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Enron collapse entangles Bush administration

The collapse of Enron Corp entangled the Bush administration on Thursday as the White House said two Cabinet officers were warned of its looming financial crisis and Attorney General John Ashcroft recused himself from the criminal probe into the energy trading giant.

Trying to inoculate himself from the political fallout, President George W Bush ordered a review headed by Treasury Secretary Paul O'Neill of US pension and corporate disclosure rules.

The review aims to avoid a repeat of the Enron collapse, in which thousands of employees lost their pension savings and the company filed the largest bankruptcy in US history.

In a series of stunning disclosures that followed Wednesday's announcement of a criminal investigation into Enron, the energy firm's auditor, Andersen, said its employees had destroyed documents related to Enron's balance sheet.

Bush's team has close ties to Enron and its chairman, Kenneth Lay, a major Bush campaign contributor. Last autumn, Lay called O'Neill and Commerce Secretary Don Evans, Bush's 2000 campaign manager, to warn them of Enron's mounting financial problems, the White House said.

In an indication Enron may have been making feelers about a financial rescue, White House spokesman Ari Fleischer said Lay raised the case of Long Term Capital Management, a hedge fund that received a government-orchestrated private bailout in 1998.

But O'Neill and Evans both said they opted to do nothing. O'Neill rejected the suggestion that Enron had asked for a bailout. "Absolutely not," he told Reuters.

"It was an information request, telling me that they had problems and that he thought that we would want to have our technical people talk with their technical people to understand where they were so that we could execute our responsibility with regard to the function of the capital markets," O'Neill said.

Evans, on CNBC television, said Lay had alerted him to media reports that Enron's credit rating was under review, and mentioned Enron's large presence in energy trading markets.

"He said, 'I want you to know that Moody is currently reviewing it. If there's any kind of support you could give us we would welcome that.' But he certainly didn't ask for me to call them (Moody's Investors Service) or anything like that," Evans said. He said Lay called on about Oct. 29, which would be a day after the first of two calls by Lay to O'Neill.

The Justice Department on Wednesday announced it had opened a criminal probe into Enron, whose December bankruptcy threw thousands out of work, devastated investors and wiped out the pension plans of many employees when its stock price plunged.

Ashcroft removed himself from the investigation, which is expected to focus on whether the firm misled investors about its accounts, because Enron gave him political contributions for his run for a US Senate seat in his home state of Missouri.

DOCUMENTS DESTROYED

Andersen, the Big Five accounting firm that served as the company's auditor, on Thursday said its employees had deleted documents related to its review of the company's finances, and congressional sources said thousands were destroyed.

Rep Henry Waxman, a California Democrat who already has been seeking information about contacts between the White House and Enron, questioned whether the Bush administration could have done more to help the company and its employees.

"The White House had knowledge that Enron was likely to collapse but did nothing to try to protect innocent employees and shareholders who ultimately lost their life savings," he said in a statement. "I am deeply troubled that the White House stood by and let this happen to thousands of families."

Bush, who worked in the oil industry and has known Enron's chairman since he was governor of Texas, appeared to distance himself from Lay.

"I have never discussed with Lay the financial problems of the company," Bush said, adding that the last time he saw Lay was last spring at a literacy fund-raising event organised by his mother, former first lady Barbara Bush.

Enron has been a major donor to Bush over the course of his political career, the Center for Public Integrity said on Thursday. The nonpartisan research and investigative reporting organisation said Enron, its employees and directors have given $623,000 to Bush from 1993 to November 2001.

O'Neill and Evans said they both had decided against taking any action to save Enron, and confirmed their individual decisions in a conversation.

"I don't know why there would be a bailout from the government for a company that's gotten itself into trouble," O'Neill said on CNBC.

Fleischer said Bush was not informed of the decision but believes O'Neill and Evans acted "wisely."

Evans told reporters "I didn't think he (Bush) needed to know. It was a pretty easy decision."

Lay's call came some days before Enron announced an eventually aborted merger with a rival, Evans said. "They weren't anywhere close to talking about bankruptcy," he said.

Bush and his team had acted properly, Fleischer said. "Communication is not a wrong-doing. What took place here was they received phone calls and took no action."

Treasury spokeswoman Michele Davis said Lay called O'Neill on October 28 and November 8 -- after Enron's key October 16 disclosure that it was taking huge charges related to its partnerships, which provided the first hint of its spectacular unraveling.

BUSH CONCERNED ABOUT WORKERS

Speaking to reporters after meeting with economic advisers on Thursday, Bush placed the emphasis on workers and investors who suffered as a result of Enron's troubles and ordered two reviews to recommend how better to protect them in the future.

He said the first review, by the Treasury, Commerce and Labor departments, would analyse pension and 401(k) rules and recommend ways to reform them so that "people are not exposed to losing their life savings as a result of a bankruptcy."

A review of corporate disclosure rules would be conducted by the Presidential Working Group on Financial Markets, which includes the Treasury Department, Securities and Exchange Commission, Federal Reserve and Commodity Futures Trading Commission.

Once the world's largest energy trader, Enron slid in mere weeks from Wall Street stardom to the largest bankruptcy filing in US history on December 2.

Its downfall, after withdrawal of a rescue takeover bid by rival Dynegy Inc threw thousands out of work and hammered investors.

The episode sapped the life savings of many Enron employees who held large amounts of company stock in their 401(k) retirement plans, while top executives allegedly pocketed fat profits by selling before a plunge in Enron's share price.

"I have great concerns for (those) who put their life savings aside and, for whatever reason, based upon some rule or regulation, got trapped in this awful bankruptcy and have lost life savings," Bush told reporters at the White House.

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The Enron Saga

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The Enron Saga