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Enron tax havens, and Public Citizen's Take: PDF scenario on Enron's collapse by Mark Douglas Whitaker 18 January 2002 08:04 UTC |
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OH, and the Enron story you haven't heard: http://www.newmassmedia.com/nac.phtml?code=har&db=nac_fea&ref=18688 The bankrupt energy trader Enron Corp., whose collapse last year is said to be the worst corporate failure in history, has 2,832 subsidiaries, of which 874 are registered in the Cayman Islands or other tax and bank secrecy havens. Slocum notes that Enron's Byzantine corporate structure is anything but typical. Dynergy, a rival energy trader which backed out of a merger agreement with Enron last month, has just 12 subsidiaries, all registered in the United States, he says. ExxonMobil, with 147 separate subsidiaries, has fewer than a dozen domiciled in tax havens. The entire report, upon which this news item is based can be downloaded here: "The Public Citizen report, released Dec. 21, has received little notice. Titled "Blind Faith: How Deregulation and Enron's Influence Over Government Looted Billions from Americans," it presents a plausible thesis that is at odds with the received wisdom in the Enron collapse." PDF format: http://www.citizen.org/cmep/index.cfm -Cin 1. FULL ARTICLE: The Scoop: The Enron Story You Haven't Heard There are more sides to the worst corporate failure in history than you can imagine. By Edward Ericson, Jr. Published 01/10/02 The bankrupt energy trader Enron Corp., whose collapse last year is said to be the worst corporate failure in history, has 2,832 subsidiaries, of which 874 are registered in the Cayman Islands or other tax and bank secrecy havens. "The sheer number of offshore subsidiaries ... provides the company with tremendous incentive to funnel large sums of cash into ... nations with few or no bank disclosure regulations," says a report from Ralph Nader's Public Citizen. This corporate structure "provides Enron with potentially thousands of phantom accounts to hide money from U.S. tax officials, California energy crisis investigators or creditors during Enron's bankruptcy filing." The report, issued late last year, calls for a congressional investigation into Enron and into the actions of Sen. Phil Gramm (R-Texas) and his wife Wendy Gramm, a former official of the Commodity Futures Trading Commission and now an Enron board member. Both Gramms made or modified government rules in order to allow Enron to conceal its deals from regulators, the report says. And as a member of Enron's Audit Committee who was paid at least $915,000 by Enron since 1993, Wendy Gramm -- who holds a Ph.D. in economics -- knows where the money went. Last week Connecticut Sen. Joe Lieberman announced that his Governmental Affairs Committee will investigate the financial collapse of Enron Corp. with an eye toward whether federal agencies could have done more to protect investors. Enron, founded in 1985 as a gas pipeline company, grew into the nation's seventh-largest corporation through an online energy trading system that financial analysts now say they did not understand. The company's finances collapsed this autumn after it announced a restatement of profits and several off-the-books partnerships. Enron's stock plunged from a high near $90 to about 50 cents, while thousands of employees have been stripped of their pensions and laid off. The Public Citizen report, released Dec. 21, has received little notice. Titled "Blind Faith: How Deregulation and Enron's Influence Over Government Looted Billions from Americans," it presents a plausible thesis that is at odds with the received wisdom in the Enron collapse. There are two standard stories about Enron: the first holds that Enron, while expanding its energy trading, was actually losing money -- a fact it concealed using questionable "off the books" accounting practices. This is the version in publications ranging from the New York Times and Wall Street Journal to the populist website called Corporate Watch. The second story, now gaining currency in the financial press, says the collapse is no big deal. As Fortune magazine wrote for its Dec. 24 issue, "not a single light flickered after Enron's implosion." So by implication there's no point in any lengthy investigations. These stories offer a powerful argument for complacency, which is why a 28-page Public Citizen report, written by researcher Tyson Slocum, deserves a wider hearing. ***The report asserts that Enron was not losing money, but stealing billions of dollars from California citizens while forcing on them 37 "rolling blackouts" after Sen. Gramm rammed through a law that allowed Enron's energy trading desk "to manipulate supply" secretly.*** Gramm's bill, dealing with an obscure financial instrument called over-the-counter derivatives, was contrary to the recommendations of a Presidential Commission which included Treasury Secretary Robert Rubin and Federal Reserve Chairman Alan Greenspan. Enron lobbied on behalf of the bill so heavily that Washington insiders called it "the Enron point." It had been stalled in the Senate when Gramm renamed it and tacked it to a must-sign bill in December 2000. Few noticed the new provision, which "took the buying and selling of electricity off the books," Slocum says. Energy trading migrated to Enrononline's secret exchange, where high prices were concealed from the Federal Energy Regulatory Commission (FERC). FERC had just recently announced that California electric prices were not "just and reasonable," key wording meant to signal the price gougers that the reluctant agency might cap electric prices. The newly invisible trades were thus beyond the scrutiny of FERC, and Enron's revenues quadrupled in the next quarter. But FERC imposed a price cap in June, leaving Enron with futures contracts that cost it money. So the corporation concealed those losses with fancy bookkeeping. But the profits Enron made before that had to go somewhere, and the offshore accounts are the most likely place to look. Slocum notes that Enron's Byzantine corporate structure is anything but typical. Dynergy, a rival energy trader which backed out of a merger agreement with Enron last month, has just 12 subsidiaries, all registered in the United States, he says. ExxonMobil, with 147 separate subsidiaries, has fewer than a dozen domiciled in tax havens. Slocum admits he could be wrong. "I don't know all the facts because I can't get to it -- but we need Congress to investigate," he says. "There were key members of congress and the Bush administration that assisted Enron in its ability to do this. We need them to tell us what they know. And it starts with Wendy Gramm." Or it may start with the discovery process in the bankruptcy court. Insurance companies that took a piece of Enron's action -- including The Travelers and the Hartford Insurance Group, are trying to avoid paying Enron-related obligations. Like Slocum, the insurance companies suspect massive fraud. In early December, nine insurance companies, including Travelers and The Hartford, wrote J.P. Morgan Chase to inform the investment bank that they needed more proof of certain forward sales contracts' legitimacy before they would honor surety bond payments of more than $960 million, according to documents filed in federal court in New York. The insurers' letter claimed they have "received credible information that, in fact, there may never have been any ... contracts." The insurers have gone to court to force Enron to divulge detailed information about the alleged contracts, and J.P. Morgan and Enron have fought them. As of New Year's Day, according to the Wall Street Journal, only Travelers had not joined in that court battle, possibly in part because parent company CitiGroup and J.P Morgan are Enron's lead bankers. --Edward Ericson, Jr., got this week's Scoop. http://www.newmassmedia.com/nac.phtml?code=har&db=nac_fea&ref=18688 2. http://www.citizen.org/
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