The Enron Scandal

The two months prior to Enron’s downfall was one of those times. On August 15, 2001, one day after Skilling resigned from the company, Lay sent Enron lobbyist Pat Shortridge to meet with White House economic advisor Robert McNally. Shortridge warned Mc- Nally that Skilling’s resignation could lead to a fiscal crisis that could cripple the country’s energy markets. 

The White House acknowledged that the meeting between Short- ridge and McNally took place in documents released to reporters and Senator Joe Lieberman (D-CT), chair of the Senate Governmental Affairs Committee, which in 2002 investigated the fall of Enron. The documents noted, “Mr. McNally met with Mr. Shortridge and another individual who was not from Enron.” When asked whether Enron’s future had been discussed, White House spokesperson Anne Womack said at the time, “If the meeting was about that, I would assume there wouldn’t be anyone else there besides Mr. McNally and Mr. Shortridge.” 

What’s troubling about the meeting between Shortridge and Mc- Nally is that the White House was tipped off to Enron’s financial troubles months before it acknowledged them and well in advance of the warning letter former Enron executive Sherron Watkins delivered to Lay, in which she said that the firm’s Byzantine partnerships could destroy the company. 

One question that is still unanswered in the Enron debacle is, “What did President Bush know and when did he know it?” In May 2002 the White House complied with a subpoena and turned over more than 2,000 pages of documents pertaining to Bush administration contacts with Enron to various Senate and Congressional committees investigating Enron’s demise. The documents revealed the close relationship between Enron and the White House and how the company was able to influence President Bush’s political agenda by recommending people to various posts within the Administration. 

Buried deep within the documents was a letter Lay sent January 8, 2001 to Bush’s personnel director, Clay Johnson, recommending seven candidates to the Federal Energy Regulatory Commission. Two of the candidates Lay recommended, Pat Wood and Nora Brownell, were appointed to FERC by Bush; Wood was appointed chairperson. 

Another document revealed that Lay called the White House incessantly for help. Lay called Treasury Secretary Paul O’Neill on October 28, 2001 to advise him that Enron was heading toward bankruptcy. The next day Lay asked Commerce Secretary Don Evans for help in keeping a major Wall Street ratings agency from downgrading Enron’s credit rating, which would push the company into bankruptcy. A week later, Enron president Greg Whalley called Treasury Under Secretary Peter Fisher six to eight times, seeking help in getting banks to lend more money to Enron. 

Following these revelations, the White House was forced to admit in January 2002 that it had asked Lawrence B. Lindsey, former head of Bush’s National Economic Council, to conduct a review in October 2001—before Lay called O’Neill and Evans—to see whether an Enron collapse could have a strong impact on the U.S. economy. Critics were in an uproar following the admission because President Bush and his senior aides had vehemently denied having any prior knowledge of Enron’s financial status or impending troubles. 

Jennifer Palmieri, a spokesperson for the Democratic National Committee, said at the time, “It shows once again that the Administration did a lot of thinking about the fact that the company was going to collapse, but they did absolutely nothing to make sure that 50,000 Enron employees would not lose their life savings.” 

The intimate relationship between Enron and the Bush administration is also clearly shown by these documents. Lindsey had been a paid consultant for Enron, receiving $50,000 in 2000. He is just one of the top White House and Republican Party officials with close Enron ties, including Robert Zoel- lick, the United States trade representative who sat on an Enron advisory board in 2000; Karl Rove, senior White House political strategist, who held more than 1,000 Enron shares before selling them in June 2001; and Marc Racicot, chair of the Republican National Committee (RNC), who worked as an Enron lobbyist the year before his RNC appointment in 2002. 

P erhaps the most egregious crime is how President Bush and Vice President Cheney allowed Enron to rip off California. On May 29, 2001, when the California energy crisis reached its peak—resulting in nearly a week of rolling blackouts, bankruptcies, and several deaths—Governor Gray Davis met with Bush and pleaded with him to enact price controls on electricity sold in the state, which had skyrocketed to more than $200 per megawatt- hour. 

Davis asked Bush for federal assistance, such as imposing federally mandated price caps, to rein in soaring energy prices. But Bush refused, saying California legislators had designed an electricity market that left too many regulatory restrictions in place, which then caused electricity prices in the state to skyrocket. 

It was up to the governor to fix the problem, Bush said, adding that the crisis had nothing to do with energy companies manipulating the market. Bush’s response, in hindsight, appeared to be part of a coordinated effort launched by Lay to have Davis shoulder the blame for the crisis, which ultimately led to an unprecedented recall of the governor and Republican-funded attack ads on Davis’s handling of the energy crisis. 

A couple of weeks before the Davis and Bush meeting, the PBS news program “Frontline” interviewed Cheney and asked him whether energy companies were acting like a cartel and using manipulative tactics to cause electricity prices to spike in California. “No,” Cheney said. “The problem you had in California was caused by a combination of things—an unwise regulatory scheme, because they didn’t really deregulate. Now they’re trapped from unwise regulatory schemes plus not having addressed the supply side of the issue. They’ve obviously created major problems for themselves and bankrupted PG&E in the process.” 

In April 2001, a month before the “Frontline” interview and Bush’s meeting with Davis, Cheney, who chaired Bush’s energy task force, met with Lay to discuss Bush’s National Energy Policy. Lay recommended some energy policy initiatives that would financially benefit his company and gave Cheney a memo that included eight recommendations for the energy policy. Of the eight, seven were included in the energy policy’s final draft. The energy policy was released in late May 2001, after the meeting between Bush and Davis and Cheney’s “Frontline” interview. 

What many people have failed to realize is that Davis was right in his assessment that energy companies, including Enron, were manipulating the state’s wholesale power market. To this day, neither Cheney nor Bush has acknow- ledged that their inaction helped fuel the California energy crisis. 

It appears that Lay and Skilling will not be held responsible for the scams Enron’s traders pulled on California either. The federal court judge presiding over the criminal case against Lay and Skilling ruled in January that the smoking gun transcripts and audiotapes showing how Enron traders caused shortages and blackouts in California could not be introduced by the prosecution as evidence during the trial because it would prejudice the jury. 

One of the more infamous audio tapes captured an Enron trader admitting that his manipulative trading tactics in California helped him rip off “Grandma Millie” to the tune of $1 million a day.