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Financial Collapse of Enron Corp
Subcommittee on Oversight and Investigations
Prepared Statement of The Honorable Jim Greenwood The
hearing this morning will be a painful one. We have met to continue our
investigation into the collapse of the Enron Corporation. And as our
investigations show and as was borne out by Dean Powers' testimony two days
ago, a number of our witnesses today were members of the corporate leadership
team at Enron who must bear the greatest weight for its collapse. Four
of the witnesses here today will appear only briefly. Messers Fastow, Kopper,
Causey and Buy will all seek the protection against the danger of
self-incrimination guaranteed by the Constitution to every citizen in the
"Bill of Rights". The
duty of this subcommittee is to investigate the facts of the matter surrounding
the collapse of Enron to determine what went so horribly wrong that the
nation's seventh largest corporation had to seek protection from its creditors
by filing for bankruptcy. And
once we have established those facts, we have an obligation to determine how our
financial laws and regulations can be improved, so
that, in the future, publicly traded companies faithfully and completely report
their financial actions and their true financial health. This is the only way to
insure that investor confidence is restored and that future investors will not
suffer the fate of the many thousands who watched with horror as the work of a
lifetime was swallowed up and their life savings disappeared. The
facts uncovered to date seem clear enough. Two
days ago we heard extensive and informative testimony from William Powers, Dean
of the University of Texas School of Law and Chairman of the Special
Investigative Committee of Enron's Board of Directors, who joined the Board
this past October solely to investigate the transactions between Enron and
various partnerships. Our own investigations into these transactions, along with Dean Powers' illuminating report, carefully detail the complex workings of these "related party entities" as they were called. As the workings of these entities and associated schemes, such as Chewco, LJM1, LJM2, the Raptor transactions, and JEDI, become clearer, they also become more disturbing. In Dean Powers' words, what we have found is nothing short of "appalling." Mr.
Fastow, aided by a number of those witnesses subpoenaed here today, shared in
huge fees totaling tens of millions of dollars to arrange and participate in
bizarre transactions that were, at the least, imprudent and, at worst, contrary
to the very interests of the company, shareholders and investors they were duty
bound to serve, apparently plundering millions at the expense of the company and
its shareholders. In
furthering these transactions, we have also learned, they failed to follow the
most basic rules of accounting. They also failed to adhere to any of the
business tenets designed to avoid conflicts of interest. In
putting numerous deals together, Mr. Fastow and his subordinates managed,
apparently, to represent both sides to a transaction. The
Powers Report, and the Dean's personal testimony on Tuesday, could not have
been any clearer on, or firmer in, its conclusion that these transactions were
not designed to improve Enron's economic health. On the contrary, these deals
magnified Enron's risks, hastening the day of its collapse. Sadly,
it is increasingly clear that this collapse was not brought about by the
isolated acts of "rouge" employees. A disaster of this magnitude requires
the complicity of far more than a few "bad apples". From senior managers to
corporate directors to outside counsel and accountants, almost no one who had
the power to sound the alarm, correct the situation, or prevent this debacle did
so. As
I stated earlier, four of the individuals who were at the center of these
schemes will not testify today.
Andrew Fastow was Enron's former Chief Financial Officer. Michael
Kopper was the former Managing Director of Enron Global Finance. While both of
these individuals have provided some documents to Committee investigators, they
have refused to be interviewed or provide all of the documents in their
possession. They also have refused to come before us this morning voluntarily.
They have come under subpoena. Rick Causey was Enron's Chief Accounting Officer. And Rick
Buy was Enron's Chief Risk Officer. We
received word yesterday that neither of these INDIVIDUALS will testify
today. Fortunately, Committee investigators have had the opportunity to
interview both Mr. Causey and Mr. Buy about these matters over the last month. But
reluctant WITNESSES will not keep us from getting at the truth. Again,
The facts. our investigation and
dean powers' report appear to confirm, that mr. fastow essentially
masterminded the transformation of this company into the derivatives-trading
giant it was. he devised the
transactions that were ostensibly aimed at moving volatile holdings off
enron's books; deals we
understand now to have been fraudulent. mr.
kopper served as his chief lieutenant. he
became the general partner of chewco, whose mysterious dealings accounted for
the single largest portion of enron's financial restatements last november.
mr. kopper also served as a general manager of mr. fastow's two LJM
partnerships. Even
without the testimony of Fastow, Kopper, Causey, and Buy, we will still be able
to get some important answers today. To this end, other witnesses today will
include Enron officials who had dealings with Fastow and Kopper, and
who attempted to alert others in Enron's senior management about the danger
these deals represented to the company. We will also hear from Tom Bauer, the
Andersen audit partner who worked on the Chewco transaction, who is expected to
describe what Enron did and did not disclose about this highly troubling
transaction. Our last panel is comprised of senior Enron officers and directors who approved these partnerships and transactions, and were responsible for ensuring the fairness and appropriateness of the transactions in question. Their
role in this, for good or ill, also needs to be established and we want to give
them the opportunity to speak for themselves. We
will hear much talk today of such things as derivatives, the practice of
hedging, and why certain transactions go on the books and others remain
undisclosed. We will also learn more than any Congressional Committee to date on
the murkiest of dealings Enron operatives engaged in. We have before Congress,
for the first time, a collection of the senior Enron players who knew why
decisions were made, why the company choose to pursue this ill-fated course,
what the company knew about the risks involved, and why they choose to act -
or not act - the way they did. What
we learn today, I am confident, will help this Committee continue to construct a
full and accurate picture for the public of what happened to cause this
financial, personal, and corporate tragedy. One
final note. Like many American's, I have tried to keep some perspective on
this whole tawdry affair and to provide some perspective as well. But the truth
is that this story of financial collapse and betrayal is of epic proportions. It
is almost Biblical in scope. So perhaps we need to look beyond all the gritty
details of avarice and appetite to a larger lesson that all of us can share. In
the 11th Chapter of the Book of Proverbs, the authors offer these prophetic
words, " He that troubleth his own house
will inherit the wind. And the fool will be a servant to the wise in Heart."
Perhaps that is the true lesson of Enron's
failure. I
now recognize the ranking member, Mr. Deutch for an opening statement.
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