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CNN Saturday Morning News

Reporter's Notebook: The Enron Collapse

Aired January 26, 2002 - 09:31   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.
MILES O'BRIEN, CNN ANCHOR: The collapse of Enron is causing aftershocks on Wall Street and in Washington, with reports of document destruction, contact with the White House, and yesterday, the apparent suicide of a former Enron executive.

Some may be asking, What's next?

Today we're discussing the Enron fallout, and we're taking your e-mails and calls. And joining me from Washington, CNN White House correspondent Kelly Wallace, CNN congressional correspondent Jonathan Karl, and "Business Week"'s Lee Walczak. And in Houston, CNN Financial News reporter Fred Katayama. A distinguished panel indeed, good to have you all with us this morning.

KELLY WALLACE, CNN WHITE HOUSE CORRESPONDENT: Good to be with you.

O'BRIEN: All right. Let's get to the e-mails right away. Fred, we're going to begin with you in Houston, since that's where this story begins. Kevin McGrath of Woodbridge, Virginia, has this for you. "For as big a news story as Enron is, I'll bet that if you asked 100 people at random across America what exactly Enron did, a very small percentage could tell you."

Fred, give us Enron 101.

FRED KATAYAMA, CNN FINANCIAL NEWS: Well, the problem, Miles, a lot of people at Enron couldn't tell you either, it's so complex. And that's the big part of this scandal. Basically what happened was, Enron was basically an old-line pipeline company that tried to transform itself into a new economy company overnight. Instead of just focusing on assets like gas and natural oil -- and oil pipelines, they basically got into things such as fiberoptics.

They became a trader, in essence, a wholesale trader of energy products and other items such as weather derivatives and fiberoptic lines.

So the company expanded too fast. The other problem, the biggest problem was shady accounting, what some people would like to call fuzzy math, and that's what got them into trouble. They had to restate their earnings lower by about $600 million, wiping out about more than a billion dollars in shareholders' equity, and that basically led to the company's downfall. Plus, there was Arthur Andersen, the auditor, that basically winked, (UNINTELLIGIBLE) and signed off on the books of these shady accounting practices.

So you've got a full-fledged scandal here complete with a whistle-blower and some political connections in Washington. People, a lot of congressmen, who got money from Enron.

O'BRIEN: All right. A complex story, well told. We appreciate that, Mr. Katayama, for shedding some light on that in nutshell form. Nutshell indeed.

Let's get a phone call in. Bill is in Portland, Oregon, this morning, up early, we appreciate that, Bill. What's your question, sir?

CALLER: My question is, is up to this point, everyone's saying, Look, Enron gave $500,000 in political contributions, they got nothing from it. Our hands are clean, the White House says. What was the $240 million economic stimulus package that they were going to give Enron, a company that did not pay taxes in the last four years?

O'BRIEN: All right, Kelly Wallace, you want to take that one?

WALLACE: Well, you know, Bill, you raise a good point, obviously. The administration, as you've heard all along, has said that, yes, Enron was a very large contributor to President Bush and to Republican candidates, but that Enron, when it was calling, when executives were calling cabinet secretaries in this administration to have the government intervene to prevent the company's collapse, that those cabinet secretaries did not do anything.

Now, you certainly do raise the point, Enron would have definitely gained considerably if there was passage of that economic stimulus package and some kind of repeal of that corporate alternative minimum tax. The White House would say lots of companies would benefit, and that the president was pushing this, in a way, to have tax cuts and tax breaks to give a boost to the economy, not to benefit any one company.

Still, though, obviously you continue to have questions raised. And what we're just getting from White House advisers is, Look, unless you can point out any allegation of wrongdoing, this administration acted appropriately and will continue to do so -- Miles.

O'BRIEN: All right, thank you very much, Kelly.

Let's head back to the e-mailbox, shall we? This one comes from a bit north of the border, Ottawa, Canada, to be exact. Mike Graham has this. "Were there no outside government auditors checking the Enron books every year that could have prevented this, or is there any auditing of businesses that are this big?"

Let's send that over to Lee Walczak. Lee?

LEE WALCZAK, "BUSINESS WEEK" MAGAZINE: Well, basically the government doesn't audit private corporations' books. We have accounting firms to do that, and theoretically the accounting profession is subject to peer review by guess who, other accountants. And as part of the reform process now, people are talking about ways to tighten up supervision of the profession and some of the incestuous relationships between accountants and the firms they audit, particularly the sale of services and consulting to the firms that are supposedly being scrubbed by the accounting firm.

And I think this will be one of the real changes that results from this scandal.

O'BRIEN: All right, let's get a phone call on the line. The dean of all callers, Joe McCutcheon from Ellijay, Georgia, on the line with us. Joe, good morning to you, sir.

CALLER: Good morning, Miles. You and CNN do an incredible job.

My question is for Kelly Wallace. Kelly, what will be the impact of the Enron scandal on the Bush presidency and the Republicans' attempts to regain control of the Senate and keep control of the House?

WALLACE: Well, that is really the billion-dollar question, isn't it? Obviously there is concern. This, of course, is an election year, control of the Congress at stake. Obviously Republicans certainly hoping to hold onto control of the House of Representatives and gain control of the Senate.

You know, it is just interesting, we've seen the White House kind of shift a little bit. You know, we saw there in the beginning, obviously the president expressing some concern about what happened here. But just earlier this week, Joe, you heard the president say he was outraged, outraged that shareholders lost money, that executives at Enron were not forthcoming and did not reveal all the facts.

Then you had yesterday the White House budget director saying that all federal agencies should review any contracts with Enron and Arthur Andersen.

Aides say that there's no shift going on here, that the administration is just responding to ongoing information that continues to come out. But they cannot deny that there is a little bit of concern. Some polls, as you've seen, Joe, have said that more Americans think the administration may have strong ties to Enron, and may not be as forthcoming as it should be.

Democrats and other analysts say there is just a perception problem here, that even if no one did anything wrong in this White House, there is a perception problem that the administration, the president, his aides are closely aligned with big business as opposed to everyday workers.

So whether or not this becomes an issue, it really remains to be seen. Clearly the White House will be doing everything it can to get the president to talk about those individual workers who lost money, and trying to distance himself as much as possible from the heads at Enron.

O'BRIEN: All right. Back to the e-mailbox we go. Mark Vetanen of Beaverton, Oregon -- I'm sorry, Mark, if I butchered that -- this one's for Jonathan Karl. "Will the Enron scandal strengthen the case for campaign reform?"

JONATHAN KARL, CNN CONGRESSIONAL CORRESPONDENT: Well, Miles, the short answer is yes, it already has. As you saw last week, in the House of Representatives, a petition that had been languishing for six months, this petition to force a vote on campaign finance reform, suddenly, on the first full day Congress was in session, and the first day of the first Enron hearings of the year, got enough signatures, and Congress will have a big debate on campaign finance reform.

It doesn't mean it's going to pass, and a lot of Enron's influence here had nothing to do with financial contributions. One thing Enron did spectacularly well in this town was hire well- connected lobbyists tied to both Republicans and Democrats, people like Jack Quinn, who was Bill Clinton's top White House lawyer, and also Michael Lewin, who was, guess what, the chief of staff, former chief of staff, to Senator Joe Lieberman, who is running the Enron investigation in the Senate.

So campaign finance reform will get a boost. Whether or not it gets the boost is far from clear at this point. And even if it passes, a company like Enron would have a lot of influence in this town.

O'BRIEN: All right, let's go back to the switchboard, and on the line with us this morning is Carl from Virginia. Carl has a question for Fred Katayama. Go ahead, Carl.

CALLER: Hi, good morning. The -- why can't, with over a billion dollars' worth of stock sales by the senior executives, when it looked like the company was going down, why can't the results of the funds from those sales be frozen until this issue is settled? Thank you.

KATAYAMA: Good question, Carl. Of course, a lot of the people who are trying to get access to those funds, you have a bunch of class action lawsuits out there, lawsuits by shareholders trying to freeze those assets. The problem is, for a lot of shareholders and employees, they're last in the list of -- last in the line of creditors. So once we go into bankruptcy proceedings, it's very likely that shareholders and employees may get nothing. With the assets -- with assets shrinking so fast and with the company's debt so huge, there may be no money left in the end once the bigger creditors, such as the banks, get paid.

Miles and Carl?

O'BRIEN: All right, let's go back, get a quick question in here. This is for Mr. Walczak with "Business Week." This comes from Alan in Georgia on the line with us here. Alan, good morning.

Alan, are you there? We've lost Alan. Let's go to the e-mail, shall we? When in doubt, turn to the e-mail. The question here is a very straightforward one. Alice in Louisiana has this for us. "Did President Bush lose any money in Enron's fall?" Let's see, Kelly, you want to take that one?

WALLACE: I'll try, Alice. A good question. Don't know the answer to that, and that is in part because the president's holdings in a blind trust. I do believe, again, I don't have all the facts, do believe he may have held some Enron stock, but of course once he becomes president, he and the first lady, their holdings are all in a blind trust, administered by an individual to avoid any conflict of interest.

Other members of this administration, though, certainly were holding Enron stock and had to sell it eventually so there would not be any conflict of interest. Karl Rove, one of the president's top political advisers, I believe was holding about $100,000 worth of Enron stock and had to sell that off back in June, was actually holding onto it for a while, sold it off in June, and of course the stock was at a higher price then than it would have been now if he had to sell it now.

So don't have the answer, but we believe he did potentially have some stock, but if he does, it's in a blind trust right now.

O'BRIEN: All right, let's send one back to Fred Katayama in Houston. This one comes from Seth Abramowitz. Seth has this, "How can authorities be so sure this was a suicide," referring to the former Enron vice chairman who was found dead in his car, "and not something more serious? There probably are quite a few people in the world who would want all Enron execs dead."

KATAYAMA: Well, Miles, in answer to that question, authorities are not ruling everything out. At first local authorities were so sure that this was a suicide, the evidence so strong, that they said that they would not be conducting an autopsy. Then just before noon yesterday, they reversed course and said they will conduct an autopsy. They will not rule anything out.

The problem is, here in the media, we don't know what was contained in the suicide note. We don't even know where it was found. We hope to get more details from that from local authorities over the next few days. They will be conducting an autopsy. We hope to hear the results over the next few days -- Miles.

O'BRIEN: All right, let's get one more question in for Lee Walczak. He is our guest, and we haven't had a chance to get to him. We apologize, because of that caller.

This one comes from Patricia Harper-Miller. "Because of the many connections in Washington and the White House, is it likely that A. Andersen" -- Arthur Andersen -- "will take the fall for Enron?" What do you think about that, Lee?

WALCZAK: Well, I think this is one scandal where there's plenty of blame to go around, plenty of companies will take the fall. Enron senior executives have a major problem with this scandal because they look like they had inside information about the perilous financial condition of this company, didn't act on it. In fact, senior officials were telling their employees and the press that everything was great with this company when it was clear they were getting warnings from the inside that things were collapsing.

So I think, although Arthur Andersen has a problem with giving the green light to some practices that really pushed the envelope beyond normal corporate practice, Enron is at the center of this scandal.

O'BRIEN: All right. And one final e-mail question, this one for Jonathan Karl. This one is a little bit long, I'll get through it as quickly as I can. "Scandal, maybe, but it's an opportunity for my party, the Democrats, to break the cycle of eat-your-young scandal- mongering and not demonize the Bush administration. Do we have the character to do that? And if we do, do the Republicans have the character to refrain in kind when the next Democratic foe scandal pops up?" That from Roger Curry.

In other words, will this lead to a kinder, gentler Washington, Jonathan?

KARL: Well, there were some indications early on that's exactly what the Democrats were hoping to do. They didn't want to appear to be doing what the Republicans did in the Clinton years. And all those scandals, all those scandal investigations in Congress of President Clinton, especially the Whitewater scandal, which went on for years, of course, those actually came back politically to hurt the Republicans more than they hurt Bill Clinton. His popularity seemed to go up with each new allegation.

So the Democrats have been playing it cautious, but they just can't seem to resist it. Now with this latest story you saw about Karl Rove and Ralph Reed and connections to Enron, well, the Democratic National Committee, an official with the committee, told me last night that they are considering actually filing a complaint with the Federal Election Commission alleging that the Bush campaign of 2000 illegally used Enron as kind of a slush fund to pay Ralph Reed as an adviser.

So don't look for this necessarily to go away, this whole cycle of scandal and investigation.

O'BRIEN: Yes, that's...

KARL: You're seeing a lot of the same things over and over again, and the Democrats, a lot of them, are ready for payback.

O'BRIEN: Let's face it, they're not going into some sort of 12- step program here, Politics Anonymous.

KARL: Indeed they're not.

O'BRIEN: They're -- they just can't resist, can they? Jonathan Karl is coming up in about 15 minutes' time. Jon, I think you're going to be talking a little bit more about this and some other things, right?

KARL: Absolutely. As a matter of fact, we're going to have John Dingell, who is the lead Democrat on this, in the House committee leading the way on Enron, so it should be interesting.

O'BRIEN: All right, so stay tuned for that. That's in 15 minutes right here on CNN.

Kelly Wallace, Jonathan Karl, Lee Walczak, Fred Katayama, great panel. Sorry we didn't have a little more time. Excellent questions from all of you out there. We always appreciate that. You make this segment work. We appreciate it.

Have a good day, folks.

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