Mapping the Real Deal…
The Real Deal About Enron
... an interview with Scoop Real Deal Columnist Catherine Austin Fitts
Part Two Of Seven Parts
Originally Published By Sanders Research Associates
[*Daniel Armstrong is a writer and novelist based in Eugene, Oregon. Mr. Armstrong is a graduate of Princeton University
and attended the University of Oregon School of Journalism.]
If my years working on the clean up of BCCI and the S crisis taught me one thing that I would communicate today to the shareholders, retirees and employees who have been
harmed, it is this: people like those on the board of Enron absolutely make money from insider trading, bid rigging and
fraud, and they do so with help from the highest levels.
-- Catherine Austin Fitts.
IMAGE: Enron - Click Through To Original Article
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http://www.scoop.co.nz/mason/stories/HL0304/S00031.htm )
In Part One, we introduced the subject of this interview Catherine Austin Fitts and described some of her experiences in taking on
the criminal powers who lie behind the modern U.S. Governmental apparatus.
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INTERVIEW TRANSCRIPT BEGINS
DA: In 1989 and 1990, Catherine, you worked for HUD Secretary Jack Kemp in the first Bush Administration. Kemp was a
member of the oversight board for the Resolution Trust Corporation (RTC) that was set up for the S cleanup. Part of your responsibilities at HUD was to provide regulatory support to Kemp and to the RTC people and its
operation, regarding mortgage and property disposition. Also, between 1994 and 1996 you served as a board member of
First American Corporation, after former New York Banking Commissioner Harry Albright was appointed Trustee of the First
American Resolution. You were there to assist in selling First American financial assets and unraveling its BCCI
connections.
CAF: That's correct. I was initially brought into the Bush Administration to ensure that the Federal Housing
Administration (FHA) at HUD was sound and to help clean up the IranContra Fraud at FHA/HUD. There were also fraud
issues related to regulatory responsibility in the Freddie Mac, Fannie Mae, Federal Housing Loan Bank system, and the
U.S. mortgage market---that dovetailed into the S work. After I left HUD, I became a board member of Carteret Savings & Loan to help some old partners with more S clean up. Since my days at Dillon, Read, I had a reputation for successfully reengineering financial situations that
others thought were hopeless.
DA: Beginning in 1996, your company Hamilton Securities, Inc, which was on a competitive contract with HUD as a
financial advisor, was sued by HUD contractor Ervin Associates and then investigated by the Department of Justice for
alleged insider trading, bid rigging, fraud, and conflicts of interests. No basis was found to support any of those
allegations by their investigators in 1996, then again in 1999, and finally a year ago, they dropped all investigations.
Those allegations against Hamilton are similar to those filed against Enron Corporation. So not only have you been part
of the clean up of several large and complex fraud cases, but you have also been on the receiving end of a DOJ
investigation---on allegations not terribly different than those in the Enron case. Additionally, you were a member of
the SEC's Emerging Market Advisory Committee from 1990 to 1993. Clearly, you must have a pretty good sense of corporate
law and first hand knowledge of what goes on in government fraud investigations. I know from articles you have written
that you are not fully convinced the investigation of Enron is in good faith---also that you feel a lot of mistakes and
omissions were made in the way the DOJ initiated its investigation. Can you explain some of this?
CAF: There are seven steps that should have been taken if the federal intelligence, investigation, regulatory and
prosecution agencies were serious about stopping the Enron fraud, getting our money back and holding guilty parties
accountable. All seven are based on two fundamental principles that you always see working when prosecutors and
investigators are doing a competent job. The first fundamental principle is: Make sure you have control of all the data
and information about money and how that money is used in the organization. The second fundamental principle is: Make
sure you use that control---of the data and information---to gain control of any cash that was stolen or wrongfully
used. Let me emphasize at the outset that Enron's management and board of directors and their accountants and banks have
admitted to securities violations, gross negligence, sham transactions, and obstruction of justice. So let's not skirt
the issue: we have a self-proclaimed criminal enterprise. I believe that Enron was also engaged in additional financial
fraud and money laundering.
DA: Michael Kopper, the first Enron employee to be arrested, pleaded guilty to one count of conspiracy to commit wire
fraud and one moneylaundering charge in late August of this year. [1]Is this what you mean by additional financial
fraud?
IMAGE: One Of The Little Guys
CAF: This is just the narrowest sense of what I was suggesting. I will expand upon that as we go along. The first thing
a serious investigation, regulatory and enforcement effort does is to establish control of both the records that
document how the money works and the cash. It helps to compare financial fraud such as Enron participated in to a game
of basketball. The ball is the cash and you want to keep your eyes on the ball at all times. Keeping that in mind, let's
walk through the seven steps of what a competent investigation and prosecution effort should have done. The first step
is to get control of all the documents. By all the documents I mean all the papers and digital records of Enron and its
3,000 subsidiaries and special purpose entities that inform "how the money works'', both onshore and offshore. You also
make sure you get control of all the Enronrelated records at their banks, auditors and other vendors, both onshore and
offshore. It's impossible for us to tell, from where we are, the exact extent of the subpoena or other discovery actions
that have been taken, but clearly there's a great deal that has not been done, particularly offshore, just based on the
public record.
We know the government permitted extensive shredding of documents by Arthur Andersen and Enron, something that is
incredibly disturbing because it proves that months into an investigation, the SEC and DOJ chose not to assert the
initial control that was essential to the success of any such investigation.
DA: And, in your case with Hamilton Securities, an instance where government auditors later verified your innocence, the
DOJ wasted no time, seizing your office, your records, and your cash.
CAF: Yes. To me this is the big giveaway. The DOJ simply did not take timely control of Enron's documents. In Hamilton's
case, DOJ and their informant were responsible for destroying the digital infrastructure of a company whose operations
and equity value was dependent on those databases, software tools, and documentation. They took extreme measures to get
control of all digital and paper records---even when their own investigators had documented there was no need. In
Enron's case, the DOJ politely skipped over all of this--- and the second step in an investigation: you never allow the
transfer of assets before you assert the appropriate controls. And yet we've seen the government readily permit the
transfer of Enron Online to the Just one of the little guys Union Bank of Switzerland (UBS), one of Enron's largest
creditors. So now it's very possible that a great deal of information that would be needed for a proper investigation is
under the protection of the privacy laws of a Swiss bank.
DA: As I understand it, Citigroup and MorganChase, who have both been mentioned in the Enron web, were also part of the
bidding process for Enron Online that took place in January of 2002. [2]
CAF: Yes, one would expect that. Like UBS, they were major Enron creditors. But what's interesting, and perhaps quite
significant to note, is that a recent addition to the UBS board is Lawrence Weinbach, a former chairman of Arthur
Andersen, the accounting firm that shredded Enron documents. DA: I saw that. Lawrence Weinbach had been the CEO at
Unisys since 1997. Prior to that he spent nine years as managing partner and chief executive for Andersen
Worldwide---which includes Arthur Andersen where Weinbach began his career in 1961. [3]UBS announced Weinbach as
Chairman of their Audit Committee Board on February 22 of 2002. [4]UBS bought Enron's North American wholesale
electricity and natural gas trading business on January 18, 2002. [5]The timing is certainly curious.
CAF: Enron was also permitted to sell and transfer its gold bullion and gold derivatives trading operation. Understand
that to be able make these two sales and transfers of Enron Online and the gold operations, as quickly and quietly as
they were, in the middle of an initial bankruptcy filing, was nothing short of miraculous based on what I'm told by
bankruptcy attorneys. In combination with the illegal shredding, it would have permitted the coordination of the
cover-up of possible money laundering or financial fraud between the banks and Enron Online. These sorts of things will
be easier to keep hidden because one of the creditors and trading partner banks now controls what is probably the most
likely guilty entity. Thus the ability of any prosecutor to play the banks and the target off against each other in the
discovery and investigation process is diluted or lost.
DA: So the government allowed the transfer of assets in a way that may prevent access to the documents and personnel
necessary for a successful investigation and recapture of stolen monies. Does this also mean that the bank records can
be coordinated with Enron Online discovery behind the protection of attorney client privilege?
CAF: It would appear that way. Sales and transfers of assets have proceeded without complete and timely federal control
of paper and digital records, including computers and all data storage devices. Unlike Enron, Hamilton did not shred
documents and provided redundant copies of records and back up computer tapes to counsel who provided assurances to the
federal government that no originals would be destroyed. The documents sequestered by Hamilton included records of all
subsidiary entities.
DA: In these first two steps, controlling records and assets, above and beyond collecting Arthur Andersen's
documentation, communication with Enron's banks surely must be a critical part of this initial process. We've already
mentioned MorganChase and Citigroup as Enron creditors. But there is a specific accusation that senior credit officers
at Citigroup manipulated records to hide a $125 million Enron debt to Citigroup.[6] From what I've read, it's unclear if
the federal investigators will fully pursue this. But don't the banks have to be largely involved? Compliant, perhaps
complicit, to the point of assisting?
CAF: Indeed, both Citigroup and J.P. MorganChase, Enron's two lead banks, were called to task and to testify before the
permanent subcommittee on investigations of senate government affairs committee on July 23rd . Both banks had been
verified as complicit in creating "special purpose entities'' (SPEs) to round trip transactions as a way to loan money
to Enron without calling it a loan. In the course of this maneuver, Enron and its trading as well as lending partner,
MorganChase, created the façade of a business/trading activity as opposed to a borrowing activity thereby falsely
boosting their revenues. While both banks denied this, the testimony and documents provided to the Senate, clearly
support the Senate's position---making this even more egregious and suggesting the banks themselves created and
controlled the SPEs.
DA: On September 13th a federal judge dismissed MorganChase fraud claims against its insurers, perhaps, preventing the
bank from collecting $935 million in loses on gas and oil trades with Enron. [7] Then in its own defense, MorganChase
attorneys argued, incredibly, that the insurers knew the deals were shams intended to hide loans to Enron. What does all
this doubletalk by MorganChase mean?
CAF: That we need to know if Enron or, at least, Enron Online was essentially a SPE for New York Fed member fraud and
money laundering. This brings us to a question critical in getting to what was really going on at Enron---the part
outside investors played in the Enron game. We can get to that from the third step of our investigation. You always get
document and cash control, if you can, before a bankruptcy filing.
DA: Enron filed for bankruptcy protection on December 2nd. [8]
CAF: Yes, Enron filed for bankruptcy before the feds asserted control, and well after numerous members of the Bush
Administration were informed that Enron was teetering on the verge of collapse, and after what appears to be many
efforts by the administration to help them keep going, and long after SEC investigations had begun. When Enron filed for
bankruptcy, its own board worked over a fourmonth period to "investigate what went wrong.'' This was only possible
because of DOJ complicity at the time. And this is important. A bankruptcy filing gives Enron additional powers and
rights to protect themselves, particularly from the class action lawsuits that, on a private basis, could dig out some
of the data about how the money worked and those bank relationships you brought up---even if the DOJ and SEC don't
succeed in digging this out or are, in fact, covering it up.
DA: What you're saying is, yes, an investigation is going on, but as congressional investigators slowly stumble through
the testimony---it's been a year now, they have given Enron a chance to work over or obliterate the evidence. And you
feel this is deliberate?
CAF: It looks that way. Enron's bankruptcy filing created a stay against all suits against Enron. Those directed at
board members and management could proceed. Hence private discovery of Enron's records may be limited. Watching this
process, my question is did the DOJ specifically help Enron get into bankruptcy, and define their investigations, so as
to protect the information from class action investigation?
IMAGE: What's In The Box?
ENDNOTES:
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In Part Three the interview continues.
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Catherine Austin Fitts is the President of Solari, Inc. ( http://solari.com) and a former Assistant Secretary of Housing – Federal Housing Commissioner in Bush I. She is currently litigating with
Ervin and Associates (acting on behalf of the government ) and the Department of Housing and Urban Development. If you
would like to support her litigation efforts, you can through Affero/ Venture Collective: http://www.solari.com/vote.php
If this “Mapping the Real Deal” was useful for you, you can leave comments and send a gift to Catherine Austin Fitts and
Scoop Media through Affer: http://svcs.affero.net/rm.php?skid=sp0
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©opyright Daniel Armstrong, March 2003