In Washington, the political knives are coming out as leaders seek to exonerate or link President George W. Bush with the financial failure of Enron, a Texas-based energy trading company whose mismanagement and failure will cost investors billions of dollars.
Leaders in both parties privately agree that the ideal Republican to serve as a President Bush’s political scapegoat for the disaster is Thomas White, Bush’s current Secretary of the US Army and a former Enron executive whose brief tenure with the company earned him tens of millions of dollars.
During an emotionally-charge public hearing last week in the US Senate, White said the division he once ran at Enron Corporation did not participate in an unlawful effort to manipulate California’s power market and drive up prices.White says his division, Enron Energy Services, primarily served “retail” customers such as large businesses seeking to save energy costs and had only an “arm’s-length” relationship with the Enron wholesale power division currently under federal criminal investigation for illegal price manipulation.
“It wasn’t in our interest to escalate the price of power,” he told the Senate Commerce, Science and Transportation Committee last week. “We always sought the cheapest price for our customers,” sometimes buying from Enron’s competitors, though the power, once purchased, was routed through the company’s wholesale power division for delivery, he says. The former Army general, who earned about $50 million in his 11 years at Enron before becoming Army secretary in May 2001, says he was “appalled” by the scandals that drove the energy giant into bankruptcy, though he concedes he “once was proud” to work there.
Skeptical lawmakers questioned White how he could plead ignorance of Enron trading strategies that helped drive California power prices to record levels while simultaneously expanding his own division’s activities in the state. White says the Enron trading operation that used questionable tactics nicknamed “Fat Boy” and “Death Star” was headquartered in Portland, Oregon, not in Houston, where his division was located.
White does concede, however, that some of his staff were in regular contact with the Portland operation and might have been involved in the plans. “Anything’s possible,” White says, adding that he supports “prosecuting those involved to the full extent of the law.” The Army secretary also does not deny that his division at Enron, which he headed from its debut in 1998 until 2001, benefited from California’s sky-high prices, since it prompted California businesses to seek conservation and cost management services like those he offered. US Senator Barbara Boxer (D-California), says California’s energy woes enabled White’s division to finally turn a profit for the first time in 2000, after losing, money for two years.
(Boxer, a consistently harsh critic of the Pentagon, nonetheless unsuccessfully lobbied the Department of Defense in 1989 to keep open Fort Presidio, an Army base in her former congressional district of San Francisco. Her pleas, which were eventually directed to then-President George Herbert Bush, went unheeded: The Presidio was closed in 1992.)
Boxer also says a Wall Street analyst recently revealed to congressional investigators that White told him in 1999 that the energy crisis in California “was enabling Enron to finally turn a profit.”
White, for the record, claims he cannot recall making such a claim to the anonymous Wall Street analyst. Senator Byron L. Dorgan (D-North Dakota) says White’s former division at Enron appears to have implemented a strategy called “Fat Boy,” which — as it was outlined in a memo written by Enron lawyers in December 2000 — employed illegal trading tactics to manipulate the California energy market.
Under the “Fat Boy” strategy, Enron traders “dummied up” or inflated the orders for power from White’s division when scheduling the power delivery through California’s grid operator. This enabled Enron to earn a higher price for delivering the power.
While White concedes that Enron’s power traders used his division’s orders on behalf of California power customers to push up prices, he says he wasn’t aware of the strategy and his division was not the one that lied to California officials by inflating the orders.
But Dorgan says it is beyond belief that two Enron divisions were not co-conspirators in the illegal scheme. “You were kissing cousins,” Dorgan says. “One part of the corporation facilitated what the other part of the corporation did. The glove, to me, looks like it fits.” Boxer accuses White of being “evasive” and “argumentative” and is calling for his resignation. She says she would ask the Securities and Exchange Commission to look into whether White’s sale of Enron stock last year violated insider-trading laws.
White concedes that he had more than 80 phone conversations and meetings with Enron executives last year during the eight months he was given to divest his stock under a confirmation agreement with the Senate.
The Justice Department’s Enron task force is reviewing the matter. White says he culled no inside information from the conversations, which were mostly with “good friends” and involved personal matters. Whenever the conversations turned to Enron, White says, they focused only on matters that were public. “It was what you were reading in the newspaper,” he says, noting that the much-publicized fall of Enron’s stock last year “would naturally be a point of discussion.”
White says the fact that he sold most of his stock just before a Senate-imposed deadline in late October — just as Enron was plummeting toward bankruptcy and its stock became nearly worthless — suggests he had no inside information.
Far from having knowledge about the company’s impending bankruptcy, White says he held onto the stock too long because he “believed in the company” and thought the price of its stock would rebound.
“My selling pattern, and the fact I never cashed in (over 600,000 Enron) stock options, reflects that,” White says.
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