Houston's bankrupt Enron Corp. aggressively pursued complex tax schemes of dubious legitimacy to improve its bottom line by $2 billion before collapsing in 2001, according to a critical new congressional report released Thursday.
The company that left many rank-and-file employees broke paid top executives lavishly, operated its tax division like a profit center and benefited from lax oversight inside and out, investigators said.
According to the committee investigation, the specially created entities had either flimsy or no true business purpose beyond securing favorable tax and accounting results for Enron.
One entity, noted by the committee for its punlike name, "Project Steele," delivered pretax earnings of $133 million for Enron's bottom line. Internal company documents for the transaction are titled, "Show Me the Money!"
In devising the transactions, Enron received tax advice that pushed legal boundaries from companies such as Bankers Trust, accounting firms Arthur Andersen and Deloitte & Touche, and from its outside law firm, Vinson & Elkins, the congressional panel said.
The work of outside advisers, which the investigators noted at times reached the level of "collusion," cost the bankrupt energy trader $88 million in fees.
Of Houston-based Vinson & Elkins in particular, the report notes that the "minimal level of review" provided by Enron's outside counsel was "perhaps not unintentional."
[Enron's former lead tax counsel, Robert J. ] Hermann said that between 1995 and 2001, the tax department booked close to $1 billion in profits[Ed.: !!!] for Enron. In 2000 alone, $296 million, or 30 percent of Enron's profits, came from tax-saving strategies.
"Through September of 2001, I was already putting $300 million on the bottom line for the company that year, but my boss asked if I could come up with another $300 million if I had to," Hermann said. "I said I could, but never got the chance to."
In 2000, the year before the company filed for bankruptcy, the 200 top Enron executives collected a combined $1.4 billion in salaries, bonuses and stocks.
At the same time, many other employees lost millions in retirements savings when the company failed, in part owing to a corporate culture that promoted investment in Enron stock.
The report notes that in addition to not pushing for diversification of investment, the company's retirement plan required Enron's matching contributions be invested back into Enron stock.
"Enron's 'core management philosophy' was rotten to the core," said Sen. Gordon Smith, R-Ore., and a committee member.
Enron was one of candidate Bush's most generous contributors at the gubernatorial and presidential levels. Enron's brazen financial frauds helped put an unelected candidate into the White House.
Remember when Newt Gingrich and Bill Clinton shook hands and promised us campaign finance reform? The sorry state of our union is what we get for not badgering our representatives and insisting upon them coming through with a campaign finance system that did not reward candidates backed by money stolen from their employees, their shareholders, and the US Treasury.
Keeping track of these issues is the grunt work of democracy — and it is our responsibility.