IBEW Members Tell Senate Enrons Collapse Wiped Out Their Savings While Company Brass Profited
March 2002 IBEW Journal
The stunning collapse of once-mighty Enron Corp. is a disaster for thousands of workersthe fiasco wiped out 12,000 employees retirement savings and so far cost 5,000 workers their jobs. Enron executives, meanwhile, scandalously lined their own pockets and made millions while game-facedly lying to employees and shareholders alike.
Nearly 1,000 IBEW members at Enron-subsidiary Portland General Electric are among those hardest hitfinancially devastated by the catastrophic loss of their life savings, as two Local 125 members from Portland, Oregon, told a Senate subcommittee in December. The mushrooming scandal has widespread political implications.
As company stock nose-dived, Enron restricted employees from selling their 401(k) company stock until it hit 26 cents a share. Forced to stand by and watch helplessly, workers saw their life savings evaporate. Enron executives and insiders, however, bailed out by selling $1 billion in shares when the stock was near its peak.
"Its unconscionable that hard-working, dedicated workers were forced to sacrifice their life savings to prop up a fictitious, failed company," said IBEW President Edwin D. Hill. "Those who ran the company into the ground certainly arent wiped out financiallyjust the workers who made their success possible."
Corporate deception, greed and possibly fraudalong with rampant across-the-board conflicts of interesthave characterized the Enron debacle. The giant Texas-based energy trader filed for Chapter 11 bankruptcy December 2, the largest bankruptcy in U.S. history. Enron acknowledged last fall that it overstated profits since 1997 by nearly $600 million and hid massive debt in secret off-book partnerships run by its own officers. The U.S. Securities and Exchange Commission launched an investigation in October. Major credit rating agencies downgraded Enron bonds to "junk" status. Dynegy Inc.s planned buyout collapsed, apparently, as it grew to understand the depth of Enrons chicanery. By November, Enron stocks plummeted from a previous high of nearly $90 to less than $1. Enrons breathtaking incompetence and deception liquidated 99.7 percent of its stock value.
Employees and stockholders suffered the most. Millions of people lost billions of dollars. Some $60 billion of shareholder value disappeared with Enrons implosion. The Enron scandal "is a story of people so shameless and greedy that literally as the bankruptcy papers were being drawn up, [executives] were still passing what remained of the firms cash out to themselves$55 million on the last working day before they filed for Chapter 11," AFL-CIO Secretary Treasurer Richard L. Trumka told a U.S. House subcommittee on December 12, 2001.
As a high-flying giant energy trader, Enron was No. 7 on the Fortune 500 list of biggest U.S. companies. Its stock was a Wall Street favorite before the firms controversial business practices became known. Four top Enron officials resigned or were fired since July. Shrouded in a culture of arrogance, secrecy and greed, Enron was determined to avoid regulatory oversight, to "get government off its back." Under Chairman and CEO Kenneth L. Lay, it cultivated political influence and got what it wantedlittle oversight of its operationsallowing it to defraud employees and the public.
Enron Corp. dominated the vastly restructured U.S. energy markets it helped to create in the early 1990s. In the many battles over electric utility deregulation, the IBEW has consistently resisted Enrons model of radical restructuring and warned of inherent hazards in rapid, ill-conceived deregulation. (See IBEW Journal articles "IBEW Seeks Remedy to Deregulations Colossal Failure,'" and "Presidents Message," March 2001; and "The Twilight of Reliability? San Diego: Ground Zero of the Deregulation Battle," November 2000.)
Multiple investigations of Enrons collapse are under way in the U.S. Congress, the Department of Justice, the Securities and Exchange Commission (SEC), and the Department of Labor. In January the Justice Department announced a criminal probe, and a Senate committee announced it would subpoena Enrons top executives and directors.
News of the Enron corporate and political scandalsalong with attendant political fallout in Washingtonescalated daily and continued to unfold as the Journal went to press. As widely reported, Houston-based Enron and its chairman Ken Lay have long been major supporters of President George W. Bush and his political campaigns. Enrons extensive personal, financial and political ties to the Bush administration, as well as the companys large campaign contributions to both President Bush and many members of Congress, face increasing scrutiny.
In January, U.S. Attorney General John Ashcroft recused himself from the Justice Department investigation, citing a conflict of interest. In Houston, the entire U.S. Attorneys Office also was recused from the case due to conflicts of interest. In the same week, Enrons accounting firm Arthur Andersen LLP acknowledged that its employees destroyed Enron-related documents even after the SEC announced its investigation.
Among those also cited as holding apparent conflicts of interest that contributed to the Enron debacle are Enrons board of birectors, its auditor Arthur Andersen and Wall Street analysts, who recommended Enron stock right to the end. Enron reflects "a total system failure," wrote Newsweek. "Executives, lenders, auditors and regulators all managed to look the other way while the company ran amok."
Editors Note: Kenneth L. Lay resigned as chairman and chief executive of Enron Corp. on January 23, 2002. His resignation, on the eve of two congressional hearings, came one day after FBI agents descended on Enron corporate headquarters in Houston to investigate reports of corporate document shredding there after government investigations of Enrons collapse had begun.