_____Timeline_____ • Enron's Rise and Fall _____Bush on Enron_____ • Text • Video _____Related Articles_____ • Enron Is Target of Criminal Probe (The Washington Post, Jan 10, 2002) • Cheney, Aides Met With Enron 6 Times in 2001 (The Washington Post, Jan 9, 2002) • Enron Executives Face Subpoenas (The Washington Post, Jan 3, 2002) • Campaign Gifts, Lobbying Built Enron's Power In Washington (The Washington Post, Dec 25, 2001) _____Federal Page_____ • In the Loop by Al Kamen • Federal Diary by Stephen Barr • Special Interests by Judy Sarasohn • Ideas Industry by Richard Morin and Claudia Deane • More Stories _____OnPolitics_____ • Latest Political News • E-mail Updates _____Enron_____ • Stock Quote and News • Historical Chart • Company Description • Analyst Ratings _____Web Specials_____ • Energy Industry • Energy Policy • Enron Collapse E-Mail This Article Printer-Friendly Version Subscribe to The Post

By Dana Milbank
Washington Post Staff Writer
Thursday, January 10, 2002; 3:45 PM

The controversy over the Enron Corp. bankruptcy and the energy company's dealings with the Bush administration expanded this morning as the White House acknowledged that senior Bush officials received early warning from Enron and suggested that Enron wanted the government to intervene to protect its bondholders.

"Shortly" before Enron's collapse, Enron chairman and chief executive Kenneth Lay called Treasury Secretary Paul O'Neill "to advise him about his concern about the obligations of Enron, whether they'd be able to meet those obligations," using the example of another financial company's collapse to press his point, White House press secretary Ari Fleischer said this morning.

"Mr. Lay expressed to Secretary O'Neill at that time of the phone conversation his concern about the experience the company Long Term Capital had," Fleischer said. "Long Term Capital was unable to meet its obligations and headed to bankruptcy, and he wanted Secretary O'Neill to be aware of that, the Long Term Capital experience as a guide. Secretary O'Neill then contacted Undersecretary [Peter R.] Fisher, Undersecretary Fisher looked at that and concluded there would be no more impact on the overall economy."

In 1998, Long-Term Capital Management LP, one of the biggest U.S. hedge funds, almost collapsed after losing more than $4 billion in derivatives transactions.

In addition, Fleischer said, Lay had a telephone conversation with Commerce Secretary Don Evans. "Mr. Lay brought to his attention the problems with the obligations and the bankruptcy. He was having problems with his bond ratings and was worried about its impact on the energy sector. Secretary Evans and Secretary O'Neill agreed no action should be undertaken to intervene with their bondholders."

President Bush, meeting with economic advisers this morning, announced that O'Neill, Evans and Labor Secretary Elaine Chao would form a "working group" to analyze pension laws, "and to come up with recommendations of how to reform the system to make sure that people are not exposed to losing their life savings as the result of a bankruptcy."

Bush said O'Neill, along with the Securities and Exchange Commission, the Federal Reserve and the U.S. Commodity Futures Trading Commission, would also form a working group "to analyze corporate disclosure rules and regulations" in light of the Enron bankruptcy.

The Justice Department has launched a criminal investigation into events at Enron. Civil lawsuits have been filed against Enron executives by employees, retirees and investors who lost billions of dollars when Enron's stock collapsed this year.

Late this afternoon, the Justice Department announced that Attorney General John Ashcroft would recuse himself from the investigation because he received campaign contributions from Enron officials during his unsuccessful Senate campaign last year.

Enron officials such as Lay, a big contributor to Bush and other politicians, met six times with Vice President Cheney or aides last year; the administration said they discussed energy policy, not Enron's finances.

"I have never discussed with Mr. Lay the financial problems of the company," Bush said this morning, noting that he saw Lay at a Houston charity event last spring and that Lay came to the White House with other business leaders last year. "I have not met with him personally," Bush said.

"Ken Lay is a supporter," the president continued, noting that he had backed Ann Richards for Texas governor in 1994 before Bush kept Lay on as head of the Governor's Business Council.

"What anybody's going to find, is that this administration will fully investigate issues such as the Enron bankruptcy to make sure we can learn from the past and make sure that workers are protected," Bush said this morning.

While calling the matter "a wake-up call for policymakers," Fleischer warned Democrats this morning against investigations into the Bush administration's dealings with Enron. "The American people are tired of partisan witch hunts and endless investigations," he said.