Senators Move to Subpoena Ex-Enron Chief

Congressional investigators prepared Monday to subpoena former Enron Corp. Chairman Kenneth L. Lay to appear before their panels, while the Justice Department rejected calls for the appointment of an independent counsel to investigate the energy giant’s collapse.

At a hearing on Capitol Hill, the nation’s top securities regulator confirmed his agency postponed a routine review of Enron’s financial statements in 2000, in part because Enron appeared to be healthy.

And the head of Enron’s internal investigating committee urged lawmakers to fix underlying problems that led to Enron’s collapse, but dodged questions of whether he uncovered criminal wrongdoing.

Lay’s abrupt decision Sunday to cancel his appearance before House and Senate committees angered lawmakers. “It’s theoretically possible that Mr. Lay as CEO did not know what was going on beneath him,” said Sen. Peter Fitzgerald (R-Ill.). “But the documents give the impression that there were so many transactions taking place over so long a period of time that, to believe that, you would have to conclude that Mr. Lay was the most out-to-lunch CEO of any corporation in America.”

The Senate Commerce Committee--before which Lay was to appear Monday--will vote today on issuing a subpoena to force him to appear Feb. 12. He can invoke his Fifth Amendment right against self-incrimination, but lawmakers say they still want Lay to show up. The House Financial Services subcommittee on capital markets, which was to hear from Lay today, voted unanimously Monday to authorize issuance of a subpoena.

Late Monday, House Financial Services Committee Chairman Michael G. Oxley (R-Ohio) attempted to subpoena Lay to force him to appear at today’s hearing. Lay’s attorney refused to accept the subpoena on his client’s behalf, saying he had not been authorized to do so, said committee spokeswoman Peggy Peterson.

Calls to Lay’s attorney, Earl J. Silbert, were not returned. Silbert has told Congress that Lay declined to appear voluntarily because of comments made by lawmakers over the weekend suggesting that a “prosecutorial” tone would pervade hearings.

Lawmakers on the subcommittee chastised Lay for refusing to appear; one called Lay’s excuse “lame,” and another likened it to “taking the Fifth in absentia.”

Sen. Byron Dorgan (D-N.D.), chairman of the Senate Commerce subcommittee on consumer affairs, contended that Lay had bowed out after an internal Enron investigation released over the weekend offered a “devastating indictment of a number of things that went on inside the corporation.”

“Congress is determined to get to the bottom of what has happened with this corporation,” Dorgan said.

Enron filed for Chapter 11 bankruptcy protection Dec. 2 after questions about its accounting practices and the revelation of off-the-books partnerships that hid hundreds of millions in losses caused its stock to plummet, costing more than 6,000 employees their jobs and investors billions of dollars.

Lay, who was ousted as Enron chairman and chief executive last month, also announced Monday that he was resigning as a director of the Houston company.

Without Lay as the star witness on Capitol Hill, Securities and Exchange Commission Chairman Harvey L. Pitt took a mild grilling Monday from members of the House Financial Services subcommittee on capital markets, who questioned why the SEC did not uncover problems at Enron earlier.

Pitt confirmed reports that the SEC had postponed a review of Enron’s financial statements scheduled for the year 2000.

“It was deferred in the expectation that there were new standards that were coming up,” Pitt said. “I think there was also some suggestion that because the company was apparently performing so well there were decisions that could be deferred.”

Closer government scrutiny of Enron’s complicated financial dealings might have prevented or lessened the damage, some lawmakers suggested.

“If only the SEC had read those footnotes, we might be in a better position now,” said Rep. Brad Sherman (D-Sherman Oaks).

At the same hearing, William C. Powers, chairman of Enron’s special investigating committee, told lawmakers that Enron broke accounting rules and engaged in deals that improperly enriched executives.

“What we found was appalling,” said Powers, dean of the University of Texas law school, who joined Enron’s board late last year to head up the internal inquiry. “We found a systemic and pervasive attempt by Enron’s management to misrepresent the company’s financial condition.”

He resisted questions from lawmakers about whether Enron’s actions were criminal, saying such matters should be determined by the SEC and the Justice Department.

Pitt declined to comment on the agency’s investigation, but said he was “outraged” by the allegations in the Powers report, adding that they may constitute “fraud” if proven accurate.

A Times poll shows strong public support for the appointment of an independent counsel to take over the criminal probe. Such a step was endorsed Monday by Sen. Ernest F. Hollings (D-S.C.), the Commerce Committee chairman.

“We’ve got an Enron government,” he said. Citing the Bush administration’s denials of doing anything to help Enron, Hollings added: “To say ‘No help here’ is like ‘I did not have political relations with that man, Mr. Lay.’ ”

But the Justice Department rejected the idea of appointing an outside counsel.

The Justice Department began probing allegations of securities fraud and document destruction last month, and it asked the White House last week to preserve all documents connected to the company--a sign that its criminal investigation is expanding. Nonetheless, the Justice Department said in a statement Monday that it “sees no reason” to appoint a special counsel to look into the Enron case. It noted that department regulations call for the attorney general to appoint a special counsel when prosecution by its own lawyers would present a conflict and serve the public interest.

“Neither of these criteria exist ... in this case,” the department said.

Atty. Gen. John Ashcroft and the entire U.S. attorney’s Houston office have recused themselves from the Enron investigation because of potential conflicts--Ashcroft because of political contributions he received as a senator and the office because of personal contacts with Enron employees.

Although Fitzgerald agreed with Hollings on subpoenaing Lay, he disagreed on the need for a special counsel. “This is a corporate scandal,” Fitzgerald said. “I don’t believe that anyone in the Bush administration was aware that there was what appears to me to have been a pyramid scheme going on in Enron Corp.”

The Times poll of 1,545 adults nationwide, conducted Jan. 31-Feb. 3 with a sampling error of plus or minus 3 percentage points, found Americans remain suspicious of whether the Bush administration can conduct an impartial probe of a major campaign contributor.

Also Monday, the AFL-CIO asked the SEC to ban Enron directors from serving on other boards, citing the “substantial unfitness” of board members outlined in the Powers report.

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Times staff writers Eric Lichtblau in Washington and Nancy Rivera Brooks and Nancy Cleeland in Los Angeles contributed to this report.