Enron money was spread around so much that it appeared difficult to carry out an objective investigation. On January 10, Attorney General John Ashcroft along with David Ayres, his chief of staff, recused themselves from the Enron criminal probe. Ashcroft received more than $50,000 from the company and Lay, for his 2000 Senate campaign. Additionally, virtually the entire legal staff of the United States attorney’s office in Houston excused themselves as well. Michael Shelby, the United States attorney in Houston, and his staff were disqualified on grounds that they were acquainted with Enron employees. Shelby’s brother-in-law was a lawyer for Enron North America and was among those Enron stockholders who lost substantial sums when the company’s stock plummeted. Shelby said that several of his employees had ties to former and current Enron workers, some of whom could be witnesses in the case. (New York Times, January 16, 2002)

The investigation was handed over to of Larry D. Thompson, the deputy attorney general, and his subordinates in the department’s criminal division. However, questions surfaced that Thompson also had ties to Enron. In Atlanta, he was a lawyer at the firm King & Spalding, which represented Enron, but he himself did no work for Enron. (New York Times, January 16, 2002)

Enron did not stop distributing hard money to officials who were appointed by Bush to serve in the Justice Department. The corporate giant – along with Arthur Andersen -- also funneled hard money to numerous members of the committees, which were conducting the investigation. Was the fox guarding the hen house?

Chairman Joe Lieberman of the Senate Governmental Affairs Committee received $2,000 from Enron and $11,500 from Arthur Andersen. The total amount of PAC money funneled to committee members by Enron reached $31,822, while Arthur Andersen kicked in $122,979.

Enron contributed $14,124 to Chairman Jeff Bingaman of the Senate Governmental Affairs Committee, and Arthur Andersen gave $9,250 to his campaign. All total, committee members received $152,844 from Enron and $245,781 from Arthur Andersen.

Chairman Micheal Oxley of the Senate Energy and Resources Committee was the recipient of $5,850 from Enron and $12,500 from Arthur Andersen. All committee members received $88,400 from Enron and $298,513 from Arthur Andersen.

In the House Energy and Commerce Committee, GOP Chairman Billy Tauzin got $6,464 from Enron and $57,000 from Arthur Andersen. (Newsweek, February 18, 2002)

HOUSE COMMITTEE ON GOVERNMENT REFORM. The committee began its probe of Enron in early January 2002. Congressman Henry Waxman, ranking Democrat on the committee, charged that Lay misled his 21,000 employees in August by painting a rosy picture of the company’s financial health. Waxman released copies of e-mails sent by Lay to employees in August that suggested all was well with the company and that its stock would rebound. But Waxman said Lay must have known then that Enron was falling into deep financial trouble. The e-mails were sent as Enron shares tumbled after Jeffrey Skilling’s abrupt August 14 resignation as company president. (Los Angeles Times, January 13, 2002)

Just before Enron’s collapse in October 2001, Secretary of the Army Thomas White unloaded $3.08 million worth of Enron stock, after having sold about $9 million in shares earlier last year. White told the House Government Reform Committee in January that he had had seven meetings and 22 phone conversations with Enron executives, including one with Lay. Those talks, White said, were “personal in nature.” However, on the evening of March 22, as Congress was about to recess, White suddenly admitted that he had had an additional 44 conversations with Enron executives on his home telephone. He said these phone conversations were not necessarily personal and would have involved “some comment or discussion” relating to Enron’s financial condition. In fact, Secretary White had at least 73 conversations within 10 months of entering the Bush administration, at the very time that Enron was unraveling. (Los Angeles Times, April 4, 2002)

HOUSE ENERGY AND COMMERCE COMMITTEE. On January 24, The House Energy and Commerce investigations subcommittee also investigated the Enron debacle. The subcommittee first called upon David B. Duncan, Arthur Andersen’s lead partner on the Enron account until he was fired in January, to testify. GOP Congressman Jim Greenwood, chairman of the subcommittee, told Duncan that “Enron robbed the bank. Andersen provided the getaway car. And they say you were at the wheel.” When questioned, Duncan refused to answer questions, citing his protection under the Fifth Amendment. (Washington Post, January 25, 2002)

Duncan was followed by senior Arthur Andersen executives C. E. Andrews, who acknowledged that documents were inappropriately destroyed. But Andrews objected vehemently to suggestions that the company sanctioned the shredding of documents because of the government investigations. He blamed Duncan for the trouble. (Washington Post, January 25, 2002)

Also testifying before the committee was Nancy Temple, an Arthur Andersen attorney responsible for document retention policy at the company. She had sent out a memo in the fall of 2001, reminding Duncan and other employees about the company’s policy on the shredding of certain documents. Temple’s November 10 e-mail suggested that Arthur Andersen’s legal department did not explicitly tell auditors to start preserving documents related to Enron’s audit until nearly three weeks after Enron had disclosed that the SEC was looking into its finances. (Washington Post, January 25, 2002)

In February, four upper management Enron executives took the Fifth Amendment, refusing to answer questions from members of the subcommittee. They included Andrew Fastow, who was the chief financial officer of the Enron; Michael Kopper, a former employee of Enron Global Finance; Richard Causey, executive vice president and chief accounting officer; and Richard Buy, another executive vice president and chief risk officer. Fastow and Kopper, who collected more than $40 million from the off-the-books partnerships, were accused of enriching themselves at the company’s expense in a report released on February 2 by a special committee of the Enron board of directors.

The subcommittee also heard from Jeffrey McMahon, who was named president and chief operating officer of Enron last week. He said that he had complained to his superiors about some of the partnerships and had been rebuffed. Jordan Mintz, a former Enron attorney, also testified about his earlier concerns about the business affairs. He said when he tried to bring the matter to the attention of company executives, but he found that the close relationships between the executives kept any of them from looking into the matter. (Washington Post, February 7, 2002)

On February 14, Sherron Watkins, a former Enron accountant, testified before the subcommittee. She told the panel that Skilling and Fastow were like the swindlers in the “Emperor’s New Clothes.” She also told the panel that Lay did not really comprehend the jeopardy that Enron’s off-the-books partnerships created for the company. Watkins compared Skilling and Fastow to the fairy tale swindlers “discussing the fine material that they were weaving. And I think Mr. Skilling and Mr. Fastow are highly intimidating, very smart individuals and I think they intimidated a number of people into accepting” their arguments. (New York Times, February 15, 2002; Washington Post, February 15, 2002)

Watkins further testified that after Skilling resigned as Enron’s chief executive in August, Watkins said she sought a meeting with Lay because she feared Lay would elevate Fastow, then chief financial officer, or chief accounting officer Rick Causey to Skilling’s job. During that meeting, she told Lay of her concerns about the accounting practices that involved a number of Enron partnerships controlled by Fastow. (New York Times, February 15, 2002; Washington Post, February 15, 2002)

Clearly refuting Skilling’s testimony, Watkins said that he was fully aware of the ramifications to Enron of the partnership deal. She said that Skilling and Fastow “intimidated some people into accepting some (partnership) structures.” She added, “The saying around Enron was, ‘Heads Mr. Fastow wins, tails Enron loses.’ ” (New York Times, February 15, 2002; Washington Post, February 15, 2002)

Watkins also said that J. Clifford Baxter told her that he met with Skilling repeatedly to express his concerns about the partnership and would have pushed even harder had he known how improper the accounting treatment was. She also said that a close friend of Baxter’s told her that Baxter met with Skilling last March and told him, “We are headed for a train wreck and it's your job as CEO to get out in front of the train and try to stop it.” She said that Skilling was absolutely required to sign forms showing he had reviewed partnership transactions and that the approval process was “cast in stone.” When Skilling testified a week earlier, he testified that he did not believe his signature was required. (New York Times, February 15, 2002; Washington Post, February 15, 2002)

Watkins said that within weeks of her arrival last summer at the Enron Global Finance Group she realized that a group of off-the-books partnerships known as the Raptors “owed Enron $700 million … and that loss would be borne by Enron.” She said the structure of the Raptor partnership amounted simply to manipulation of Enron’s income statement using improper and unpermitted accounting practices. She said it was common knowledge among the people she worked with that Enron was financially exposed and that many executives were concerned about it. But she said, “It seemed to be just common knowledge that Raptor losses were backstopped by Enron stock.” (New York Times, February 15, 2002; Washington Post, February 15, 2002)

Memos obtained from Congressindicated that Skilling was aware of the financial risks Enron faced because of the off-the-book partnerships known as the Raptors. Richard Buy, then Enron’s chief risk officer, and Richard Causey, its chief accounting officer, suggested that Skilling had a deeper understanding of the Raptor partnerships than he acknowledged in his sworn testimony.

Leaders of the House Energy and Commerce Committee sent a memo to Skilling, asking him to explain the differences between the employees’ recollections and his sworn testimony before the committee. Skilling said then that he did not recall being involved in efforts to reorganize the partnerships known as the Raptors, which was believed to have been used to hide a $500 million loss during Skilling’s first months as Enron’ top executive. Skilling had testified: “I had asked ‘What is the status of our hedges? Are our hedges all right?’ And I was assured that our hedges were correct. So to the best of my knowledge it was not an issue.” (Washington Post, March 1, 2002)

Skilling’s testimony did not jive with what Baxter had told investigators two weeks before his suicide. Baxter had told of conflicts with Skilling in his final years at the company. A Baxter memo described “a major dispute” with Skilling in 2000. It was over an episode that Baxter felt undermined his authority as head of Enron North America. The dispute came to a head at a staff meeting that year when Skilling embarrassed Baxter in front of two dozen executives by questioning the accuracy of a comment Baxter had made. Baxter almost resigned, was talked out of it by Skilling and then took a new job at Enron with a large pay cut, the memo said.

This account presented a picture of the two executives’ relationship different from the one Skilling described during testimony before the House committee last month, when he referred to Baxter as “his best friend.” During that testimony, told Congress that Baxter was “heartbroken by what had happened” to Enron and felt victimized by attorneys suing Enron and by the intense media coverage of the company’s failure. (Los Angeles Times, March 19, 2002)

In his interview with the Enron board attorney, Baxter said he left the company as vice chairman “because he was tired and burned out. In light of what had happened since his dispute with Skilling in 2000, he believes he could have left Enron for good back then.” Baxter also told the lawyers he raised concerns with Skilling the spring of 2001 about LJM -- an off-the-books partnership Fastow was running. Baxter said that because he regarded Skilling highly, he could not believe that the Enron president could accept the conflicts of interest posed by the LJM deals. (Los Angeles Times, March 19, 2002)

Skilling acknowledged in his congressional testimony that Baxter had raised the LJM issues with him, but Skilling said the problem was a personal animosity between Baxter and Fastow. Skilling also was interviewed by attorneys from the Wilmer, Cutler & Pickering law firm. He said Baxter “was concerned about the optics of the conflict, but not about the ethics or propriety of the transactions.” While Skilling had conflicts with Baxter, he was grooming Fastow to take on new responsibilities at the company in the spring of 2001, shortly before Skilling suddenly resigned as chief executive.

Kaminski’s interview notes about partnerships were first reported by the Wall Street Journal (March 18, 2002). According to his November memo, “In the spring of 2001, Skilling was considering leaving Enron, and he knew that someone would need to be in a position to take over many of his responsibilities,” such as “dealing with analysts. … Skilling wanted to get Fastow involved before he left.”

Skilling’s desire to give Fastow more responsibility at Enron -- not concerns about conflicts of interest -- prompted Fastow to sell his interest in LJM, Skilling told the board lawyers. The memo read, “Skilling asked Fastow whether he was prepared to take on more responsibilities, which would not be possible if Fastow remained involved with LJM. The next day, Fastow said he wanted to remain with Enron and agreed to withdraw from LJM. Skilling knew of no other reason for Fastow’s withdrawal from LJM. He and Fastow did not discuss discomfort with Fastow’s dual roles, and in Skilling’s view that was not a factor in their decision, although the external world was becoming more sensitive to the issue.” (Los Angeles Times, March 19, 2002)

In another interview summary, Wes Colwell a senior Enron accountant, indicated that the Raptor investments in one of the partnerships were Skilling’s idea. Colwell said that in 1999 his boss, Richard Causey, told him, “Jeff Skilling wanted to create a vehicle to hedge Enron holdings in technology stocks.” (Los Angeles Times, March 19, 2002)

SENATE GOVERNMENTAL AFFAIRS COMMITTEE. Senator Joseph Lieberman, chairman of the Governmental Affairs Committee, asked the White House to disclose its contacts with Enron as part of a congressional probe. And environmentalists asked a federal judge to order a hearing on what they call “stonewalling” by the Energy Department in the release of documents related to the administration’s meetings with industry groups during drafting of a national energy policy.

Liberman said, “Too many watchdogs failed to bark” during the Enron debacle. “I will not hesitate to ask for anything that helps us to investigate … what the federal government might have done to prevent, or at least anticipate, Enron’s demise.” (Los Angeles Times, March 28, 2002)

Deborah Perrotta, an Enron administrative assistant, told the Senate Governmental Affairs Committee that she lost her job as well as $40,000 in retirement savings and all but a fraction of her severance pay. (Washington Post, February 6, 2002)

But Cindy Olson, executive vice president of Enron’s human resources department and one of the people in charge of the company’s ill-fated 401(k) plan, told the committee how she landed millions of dollars. She testified that a year before Enron’s collapse, she cashed in options on 83,000 shares, netting about $3 million. (Washington Post, February 6, 2002)

Initially, Lay said he would appear before the committee but changed his mind several days later. After he was subpoenaed by the Senate committee, the former Enron CEO was immediately hit with a barrage of criticism before he was able to invoke the Fifth Amendment. Republican Senator Peter Fitzgerald said, “You are perhaps the most accomplished confidence man since Charles Ponzi. I’d say you're like a carnival barker, except that might not be fair to carnival barkers. A carny will at least tell you upfront that he’s running a shell game.” Democratic Senator Byron Dorgan said he wanted to know “how is it that 29 Enron executives at the top were able to earn $1 billion in stock sales in 2001 while people at the bottom lost everything.” Senator John Kerry said, “Obviously, Mr. Lay, the anger here is palpable. Lives are ruined, many lives at the top and at the bottom.” Kerry said that Enron had 2,832 offshore partnerships, and he questioned whether they were set up to evade taxes. And GOP Senator said, “This is not capitalism -- this is a conspiracy that may be a crime.” (Washington Post, February 13, 2002)

SENATE COMMERCE COMMITTEE. On February 26, Skilling denied that he was aware of Enron’s precarious finances, as he testified before the Senate Commerce Committee. He disputed the previous statements made by Watkins, as he maintained, “I didn’t lie to Congress or anyone else. … I never duped Ken Lay.”

Skilling’s testimony clearly reflected his cocky behavior. On one occasion, he lectured Democratic Senator Ron Wyden, telling him “back up, back up,” in reading a document. He also lectured senators about the complex financial instruments called derivatives. “If I were in charge of the world,” he began a sentence recommending to senators what remedies they might consider to prevent another Enron-style catastrophe. Skilling repeatedly said, I’m not an accountant” when asked about Watkins’ warnings to Lay. (Washington Post, February 27, 2002)

Watkins and Skilling sat at the same table, but obviously neither acknowledged the other. Watkins told the committee, “I believe that Enron had a brief window to salvage itself this past fall and we missed that opportunity because of Mr. Lay’s failure to recognize or accept that the company had manipulated its financial statements.” Watkins also testified she was afraid to take her concerns to Skilling, because he might fire her. She said she found it “hard to believe that Mr. Skilling was not aware that something was amiss.” (Washington Post, February 27, 2002)

Watkins also testified that she believed that Fastow “would not have put his hands in the Enron cookie jar” without Skilling’s approval. Fastow personally made more than $30 million from running the partnerships. Skilling replied, “I relied on our accountants,” when asked about Watkins’ warnings that Enron stock was improperly being used as the foundation of the web of partnerships that eventually brought the company down. Skilling said, “I have nothing to hide,” as he tried to explain why he had decided to testify rather than take the Fifth Amendment like “other innocents” called before congressional committees. (Washington Post, February 27, 2002)

Also testifying before the Senate panel, Enron president and chief operating officer Jeffrey McMahon refused to implicate either Watkins or Skilling. McMahon told the senators that Watkins’ warnings “were concerning to me and I encouraged her, as others did, to see Mr. Lay about it.” (Washington Post, February 27, 2002)

Many of the senators responded with amazement as to Skilling’s knowledge -- or lack of knowledge -- into warning signs that Enron was on the verge of collapse. Democratic Senator Byron Dorgan told Skilling that some of his statements were “unbelievable.” He asked Skilling about the $66 million in Enron stock he sold between February 1999 and June 2001, contrasting it with the retirement savings of Enron employees that were wiped out as the stock plunged last fall. Dorgan told Skilling, “You still have most of your $66 million; that family’s life savings is wiped out.” Dorgan was referring to a family in North Dakota that told him it lost nearly all its $330,000. (Washington Post, February 27, 2002)

SENATE FINANCE COMMITTEE. In February 2003, the Senate Finance Committee revealed that Enron had operated tax-free also fabricated huge profits in the 1990s. The tax shelters were designed to make it appear that Enron had realized $2 billion of profits almost immediately, while saving $2 billion of federal income taxes over a period of years, a three-volume report by the staff of the Joint Committee on Taxation showed.

According to Lindy Paull, chief of the joint committee staff, Enron’s tax department “was converted into an Enron business unit complete with annual revenue targets. The tax department, in consultation with outside experts, designed transactions to meet or approximate the technical requirements of tax provisions with the primary purpose of manufacturing financial statement income.” At their core, she said, the tax shelters “were designed to permit Enron to take the position that its long-term tax benefits could be converted to current or short-term financial statement income.” (New York Times, February 13, 2003)