Justice Opens Criminal
Probe Of Enron

By Kevin Drawbaugh

WASHINGTON (Reuters) - The Justice Department said on Wednesday it had opened a criminal investigation of Enron Corp., as the controversy over the energy giant's collapse widened.
Officials declined to say exactly when the criminal probe began. But they said it was centered in the department's criminal division and that a task force was being set up to handle the case.
Robert Bennett, attorney for Enron, said, "When this investigation is finished, a lot of the things that people are reading and hearing will be proven to be not true."
He said he was pleased the Justice Department was centralizing its inquiry. "It is very difficult to deal with multiple entities ... We have been in contact with several different prosecutors," Bennett said.
Once the world's largest energy trader, Enron slid in mere weeks last year from Wall Street stardom to making the largest bankruptcy filing in U.S. history on Dec. 2. Its downfall, after withdrawal of a rescue takeover bid by rival Dynegy Inc., threw thousands out of work and devastated investors.
The episode sapped the life savings of many Enron employees whose 401(k) retirement plans depended on the company's stock, while top executives allegedly pocketed fat profits by selling ahead of a dizzying plunge in the share price.
The White House on Wednesday said it was likely to soon propose new policies to guard against a repeat of the Enron debacle. White House spokesman Ari Fleischer, asked about the Justice Department probe, told Reuters it was important to get to the bottom of the Enron collapse and develop new policies to protect workers and pensioners.
"It's important for the investigation to proceed to determine what was done and why it was done. The president also believes it's important to explore new policies so it (a similar collapse) can never happen again," Fleischer said.
Asked whether new policies would be announced soon, he said, "likely."
The Houston, Texas-based company, once ranked No. 7 on the Fortune 500 list of large corporations, is also being probed by five congressional committees, the market-regulating Securities and Exchange Commission and the Labor Department.
At the heart of Enron's problems were complex financial partnerships -- known as special-purpose entities -- set up by Enron executives and used to keep debt off the company's highly leveraged books. After some deals involving the partnerships went sour, Enron in October had to take a $1 billion charge against earnings and cut shareholder equity by $1.2 billion.
Those moves drew market attention to the partnerships, triggering a crisis in investor confidence and credit-rating downgrades that ultimately led to bankruptcy court.
The SEC said its 10-week-old probe of Enron and its long-time auditor, the accounting firm Andersen, would not be altered by the Justice Department's action. "The Justice Department and the SEC frequently run concurrent investigations," said SEC spokeswoman Christi Harlan.
The decision at Justice to move to a full-fledged criminal investigation came after weeks of examining whether such a probe was warranted, officials said.
They were unable to say whether any charges would ever result from the investigation.
"I'm not assuming they will file charges," Bennett said. "This is a very preliminary investigation ... To my knowledge there's no evidence of wrongdoing yet. You have a business failure and you have a lot of allegations. But allegations are not the same as evidence."
The departmental task force on the case is expected to include federal prosecutors from Houston, New York and San Francisco. Also on the task force will be members of the Justice Department's fraud section, officials said.
Enron was a major contributor to the election campaign of President Bush, as well as many other lawmakers in Washington. The once politically powerful company also advised the Bush administration on energy policy.
The head of Congress' investigative arm said on Wednesday he would decide within a month whether to sue the White House over its refusal to name industry executives the administration met with last year while drafting its new energy policy.
Shares in Enron closed on Wednesday at 79 cents on the New York Stock Exchange, off an August 2000 high of $90.56.

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