posted on January 28, 2002 10:37:50 PM new
The Enron cloud hanging over the Bush White House has yet to take any solid shape, yet the implications are becoming clear. At the very least, Mr. Bush is sullied by association to the scandalous deeds of the
giant energy corporation. If the perception develops inertia that Enron is Bush's favorite company, something that history indicates is quite accurate,the administration and its economic policies have what the spinners call an 'image problem.'
Perception, however, may prove to be the least of Mr. Bush problems in the coming months.
Enron filed for the largest bankruptcy claim in history on December 2nd. Since the
implosion, revelations have come fast and furious that Enron executives hid some $600 million in losses within personal 'off-balance-sheet' accounts that kept the company's bottom line illegitimately in the black. This was done to preserve the health of the company's credit rating, an essential component for so large a business, and to keep the value of Enron's stock from collapsing.
Enron's chairman, Kenneth Lay, appears certain to have violated Securities and Exchange Commission laws during his stewardship of the company. For example, Rule 10b-5 (Employment of Manipulative and
Deceptive Devices) of the Securities Exchange Act of 1934 reads as follows:
"It shall be unlawful for any person,directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
1. To employ any device, scheme, or artifice to defraud,
2. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
3. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security."
On August 14th, months before Enron's collapse became a matter of public knowledge, Lay wrote the following email to his employee/stockholders: "Our performance has never been stronger; our business model
has never been more robust. ... We have the finest organization in American business today." On August 27th, Lay wrote another email to his employee/stockholders extolling the value of an employee stock option program, describing a "significantly higher price" the stock would bring in the near future.
In an attempt to save his failing company, Lay contacted Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans last fall in search of some sort of governmental
assistance. According to O'Neill and Evans, these requests were rebuffed. The fact that Lay even made the calls, however, is prima facie evidence that Lay was fully aware that the emails he sent to his employee/stockholders were based upon incorrect assumptions regarding the strength of Enron and the viability of its stock. In exhorting them to buy into the employee stock option program, he was effectively defrauding them under Rule 10b-5.
Defenders of the Bush administration point to the fact that Lay's pleas for assistance drew no response from O'Neill, or from Bush, who was likewise informed of Enron's impending collapse last fall. These defenders claim that their inaction is proof of their purity; they let the chips fall where they may, and let the "genius of capitalism," in O'Neill's words, determine the fate of Enron.
O'Neill's inaction, however, could prove to have been a serious violation of the duties of his position as Treasury Secretary. According to the Duties and Functions of the Treasury Office, O'Neill is responsible for
"enforcing Federal finance and tax laws." Within the bailiwick of this lies the responsibility for the "development of policies and guidance in the areas of financial institutions, Federal debt finance, financial regulation and capital markets."
Treasury Secretary O'Neill was aware of Enron's impending collapse and did nothing to warn or protect the stockholders. A man so intimate with Wall Street, and with Kenneth Lay, could not have missed the disparity between Enron's stock value and the dire financial news he was getting from Enron's chairman. Rather than perform the duties of his office and step in to protect the thousands of Americans who would lose their life savings within the capital market that deserved and expected his guidance, O'Neill chose only to inform Mr. Bush and then remain silent. This was a dire breach of the clearly stated requirements of his position, one that cost a lot of people a lot of money.
Given the conversations between Treasury Secretary O'Neill and Enron chairman Kenneth Lay, questions about the possibility of insider trading violations come to the forefront. A significant number of Bush administration officials had a great deal of money invested in Enron stock. One such official is Mark Weinberger, Assistant Secretary of Tax Policy in the Treasury Department. Mr. Weinberger was in an excellent position to learn of Enron's approaching doom, and may have used this information to get out while the getting was good.
Considering the number of Enron investors within the administration, it is not so farfetched to ask the questions: Did O'Neill truly keep silent about what he knew? If not, did Weinberger become aware of Enron's situation? Did he use this information to dump his Enron stock before the hammer came down? Did he warn other administration officials to do the same? Given the clear timeline of events, the SEC should have no
trouble running down these possibilities.
Mr. Bush, unlike his friends and administration officials, may well prove to be legally inoculated from harm in the growing Enron scandal. This does not, however, save him from the shame of his association, and the association of his officials, with Kenneth Lay and his failed company.
Mr. Bush promised to return honor and integrity to the White House, and put his oath to paper with the release of a memorandum entitled "Standards of Official Conduct." Dated January 20, 2001, the day of Bush's inauguration, the memorandum outlined the moral expectations for all personnel within his government.
No. 2 on the list of expectations following this preamble reads, "Employees shall not hold financial interests that conflict with the conscientious performance of duty." Given the fact that Mr. Bush owed his years of political success to the millions of campaign finance dollars provided to him by Enron, it is fair to say that he had a distinct financial interest in the health of the company. It is also fair to say that Treasury Secretary O'Neill was acutely aware of this when he received Kenneth Lay's phone calls. Did this conflict of interest keep him from acting on behalf of Enron stockholders, an action that would have hastened the demise of Bush's main financial backer?
Whether or not Bush and his administration violated the precepts of expectation No. 8, "Employees shall act impartially and not give preferential treatment to any private organization or individual," remains to be
seen. One thing does seem painfully clear: a number of high-ranking Enron executives, including Mr. Lay, will soon face serious charges for criminal and SEC violations. In addition, Bush's Treasury Secretary must
answer for his failure to act in accordance to the duties outlined in his department's charter. Questions regarding possible insider trading among administration officials who held Enron stock will also be addressed.
At some point, Mr. Bush himself must find a way to explain to the American people, especially those who lost their life savings in this debacle, what any of it has to do with honor and integrity.
posted on January 29, 2002 08:01:52 AM new"Rather than perform the duties of his office and step in to protect the thousands of Americans who would lose their life savings within the capital market that deserved and expected his guidance, O'Neill chose only to inform Mr. Bush and then remain silent."
I keep telling Republican voters that not only is the GOP and Bush cornholing Liberals and Moderates, they're doing it to their staunchest allies as well! That their own party members routinely backstab their own voters goes to show you how stupid people can be!
"Mr. Bush, unlike his friends and administration officials, may well prove to be legally inoculated from harm in the growing Enron scandal."
Contrary to this guess, Bush will be found to be into it hip-deep, if not over his neck in Enron failure culpability. You heard it here first.
"Defenders of the Bush administration point to the fact that Lay's pleas for assistance drew no response from O'Neill, or from Bush, who was likewise informed of Enron's impending collapse last fall."
I heard the other day that Enron supported causes that was unpopular to the Bush adminstration; such as, the Kyoto Treaty, higher milage automobiles, etc. This goes a long way towards explaining why Enron got snubbed.
Borillar
"Friends don't let Friends vote Republican"
