Enron's End Run

To make a mess as big as the Enron debacle, you need some friends in high places--Texas Senator Phil Gramm and his wife, for instance

Because Wendy Gramm is married to the ranking Republican on the Senate banking committee, her public inquisition should highlight the agenda.

High on the list of questions for investigators is why she and other Enron directors agreed to waive an ethics policy so executive Fastow could arrange a stake in the company's silent subsidiaries, and whether or not she knew they were used to inflate earnings. Someone will ask if her fiduciary duty to shareholders may have been compromised by the $915,000 to $1.8 million in salary, fees, stock options and dividends she received since joining Enron's board in 1993. (The figures are from SEC filings reviewed by Tyson Slocum of the D.C. watchdog group Public Citizen.)

Other inquiries may center on whether Gramm's appointment to the Enron board was a payback for being such a strong supporter of energy derivatives and unregulated commodity trading. One question to be posed is how much, if anything, Wendy Gramm shared with her husband about what Enron hoped to gain from Congress. And what she knew as a member of Enron's auditing committee.

Senator Phil Gramm and Wendy Gramm, an Enron director, did their part to free Enron from federal restraints in the exotic derivatives markets.
Senator Phil Gramm and Wendy Gramm, an Enron director, did their part to free Enron from federal restraints in the exotic derivatives markets.
Ken Lay made some unlikely friends in Washington, such as ultraliberal Congress member Sheila Jackson Lee of Houston.
John Childs
Ken Lay made some unlikely friends in Washington, such as ultraliberal Congress member Sheila Jackson Lee of Houston.

The senator told a reporter recently that "most of the time," he and his wife talk about household chores and college football. Gramm has denied that his decision not to seek re-election, made less than a month after Skilling's departure, had anything to do with Enron. Public Citizen's Slocum isn't so sure, saying the timing is more than coincidental.

"Enron would have been a major campaign issue," he says. "The Democrats would have gone ballistic: 'What? Your wife was on the board of directors? She was on the audit committee? Why didn't you protect these workers who were laid off?'

"Any potential for criminal investigations into his wife would have been a major liability and might have become a major scandal," Slocum says.

Enron's massive political donations and friendships--the Center for Responsive Politics says it failed to report $1.6 million in contributions last year--have muted some of the backlash. For example, Congressman and senatorial candidate Bentsen says the relationship of the Gramms to the company may have been an "uncomfortable situation." But he says he has "every confidence" that they followed the rules.

"There's no instance I see where Enron was in a situation with a regulator that was giving them a hard time, or affecting their business such that they were saying back off," he says. Executives "called the White House when they were in trouble, but the White House, to their credit, demurred."

Others say the Enron-fueled deregulation made government derelict in its role as watchdog for the unbridled trading markets.

"The collapse of Enron makes it plain that the key gatekeeper institutions that support our system of market capitalism have failed," Frank Partnoy, a law professor and former Wall Street derivatives trader, told a Senate panel. "The institutions sharing the blame include auditors, law firms, banks, securities analysts, independent directors and credit-rating agencies."

Banks and investment firms like J.P. Morgan, the United Bank of Switzerland and Lehman Brothers, which contributed $2.1 million to Phil Gramm in the last decade, are first in line to divvy up the carcass that was once Enron. Then they'll go back to investing their clients' savings in an unregulated $95 trillion financial market where people bet on the weather and the availability of aircraft hangar spots in London.

"The 'Who Shot John' over the politics of all this, I think, is beside the point," says former white-collar prosecutor Michael Greenberger. "What I think we have to worry about is that because [derivatives] are only brought to people's attention when there is an emergency, nobody knows how many more companies are out there trading these things. Nobody knows whether there are destabilizing trades that are being made that could bring other corporations down, as well."

The latest revelations indicate that Enron's own board may have already known of the questionable financial and accounting practices 18 months ago--at the GOP convention reception where they and the rest of the free-marketeers saluted George W. Bush and the Gramms. Loyalists and their political allies had a damning descent from the luxurious trappings they savored in their time at the Top of the Tower. But their legacy of deregulation means plenty of others are still jostling in line for that dizzying ride to the top.

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