Tauzin Accuses Enron of Illegality

Article excerpt

Byline: Patrice Hill, THE WASHINGTON TIMES

Leading congressional investigators have concluded that Enron Corp. executives violated securities laws in creating off-the-book partnerships that deceived investors by hiding the company's debt and inflating its assets.

"We have found substantial evidence of illegal activity," said House Energy and Commerce Committee Chairman Billy Tauzin, who heads the lead congressional committee investigating the Enron debacle. It was the first time he has explicitly charged that securities fraud was at the root of Enron's collapse.

Mr. Tauzin, a Louisiana Republican, cited "fictitious gains" Enron reported on transactions with two off-book entities - LJM2 and Raptor - when the value of the partnerships' assets was actually declining. The company essentially manufactured "illusory" profits that inflated the company's reported earnings by over $1 billion in 1999, 2000 and 2001, he said.

In the complicated Raptor transactions, which purportedly were designed to hedge risky investments, "Enron was doing business with an entity whose only asset was Enron shares that Enron had contributed," he said.

"This was not a hedging transaction. Enron was merely issuing shares and calling the issuance earnings. This clearly violated existing law and the most basic norms of corporate behavior," Mr. Tauzin said.

Enron's disclosure of its gross overstatement of earnings and understatement of debt last fall precipitated the collapse of the company and its stock, causing $60 billion in losses for investors and company employees and leading to dozens of investigations and lawsuits.

The Securities and Exchange Commission, which pursues civil violations of the securities laws, has not taken action since opening an investigation of Enron and its auditor Arthur Andersen last fall. The Justice Department opened a criminal investigation of the firms last month.

Mr. Tauzin suggested that oversight and enforcement by the SEC was lax, particularly because it did not spot the serious problems with Enron's financial statements in routine reviews conducted in 1997 and scheduled - but later postponed - in 2001.

"Before we rush to impose new laws and regulations in the wake of this scandal, we will want to be sure we are actually enforcing existing law," he said. …