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Date Posted:03:42:31 11/28/08 Fri Author:Vulture Hunter Subject: Connecting the bailout dots...AIG...Citigroup...Clinton...Bush...Paulson...Rubin...Summers....
February 21, 2002
LAY MADE OVERTURE TO RUBIN
Ex-Treasury chief was offered seat on Enron's board
By Marcy Gordon, Associated Press
WASHINGTON - Former Enron chairman Kenneth Lay offered a seat on the company's board of directors in 1999 to Robert Rubin, who was then US treasury secretary, and lobbied Rubin and his successor on issues affecting Enron, documents obtained yesterday show.
The notes and letters show that Lay pressed Enron's interests to Clinton administration officials. Last month, the Bush administration disclosed a series of telephone calls from Lay - one of President Bush's biggest campaign contributors - to members of the Bush Cabinet as the company was sliding toward bankruptcy last fall.
The documents were provided by the Treasury Department under a Freedom of Information Act request by the Associated Press.
Meanwhile, Stephen Cooper, Enron's current chief executive officer, said yesterday that someone could end up in jail on charges stemming from the government's investigation of the collapsed energy-trading company and the web of partnerships - hiding more than $1 billion in debt - that brought it down.
''Given the enormity of the damage that's been created, I think it's going to be difficult to not hold one or more people accountable,'' said Cooper, who took the helm at Enron after Lay resigned last month.
Rubin, who left the government in mid-1999, is chairman of the executive committee of Citigroup Inc., which along with other banks lent hundreds of millions of dollars to Enron, hoping to keep it afloat. Rubin called Treasury's undersecretary for domestic finance, Peter Fisher, last Nov. 8 to seek his intervention on Enron's behalf. At the time, rating agencies were poised to downgrade their opinions on the financial status of Houston-based Enron.
“If you are considering joining any corporate boards, I would like very much to talk to you,” Lay wrote Rubin on May 14, 1999, after Rubin announced he was leaving his post. ''Given the way Enron has evolved, not only do we badly need a person with your experience and insights ... but also I think you would find serving on our board intellectually and otherwise interesting.
“I have placed a call to you in the hope that I might mention this to you personally,” Lay told Rubin.
Rubin did not join Enron's board of directors.
The same day, Lay wrote a note to Rubin's successor, Lawrence Summers - now the president of Harvard University - congratulating him on becoming treasury chief and promising to be available ''if there is anything at all I or Enron could do for you or the department.''...
In another letter, dated Dec. 3, 1998, Lay urged Rubin to approve Houston's application to be named an ''empowerment zone,'' a status that brings tax breaks and other incentives meant to promote economic revival.
''An empowerment zone would be extremely helpful in our efforts to diversify our economic base and to recover from a decline in oil and energy-related industries,'' Lay said.
Enron, with some 20,000 employees when it filed for bankruptcy on Dec. 2, has been one of the largest employers in Houston. The city has not been designated as an empowerment zone.
Bush, in his new budget proposed this month, is seeking to eliminate grants for empowerment zones in urban areas.
By Floyd Norris and David Barboza, The New York Times
Kenneth Lay sold $100 million in Enron stock last year, with a large part of that coming from selling shares back to the company after he was warned by Sherron Watkins that the company might collapse “in a wave of accounting scandals,” the company disclosed yesterday.
The sales, disclosed in a report filed by Lay with the Securities and Exchange Commission, included $20 million in shares sold between Aug. 21 and Sept. 4. Watkins, an Enron executive, sent her first letter to Lay on Aug. 15 and met with him Aug. 22.
It is not clear how much profit Lay made on his stock sales, many of which came while he was encouraging Enron employees to purchase shares....
November 13, 2001
Andersen Could Face SEC Sanction, Suits
Over Enron Accounting Error
HOUSTON -- Arthur Andersen may face U.S. Securities and Exchange Commission sanction and shareholder lawsuits because it certified Enron Corp. financial reports that the company disavowed last week as inaccurate, legal and accounting experts said.
Andersen, the world's fifth-largest accounting firm, served as Enron's outside auditor for more than a decade. Last week, the company reported that it overstated earnings by $586 million over 41/2 years, inflated shareholder equity by $1.2 billion because of an "accounting error," and failed to consolidate results of three affiliated partnerships into its balance sheet.
Enron restated its financial reports as the company suffered a cash crisis triggered by disclosure of the cut in shareholder equity and the start of an SEC investigation.
"I'd be very surprised if the SEC didn't go after Arthur Andersen," said Alan Bromberg, securities law professor at Southern Methodist University.
Andersen partner David Tabolt has said the firm is cooperating with a special committee of Enron's board of directors appointed to investigate the accounting problems.
Lynn Turner, who was the SEC's chief accountant for three years until he resigned in August, said Enron and Andersen ignored a basic accounting rule when they overstated shareholder equity.
Explaining the equity reduction last week, Enron said it had given common stock to companies created by Enron's former chief financial officer in exchange for notes receivable, and then improperly increased shareholder equity on its balance sheet by the value of the notes.
"What we teach in college is that you don't record equity until you get cash for it, and a note is not cash," said Turner, who is now director of the Center for Quality Financial Reporting at Colorado State University.
"It's a mystery how both the company would violate, and the auditors would miss, such a basic accounting rule, when the number is $1 billion."
November 28, 2001
Enron Rescue Falls Apart
by Peter Behr, Washington Post Staff Writer
Dynegy Inc. today abandoned its plans to rescue Enron Corp., leaving the once-dominant Houston energy trading company with little alternative than to file for bankruptcy, analysts said.
Enron, whose financial expertise and political clout helped it capitalize on the deregulation of electricity and gas markets, now faces more than $7 billion in debts that come due during the next year. It has no lenders in sight, its formerly lofty stock price is now below $2 a share, its credit is in tatters, its pipelines mortgaged or sold and its credibility with investors shattered....
In a statement today, Dynegy chairman Chuck Watson said his company had pulled out of negotiations because of Enron's "breaches of representations, warranties, covenants and agreements" in the initial purchase agreement.
Dynegy had agreed to buy Enron on Nov. 9 for about $23 billion, but after Enron's stock price plummeted following the deal, Dynegy demanded a renegotiation of terms to lower the price.
That effort collapsed today when Standard & Poor's Corp. cut Enron's credit rating to junk status, exposing Enron to accelerated repayment of more than $3 billion in debt that it could not fully cover, according to analysts....
A series of increasingly damaging disclosures by Enron in the past month about improper accounting of loans to outside investment partnerships involving some of its senior corporate executives swept away investor confidence, leading to the breakdown of the Dynegy deal.
It was an epic fall for a prideful company whose long-time chairman and chief executive Ken Lay was a close supporter and confidant of President Bush and the Bush family.
Enron, an influential lobbyist for energy deregulation in Washington and in state capitals, had led in the creation of a huge new market for energy products and related financial contracts and became the world's largest trader of these specialized transactions.
Its revenue tripled to $100 billion from 1998 to 2000.
In 1999, Enron launched EnronOnline, an Internet-based trading system for electricity, natural gas, crude oil and a wide range of other products. But Enron also spent billions of dollars acquiring a power plant in India, a water system in Britain, and fiber-optic networks to carry Internet traffic, all of which backfired.
The collapse of energy prices this spring started Enron's stock on a downward slide from a high of nearly $90 a year ago. That accelerated a cash drain at the company and confronted it with the threat of growing losses and asset erosion because of largely concealed deals with its energy partnerships.
In August, its chief executive officer Jeffrey Skilling resigned. He had been the architect of its expansion and had approved the outside partnerships, and his departure started the company's final down spiral...
AND JUST WHO OWNED ENRON?
As of Sept 30, 2001, the top institutional holders were:
#1 - Alliance Capital Mgmt with 42,939,048 shares; followed closely by #2 - Janus Capital Mgmt with 41,361,200 shares; #3 - Putnam Investment Mgmt (Marsh & McLennan) with 23,122,100 shares; #4 - Barclays Global Investors (a member of the Committee of 300) with 23,047,196 shares; and #5 - Fidelity Mgmt & Research with 20,790,452 shares.
The remaining of the top 15 investors included: Smith Barney; State St. Global Advisors; Aim Mgmt; Vanguard Group; Morgan Stanley; Northern Trust; Deutsche Bankers Trust; Massachusetts Financial Service; Presdner Rcm; Cs First Boston Investment....
~ ~ ~
And just WHO owned ALLIANCE CAPITAL MANAGEMENT?
As of Sept 30, 2001, the top institutional holders were...
#1 - General Electric Co.; #2 - Citigroup; #3 - Pfizer; #4 - Tyco Int’l; #5 - AOL - Time Warner; #6 - Microsoft; #7 - MBNA Corp; #8 - American International Group; #9 - Kohl’s Corp; #10 - AT&T Wireless; #11 - Bank of America; #12 - The Home Depot; #13 - Comcast Corp; #14 - Liberty Media Corp; #12 - Schering Plough.
January 17, 2002
Rubin Shouldn't Escape Enron Investigation
By Mark Weisbrot, AlterNet
One of the leading political figures embroiled in the Enron scandal is being handed a "Get Out of Jail Free" card, and he doesn't deserve it. That is Robert Rubin, President Clinton's former Treasury Secretary.
Rubin seems to have everything he needs to be inoculated from the scandal's contagion: One of the most powerful and influential people on the planet, he has charmed not only bankers and political leaders of both parties, but the media and opinion-makers as well. In the press he was often portrayed as a primary architect of America's longest-running economic expansion, in the 1990s.
A cover of Time magazine in 1999 displayed Rubin, Fed Chairman Alan Greenspan, and Larry Summers (number two at Treasury, later replacing Rubin) as "The Committee to Save the World." But more recently he has been caught peddling his influence for the financial giant Citigroup, where he left public office to become a top executive.
As Enron's accounting irregularities were being discovered and its fortunes rapidly sinking, Bob Rubin placed a call on November 8 to Peter R. Fisher, current undersecretary of the Treasury for domestic finance. According to Treasury, Rubin wanted to know if the Bush administration was going to intervene with the big credit rating agencies, who were about to lower their rating of Enron's debt.
Since Rubin's Citigroup was holding hundreds of millions of dollars worth of Enron's debt, it had quite a large stake in the outcome of any such decision.
Treasury told the press that Fisher said no, and Rubin agreed with the decision -- as if this were just an informational call to discuss the pros and cons of political intervention to protect the credit rating on Enron's bonds. But this should not be allowed to drop.
The public needs to know more about this phone call, and any others that Rubin may have made on Citigroup's behalf. Whether or not they are technically illegal, such actions are a blatant and corrupt abuse of one of the highest offices of our government.
For those who followed Rubin's role in the Asian economic crisis a few years ago, this comes as no surprise. If we look at what Treasury actually accomplished with a $120 billion loan package for the region, it was quite different than what Time magazine and the rest of the press were led to believe.
They got the taxpayers of Indonesia, South Korea, and the other affected countries to guarantee the bad debt held by foreign corporations and banks.
Rubin and Summers did nothing to help these countries when they needed reserves to keep their currencies from falling, and we now know that Treasury's actions actually helped cause the crisis and made it much worse.
They were not "saving the world." They were saving Citibank and others from losses due to their bad loans -- just as Rubin tried to do when he called Treasury about Enron's debt.
But these details of the Asian crisis did not get much press. That is why it is so important that the current investigations pursue the political corruption involved in the Enron scandal. Rubin is holding one of the two biggest smoking guns so far discovered.
(The other is held by the Bush administration: According to former Federal Energy Commission Chairman Curtis Hebert, Jr., Enron CEO Kenneth Lay told him he would support him as Chairman if he changed his views on utility deregulation. Hebert said he refused. He was subsequently replaced by Pat Wood III, a friend of Ken Lay and George W. Bush.)
Of course most of the political casualties of an independent investigation would be in George W. Bush's camp. After all, this is the Enron administration -- the list of officials with Enron ties is long and goes right to the top, including chief economic adviser Larry Lindsey (former Enron consultant); US Trade Representative Robert Zoellick (former Enron advisory board); chief political advisor Karl Rove (investor).
But the Democrats have been unsure about whether to pursue the investigation into the political realm. Part of this timidity is a desire to avoid the appearance of partisan excess that, in the Clinton scandals, drew a backlash against the Republicans. But they are undoubtedly afraid that some of their own luminaries, Rubin chief among them, might end up on the wrong side of a subpoena.
It would be a shame if these fears, and the media's reluctance to pursue these issues independently, kept the public from learning the truth about the political corruption involved in Enron's rise and decline.
Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. ( www.cepr.net).