Federal Agency Probing Enron's Trading
{{#rendered}} {{/rendered}}The government is investigating whether Enron Corp. committed fraud or manipulated markets through improper trading, the chairman of the Commodity Futures Trading Commission said Monday.
Disclosure of the investigation comes as Enron's longtime auditor, the Arthur Andersen accounting firm, is negotiating with federal prosecutors over whether it can avoid criminal charges in the Enron case.
Andersen has acknowledged massive shredding by its employees of Enron-related documents. A Justice Department official indicated Friday that government lawyers were negotiating with representatives of Andersen.
{{#rendered}} {{/rendered}}CFTC Chairman James Newsome said in a telephone interview: "We do have a full investigation under way." He said the agency was using its anti-fraud and anti-manipulation authority to investigate Enron's trading on commodity exchanges, notably the New York Mercantile Exchange, as well as its own big online trading system.
The system, called EnronOnline, was the world's first commodity trading platform based on the Web.
Enron was the world's largest buyer and seller of natural gas and grew into the nation's seventh-largest company and a favorite of Wall Street by becoming the country's leading electricity trader. The Houston-based company later started new trading markets in telecommunications bandwidth, pulp, paper, plastics and the influence of the weather.
{{#rendered}} {{/rendered}}Enron spiraled downward into the biggest corporate bankruptcy in U.S. history on Dec. 2.
Newsome, who was confirming a report in Monday's Wall Street Journal, said the CFTC last fall began an inquiry into Enron's trading that later became a formal investigation.
The Justice Department, the Securities and Exchange Commission and a dozen congressional committees are investigating Enron, its accounting practices and Andersen's role. In addition, the Federal Energy Regulatory Commission is examining possible energy price manipulation by Enron and other traders in Western wholesale power markets.
{{#rendered}} {{/rendered}}Senate Majority Leader Tom Daschle, D-S.D., and Sen. Patrick Leahy, D-Vt., chairman of the Senate Judiciary Committee, planned to propose legislation Tuesday that would, among other things, tighten penalties for securities fraud and provide greater protection for corporate whistle-blowers.
Democratic lawmakers have said President Bush's plan to enforce corporate responsibility is too weak.
SEC Chairman Harvey Pitt said Monday the president's plan, which was announced last week, will involve the government working with Wall Street, the accounting profession, company managers and the public. However, he added, "No one should take that to mean we will be soft on wrongdoers."
{{#rendered}} {{/rendered}}"We will enforce the law and enforce it swiftly," Pitt said in a speech to securities industry lawyers.
The Labor Department, meanwhile, is investigating Enron's actions in banning employees — who lost their retirement savings — from selling company stock in their 401(k) plans for about three weeks.
Newsome said his agency has been cooperating with the Justice Department, the SEC and the FERC in their inquiries.
{{#rendered}} {{/rendered}}Enron spokesmen had no immediate comment on the CFTC investigation.
Enron became one of the largest traders of energy derivatives — financial contracts used to hedge or speculate on a commodity. Businesses buy them to guard against losses from unexpected market movements while speculators buy them as high-risk bets, hoping for huge returns.
Government officials, including Federal Reserve Chairman Alan Greenspan, have maintained that the multi-trillion-dollar global market in over-the-counter derivatives — which are traded outside commodity exchanges — should continue to be exempt from regulation.
{{#rendered}} {{/rendered}}Enron, which was among Bush's biggest campaign contributors, lobbied throughout the government and Congress against regulation of electricity markets and the trading of derivatives tied to energy commodities.
Wendy Gramm, an Enron director and member of the board's audit committee, was chairwoman of the CFTC before she joined the Enron board in 1993. As head of the agency, she shepherded an exemption from government oversight for the trading of energy products, which benefited Enron and other energy-trading companies. Gramm, an economist, is married to Sen. Phil Gramm, R-Texas, former chairman of the Senate Banking Committee.
Under current law, the CFTC doesn't have the authority to regulate over-the-counter or electronic derivatives trading but is empowered to investigate if it suspects fraud or market manipulation.
{{#rendered}} {{/rendered}}Sen. Dianne Feinstein, D-Calif., recently proposed legislation that would restore full oversight authority to the CFTC.