be glad to respond to your questions.

QUESTION: Senator Hollings, you quoted someone as saying the government could be bought and paid for. Are you suggesting the Bush administration has been bought and paid for as a result of all this?

HOLLINGS: Well, they certainly had cash, and they certainly gave carry, there isn't any question in this senator's mind. I've outlined we've got an Enron government. And they worked all last year -- yes, they say, no help here. Come on, they got help from the secretary of the Army, the secretary of treasury, go right on down, the secretary of energy, the whole kit and caboodle, and we even got Mitch Daniels saying, look here, in that stimulus bill, we want to get Enron $254 million, when they haven't paid any taxes for the last four or five years.

And then, to say, no help here -- they got help all last year trying to save them, at every turn. They had the vice president soliciting India, California, wherever he could go to get their particular energy plan and everything else going. To say no help here is like I did not have political relations with that man, Mr. Lay. That's what happened to Kenny Boy, yes, sir.


QUESTION: ... Senator Fitzgerald's response to both that and a couple of other comments that Senator Hollings made in his opening statement, one being his suggestion to have the select Senate committee could try to consolidate some of this and have the subpoena power, and also his idea of a special prosecutor. As the Republican up there, can you respond to both those ideas?

FITZGERALD: Well, clearly, Enron was a very politically active corporation, and I think that makes this a more interesting story. But the fact of the matter is that at root, I think this is a corporate scandal. I don't believe that anyone in the Bush administration was aware that there was what appears to me to have been a pyramid scheme going on in Enron Corporation. I suspect that many of the board members of Enron felt that that fact may have been concealed from them as well.

And I would point out that the previous administration appears to have taken action with the Overseas Private Investment Corporation to have facilitated insurance and loan guarantees for Dabhol-1 and Dabhol-2, the power plant that Enron was working on in India. And, of course, there's a very famous picture of Ken Lay with the previous president, as well as the current president.

So I think that all makes this very interesting, but I really believe the essence here is you had a lot of dealing between Enron and partnerships that it essentially controlled. It would transfer assets back and forth between those entities, booking, in my judgment, fictitious profits, all the while pumping up their share price, all the while keeping more investors coming in.

And as long as they could keep their share price going up, they could keep bringing in new investors. One their share price started going down, though, the whole pyramid started unraveling.

QUESTION: What about the select committee idea (OFF-MIKE)?

HOLLINGS: I certainly do. I hadn't really discussed it. But why we've done that, we have the consumer jurisdiction (UNINTELLIGIBLE) question about the Federal Trade Commission and deceptive activities, fraudulent conduct, even with respect to the shares of stock. That's in the law. So we're about that part of it. If others committees are going to get in, I think we ought to have some kind of coordination, if not a select committee.

QUESTION: Senator Fitzgerald, based on your description of it as kind of a pyramid scheme, do you and any of the other senators believe that any of the executives...

KAGAN: We've been listening to a number of senators who expected to have the chance today to question Ken Lay, the former chairman and CEO of Enron. After listening to yesterday's Sunday talk shows, his lawyer turned down that invitation. The senators' response to that: Announcing this afternoon they will issue a subpoena demanding that Ken Lay appear before their panel. Let's bring in our Congressional Correspondent Jonathan Karl.

Jonathan, one of the senators did made a good point. When did Ken Lay figure out that this was going to be a tough engagement? Certainly not just yesterday, listening to the talk shows. This was never going to be a love-fest between these senators and Ken Lay.

KARL: They clearly think there was another reason here, and that was that Powers report issued by William Powers, who was empowered by the board of Enron to look into this, and the Powers' report said -- issued over the weekend, said that Lay bears the ultimate responsibility for what happened.

But there was a bombshell at the top of that hearing, and it came from the Democratic chairman of the Commerce Committee, Fritz Hollings, who said by far the harshest comments I've heard from any elected Democrat about the Bush administration's ties with Enron. Here is an example of what Fritz Hollings said to the beginning of that hearing -- press conference.


HOLLINGS: There's a culture of government corruption, and I never seen a better example of cash and carry government than this Bush administration and Enron.


KARL: I mean, "a cash and carry government" is what he is calling the Bush administration. He said further, later on, that -- quote -- "we've got an Enron government," referring to the Bush administration, and he said, "they got help from the secretary of Army, the secretary of Treasury, the secretary of Energy," and then, in the way only Fritz Hollings could say, "the whole kit and kabobble (ph)," very harsh words from Fritz Hollings about the Bush administration.

Didn't provide a lot of evidence of exactly what help they got from those various entities. But he went through the whole list, going so far as to call John Ashcroft, the attorney general, the "Enron's man at the Justice Department." So very harsh political attack on the Bush administration from the top Democrat on the Commerce Committee. You can expect to be hearing a lot more about that as we go on.

KAGAN: Well, in the interest of fair time, I am sure if they were spreading the love there, they would have to plant (ph) that plenty of Democrats, especially in Congress, have taken money from Enron as well.

KARL: Yeah, exactly. There was only one Republican at that hearing, you kind of felt sorry for him. Senator Peter Fitzgerald, who was there while this attack was going on on his president, and he did come out and point out that look, Bill Clinton was also very close with Ken Lay, and Democrats got a lot of money from Enron.

Democrats -- Enron played the game on both sides of the Aisle. One of their top lobbyists just happened to be Joe Lieberman's former chief of staff. This is a company that spread the love around Washington, as you said. They were very close with Democrats. Very close with Republicans, but that was the harshest attack I've heard from an elected Democrat of the Bush administration.

KAGAN: Not a lot of clean pockets or clean palms that were out when it came to Enron. Jonathan Karl on Capitol Hill, thank you very much.




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