Feb. 6, 2002, 1:05PM

Congressman: 'Substantial evidence'
of lawbreaking at Enron found
Houston Chronicle News Services

WASHINGTON - Congressional investigators have uncovered "substantial evidence of illegal activity" by the now-bankrupt Enron Corp. and its management, Rep. Billy Tauzin, chairman of the House Energy and Commerce Committee, said today.

"This activity served to deceive the public about Enron's financial condition," Tauzin, a Louisiana Republican, said in prepared remarks opening a hearing to probe the collapse of the former energy giant and the actions by its auditor Andersen.

Enron's auditor "knew or should have discovered the fraudulent nature" of certain transactions with outside partnerships managed by former Enron Chief Financial Officer Andrew Fastow, he said.

"We have found that Enron's financial statements violated numerous existing accounting rules," Tauzin said.

His statements came as subpoenas multiplied and hearings mushroomed in Congress' investigation into the collapse of Enron, a once-powerful company transformed into a symbol of corporate failure.


Associated Press file
Labor Secretary Elaine Chao.

In another congressional hearing on the Enron collapse, meanwhile, Labor Secretary Elaine Chao today said that President Bush's proposal to revamp pension laws would strengthen retirement account protections for millions of workers.

Lawmakers also said changes were needed but they expressed differing views on how to best protect workers.

Bush is asking Congress give workers greater flexibility to diversify their company savings accounts, aiming to prevent another Enron-style wipeout of workers' savings. Thousands of Enron employees lost their retirement savings as the company stock plummeted during a period when they were barred from selling it from their investment accounts.

Speaking at a hearing by the House Committee on Education and the Workforce, Chao said the Bush plan would not limit the amount of time employees are barred from making changes in their accounts while plan administrators are being switched, but she said the plan encourages employers to keep that period short.

"We must strengthen the confidence of the American work force that their retirement savings are secure," Chao testified.

Although some changes in pension laws are needed, the system is not irreparably broken and is a great success story, Chao said.

Bush's plan also would require employers to give workers quarterly statements with detailed information on their accounts and their rights to diversify holdings, Chao noted. Employees would be allowed to sell company stock contributed by their employer to their 401(k) after a three-year period.

Rep. John Boehner, R-Ohio, the committee's chairman, said the Enron debacle "has provided tragic confirmation of the need for modernization of America's pension laws."

However, he cautioned, Congress shouldn't go too far and make changes that would discourage employers from continuing to contribute company stock.

Across the Capitol, the Senate Judiciary Committee heard testimony from legal and labor experts on how to prevent similar scandals. Proposals included requiring more disclosure from accountants and capping the amount of money that bankrupt corporations can shield from creditors.

Such changes would require vast revisions to bankruptcy and other laws, and there was disagreement early in the hearing over how best to do that. "You can't legislate against greed, but you can stop greed from succeeding," said Sen. Patrick Leahy, D-Vt., the panel's chairman.

Washington state Attorney General Christine Gregoire told the panel that Enron's conduct amounted to "a perfect storm" that rained financial loss and fraud on thousands of investors.

"They assumed the seventh largest company in America was playing by the rules," Gregoire said. "In the end, they found themselves ripped off just like the naive person who lost money in a pyramid scheme."

At the hearing on pension law changes, Rep. George Miller of California, the committee's senior Democrat, said the Enron case shows how workers' retirement savings can be jeopardized if employees' rights and protections are inadequate. "Today's outdated pension rules are putting employee nest eggs at risk," he said.

On Tuesday, Sen. Joseph Lieberman, D-Conn., announced plans to issue a subpoena to get information about bonuses paid to Enron executives in the run-up to its Dec. 2 bankruptcy filing. "The thought of employees sustaining huge losses while executives were able to sell stock for millions is infuriating," Lieberman said.

Enron executives said employees were frozen out of their accounts for 11 trading days while the company switched 401(k) plan administrators.

Chao disclosed today that Enron stock apparently was trading around $14 a share when the lockout began last fall and dropped to about $10 at the end of it.

As the lockout period approached and Enron's stock continued to plummet, Enron managers considered delaying the switch and the lockout period so employees would not be frozen out of their accounts.

"We considered postponing, but found it was not feasible to notify more than 20,000 participants in a timely fashion," Mikie Rath, Enron's benefits manager, told the Senate Governmental Affairs Committee on Tuesday.

Enron's stock peaked at $82 a share on Jan. 26, 2001. It was selling for $15.40 at the close of trading on Oct. 26, the day the lockout began, and had fallen to $9.98 on Nov. 13, the day it ended.

Reuters News Service and Associated Press contributed to this report.