WASHINGTON, Jan. 10 (UPI) -- The investigation into U.S. energy conglomerate Enron Corp.'s financial collapse exploded Thursday with disclosures of widespread destruction of documents by the auditing firm, private lobbying of top Bush administration officials for a federal bailout, campaign contributions to the attorney general and the attorney general's decision to remove himself from the case.
For the first time, the collapse of the energy giant, the largest corporate bankruptcy in American history, rivaled the war on terrorism for prominence on newspaper front pages and television screens.
With thousands of employees left without work and many others with their retirement savings wiped out by the precipitous fall of the company's stock, the bankruptcy has become a major headache for President Bush as he tries to revive the faltering economy.
But it also could become a political danger for the president whose personal electoral ambitions and those of his father, George Herbert Walker Bush, were supported for more than three decades by Enron and its chairman, Kenneth Lay.
Lay and Enron have contributed to Bush's political campaigns since he ran for Congress in 1978 and Enron was the biggest single contributor to the president's election campaign.
The president's key political adviser, Karl Rove, held Enron stock, but sold the stock to comply with conflict of interest laws when the stock was high last year.
Thursday began with White House press secretary Ari Fleischer's disclosure that in October, two months before Enron declared bankruptcy, Lay called Treasury Secretary Paul O'Neill and Secretary of Commerce Don Evans to tell them that Enron might not be able to meet its obligations, and to ask for federal aid.
"What was told to me this morning, " Fleischer said, "was Secretary O'Neill said that he had been contacted by Mr. Lay in the fall of last year, and Mr. Lay brought to the secretary's attention his concerns about whether or not Enron would be able to meet its obligations. And he expressed his concern about the experience that Long-Term Capital went through when Long-Term Capital went bankrupt," Fleischer said at a news briefing.
Long-Term Capital was a major hedge fund that encountered financial difficulties and received government assistance.
"Secretary O'Neill then contacted Under Secretary Fisher and asked him to evaluate whether the comparison was apt, and the Department of Treasury was advised that it was not apt, as a result of Secretary Fisher's review."
Fleischer said Secretaries O' Neill and Evans concluded that no federal bailout was appropriate. He said the calls did not reflect a conflict of interest and that government officials get these calls all the time.
Without federal assistance, Enron announced in October it had $500 million of previously undisclosed debt -- triggering a sell-off of company stock. The share price fell from over $90 last spring to a few cents by Christmas.
Two weeks later, on Nov. 2, 2001 Arthur Andersen, LLP, the firm's auditors, reported to the company that they had found possible criminal actions in the company's financial management.
At Thursday's briefing Fleischer said that even though Attorney General John Ashcroft had received a $25,000 campaign contribution from Enron in 2000, "the president has full faith and confidence in the professional prosecutors at the Department of Justice and the attorney general to do what is right in pursuing this investigation."
"The Department of Justice has conflict-of-interest rules, and if there is anything that the secretary -- the attorney general -- is aware of that would trigger it, the president knows he will take appropriate action," Fleischer said.
Several hours later the Justice Department announced that Ashcroft and his chief of staff, David Ayres, would step aside from dealing with any matters arising from the case and it would be directed by Deputy Attorney General Larry Thompson.
The U.S. attorney in Houston, Michael Selby, also recused himself and his entire office from the case. The office said a number of attorneys had family relationships with Enron.
In mid-afternoon Thursday, Andersen, the international accounting firm that that audited Enron's books, announced it had told federal and congressional investigators that in recent weeks employees in its firm destroyed "a significant but undetermined number of electronic and paper documents and correspondence" relating to the Enron case.
Andersen said it had hired former Missouri Sen. John Danforth, a Republican, to conduct an internal investigation of its record management policy to "recommend improvements." Danforth also serves President Bush as a special envoy to the Sudan.
House Commerce Committee Chairman Billy Tauzin, R-La., conducting one of four congressional investigations, immediately criticized Andersen for destroying the documents.
"This is a deeply troubling development," Tauzin said in a statement. "It should never have happened. While Andersen has assured the Committee that it will work vigorously to retrieve all electronic documents, we may never know if all of the relevant records were recovered."
These same documents could be crucial to investigations now being conducted by the Justice Department, the Securities and Exchange Commission and Congress.
"Clearly this is a very serious matter," Tauzin said. "Anyone who destroyed records simply out of stupidity should be fired; anyone who destroyed records intentionally to subvert our investigation should be prosecuted. One way or another, our Committee will get to the bottom of this debacle."
Bush told reporters Thursday just before a meeting with his economic advisers that he was informed of the Justice investigation on Wednesday.
He was asked if Lay had called him about Enron's troubles.
The president said he had not had a call from Lay and that the last time he'd seen the chairman was at a fundraiser last spring for a charity program of his mother, Barbara Bush.
The president did not mention the calls to O'Neill and Evans. Later Fleischer said the president was unaware that Lay or Enron officials had contacted those officials.
Bush on Thursday ordered federal task forces to find ways to protect worker's pensions and provide full disclosure of information to stockholders.
"One of the things we're deeply concerned about is that there has been a wave of bankruptcies that have caused many workers to lose their pensions," Bush said, "and that's deeply troubling me."
He said he had ordered the secretaries of the Treasury, Commerce and Labor Departments to "come up with recommendations how to reform the system" so that people are not exposed to "losing their life savings."
Bush said Treasury officials along with the Federal Reserve Bank, the Securities and Exchange Commission and the Commodities Futures Trading Corp. are investigating whether there are adequate rules to assure that corporations disclose their true financial condition to stockholders. The action, he said, is "to make sure that the American stockholder, or any stockholder, is protected."
Enron declared bankruptcy on Dec. 2. It was the largest corporate collapse in U.S. history, coming after it disclosed that it would take a $1.2 billion reduction in shareholder equity.
Before the stock collapse, Enron executives sold millions of dollars of company stock, but under the company's rules, employees could not sell the company stock in their pension programs until after they had turned 50 years of age. Hundreds of workers lost a large part of their life savings.
Vice President Dick Cheney acknowledged through White House lawyers in a Jan. 3 letter to a House of Representatives' investigating committee that he had met privately with Lay on April 17, when he was forming President Bush's National Energy Policy proposal, and his staff had meetings during this period with other Enron executives.
At the time of the Lay meeting, Enron was mounting a high-profile campaign to avoid the imposition of federal price caps on wholesale energy sales in California.
In a letter to Cheney from California Democratic Rep. Henry A. Waxman, the congressman linked that meeting with a telephone interview Cheney had with the Los Angeles Times in which he said the Bush administration opposed price caps. The vice president, however, has long opposed price caps on energy and it was Bush administration policy from the beginning of the administration.
When Enron began to collapse in late fall, its executives reached out to administration officials for a federal bailout, but it was refused. A member of Cheney's staff met with Enron officials on Oct. 10, shortly before the company took a write-down of equity. But the vice president's lawyers said in a letter to lawmakers that there was no discussion of Enron's financial problems at that meeting.
Enron recently retained Bob Bennett, one of Washington's most prominent political lawyers, to handle its defense. Bennett said Wednesday that the company is conducting its own internal investigation of what happened.
In addition to the investigations, numerous lawsuits have been filed against Enron by employees who lost their savings and by stockholders who claim they were misled by Enron's financial statements.
There are four main areas of the sudden collapse that have raised questions:
* The company began to form partnerships to own and develop major parts of its operation and there are accusations that the financial statements to stockholders did not always reflect the financial condition of these partnerships.
* Company officials divested themselves of millions of dollars of stock before the collapse. The SEC is looking at whether they had "inside" information about impending difficulties, which provoked them to sell.
* The company heavily invested the employees 401-K retirement programs in its own stock and had rules that limited the right of employees to sell the stock when they wanted.
* Document destruction that may have been carried out to obstruct investigations of wrongdoing.
