Enron Probe Crosses Many Political Borders

WASHINGTON – As the White House admitted Thursday that it was warned last year that Enron Corp. was facing bankruptcy, auditor Arthur Andersen LLP made its own admission that thousands of documents relating to the former energy giant were destroyed.

Enron's employees lost billions of dollars when the company unexepectedly went belly up last month.

White House press secretary Ari Fleischer said Enron chairman Kenneth Lay suggested to Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans that the government bail out the struggling corporation. That move was considered, but rejected.

In the meantime, Attorney General John Ashcroft has recused himself from the Justice Department's investigation opened yesterday, saying it would be a conflict of interest for him to head up the probe since he received contributions from Enron while a senator from Missouri.

A DOJ statement said, "The attorney general has not been involved in any aspect of initiating or conducting any investigation involving Enron."

Ashcroft's chief of staff, David Ayers, who was his campaign manager, is also recused. Deputy Attorney General Larry Thompson will handle "any and all responsibilities" that would have fallen to Ashcroft.

The Labor Department and the Securities and Exchange Commission are separately conducting civil investigations.

Enron, which was formed in 1985 and had 20,000 employees, was once the world's top buyer and seller of natural gas and the largest electricity marketer in the United States. It also marketed coal, pulp, paper, plastics, metals and fiber-optic bandwidth.

It quickly fell on hard times last fall when an $8.4 billion buyout from rival Dynergy, Inc., fell through. Shares of the company's stock, which traded at $85 a year ago, are worth less than $1.

The Justice Department wants to know if Enron defrauded its shareholders by crafty accounting practices, particularly by forming off-balance-sheet partnerships which took on Enron debt, thereby masking the company's financial problems. Enron was then able to take on more cash and credit debt needed to run its trading business.

Federal law enforcement investigators will also want to know why Arthur Andersen destroyed a "significant but undetermined" number of documents related to the company, an admission it made Thursday.

Chicago-based Andersen said its company policy "required in certain circumstances the destruction of certain types of documents," but said millions of documents relating to Enron still exist, and it has managed to retrieve some of the deleted electronic files.

Retrieval efforts continue through electronic backup files. The company said it "is continuing in its efforts to fully learn and understand all the facts related to this issue" and has asked Missouri Attorney General John Danforth to conduct a review of its records management policy.

President Bush also said Thursday that he will seek a full review of rules on pensions and 401 (k) retirement accounts in light of Enron's collapse. Bush said Thursday that he's concerned both for Enron shareholders and the workers whose savings were locked up in the company's stock at the time the company foundered. He vowed the task force headed by the Justice Department's criminal division would "fully investigate" the "awful bankruptcy."

Houston-based Enron's relationship to the president, however, is raising questions about whether the White House knew of and ignored such schemes.

Enron was a consultant on the Bush energy policy, and CEO Lay is a friend of and contributor to the president. The president said he had not talked to Lay since last spring when he attended a Houston fundraiser hosted by Bush's mother Barbara Bush.

Last year, Enron representatives met six times with Vice President Dick Cheney or his aides on energy issues, most recently in mid-October just before its collapse.

The vice president's office said the last Enron meeting with a Cheney aide was Oct. 10, just six days before the progressive collapse of the company.

Vice presidential counsel David Addington said Cheney never discussed finances with company executives.

Bush said Thursday that he was unaware of Enron's financial problems despite his political alliance with Lay, who Bush pointed out also supported Bush's Democratic predecessor as Texas governor, Ann Richards.

The Associated Press contributed to this report.