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Will Enron's Collapse Be Bush's 'Teapot Dome'?
Robert H. Weiss, Esq.

The collapse of Enron Corp. promises to blow a hole through the American economy that will dwarf the financial damage done by terrorists on September 11. One of America's largest corporations, with a market capitalization of hundreds of billions of dollars at its peak, Enron has gone south in a hurry, leaving tens of thousands of investors with billions of dollars in losses.

The employees of Enron were prohibited by the terms of their company administered retirement plan from diversifying. Meanwhile Kenneth Lay, a close friend and major contributor to both Bush presidents made off with over $300 million over the last few years. The top brass did equally as well. Directors included former Treasury Secretary Jim Baker, former Commerce Secretary Robert Mosbacher, and former Commodities Future Trading Commissioner Wendy Gramm, wife of Republican Senator Phil Gramm.

Enron had as its supporters some of the top people on Wall Street; respected analysts were touting the company to the very end. The entire tale would be comic if it were not for the very real pain of small investors and lower level employees whose retirement was decimated by a power play that reads as a primer of what goes wrong and who gets hurt when government and business get too way too close.

Kenneth Lay was one of the first political supporters and fundraisers for a young gubernatorial candidate in 1994. He had helped George Bush "41" become president. Virtually no donor had done more than Lay to get George W. Bush elected in 2000. With access to the highest level of government, Enron under Lay virtually created a complex derivative market for energy futures, which it subsequently controlled. Any regulatory issues they may have had were smoothed over by board members who included former cabinet members as well as the former speaker of the British House of Commons.

Walls Street firms were heavily invested and their analysts hopelessly conflicted. In order to access huge fees in investment banking and underwriting, basic questions as to the company's viability were left unasked. Their own auditors, Arthur Anderson, were co-opted and John Q. Public was sold a bill of goods that upon reflection no one really understood. When the house of cards came crashing down and investors began asking the hard questions, regulators and politicians feigned shock as to how this could happen. The fact is they know exactly how it happened. This is a variation on the oldest story in business and politics: The insiders grab and the suckers lose. Most of us were not insiders.

"Shocked" professionals "discovered" undisclosed liabilities in the billions. Furious employees vainly tried to sell as shares once valued as high as $92 slunk to $.25. The former Treasury Secretary, Commerce Secretary, and Commissioner of the CFTC, all of whom owed a fiduciary duty to shareholders, had no comment. It will be up to the reviled Trial Lawyers to sort this out with drawn out, complex cases that will no doubt be defended with the best legal talent that the impoverished shareholder's money can buy. The Trial Lawyers will no doubt be labeled as "greedy," but the real bad actors in this can certainly teach us all a lesson in greed.

Jim Baker was the Treasury Secretary and probably the closest friend to George Bush the elder. He was Mr. Bush's campaign chair and the leader of the effort to handle the Florida Recount debacle for the current president. He has been and is a major worldwide player in politics and business for two generations. What was he thinking? Did he fully appreciate the market risk that the shareholders, whose interests he was sworn to protect, were facing? If he did not who could? If he did why didn't he act? Dittos for Robert Mosbacher and Wendy Gramm.

Do you think that the current President Bush will investigate his dad's former Secretary of the Treasury and one of his best friends? What about Kenneth Lay? Think he'll go under the microscope? No. There will be no serious undertaking by the Justice Department, the SEC or Congress. Mr. Lay was careful to raise a lot of money for Bill Clinton and has friends in the Democratically-controlled Senate. There will be little justice for investors.

The thousands of employees who were prohibited from diversifying and selling will live much different lives than if they had cast their lots with a different company. The countless other investors who trusted the august Board of Directors, the wise analysts and the well established auditors just got screwed. They will only get pennies on the dollar.

Kenneth Lay lines his pockets with $300 million dollars and goes on to the next thing. The Board of Directors will sit on more boards and get more perks. The investment houses and the auditors will get sued. The cases will settle. These lawsuits and arbitrations are considered the cost of doing business. Their core business will not be affected. No one will come close to jail.

There is one ray of hope for poetic justice here. The directors owed a fiduciary duty to their shareholders. The breach of this duty gives rise to liability. Companies routinely purchase a policy for "Directors and Officers Errors and Omissions." Enron certainly had such a policy but there are limits. $100 million would be a very large policy limit, but would not begin to bring justice to the investors. After that the directors are on their own.

Even Kenneth Lay would not be able to repay the billions his malfeasance cost investors. Therefore he along with the former Treasury Secretary, Commerce Secretary and others could be forced into personal bankruptcy. How truly tragic.