Attempts to organize are squelched by a flying column of
Speech to The Democratic National Committee--Western Caucus
Saturday, May 25, 2002
"Death Star," "Get Shorty," "Fat Boy"--the revelation of Enron's trading schemes in California have turned the Enron scandals virulent again.
Now that the Enron culprits have been caught red-handed, might not the media inquire of the President whether he takes any responsibility for nearly bankrupting California by refusing to come to
Army Secretary Thomas White appears to be inching closer to becoming the
first Bush Administration casualty of the Enron scandal. Senators Dianne
Feinstein and Barbara Boxer of California have asked Attorney General
John Ashcroft to launch a criminal probe into Enron's role in
manipulating California's electricity market, after Enron memos released
by the Federal Energy Regulatory Commission showed how Enron boosted
electricity prices in California and created shortages.
People close to Feinstein and California Congressman Henry Waxman said
the lawmakers will ask Ashcroft to direct that the criminal
investigation include White and whether the unit he helped lead, Enron
Energy Services, played a part in California's two-year energy crisis.
"We believe we have evidence, based on our conversations with former
Enron employees, that Mr. White and other executives from Enron Energy
Services may have worked side by side with Enron's traders and supplied
inside information about the amount of electricity California needed,"
an aide to Feinstein said. "We believe, based on this information, that
the traders were then able to create shortages and manipulate the price
of power in the state."
Neither a spokesman for White nor for Enron returned calls for comment.
Enron is already under investigation by California Attorney General Bill
Lockyer for allegedly manipulating the price of electricity and natural
gas. White is being investigated by the FBI on the timing of his sale of
Enron stock last year and by the Inspector General's office on his use
in March of a government airplane to fly to Aspen to sign papers on the
sale of a $6.5 million house he owned, prompted by Enron-related
financial problems. Separately, he engaged in a dispute with Defense
Secretary Donald Rumsfeld over the Crusader weapons system; Rumsfeld
continued to express support for him.
Former employees of EES have come forward saying that the retail unit,
under White's leadership, played a role in California's power crisis and
that White told his staff that EES would earn millions in profits
because of the crisis. In addition, former employees are coming forward
with information about White that indicates that his involvement with
Enron's suspect accounting was far deeper that he has let on. White has
said that EES was a legitimate operation and not a house of illusory
John Olson, an analyst now with Sanders Morris Harris, recalls asking
White in 1999 how EES, a relatively small operation, could show millions
of dollars in profit with barely a shred of business. "I did not believe
Mr. White, nor any of the other Enron executives I spoke with, were
being honest or forthcoming about EES's profits," Olson said. "When I
pressed Mr. White for an answer he said, 'One word: California.'"
White told EES's sales team in 1998 that they could earn hefty bonuses
by signing energy contracts with large businesses in California to
manage their electricity needs for a substantially cheaper price than
these companies had been paying through their local utilities. But
promising customers a discount at the beginning of the contracts meant
EES wasn't earning enough money to cover what the local utilities were
charging for gas and electricity. Moreover, EES was spending much more
than anticipated setting up the infrastructure for the contracts, said
Lee Jestings, a former EES executive who worked directly with White.
Jestings said he told White that EES would actually lose money this way,
but White said Enron would make up the difference by selling electricity
on the spot market in California, which Enron had bet would skyrocket in
2000. Jestings said he continued to complain to White that the profits
declared by the retail unit were not real. "Tom told me those are the
orders," Jestings said. "He said he never questions a direct order. This
man spent thirty years in the Army and was a four-star general. His life
was based on taking orders." Jestings said he resigned from EES in 2000
because he did not agree with the way EES reported profits. He is now
working as an energy consultant.
The ex-employees, more than a dozen interviewed, said White often
clashed with Lou Pai, chairman of EES, over the company's use of
"aggressive" accounting methods to make the unit appear profitable when
it wasn't but that ultimately White agreed that EES would have to use
such methods because the unit was hemorrhaging cash right from the
start. Steve Barth, a former EES vice president of special projects who
attended meetings with White and Pai, said White's job was that of
cheerleader--he was supposed to motivate the EES sales force to show, by
any means necessary, that the retail unit made a profit. "That meant
lying to Wall Street," Barth said. "White did it, and so did I." Barth,
who transferred from EES to Enron's broadband unit in 1999 and left last
July to start a broadband firm, said his experience at the company had
Enron reported that EES, founded in 1997, became profitable during the
fourth quarter of 1999 and had steadily rising profits every quarter
thereafter. Those reports helped send Enron's stock price to $83 by the
end of 2000, from $43 at the beginning of the year. As part of his
employment contract with Enron, White was given a small financial stake
in EES, later converted into Enron stock, which he sold for more than
Eventually, with Enron becoming a target of California lawmakers, White
may have decided it was time to get out. In early 2001, according to
Barth, when then-Enron chairman Kenneth Lay was under consideration to
be Energy Secretary, Lay met with George W. Bush and urged him to
appoint White as Secretary of the Army. Barth said White told him that
the California energy crisis was hurting EES and that the unit's profits
would never materialize. White "just wasn't happy with his role at the
company anymore," Barth said.
Since the fall of the House of Enron, Republicans have been polishing
their populist patter. George W. Bush cast aside his patron, Enron CEO
Ken "Kenny Boy" Lay, and proclaimed himself the champion of executive
rectitude. When the Corporate and Auditing Accountability Act passed in
the House, Republican Richard Baker crowed, "We have taken action. We
have stood up to Wall Street."
This crowd has no shame. The bill--which lobbyists for big-five
accounting firm Deloitte and Touche praised for not going
"overboard"--fails to ban accountants from peddling consulting work to
the companies they audit, fails to shut the revolving door between
accountants and the companies they audit and fails to create an
accounting oversight board with subpoena power and independence. As
Representative John LaFalce noted, "The opportunity to enact meaningful
reform had been passed, eluded and avoided."
The House pension bill was even more disgraceful. As Representative
George Miller noted, it "doesn't deal with the lessons of Enron." It
doesn't put employees on the boards of their pension funds, doesn't
guard workers against biased investment advice and doesn't require
immediate notification of large stock sales by high-level
executives. Worse, it carves a huge new loophole in pension protections,
and as Daniel Halperin, a pension law expert at Harvard Law School,
notes, it will "basically gut" current rules that protect average and
low-wage workers. After Enron, where twenty-eight executives walked off
with more than $1 billion while workers watched their retirement savings
vanish, the Republican version of reform will make it easier for the big
guys to pocket lavish benefits while the workers get stiffed. The
provision, no surprise, was championed by the business lobby and
supported by Bill Thomas, the corporate bag man who chairs the House
Ways and Means Committee.
Republicans are certain that token reforms and stentorian rhetoric will
give them cover while they continue to bank the contributions of a
grateful financial and business community. Many Democrats
opportunistically voted for the Republican bills after their tougher
reforms were voted down on virtual party line votes.
Now the Republican "reforms" head to the Senate, where Democrats are in
control, but Enron conservatives in both parties are legion. Ted Kennedy
offers a real alternative on pension reform, but Democratic finance
committee chairman Max Baucus is already talking about a compromise bill
that would accept much of the corporate agenda.
Meanwhile, House and Senate conferees are putting the finishing touches
on a bankruptcy bill pushed by the credit card industry; it will make it
much harder for working people to get a fresh start at a time when
millions are losing their jobs. Democratic Senate leaders could (but
probably won't) demonstrate their solidarity with working people by
burying the bankruptcy bill instead of passing it. The power of money,
alas, speaks to both parties.
Millions of Americans are appalled by the bilking of Enron's workers.
And millions are concerned about their own pension savings. Progressives
and labor should raise hell about sham reforms that actually help the
big guys screw their workers. If Enron conservatives in both parties are
exposed, voters might show them this fall that they are paying more
attention than anyone thought.
Some prestigious Wall Street firms may have been involved in a Ponzi scheme.
California GOP gubernatorial candidate Bill Simon Jr. has portrayed
himself as a savvy businessman who can deal successfully with the
state's financial woes. But Simon's ties to Enron, the bankrupt energy
company that has been charged with manipulating the electricity market
in California and is under federal investigation, raise questions about
his business acumen and his fitness for the state's top post.
Former business associates of Simon say that he personally persuaded
Enron to invest in Hanover Compressor, a Houston company he founded in
1990 and on whose board he sat between 1992 and 1998. Hanover makes
pumps that move natural gas and oil through pipelines and from wells.
According to several people at Enron and Hanover involved in the
transaction, the Enron investment was made in 1995 through an Enron
partnership called Joint Energy Development Investments, or JEDI, which
is now at the center of the federal investigation into Enron's collapse.
Simon held a 1.4 percent stake in Hanover, which after the JEDI
investment was worth tens of millions of dollars. His father, William
Simon, the former energy czar and Treasury Secretary under Richard
Nixon, ran a private investment firm, William E. Simon & Sons,
which owns more than 4 percent of Hanover. The younger Simon declined
requests for an interview. He has previously dodged questions about his
relationship with Enron.
JEDI was at one time Hanover's second-largest shareholder, with an $84
million stake in the company, according to a Securities and Exchange
Commission filing. Last June, JEDI shifted most of its shares to another
off-balance-sheet Enron partnership. JEDI's stake in Hanover allowed the
Enron executives who managed JEDI to attend Hanover board meetings.
Hanover executives said Simon and Enron came up with several
Simon was also involved in Hanover in matters separate from the Enron
deals that could raise legal concerns. Hanover said in February that it
would have to restate its financial results beginning in January 2000
because of improper accounting for a partnership that--as with
Enron--made the company appear more profitable than it was. Over several
years during this time, according to the Wall Street Journal,
Hanover officers sold millions of shares of stock--again much like
Enron, where officers who were allegedly aware of the company's
accounting practices were encouraging employees and others to buy shares
even as they were selling their own. Hanover is now the target of at
least four class-action lawsuits by shareholders who have alleged the
company misled investors; and it is also under investigation by the SEC.
Simon wasn't a member of Hanover's board at the time of the improper
accounting, but a week before Hanover made the announcement, the company
reported that every annual report it has issued since going public in
1997 contained errors. Simon, as a member of Hanover's audit committee,
was responsible for approving the company's annual reports. The audit
committee, according to Hanover's investor relations department, was
held responsible by Hanover for the error.
Simon helped Hanover set up a partnership in the Cayman Islands, Hanover
Cayman Limited, as a tax shelter. In addition, he assisted Hanover in
setting up a joint venture with Enron and JEDI to construct a
natural-gas compression project in Venezuela.
Jamie Fisfis, Simon's campaign spokesman, said Simon has been
forthcoming about his business dealings with Hanover and Enron. But when
asked about JEDI's investment in Hanover and what role Simon played,
Fisfis said he did not know and would only confirm that Simon was a
member of the Hanover board at the time. Moreover, he could not offer an
explanation when asked about the other joint ventures with Enron that
Simon's former business associates said he had a hand in creating. Simon
has told reporters on the campaign trail that he was barely involved in
Hanover's business activities, but Hanover executives say Simon was
intimately involved during his six years on the board. When Simon left
the board in 1998, he sold most of his 430,000 shares in the company.
However, he still has more than $1 million invested in Hanover,
according to the Associated Press.
Sherry Bebitch Jeffe, senior scholar of the University of Southern
California's School of Policy, Planning and Development, said Simon has
to start answering questions about his dealings with Enron, "whether it
be good or bad," or risk alienating voters. "The symbol that Enron has
become is negative, cheating and ruthless."
Roger Salazar, a spokesman for Governor Gray Davis, who currently trails
Simon according to the latest polls, said Simon's close ties with Enron
pose questions about his track record: "For a man who touts himself as a
business manager, these types of activities raise questions whether
It's hard to imagine a tale of corporate mischief that would shock veteran observers of the US tobacco industry. But even the most jaded reader may raise an eyebrow at the allegations reported on page 11 that major American tobacco companies smuggled cigarettes and laundered money on a vast scale, defying US and foreign law and defrauding foreign governments of hundreds of millions in tax revenues before engineering a rewrite of the USA Patriot Act last fall to shield themselves from international liability. For this special report, the result of an investigation by The Nation, the Center for Investigative Reporting, and NOW With Bill Moyers--with support from the Investigative Fund of the Nation Institute--journalist Mark Schapiro traveled to Colombia, whose state governments are suing the companies in US court, to assess the charges and to inspect the scene of the alleged smuggling operations. (NOW airs its investigative report on April 19.)
The Bush Administration ought to cooperate with authorities in Colombia and other countries in their efforts to hold US corporations accountable. It should support legislation to establish clearly the principle of jurisdiction in US courts over allegations of wrongdoing by American companies overseas. And the Justice Department should launch an investigation into the activities of US tobacco firms in Colombia to determine whether laws were broken and prosecution is warranted. It is important for the rest of us to raise the political cost of inaction. Republicans in Congress and in the White House may one day realize that with friends like Philip Morris, they don't need enemies.
Uncovering the industry's multibillion-dollar global smuggling network.