Report from Washington: Anti-ESF legislation is coming

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By Dana Milbank and Susan Schmidt
The Washington Post
Saturday, January 12, 2002

Former Clinton Treasury secretary Robert E. Rubin
telephoned a top Treasury official last fall to
explore whether the Bush administration could
intervene on behalf of Enron Corp. as the giant
energy company neared collapse, officials said
yesterday.

Rubin, chairman of the executive committee at
Citigroup, one of Enron's main creditors, called
Peter Fisher, Treasury undersecretary for domestic
finance, and asked "what he thought of the idea"
of calling bond-rating agencies to help forestall
a crippling reduction in Enron's credit rating,
according to a statement released by the Treasury
Department.

Fisher told Rubin that he didn't think it was
advisable, and did not make a call, Treasury said.

The news of Rubin's efforts concluded another day
of disclosures at the Treasury Department, on
Capitol Hill and elsewhere about the extent of
government contact with Enron executives in the
weeks before the company's filing for bankruptcy
court protection.

Yesterday's developments included the Treasury
Department's disclosure that Enron President
Lawrence "Greg" Whalley had "six to eight"
conversations last fall with Fisher, including one
in which he asked Fisher to call Enron's lenders
as they decided whether to extend credit to the
company.

Also yesterday, Congress moved closer to filing a
lawsuit against Vice President Cheney to force the
release of information on administration meetings
with energy industry executives last spring.
Congressional Democrats want to know how much
influence the executives may have had on
administration energy policy.

Enron's Dec. 2 filing for bankruptcy law
protection was the largest in U.S. history, wiping
out the pensions of thousands of workers. The
Justice Department opened a criminal investigation
into the collapse, and President Bush on Thursday
created task forces to examine changes to the law
to protect pensioners in bankruptcies.

That same day, Enron's auditor acknowledged it had
destroyed thousands of documents; two Bush Cabinet
secretaries said they had received calls from
Enron's chief executive, Kenneth L. Lay, as the
company neared collapse; and Attorney General John
D. Ashcroft recused himself from the government's
criminal probe because he had received
contributions from Enron for his 2000 senatorial
campaign.

As lawmakers and the administration tried to sort
out the legal and political consequences of the
growing controversy, the administration argued
forcefully that there was no wrongdoing because
its officials did not intervene to aid Enron. But
some Democrats, including Rep. Henry Waxman (D-
Calif.), said the administration should have tried
to protect Enron workers and pensioners after
learning the company was about to declare
bankruptcy.

The Treasury Department's statements about Rubin
showed Enron's political reach and the
administration's determination to point out that
the company had contacts with prominent Democrats
as well as Republicans.

According to the Treasury statement, Rubin
inquired Nov. 8 whether the government could
encourage the bond agencies to work with Enron's
lenders to "see if there is an alternative to an
immediate downgrade" of Enron's credit rating. The
downgrade likely would have forced the company
into bankruptcy.

A source close to Rubin said the Treasury
statement was "largely accurate," but that Rubin
prefaced the call by telling Fisher, "This is
probably not a good idea." The source said that a
potential merger between Enron and its Houston
neighbor, Dynegy Inc., was in trouble and that
Rubin was "trying to hold it all together."

Citigroup is one of Enron's two principal bankers,
along with J.P. Morgan. The banks were side by
side with Enron in November as it struggled to
keep alive the Dynegy deal. The banks have taken
the lead in trying to raise as much as $1.5
billion to help Enron through its bankruptcy
reorganization effort.

The Treasury Department also said that in one of
his telephone calls to Fisher during late October
and early November, Whalley suggested Fisher help
Enron secure a credit extension. Enron yesterday
suggested the comment was made in jest. Fisher
declined to ask for the extension, Treasury
spokeswoman Michele Davis said, but he did talk to
banks about whether Enron's collapse would so roil
the banking system or capital markets that the
government would be forced to intervene. The
answer Fisher received, Davis said, was that the
banks and markets could absorb the loss.

The disclosures portray more intensive contact
between the administration and Enron than the
White House had indicated on Thursday. The
administration said then that Lay had two
conversations with Treasury Secretary Paul H.
O'Neill and one with Commerce Secretary Donald L.
Evans.

Lay suggested to Evans that it would be helpful
for Evans to try to persuade a private credit-
rating agency not to downgrade Enron's debt, and
Evans declined, according to the Commerce
Department.

The administration said nobody intervened to aid
Enron. White House spokesman Ari Fleischer and
Mary Matalin, senior aide to Cheney, said they do
not believe any White House officials, including
Bush and Cheney, heard of the approaches from
Enron officials until Thursday.

Congressional aides said yesterday that senior
Democratic senators were preparing a letter to the
investigative arm of Congress, the General
Accounting Office, encouraging it to proceed with
efforts to obtain records of meetings by Cheney's
energy task force, which drew up the
administration's energy policy last spring. The
GAO has said it would decide within a month
whether to file a lawsuit to obtain the records,
which the White House has said it would not
provide. Congressional officials said GAO action
is likely to come soon, but the agency is waiting
for a guarantee of support from lawmakers.

Senate aides said Sen. Byron Dorgan (D-N.D.), who
heads a Commerce subcommittee examining Enron, has
been working on a letter of support to the GAO,
possibly to be joined by others.

A spokeswoman for Sen. Joseph I. Lieberman (D-
Conn.), chairman of the Senate Governmental
Affairs Committee, said he believes "Congress has
a right to the information" and hopes the
administration will turn it over without a
lawsuit.

Some Republican lawmakers have also called on the
White House to provide the records of its energy
task force. "It is just basic information that
should be provided and isn't all that big a deal,
except for the fact that the administration
doesn't want to share it, which makes it a big
deal," said Rep. Christopher Shays (R-Conn.), who
called on the GAO to proceed. Earlier this month,
the White House disclosed that its energy task
force met six times with Enron officials but said
the company's finances were not discussed.

Matalin said the administration position on
releasing the information was unchanged. "If they
want to know what we discussed, read the first
energy policy in a generation," she said. The
House Energy and Commerce Committee asked
yesterday for hundreds of new records from Enron's
auditor, Arthur Andersen LLP, including the
personal files of David Duncan and five other
Andersen partners involved in the audit of the
company. The committee believes many of the
destroyed documents were e-mails sent to and from
executives, committee spokesman Ken Johnson said.

The Senate's Permanent Subcommittee on
Investigations issued 51 subpoenas to Enron and
Andersen yesterday. Its chairman, Sen. Carl Levin
(D-Mich.), said, "We are going to be looking into
the circumstances surrounding the board members'
Enron stock and option trades, the conduct of the
board's audit committee, the conduct of the board
with respect to both internal and external
audits."

While congressional committees pursued their
investigations, political party officials tried to
taint each other with donations received from the
company. Since 1989, Enron has made $5.8 million
in campaign donations -- 73 percent to Republicans
and 27 percent to Democrats.

The Republican National Committee pointed out that
a large number of top Democrats received Enron
contributions, including Lieberman, Senate
Majority Leader Thomas A. Daschle (S.D.) and House
Minority Leader Richard A. Gephardt (Mo.). The RNC
also pointed out that the Democratic National
Committee had received $285,000 in Enron
contributions in 2000. But Rep. Thomas M. Davis
III (R-Va.) said yesterday the National Republican
Congressional Committee will return $100,000
donated by Enron last year and called for
bipartisan investigation into the company's
bankruptcy and requests for government help.

"If anybody else wants to focus on politics,
that's their prerogative, but the president's
focus is on getting to the bottom of this fully,"
Fleischer said. As a political issue, he said,
"this dog won't hunt."

Fisher, the Treasury official asked to intervene
with Enron's lenders, is a Democrat. He was
previously with the Federal Reserve Bank of New
York and helped orchestrate a private-sector
bailout for Long-Term Capital Management, a $4
billion hedge fund. His current job is to monitor
the financial markets. He kept in contact with the
big players on Wall Street, constantly asking if
they sensed any fallout from Enron's market
condition. Michelle Davis said Fisher "politely
demurred" when he sensed he was being asked to
contact the banks. Robert Bennett, an attorney for
Enron, said Whalley called Fisher whenever there
was bad news to report, but suggested his comments
were less sinister than the Treasury Department
indicated. According to Bennett, Whalley told
Fisher, "It would be nice if you could get these
banks to lend us some money. But I should tell
you, our credit is not good." Bennett said Whalley
then laughed.

In addition to calling O'Neill and Evans, Lay
called Federal Reserve Chairman Alan Greenspan on
Oct. 26. "We will not characterize the
conversation," a Fed spokeswoman said. "The
chairman did nothing in response to the call
because it would have been inappropriate."

Karen Denne, spokeswoman for Enron, said: "Mr. Lay
does not believe he asked for anything. He wanted
to provide information."

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Staff writers John M. Berry, Glenn Kessler and
Spencer Hsu contributed to this report.