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Houston feds collected significant information on Enron

The top federal prosecutor in Houston on Friday said his office had collected a significant amount of information about the collapse of Enron Corp before being recused from the case because of personal relationships with employees of the fallen energy trader.

Michael Shelby, the US Attorney for the Southern District of Texas, said his first order of business when taking office three weeks ago was to begin investigating the failure of the Houston-based energy trader.

"Time is of the essence in cases like these, and I didn't want to lose one day," he said. Investigators sent out grand jury subpoenas, contacted the US Securities and Exchange Commission and began collecting a "significant amount of information."

It has since been forwarded to the Justice Department, which on Wednesday told Shelby his office was going to be recused from the case because several of its employees had relationships with Enron employees by blood and marriage.

The Justice Department on Wednesday confirmed it had launched a massive inquiry into Enron, a one-time Wall Street darling which spiraled into the largest Chapter 11 bankruptcy in US history amid questionable off-balance sheet financing. Employees and investors lost billions.

US Attorney General John Ashcroft, a former senator who received campaign contributions from Enron, on Thursday recused himself from the case. Shelby said he asked the department to review his office's Enron connections; they found no actual conflict but decided to pull Houston out because of how it may look to outside observers.

"There was the potential for an appearance of a conflict in that we might be perceived as acting too aggressively to avenge the losses people have suffered," Shelby said. "This is too important to have people impugning the motivations of investigators."

Shelby declined to comment on the number of relationships among his employees and Enron workers, but said his brother-in-law was an attorney with one of Enron's pipeline divisions.

That employees of the local US Attorney's office had connections with Enron workers is no surprise in Houston's tight-knit community, where Enron did business with thousands of people and was also a major political and philanthropic contributor.

"The depth of activity of Enron and Enron employees in the community was such that everybody would know someone, and even at the state and federal level as well," said Jim Kollaer, president and chief executive officer of the Greater Houston Partnership.

That was evident on Friday, as Texas Attorney General John Cornyn reversed course and stepped down from the state's Enron investigation because he received campaign contributions from the company. On Thursday, Cornyn had said he would remain in charge of the case.

Cornyn has accepted $183,000 from Enron, the last contribution of $25,000 coming in June, according to the government watchdog group Texas Watch said.

"It is imperative that the public maintain the utmost confidence in the integrity of any investigation," Cornyn said in a statement. First Assistant Attorney General Howard Baldwin, a career government attorney who has worked under Republican and Democratic administrations, will take over, Cornyn said.

"It's the right thing for General Cornyn to do," said Dan Lambe, executive director of Texas Watch.

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