The embattled head of Andersen told lawmakers Tuesday that the Chicago-based accounting firm was involved in setting up controversial Enron Corp. partnerships but was denied critical information that would have caused auditors to raise a red flag.
Members of a House Financial Services subcommittee, however, ridiculed the testimony of Joseph Berardino, Andersen’s chief executive officer, in which he asserted his firm would have blown the whistle on Enron’s true financial condition had it known all the facts.
“Information was withheld from us,” Berardino maintained, noting that auditors did not know about the perilous state of one partnership, Chewco, that some analysts believe may have been the catalyst for Enron’s failure. “At the end of the day, we do not cause companies to fail,” he said.
On a day that House and Senate committees formally subpoenaed former Enron Chairman and Chief Executive Officer Kenneth Lay to testify, Congress dug deeper into the financial scandal, hearing stories of inside dealing by some of the partnerships that enriched certain Enron executives and employees.
Former Enron workers also told senators how their retirement nest eggs disappeared as Enron stock plummeted despite assurances from Lay that the company had a bright future.
At a Senate committee hearing, Enron executives acknowledged that before they temporarily prevented employees from selling company stock in their 401(k) plans, they had sharply debated delaying the moratorium because employees could suffer heavy losses from a plunging stock price. The disclosures came as congressional and state officials broadened their investigations into why state pension funds and state agencies invested in and did business with Enron as it spiraled downward.
Sen. Ernest Hollings (D-S.C.), chairman of the Senate Commerce Committee, repeated his demand for a special prosecutor to investigate Enron, claiming the Texas energy-trading giant had developed a “cash and carry” relationship with the Bush administration.
Denying such a relationship, President Bush rejected demands that he seek an independent counsel, calling Enron a business problem now in the hands of the Justice Department. The department has said it sees no grounds for a special counsel.
Lay is scheduled to appear before congressional panels Feb. 12 and Feb. 14. Lawmakers expect that he will invoke his constitutional right against self-incrimination and refuse to testify. Lay originally volunteered to testify but changed his mind Sunday. A special committee of the Enron board, headed by William Powers, dean of the University of Texas School of Law, has blamed a “fundamental default of leadership and management” for Enron’s collapse.
“It was clear to us that [Lay] knew,” Powers told a subcommittee of the House Energy and Commerce Committee on Tuesday. “I can tell you what his story was–that he didn’t believe there was anything wrong with it, that the accountants had signed off on it.”
The House committee decided to subpoena Andrew Fastow, the former chief financial officer of Enron who was involved in setting up and managing some of the partnerships that investigators say were used to hide company debt. He is scheduled to testify Thursday along with other former Enron officials.
Fastow is seen by investigators as a key figure in Enron’s collapse. Powers, spending a second day on Capitol Hill, said Fastow received at least $30 million for running the partnerships that allowed Enron to hide its losses and debt. Other key Enron figures also profited, and a few employees also made up to $1 million on small investments, he said.
When asked why two Enron officials, chief accountant Richard Causey and chief risk officer Richard Buy, apparently did not do their jobs to protect the company from risks arising from the partnerships, Powers said: “We don’t know for certain. I think they were unwilling to stand up to Andy Fastow.”
Andersen’s role in the collapse has been a central point in Capitol Hill investigations. Despite the accounting firm’s statements that it did not know enough to raise a red flag, Powers sharply criticized Andersen in his report and repeated his statements in testimony Tuesday that the accounting firm did not do its job.
“I don’t know why Andersen did not recognize these issues,” Powers said, referring to questionable transactions by the partnerships. Andersen was involved in providing advice on a “real-time” basis in setting up them up, he said.
During his testimony, Berardino said Andersen never had been given the chance to provide its side of the story to the Powers committee.
In a grilling that lasted 4 1/2 hours, Berardino frequently was apologetic, saying he was “personally embarrassed” by the Enron scandal. Some lawmakers sharply chastised him, expressing incredulity at the accounting firm CEO’s avowed lack of knowledge about details of Andersen’s audit of Enron.
“Maybe it’s better to be dumb than culpable, but we want some answers. I mean, your ship is going to go down, and you’re going to be lashed to the mast unless you start talking to us about what happened,” said Rep. Gary Ackerman (D-N.Y.).
Berardino said he could not provide answers just yet. “We are still getting the facts,” he said. “You want me to give you conclusions without all the facts.”
Rep. Richard Baker (R-La.), chairman of the subcommittee on capital markets, pressed Berardino to say Andersen had conducted a flawed audit of Enron, but Berardino said he lacked sufficient information to respond.
