'Illegal Activity' At Enron, Pol Says

Kelly Castaneda, 7, runs past the Enron Boys and Girls Club sign sitting on the ground after being replaced with a sign with the new name Wednesday, Feb. 6, 2002, in Houston. The club had been named for the financially troubled company after Enron offered to donate $2.4 million to run the facility. When Enron declared bankruptcy after giving only $60,000, a Houston businessman, Michael Holthouse, and his foundation stepped in and donated $1 million to help run the center for the next five years. AP

Congressional investigators have uncovered "substantial evidence of illegal activity" by the now-bankrupt Enron Corp. and its management, Rep. Billy Tauzin, chairman of the House Energy and Commerce Committee, said on Wednesday.

"This activity served to deceive the public about Enron's financial condition," Tauzin, R-La., said opening a hearing to probe the collapse of the former energy giant.

Tauzin also criticized Enron's auditor, saying Arthur Andersen "knew or should have discovered the fraudulent nature" of certain transactions with outside partnerships managed by former Enron Chief Financial Officer Andrew Fastow, Tauzin said, adding that "Enron's financial statements violated numerous existing accounting rules."

Citing deals known as the Raptor transactions, Tauzin said Enron was doing business with an entity whose only asset was shares of Enron that had come from the company.

"This clearly violated existing law and the most basic norms of corporate behavior," Tauzin said.

A lawyer for Enron was not immediately available for comment on Tauzin's remarks.

The partnerships were created and managed by Fastow, who pocketed at least $30 million from related dealings, according to the report by the Enron directors panel led by University of Texas Law School Dean William Powers.

Earlier, Tauzin said he wanted to ask former Enron president Jeffrey Skilling why his signature was absent from many of the deals with outside partnerships despite Enron's finance committee being told his approval was required.

"Of all the people who were supposed to sign the approval sheets, he's the only one who refused even though he voted to approve them at the board and the question is why not," Tauzin told reporters after giving a speech to a telecommunications industry conference.

Skilling is scheduled to appear before the House Energy and Commerce subcommittee on oversight and investigations. But unlike some other former Enron officials appearing Thursday, he will not invoke his right not to testify, Tauzin said. "We're told he's anxious to testify."

Conscious Decision
To Prevent Employees
From Selling Stock

Enron executives made a conscious decision to prohibit employees from selling their company assets as its stock price plummeted amid shady deal-making and accounting.

Because the price of Enron stock was dropping at the time of the decision, officials debated whether to postpone the lockout, but eventually decided not to. The company found "it was not feasible to notify more than 20000 participants in a timely fashion," said Cindy Olson, Enron's executive vice president for human resources.

Enron's stock peaked at $82 a share on Jan. 26, 2001. It was selling for $15.40 at the close of trading on Oct. 26, the day the lockout began, and had fallen to $9.98 on Nov. 13, the day it ended.

Many of the executives had already cashed out.

Fastow is also due to attend Thursday's hearing but Tauzin expects he will refuse to testify against himself under the Fifth Amendment of the U.S. Constitution.

"I think he's going to take the Fifth," Tauzin said. "I think he's in deep trouble."

Tuesday, a witness said Enron gave millions in bonuses to top executives two days before filing for bankruptcy last year, then fired thousands of employees without the severance pay to which they were entitled, a tearful former company worker told Congress Tuesday.

"We have to wait in line behind the big banks in bankruptcy court. For employees, there won't be much, if anything, once it is all said and done," said Deborah Perrotta, a former senior administrative assistant at Enron.

That testimony, which made up just a small part of the Enron action on Capitol Hill Tuesday, drew special ire from lawmakers.

"The thought of employees sustaining huge losses while executives were able to sell stock for millions is infuriating," Sen. Joseph Lieberman said Tuesday in announcing plans to issue a subpoena to get information about bonuses paid to company executives in the run-up to its Dec. 2 bankruptcy.

All told, a dozen committees are investigating Enron, along with the Justice Department and Securities and Exchange Commission. The energy-trading company has deep political ties in Washington, and politicians in both parties have scrambled to distance themselves from Enron.

The Justice Department has rejected calls by some Democrats for a special prosecutor. And President Bush brushed off an appeal by a key senator to appoint a special prosecutor to lead the investigation. Mr. Bush says the Justice Department can handle the probe despite the president's own political ties to the company and the fact that the attorney general has already recused himself.

"This is a business problem that our Justice Department is going to investigate, and if there's wrongdoing we'll hold them accountable for mistreatment of employees and shareholders," President Bush said Tuesday.

Millions of investors lost money, and thousands of current and former Enron employees lost the great bulk of their retirement savings, when the company collapsed. An Enron-sponsored investigation released over the weekend blamed senior management for failing to provide proper supervision over a complex web of partnerships that helped the company hide debt and post unrealistic profit figures.

Lead Enron auditor David Duncan was fired in January, accused by his employer of organizing the destruction of Enron documents. Dunca has already invoked his fifth-amendment right not to testify before Congress.

At another hearing, the author of the withering Enron internal investigation described how the executives "enriched themselves ... by tens of millions of dollars" through questionable partnerships.


©MMII CBS Worldwide Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press and Reuters Limited contributed to this report
  • CBSNews.com staff CBSNews.com staff

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