Enron top brass accused of dumping stock were big political donors

Introduction

Twenty-four top executives and board members at Enron Corp. contributed nearly $800,000 to national political parties, President Bush, members of Congress, and others overseeing investigations of the company for possible securities fraud, according to a Center for Public Integrity investigation. In addition, Enron made $1.9 million in soft money contributions during the same 1999-2001 period.

The Center examined contributions from 29 top Enron executives and directors named in a shareholders’ lawsuit filed against the company last month. Only five of those named in the suit did not make a contribution. The suit alleges that the 29 executives and directors sold $1.1 billion worth of stock while knowing the company was in danger of collapse.

The 29 comprise virtually every board member and senior executive that worked at the company during the past three years, according to the company’s annual reports.

An analysis of the trades prepared by the law firm Milberg Weiss Bershad Hynes & Lerach LLP reveals the insider sell-off represented 44.3 percent of the total stock holdings and options held by the executives during a three-year period before Enron’s meltdown. Fifteen of the 29 executives unloaded more than half their stock before Enron drastically revised its revenue estimates downward, pushing the stock price into a death spiral.

Enron, at one time the seventh-largest company in America and its largest energy trader, filed for bankruptcy on December 2.

Enron’s stock collapsed when the company announced on Nov. 8 that it had overstated its earnings by $600 million from 1997 through 2000. The company had kept financial losses off its balance sheet. Many of those losses were incurred through dealings with private partnerships that were run by Enron executives.

The collapse has angered rank and file employees who were blocked from selling company shares in their own retirement portfolios, even as the price nose-dived from a one-time high of $90 to its current value of less than a dollar.

Enron’s rapid descent into bankruptcy is the subject of investigations by the Department of Justice, the Securities and Exchange Commission and the House Energy and Commerce Committee. Senate Democrats said last week they plan to subpoena documents from Enron executives and to examine the company’s high-level communications to the Bush administration.

The Senate committee will look into whether executives or board members broke the law, whether accounting rules should be tightened and whether the SEC should have done a better job of spotting trouble at the company. Sen. Joseph I. Lieberman, D-Connecticut, said the committee is on a “search for the truth, not a witch hunt.”

Meanwhile, Labor Secretary Elaine Chao said her department has begun an investigation into the company’s handling of its retirement plan. Chao noted Enron’s employees lost 70 to 90 percent of their retirement assets in part because they were required to keep company stock in their retirement accounts.

Trading influence and energy

The company’s clout in Washington and the White House in particular is well known. It has long been tied to President Bush and powerful members of Congress from Texas including Sen. Phil Gramm, whose wife Wendy Gramm is an Enron director, House Majority Whip Tom DeLay and Majority Leader Dick Armey.

Enron was the strongest proponent of deregulation of the electric utility industry and its chairman, Kenneth L. Lay, who apparently played an important role in the development of the Bush energy plan. Its campaign contributions and aggressive lobbying tactics were well known on Capitol Hill, and the company has often gotten its way on crucial legislative votes.

Employees and directors of Enron have given $623,000 to Bush over the course of his political career. That includes $220,700 from the executives and directors named in the suit.

According to a Center for Public Integrity analysis of FEC records, the Bush presidential campaign received $74,200 in contributions made by the two dozen top current and former executives and board members in the 2000 election cycle. (That includes $40,000 from Lay to the “1999 State Victory Fund” set up to benefit the winner of the 2000 Republican presidential primary.)

The executives directed another $110,100 to other political candidates and $97,500 in hard money to party committees. They also gave $135,487 to the Enron Political Action Committee. The balance, $381,910, went to Republican and Democratic party committees in “soft money” contributions, the controversial, unregulated and unlimited donations made to political parties. Overall, they gave $799,197.

Among the executives, Kenneth L. Lay and his wife Linda gave the most money to federal campaigns, totaling $87,850 since January 1999. Half of that money went to George W. Bush’s campaign for president. Lay also gave $282,910 in soft money to the Republican National Committee and $25,000 to a leadership committee headed by then-Senator and now Attorney General John Ashcroft.

Lay, a one-time energy policy maker for Richard Nixon, was one of the 214 Bush “Pioneers,” supporters who raised at least $100,000 for the candidate. He also chipped in for Bush’s Florida recount battle after the 2000 presidential election.

In addition, Lou L. Pai, chairman and CEO of Enron Accelerator, former CEO Jeffrey Skilling and former Enron Vice Chairman Joseph Sutton gave a combined $59,000 in soft money to the Republican National Committee prior to the 2000 election.

The $135,487 given to the Enron political action committee was in turn distributed to both national parties equally and to the president’s campaign. The PAC also kicked in $4,999 to Ashcroft’s campaign committee for his failed Senate bid in the 2000 election.

Other giving

The support from Enron’s top brass extends back beyond the presidential campaign, however. Not included in the above totals is $146,500 Bush received from Enron executives during his two races for Texas governor. Of that amount, Lay was responsible for $122,500.

After the election victory, Lay, Skilling and the corporation itself each contributed the maximum $100,000 to the Bush inaugural festivities.

By far, the biggest contributions made to political activity by Enron were by the corporation itself. Federal election laws outlaw contributions from corporations. But money given to national political parties for “party building” activities is permitted — and unlimited.

The corporation gave $1,895,964 from 1999 to 2001 in so-called “soft money” contributions, usually to the Democratic and Republican national parties, according to the Center for Responsive Politics. Contributions to the GOP were more than three times those to the Democratic Party. Enron Corporation also gave $25,000 in soft money to Ashcroft’s leadership committee.

Money isn’t everything

Campaign funding tells only part of the story of Enron’s undeniable clout inside the Bush White House and on Capitol Hill.

Once the nation’s largest buyer and seller of natural gas, with power plant and pipeline projects that span the globe, Enron has an expansive lobbying operation. It pushes a wide range of legislative and regulatory issues, from utility deregulation to tax breaks, trade and telecommunications.

It did well at recruiting political heavyweights as they left public office. When former Secretary of State James A. Baker III left government service, Enron provided him a job as a consultant.

Lobbying expenses exceeded $2 million last year, and included a stable of lobbyists and consultants such as former Christian Coalition head Ralph Reed, one-time Energy Regulatory Commission Chairwoman Elizabeth “Betsy” Moler, in addition to Marc F. Racicot, the new Republican National Committee chairman and Jack Quinn, former White House counsel to former President Clinton.

Perhaps the company’s most effective advocate in Washington was Kenneth Lay himself. He met privately with Vice President Dick Cheney last year when the vice president was leading the National Energy Policy Development Group — made up of Cheney and various department and agency chiefs — that drafted the president’s national energy policy.

Bush created the task force in January 2001 to gather information and make recommendations about a “production and distribution of energy” strategy. The task force’s May 2001 report became the basis for the administration’s energy legislative package.

The White House has refused requests from the congressional General Accounting Office for records of Mr. Cheney’s energy policy meetings. The GAO was forced to file a civil suit to force the administration to open its records; that suit is still pending.

Enron’s lobbying influence extends to Capitol Hill. In 2000 it was able to wrangle an exemption in a bill that could have spelled trouble for the company’s questionable accounting practices — the Commodity Futures Modernization Act.

Since 1989, Enron traded natural gas commodities and had become the world’s largest buyer and seller of natural gas. Later the company became a pioneer in other commodities ranging from pulp, paper and plastics to telecommunications transmission capacity and weather derivatives.

Despite its public financial reports to the contrary, the Enron divisions involved in the trading markets and overseas investments consistently lost money. The losses were buried in Enron’s profitable trading business and in off-balance-sheet financing measures used to keep huge debt off the corporate books.

The Commodity Futures Modernization Act would have brought Enron’s trading operations under greater regulatory scrutiny. Enron lobbied successfully to exempt certain types of derivative trading, in which it was heavily engaged, from provisions of the bill. At the time that lobbying on the bill got underway, Enron’s soft money contributions and direct giving to certain members of Congress ignited. The bill was introduced June 8, and by the end of the month, Republican and Democrat national parties had taken in $220,000 in soft-money contributions from Enron’s political action committee.

Cashing out

While Enron executives were making hundreds of thousands of dollars in campaign contributions, they were collecting millions on insider stock trades.

Lawyers representing Enron shareholders filed a class action suit last month claiming that between Oct. 19, 1998 and Nov. 27, 2001, the 29 current and former company officials traded 17 million shares of Enron stock worth $1.1 billion.

The suit names the 29 executives as well as the company’s accounting firm, Arthur Andersen LLP. The company’s annual reports for 1998, 1999 and 2000 indicate that the 29 comprise virtually every board member and senior executive that worked at the company during that period.

The suit accuses Enron of perpetrating “one of the most serious securities frauds in history.” Lawyers allege the Enron executives were in possession of information that “disintegrated Enron upon disclosure” when they traded their stock during that three-year period.

Among those identified as selling large amounts of stock are Lay, who sold more than $101 million worth, or 27 percent of his holdings. Jeffrey Skilling, who abruptly stepped down as chief executive officer in August 2001, sold 39 percent of his holdings, or $67 million. Like many of the other insiders, Lay and Skilling spread much of their sales out over those three years.

Enron did not return calls for comment, but attorneys for the executives defended their clients at a hearing in federal court last month.

James Coleman, Lay’s attorney, said if his client’s goal were to cash out, he wouldn’t have kept so much of his stock. “They said he sold 24 percent of his holdings. That means he’s got 76 percent of a dry hole, and I don’t think that would indicate anything,” Coleman said, according to a transcript of a December 7 hearing in Houston.

Skilling’s attorney said the numbers in the shareholders’ suit are not correct and that Skilling left 1.8 million shares unsold and “over $100 million of additional proceeds that, if he were truly looking to dump all his stock on his way out the door, one would have expected him to have done.”

Two of the 29 sold their entire stake. Pai sold off $354 million. Rebecca Mark-Jusbasche also sold her entire stake for a total of nearly $80 million. Pai’s attorney told a judge that the number of shares in the lawsuit is wrong and that his client sold shares on two occasions: his divorce and when he left the company.

Andrew Fastow, the company’s chief financial officer until October 2001, sold off 95 percent of his holdings for more than $30 million. Fastow’s attorney said Fastow actually bought 10,000 shares of Enron stock in August and has not sold any shares since November 2000.

A spokesperson for Fastow disputed the notion that he dumped his Enron stock, and claimed that Fastow currently holds more than 50 percent of the Enron stock he acquired while working for the company.

Board and audit committee member Wendy Gramm, wife of Sen. Phil Gramm, sold off 84 percent of her holdings for $277,000, but those sales took place back in November of 1998.

As the courts sort out the class action suit against the 29 Enron insiders, the Securities and Exchange Commission has come under increasing pressure from Congress to improve accounting standards to protect American investors. Those demands come after Enron’s outside auditors, Arthur Andersen LLP, told a congressional committee that Enron officials may have illegally withheld information about its accounting practices.

But even efforts by the SEC to examine the circumstances surrounding Enron’s Chapter 11 filing could run into potential conflicts of interest. SEC Chairman Harvey Pitt — a well-regarded securities lawyer who was partner in the law firm of Fried, Frank, Harris, Shriver and Jacobson until his appointment as SEC chief by President Bush — represented Arthur Andersen in recent years.

Pitt said at his confirmation hearing that he would recuse himself from matters involving his old clients on a case by case basis. Christi Harlan, director of Public Affairs for the Securities and Exchange Commission, said agency rules would require the chairman sit out commission votes that involves any of his former clients, including Arthur Andersen.

Enron executives who dumped stock were heavy donors to Bush

Breakdown of hard and soft money contributions made by 24 Enron executives to federal candidates, committees, or the Enron PAC

Name

Hard Money 1999-2001

Soft Money 1999-2001

Total

Kenneth L. Lay##

$82,850

$307,910

$390,760

Robert A. Belfer

$56,673

$15,000

$71,673

Jeffrey K. Skilling

$19,238

$50,000

$69,238

Lou L. Pai

$51,480

$4,000

$55,480

Kenneth D. Rice

$28,328

$28,328

James V. Derrick Jr.

$26,980

$26,980

Mark A. Frevert

$23,500

$23,500

Steven J. Kean

$20,324

$20,324

Joseph W. Sutton

$11,500

$5,000

$16,500

Stanley C. Horton

$15,480

$15,480

Mark E. Koenig

$14,730

$14,730

John C. Baxter

$14,270

$14,270

Ken L. Harrison

$11,824

$11,824

Rebecca P. Mark-Jusbasche

$7,850

$7,850

Michael S. McConnell

$6,076

$6,076

Joseph M. Hirko

$4,992

$4,992

Cindy K. Olson

$4,992

$4,992

Ronnie C. Chan

$3,500

$3,500

John H. Duncan

$3,000

$3,000

Jeffrey McMahon

$3,000

$3,000

Richard A. Causey

$2,500

$2,500

Andrew S. Fastow

$2,200

$2,200

Charles A. Lemaistre

$1,000

$1,000

J. Mark Metts

$1,000

$1,000

Total

$281,800

$135,487

##$40,000 from the Lay family went to the 1999 State Victory Fund, which supported the winner of the Republican primary for President

#This includes contributions to Bush gubernatorial races in Texas, which are not subject to federal campaign finance laws

Sources: Federal Election Commission data, Jan 1999-Nov 2001; Texas Ethics Commission; Soft money figures obtained from the Center for Responsible Politics

Breakdown of hard money contributions

NAME

CANDIDATES/PARTY

ENRON PAC

TOTAL

Kenneth L. Lay##

$77,850

$5,000

$82,850

Robert A. Belfer

$47,000

$9,673

$56,673

Jeffrey K. Skilling

$11,500

$7,738

$19,238

Lou L. Pai

$39,000

$12,480

$51,480

Kenneth D. Rice

$16,000

$12,328

$28,328

James V. Derrick Jr.

$14,500

$12,480

$26,980

Mark A. Frevert

$13,500

$10,000

$23,500

Steven J. Kean

$10,250

$10,074

$20,324

Joseph W.

Sutton

$6,500

$5,000

$11,500

Stanley C. Horton

$3,000

$12,480

$15,480

Mark E. Koenig

$2,250

$12,480

$14,730

John C. Baxter

$12,750

$1,520

$14,270

Ken L. Harrison

$6,000

$5,824

$11,824

Rebecca P. Mark-Jusbasche

$3,000

$4,850

$7,850

Michael S. McConnell

$1,500

$4,576

$6,076

Joseph M. Hirko

$1,500

$3,492

$4,992

Cindy K. Olson

$1,500

$3,492

$4,992

Ronnie C. Chan

$3,500

$3,500

John H. Duncan

$3,000

$3,000

Jeffrey McMahon

$1,000

$2,000

$3,000

Richard A. Causey

$2,500

$2,500

Andrew S. Fastow

$2,200

$2,200

Charles A. Lemaistre

$1,000

$1,000

J. Mark Metts

$1,000

$1,000

Total

$281,800

$135,487

Source: Federal Election Commission data, Jan. 1999-Nov. 2001

Enron support for George W. Bush

Name

Presidential

Texas

Total

Kenneth L. Lay##

$44,000

$122,500

$166,500

Robert A. Belfer

$1,000

$1,000

$2,000

Jeffrey K. Skilling

$1,000

$5,000

$6,000

Lou L. Pai

$2,000

$2,000

Kenneth D. Rice

$1,000

$1,000

James V. Derrick Jr.

$1,000

$7,000

$8,000

Mark A. Frevert

$1,000

$1,000

Steven J. Kean

$2,000

$2,000

Joseph W.

Sutton

$2,000

$2,000

Stanley C.

Horton

$1,000

$1,000

$2,000

Mark E. Koenig

$2,000

$2,000

John C. Baxter

$1,000

$1,000

Ken L. Harrison

$1,000

$1,000

Rebecca P. Mark-Jusbasche

$1,000

$4,000

$5,000

Michael S. McConnell

$1,000

$1,000

Joseph M. Hirko

$1,000

$1,000

Cindy K. Olson

$1,000

$1,000

Ronnie C. Chan

$2,000

$2,000

John H. Duncan

$2,000

$6,000

$8,000

Jeffrey McMahon

$1,000

$1,000

Richard A. Causey

$2,000

$2,000

Andrew S. Fastow

$1,200

$1,200

Charles A. Lemaistre

$1,000

$1,000

J. Mark Metts

$1,000

$1,000

Total

$74,200

$146,500

$220,700

##$40,000 from the Lay family went to the 1999 State Victory Fund, which supported the winner of the Republican primary for President

#Contributions to Bush gubernatorial races in Texas, which are not subject to federal campaign finance laws

Sources: Federal Election Commission data, Jan 1999-Nov 2001; Texas Ethics Commission