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Conflicts of interest make impartial probe difficult

The political and financial reach of Enron Corp. has exposed so many conflicts of interest among U.S. prosecutors, lawmakers and administration officials that the government is struggling to launch its investigation of the company whose spectacular collapse swept away the savings of thousands of employees and shareholders.

Justice Department officials are sending prosecutors to Houston to replace federal lawyers there, nearly 100 of whom have recused themselves from the case.

At the Securities and Exchange Commission, critics have raised doubts about newly appointed Chairman Harvey Pitt, a lawyer whose former client, accounting firm Andersen LLP, is a central, controversial figure in the Enron scandal.

In Congress, elected officials have begun to return thousands of dollars in Enron campaign contributions, even while some who had accepted Enron money prepare for hearings that will examine the company's financial transactions and its auditors' role.

In Texas, a federal judge and the state attorney general have removed themselves from anything having to do with Enron, citing conflicts of interest.

While Enron's failure sent a shock wave through energy markets, it also made plain just how politically influential, and generous, the company and its top executives had been.

That largesse, meted out in the form of millions of dollars in campaign contributions, lobbying and consulting fees, and positions within the company, now may hinder -- and perhaps undermine -- efforts to investigate just what happened inside the company, once valued at $70 billion.

"When suddenly they [Enron officials] find themselves the target of an investigation, you have to start figuring who are the investigators," said Larry Makinson, senior fellow at the Center for Responsive Politics, a Washington-based watchdog group. "Had the investigators gotten anything from those they were investigating?"

That was indeed the situation faced by U.S. Attorney General John Ashcroft and his chief of staff, David Ayres, both of whom removed themselves from Enron matters last week. Ashcroft had accepted $57,000 in Enron money as a U.S. senator. Ayres, an assistant to Ashcroft in the Senate, felt too close to his boss to be involved in the Justice Department's special Enron task force.

At the U.S. attorney's office in Houston, a different sort of conflict arose, but with the same result. The approximately 100 prosecutors there recused themselves en masse from the case being built against Enron's top executives, chiefly because so many of them are related to or acquainted with area residents who lost money in the company's failure.

In the days leading up to its Dec. 2 bankruptcy filing, Enron blocked employees from cashing in stock from their retirement plans even though top executives had sold hundreds of millions of dollars in shareholdings.

The decision to disqualify an entire U.S. attorney's office from a single investigation might be unprecedented. But in the case of Enron, most legal experts agree it was warranted.

"If you're a prosecutor for whom the Enron bankruptcy has caused a great loss for someone in your immediate family, you can't be involved in that case," said Stephen Gillers, professor of legal ethics at New York University Law School. "It may jeopardize your case on appeal. And even if you do everything right, the public might not believe it. Remember, we want the public to have faith in the case."

The Justice Department has formed a special task force to investigate Enron, but it faces the task of exporting prosecutors to Houston to run the investigation there.

At the Security and Exchange Commission, which is also a lead investigative agency in the case, Pitt has promised to recuse himself from decisions involving his former clients or law firm for a year unless he receives an official waiver.

Shadow at the SEC

As a lawyer in private practice, Pitt represented Andersen and the other Big Five accounting firms that were fighting an SEC initiative that restricts the services audit firms can provide and requires the firms to report the fees companies pay them.

In Texas, the ripple of Enron's influence isn't limited to federal offices. State Attorney General John Cornyn has announced he would step aside from involvement with the state investigation of Enron's trading activities and its subsequent failure. Cornyn has accepted $193,000 in contributions from Enron since 1997, according to the Houston Chronicle. He said he would turn "full authority" for the state's Enron investigation over to his first assistant.

In Houston federal court, the judge hearing 45 lawsuits filed over Enron's implosion has notified attorneys she would withdraw. In a court filing, U.S. District Judge Lee Rosenthal cited acquaintanceships with two of the defense lawyers involved. One, she wrote, is her child's godfather, and the other was best man at her wedding. In a 2000 financial disclosure, Rosenthal stated that she owned Enron stock, according to Texas Lawyer magazine. Rosenthal did not return phone calls Monday.

While many members of Congress roundly condemned Enron when the company failed late last year, few of them complained about Enron before that.

Enron generous politically

The company was a generous contributor to campaigns in both parties, giving 71 senators a total of $530,000 and 188 House members a total of $603,000 between 1989 and 2001, according to a Center for Responsive Politics tally.

With congressional investigations under way in both chambers, some of those who accepted Enron money now face the task of digging into the corporation's alleged misdeeds.

In the Senate, top Enron recipients who also sit on the Governmental Affairs Committee, which is examining the company, include Sens. Pete Domenici, R-N.M., with $12,000 in contributions from Enron, and Robert Bennett, R-Utah, with $8,053 from the energy trading giant.

Other committee members who had received Enron donations include: Chairman Joseph Lieberman, D-Conn., $2,000 (in 1993-94); Sens. Thad Cochran, R-Miss., $3,000; Ted Stevens, R-Alaska, $3,000; Robert Torricelli, D-N.J., $1,000; and Jim Bunning, R-Ky., $769. Sen. Jean Carnahan, D-Mo., received $1,000 last June but returned it six days later.

Sen. Kay Bailey Hutchison, R-Texas, who is not on the panel, received $99,500 from Enron in the same period.

In the House, 42 of the 56 members of the Energy Committee, which also is investigating Enron, have received contributions from Enron.

Topping the list is Rep. Joe Barton, R-Texas, who has received $28,909 since 1989, according to the Center for Responsive Politics. Others who received Enron money include Reps. John Dingell, D-Mich., $9,000; Edward J. Markey, D-Mass., $8,500; and its chairman, Rep. Billy Tauzin, R-La., $6,464.

While no one on Capitol Hill is backing away from examining Enron, it remains unclear whether the contributions, and some politicians' reliance on Enron support, would temper the case against the company.

"Lawmakers aren't normally in this position," Makinson said. "They certainly take a lot of money and they do things for companies, but they don't that often get in a position of being an inquisitor of companies."

Faced with the possibility of a political scandal, some members of Congress have begun to return their Enron donations, among them House Minority Leader Richard Gephardt, D-Mo. He took a $1,000 Enron contribution to the 1999 Democratic leadership fund and forwarded it to the St. Louis Children's Hospital because of "all the controversy surrounding Enron," according to his spokeswoman.

Both political parties have likewise felt a need to distance themselves from Enron. James Jordan, spokesman for the Democratic Senatorial Campaign Committee, said Sen. Patty Murray, D-Wash., who heads the fundraising group, would give a $100,000 contribution Enron made last autumn to one of the funds set up to help employees of the firm.

"Although the contribution was in no way illegal or improper, keeping money from Enron under these circumstances strikes Sen. Murray as unseemly and inappropriate," he said.

Steve Schmidt, communications director for the National Republican Congressional Committee, said its chairman, Rep. Thomas Davis, R-Va., decided last week to return a $100,000 contribution that Enron made in June to the fundraising panel. Schmidt said the money would go to a fund to help Enron's employees.

Chicago Tribune senior correspondent William Neikirk and staff reporters Cam Simpson and Melita Marie Garza contributed to this report.

Copyright © 2014, The Baltimore Sun
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