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Democrats Try to Make Hay of Enron Fall
As Lieberman Calls Hearings on Collapse

By:  Michael Schoeder and Tom Hamburger
The Wall Street Journal, January 3, 2002

Washington -- In a moment of bipartisan candor, a Republican strategist recently confided to a Democratic friend that if he were in Democrats' place, he would "beat up" the GOP over its ties to the fallen energy giant, Enron Corp.

It looks like the Democrats are going to try to do just that.

The new year at the Capitol -- a congressional-election year -- opened Wednesday with an announcement from Sen. Joseph Lieberman that the Senate Governmental Affairs Committee, which he heads, will hold hearings into Enron's collapse when Congress returns to work later this month. That word from the former Democratic vice-presidential nominee -- who is a presidential prospect for 2004 -- is just the latest of a number of inquiries into a company with closer ties than any to President Bush.

The Connecticut senator noted that the company and its chairman, Bush friend Kenneth Lay, were active in helping draft the Bush administration's energy plan. Mr. Lieberman added, "We have got to ask whether the advice rendered was at all self-serving."

Mr. Lieberman emphasized that Enron's connections to the Bush administration aren't the focus of his committee's inquiry; instead, he says it will center on the precipitous collapse and what might have been done -- including by the government -- to prevent it. But Democratic operatives have been urging Mr. Lieberman, as the best-placed committee chairman, to dig into the issue, believing further exposure can only embarrass Republicans and Mr. Bush, whose own ties to Enron and Mr. Lay date back to the president's race for Texas governor.

Enron, the nation's biggest marketer of electricity and natural gas, filed for bankruptcy-court protection following a crisis of confidence among its investors. Enron wrote off $1 billion of assets in November, revised downward its earnings of the past several years and took a $1.2 billion reduction in shareholder equity. The problems have resulted largely from Enron's dealings with private partnerships, run by some of its own executives. The company saw its market value plunge recently to about $500 million from more than $77 billion last year.

Financial regulators had little clue what was going on inside Enron, which had major positions in little-regulated derivatives markets. That is at least partly because the Houston company had invested a lot of time and money in Washington to keep the government out of its business, and to foster GOP support for deregulation of energy and financial industries.

Now, a half-dozen congressional panels and several federal agencies are investigating aspects of Enron's Chapter 11 reorganization. In Congress, Democrats in particular are emphasizing the numerous investors left holding stock worth pennies, the thousands of Enron employees out of work and those with retirement savings built on worthless company stock.

It remains to be seen if the issue will resonate with voters. For one thing, Enron's energy-trading business is extremely complex; for another, some Democrats also benefited from Enron's largesse -- though hardly as much as Republicans have. Since 1990, the company has given three-quarters of its campaign donations to GOP causes. Al Gore's presidential campaign against Mr. Bush received $13,700 from Enron executives during the 2000 campaign cycle; Mr. Bush's campaign got $114,000 and his party far more.

The Democrats' rhetorical line of attack is already clear. "The only wholly owned subsidiary of Enron not to go bankrupt is the Republican Party," said Robert Gibbs, a spokesman for the Democratic Senatorial Campaign Committee. "Enron is a huge problem for the Republicans, and it will keep tying them in knots."

Two House Financial Services subcommittees held the first of numerous planned hearings last month, but those were notable for a bipartisan tone. Rep. John LaFalce of New York, the committee's senior Democrat, joined chairman Mike Oxley, an Ohio Republican, in calling for a swift and thorough investigation. "We are trying to focus on the criminal, not the political," Mr. Oxley said.

But Sen. Lieberman has shifted the tone. While he too emphasized a desire to remain bipartisan, he announced the hearings without his committee's chief Republican, Sen. Fred Thompson of Tennessee. He did consult with Mr. Thompson beforehand.

The Democrat driving the issue to date has been Rep. Henry Waxman of California, but he is hampered by the fact that Democrats are the minority in the House. Last month, Mr. Waxman demanded that Vice President Dick Cheney disclose Enron's and Mr. Lay's role in crafting the administration's energy plan. Mr. Waxman and other Democrats on the House Government Reform Committee also started an "Enron tip-line" to solicit information about any alleged wrongdoing.

Meanwhile, Republicans have gone on the offensive. Last Friday, in answer to a reporter's question, Mr. Bush said Enron must be held accountable. "There will be a lot of government inquiry into Enron and what took place there," he said. "I'm deeply concerned about the citizens of Houston who worked for Enron who lost life savings."

But Rep. John Dingell, the ranking Democrat on the House Energy and Commerce Committee, has been raising questions about the failure of regulators to sniff out Enron's problems.

In early December, he wrote Mr. Bush's appointee to the Securities and Exchange Commission, Harvey Pitt, demanding a thorough SEC investigation of Enron and attaching a long list of questions about its possible accounting violations.

Separately, GOP Reps. Billy Tauzin, who heads the House energy committee, and James Greenwood, chairman of its Oversight and Investigations subcommittee, are preparing for February hearings into the role of regulators and the accounting industry in Enron's failure.

Outside Washington, Enron already is shaping up as a political liability in its Texas home and elsewhere. For years, Enron has been among the best-known underwriters of political campaigns in Texas. But in the state's race for attorney general, both Democrat and Republican candidates have said they plan to return some or all donations from the company.

And the decision of Mr. Bush's successor, Gov. Rick Perry, to appoint a former top Enron executive as chairman of the Texas Public Utility Commission has produced a storm of protest. Two Texas citizen groups have called for an inquiry into the appointment, and the Dallas Morning News has urged the current GOP attorney general, John Cornyn, to rule on the eligibility of the Enron executive to serve in light of conflict-of-interest rules.

Mr. Cornyn, like the Republican governor, has received more than $100,000 in contributions from Enron through the years. Moreover, he's now seeking the Senate seat held by Republican Sen. Phil Gramm, who is retiring. Yet the vulnerability of some Democrats is apparent here, too: A top Democratic candidate for the Senate seat is Rep. Ken Bentsen, who received more Enron contributions -- $42,750 -- than any House member.

In California, meanwhile, Democratic Gov. Gray Davis has suggested that Enron may have contributed to the energy crisis that struck his state last year. "I take no joy in Enron's troubles," he said last month. But, he added in a swipe aimed at the company, "Some of the companies providing power were driving a very hard bargain, I believe taking advantage of California." Earlier this year, the state's Democratic attorney general, William Lockyer, subpoenaed Enron's electricity-trading records in an attempt to show that the state was a victim of price gouging.

Lawmakers on both sides of the aisle have called on the Justice and Labor departments to probe whether Enron violated laws governing the retirement plans for thousands of its employees. On average, employees had more than 60% of their retirement savings in Enron shares, and because they had little flexibility to diversify or sell, many lost as much as 90% of their retirement assets when the share price plunged.

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