Enron & Cheney: Cronies in Arms


Richard Moore

Date: Fri, 20 Sep 2002 09:24:10 -0700
To: "Richard K. Moore" <•••@••.•••>
From: "Carol Klammer" <•••@••.•••> (by way of Tom Atlee)
Subject: NY Times article September 17, 2002

Cronies in Arms

September 17, 2002
In February 2001 Enron presented an imposing facade, but
insiders knew better: they were desperately struggling to
keep their Ponzi scheme going. When one top executive
learned of millions in further losses, his e-mailed
response summed up the whole strategy: "Close a bigger
deal. Hide the loss before the 1Q."

The strategy worked. Enron collapsed, but not before
insiders made off with nearly $1 billion. The sender of
that blunt e-mail sold $12 million in stocks just before
they became worthless. And now he's secretary of the Army.

Dick Cheney vehemently denies that talk of war, just weeks
before the midterm elections, is designed to divert
attention from other matters. But in that case he won't
object if I point out that the tide of corporate scandal is
still rising, and lapping ever closer to his feet.

An article in yesterday's Wall Street Journal confirmed
what some of us have long argued: market manipulation by
energy companies - probably the same companies that wrote
Mr. Cheney's energy plan, though he has defied a court
order to release task force records - played a key role in
California's electricity crisis. And new evidence indicates
that Mr. Cheney's handpicked Army secretary was a corporate

Mr. Cheney supposedly chose Thomas White for his business
expertise. But when it became apparent that the Enron
division he ran was a money-losing fraud, the story
changed. We were told that Mr. White was an amiable guy who
had no idea what was actually going on, that his colleagues
referred to him behind his back as "Mr. Magoo." Just the
man to run the Army in a two-front Middle Eastern war,

But he was no Magoo. Jason Leopold, a reporter writing a
book about California's crisis, has acquired Enron
documents that show Mr. White fully aware of what his
division was up to. Mr. Leopold reported his findings in
the online magazine Salon, and has graciously shared his
evidence with me. It's quite damning.

The biggest of several deals that allowed Mr. White to
"hide the loss" - a deal in which the documents show him
intimately involved - was a 15-year contract to supply
electricity and natural gas to the Indiana pharmaceutical
company Eli Lilly. Any future returns from the deal were
purely hypothetical. Indeed, the contract assumed a
deregulated electricity market, which didn't yet exist in
Indiana. Yet without delivering a single watt of power -
and having paid cash up front to Lilly, not the other way
around - Mr. White's division immediately booked a
multimillion-dollar profit.

Was this legal? There are certain cases in which companies
are allowed to use "mark to market" accounting, in which
they count chickens before they are hatched - but normally
this requires the existence of a market in unhatched eggs,
that is, a forward market in which you can buy or sell
today the promise to deliver goods at some future date.
There were no forward markets in the services Enron
promised to provide; extremely optimistic numbers were
simply conjured up out of thin air, then reported as if
they were real, current earnings. And even if this was
somehow legal, it was grossly unethical.

If outsiders had known Enron's true financial position when
Mr. White sent that e-mail, the stock price would have
plummeted. By maintaining the illusion of success, insiders
like Mr. White were able to sell their stock at good prices
to naïve victims - people like their own employees, or the
Florida state workers whose pension fund invested $300
million in Enron during the company's final months. As
Fortune's recent story on corporate scandal put it: "You
bought. They sold."

It was crony capitalism at its worst. What kind of
administration would keep Mr. White in office?

A story in last week's Times may shed light on that
question. It concerned another company that sold a
division, then declared that its employees had "resigned,"
allowing it to confiscate their pensions. Yet this company
did exactly the opposite when its former C.E.O. resigned,
changing the terms of his contract so that he could claim
full retirement benefits; the company took an $8.5 million
charge against earnings to reflect the cost of its parting
gift to this one individual. Only the little people get

The other company is named Halliburton. The object of its
generosity was Dick Cheney.



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