Last week, The Washington Post‘s Paul Farhi joked that the Enron story might not catch on, because it is an incomprehensible Washington scandal (IWS) rather than a simple Washington scandal (SWS), which is usually about sex. “By definition,” Farhi wrote, “an IWS is so convoluted that it is understood only by participants, partisans, lawyers, and a few very nerdy journalists.”
Jokes aside, lots of pundits seem to be downplaying this scandal for one reason or another, but don’t listen to anyone who says it’s not a “political scandal.” Enron symbolizes what’s wrong with Republicans and Democrats—over the last two decades, the political system has been bought off by big corporations, who prefer to work in a marketplace free of checks and balances. Even conservatives see the pendulum swinging: Chris Matthews has predicted fallout for the GOP in 2002, and George Will says the time has come for more government regulation.
The story line is simple: The feds looked the other way while Enron reaped unconscionable profits. With the help of accountants, the company failed to pay income tax, inflated its assets, and hid its debt in secret partnerships, which it named Condor and Raptor. In November, the company disclosed that it had overstated profits and failed to report more than $1 billion in debt. By the time the company went bankrupt, executives had sold $1.1 billion in stocks, while 50,000 Enron employees lost their life savings. The Enron logo, a big “E,” actually resembles a magnet for money.
Here’s another way to conceptualize the story—imagine a two-page scandal chart, complete with boldface names, neckless head shots, and squiggly lines indicating all the connections. You can fit a lot of facts on two pages. For example: President Bush is an old friend of Enron chief Kenneth Lay, whom he calls Kenny Boy, and Bush has bagged more than $550,000 from Enron execs over the years. Presidential adviser Karl Rove owned at least $100,000 in Enron stock, which he sold in June 2001. Not long ago, Attorney General John Ashcroft took $57,000 from Enron, but now he has recused himself from the investigation. As John Podhoretz says, “There doesn’t seem to be any stonewalling there.”
Instead, Ashcroft’s investigation of Enron is being handled by Deputy Attorney General Larry Thompson, who used to work for one of Enron’s law firms. Another Enron firm, Vinson & Elkins, investigated the company’s accounting last fall and found nothing “inappropriate.” Before joining the administration, Bush economic adviser Lawrence Lindsey was a $50,000 consultant to Enron, and at the White House, he did not think Enron’s situation merited any government action. (Enron has also made contributions to Democrats, including Chuck Schumer, Ann Richards, and the DNC.)
The scandal chart could show all the connections to Arthur Andersen, the accounting firm that signed off on Enron. Enron hired its chief accountant, Richard Causey, from Andersen, where his job had been to audit the books for Enron. Andersen is said to have occupied an entire floor in Enron headquarters in Houston. Rep. Billy Tauzin got about $50,000 from Andersen between 1989 and 2001, but now that Tauzin is leading the House investigation of Enron, he says he won’t cut Andersen any slack. Harvey Pitt represented Andersen and other accounting firms in front of the SEC, but now that he’s SEC chairman, Pitt thinks he’s the man to crack down on the accounting industry. Even The Wall Street Journal thinks Pitt may have a conflict.
In fine print, the chart could record the denials that have come out of this scandal. Immediately after January 11, when it was reported that Arthur Andersen had destroyed documents related to the case, Bush officials began distancing themselves from Enron. Bush says he hasn’t spoken to Kenny Boy since last spring, and the Commerce and Treasury secretaries say they turned down Lay’s call for help this past fall. Enron execs deny any inside knowledge that led them to sell stocks at a profit, and Condor and Raptor apparently hatched out of thin air. On January 15, Andersen fired David Duncan, the partner in charge of the Enron account. According to The Wall Street Journal, Duncan feels “the firm is unjustly trying to pin the blame on him.”
Finally, the chart could trace connections between Enron and the media themselves. In 1999, Enron paid New York Times columnist Paul Krugman $50,000 to serve on an advisory board. (Krugman disclosed that fact in January 2001.) Arthur Andersen employs David Tabolt, a former editor and reporter for the Associated Press, in its PR department. Most remarkably, Arthur Andersen pre-leased 600,000 square feet in Mort Zuckerman’s Times Square Tower, now under construction on the south side of 42nd Street. That could spell trouble for Mort, and as the New York Post‘s Steve Cuozzo pointed out, it might explain why the Daily News was a bit slow picking up on the story of Andersen’s demise over the weekend of January 12. Of course, the News is not the only paper with a possible conflict. One of Andersen’s top clients is Rupert Murdoch’s News Corp., which owns the Post.
If the News and the Post are potentially biased in favor of Arthur Andersen, The New York Times may harbor a negative bias. As the Times reported on January 11, the accounting firm destroyed documents related to the case, which is obviously criminal behavior. But logically, Andersen’s guilt does not exonerate Enron, unless you are Times business reporter Kurt Eichenwald—who has written that so far, “the biggest failure . . . appears to rest with [Enron’s] auditors, Arthur Andersen.”
Eichenwald has a history of corporate boosterism. In 2000, he came out with a popular book called The Informant that downplayed price-fixing at agricultural giant Archer Daniels Midland while demonizing the whistleblower who helped make the case. So it’s no surprise that he’s all over the latest scandal. On January 13, he landed on the front page of the Times with a sweeping overview of the rise and fall of Enron. The story read like a book proposal, and it glossed over Condor and Raptor while heaping blame on Arthur Andersen. The last line quoted a former Enron employee, who said, “It’s beginning to sound like a John Grisham novel.”
As others have noted, blaming the accountants is a central part of Enron’s defense strategy. And it seems to be working, deflecting some of the attention from the predatory actions of Kenneth Lay. Consider this bit from the Times‘s lead editorial on January 14: “Enron may have been deceitful in recent years, using off-the-books partnerships to exaggerate revenues and hide debt,” the editorial read. “It was Arthur Andersen, however, that signed off on the . . . company’s deceptive financial reports.”
There are many appropriate responses to this scandal, but apologizing for Kenny Boy isn’t one of them. I’m with The New York Observer‘s Michael Thomas, who says the officers of Enron “should be stripped of their insider stock profits and go to jail.”