by Mike De Rosa
The U.S. Congress has begun a massive investigation of the collapse and bankruptcy of the Enron Corporation. Thousands of employees of Enron have not only lost their jobs but in many cases have lost their 401k pension funds. The 7th largest corporation in American has been accused of misleading its investors by using overseas subsidiaries to hide more than $1 Billion in debt and filing false and misleading information with securities regulators.
As the price of Enron stock started to fall, this corporation put a "freeze" on employee sales of Enron's stock from their 401k accounts. The upper management of the company was not subjected to this "freeze". While their fellow employees were locked into their Enron stock upper management sold hundred of millions of dollars of Enron stocks and Enron stock options. Ken Lay, the CEO of the Texas based Enron, sold $100 million of his Enron stock during 2001 and sold over $26 million of Enron stock during a time when he was publicly telling his employees that their corporation was on solid ground. During this period he even encouraged his fellow employee's to buy more Enron stock even thought he continue to sell his own corporation's stock. Enron's accounting firm, Arthur Anderson, seems to have gone along with these deceptions. How could this have happened?
For years Ken Lay has bought and sold politicians in the Congress and in state legislatures in order to push his ideology of privatization of energy and electric power deregulation. Enron was George W. Bush's biggest donor and gave over $560,000 to Bush's gubernatorial and presidential campaigns. Arthur Anderson and Enron's law firm Vinson and Elkins were elite "Pioneer" fundraisers who moved another $400,000 or more dollars into George W Bush's presidential campaign. Ken Lay was also a "Pioneer" fundraiser for Bush and had extensive personal contacts and meetings with George W. Bush. What did Ken Lay get for his donations? According to critics, a great deal.
In the 1980's and early 1990's, Ken Lay was able - using his political connections - to persuade the Federal Energy Regulatory Commission (FERC) to deregulate natural gas. This allowed Enron, one of largest natural gas companies in the U.S., to take advantage of its position in the market place. It also set in motion Lay's much bigger plan to push electric deregulation on a state-by-state basis and on a federal level. Lay was one of the first to push the idea of taking over the electric industry and turning into an international casino where people like Ken Lay could control and manipulate a commodity, which was once considered a public service.
Ken Lay's Enron played a major role in lobbying electric deregulation in the Texas, Tennessee, Oregon, and Pennsylvania state legislatures. I even spotted them here in CT pushing their deregulation schemes when the top leadership of the CT legislature and Governor Rowland rolled over and passed a electric "restructuring" bill mostly orchestrated by an army of lobbyists fueled by millions of dollars from energy companies. In Pennsylvania, then Texas governor George W. Bush even called then Pennsylvania governor Tom Ridge to encourage him to support deregulation of electricity in Pennsylvania. George W. Bush strongly supported and signed an electric deregulation law in Texas at the behest of Ken Lay and Enron. Enron was successful in pushing through electric power deregulation in 24 state legislatures, which made it possible for them to create the "markets" they needed to rip off consumers. Some experts say that Enron played a significant role in the recent astronomical increases in electric rates in California and other states. According to the National Institute of Money in State Politics, Enron's lobbying included more than $1.9 Million in campaign contributions to more than 700 candidates in 28 states. They met with utilities commissioners and worked in close tandem with other energy companies to make sure that electric power privatization passed in legislatures across the country. The massive political and lobbying power of these energy companies drowned out the voices of consumer groups and environmental groups who had serious questions and doubts about electric restructuring. These corporate victories set the stage for an "energy crisis" in California and other states.
Many have argued that the old system of regulated monopolies is wasteful and environmentally indefensible. This was certainly true. But what Lay proposed, privatization of the generation of electricity and deregulation, was not only as bad as the old regulated monopoly system but also far worse. What state legislatures created was a system with little control and few regulations. This unregulated system ultimately created the conditions where corruption, greed, and deception flourished. Just look at what recently happened to California's electric rates and service during their recent "energy crisis" when deregulation of the electric industry was implemented. California experienced the 4 B's: Brownouts, Blackouts, Bailouts, and Bankruptcies. This story was repeated in many other states in the U.S., which are at various stages of creating a "market" out of their electric power system. Connecticut will face the piper of electric deregulation when the electric rate price controls come off our electric bills in 2004.
What Lay got for his money were politicians who were willing to do the dirty work of corporations like Enron. These elected officials came from both the Democratic and Republican party. They represent and are owned by big money and big corporate interests. But the de-regulation mania of the 1980's and 1990's did not only deal with energy policy but extended into almost every corner of our economy and government regulation.
What makes the Enron story so serious is that it may be the tip of the iceberg as far as corporate corruption is concerned. People are now anxious about their 401k accounts and their ability to protect their retirement money in the future. About 45% of the wage earners in the U.S. now own substantial amounts of stock. Because of deregulation and other schemes many of the protections once afforded to stockholders have been quietly repealed or eliminated and other protections never made it out of congressional committees.
Our own two U.S. Senators have participated in this deregulation of our economy and have acted as enablers to those who want to deregulate and privatize our society. Joe Lieberman, who Ralph Nader has described as a senator "who has not seen a weapons system, an insurance company, or a drug company he doesn't like", is a case in point. In the early 1990's Lieberman lead the charge to prevent the Federal Accounting Standards Board (FASB) from instituting proper accounting of stock options. One of the ways Enron and other corporations are overstating their profits is by not including the stock options that they issue to their top executives against their profits. These stock options do not show up as a cost on a corporation's financial statements. Lieberman with the support of big corporations prevented the FASB from implementing this change. Enron and other corporations used this accounting practice to deceive investors and employees.
Senator Chris Dodd was the co-sponsor of the Private Securities Litigations Reform Act of 1995. This law makes it harder for people to sue a company or its auditors if a company goes bankrupt after cooking the books and engaging in deception. Under this law auditors are liable for only those losses that were caused by the auditors. Under the old law the auditors could be sued in court for all losses caused by the bankruptcy. Some critics think that Enron's auditors, Arthur Anderson (of Colonial Reality fame) may have shredded documents in part because of this law. If they can hide their complicity with Enron in deceiving investors and securities regulators by destroying a paper trail to their complicity they may be able to limit their liability using the law that Senator Dodd co-sponsored.
All of these matters are not academic to the many people who lost much of their pension money or jobs because of these practices and corruption. The Enron debacle has had detrimental effect on the entire economy and has effected many other organizations across the country. The Enron bankruptcy has even affected the CT Resource Recovery Authority (CRRA), which runs a trash to energy plant in Hartford CT. In a complicated scheme cooked up by Enron and CRRA, the CRRA board and management loaned Enron $220 Million so that Enron would buy electricity from them. That money is now gone and the rates charged to burn trash in Hartford have increased 31%. Connecticut's Attorney General has raised some serious questions about this scheme and has called it a questionable "unsecured loan". Recently some news outlets have reported similar schemes involving Enron in other states.
How many more Enron debacles will it take before the American people wake up to the fact that they are being lied to by America's corporations and manipulated by the politicians who are owned by these corporations?
Enron is just one of many corporations that is overvalued and hides its true earnings through deception and clever accounting practices (consider Tyco or Global Crossing). Some economists say that the entire stock market is overvalued by between 8 to 10 trillion dollars. They call this a stock bubble. If that bubbles ever bursts the retirement and savings of countless Americans will be lost or be worth dimes on the dollar. The Enron debacle will then no longer be looked back at as a corruption scandal but will be seen as the beginning of something far worse.