Justice Department considers criminal case against Enron Corp.

By the OGJ Online Staff

WASHINGTON, DC, Jan. 10, 2002 – The Justice Department Wednesday said it has started a criminal investigation into whether Enron Corp. knowingly sought to defraud its investors by hiding important financial information it knew would hurt the company’s stock price.

The company is seeking protection from creditors under federal bankruptcy law but also faces hundreds of civil suits from shareholders and former employees.

Federal prosecutors in Washington will lead a team that includes US attorneys from Houston, New York, and San Francisco. Justice will also oversee an interagency task force that will coordinate efforts with the Securities and Exchange Commission and the Labor Department. Both agencies launched their own probes several weeks ago.

Government agencies that monitor energy policy, including the Federal Energy Regulator Commission and the Energy Information Administration, will play a smaller role. Neither is conducting a formal investigation.

Instead, both FERC and EIA say they are “monitoring” any impact Enron’s bankruptcy filing will have on oil, gas and electric markets. So far there have been no supply disruptions because competitors quickly filled the demands of Enron’s former customers.

Administration officials and lawmakers from energy-producing states have argued that Enron’s problems stemmed from dubious accounting practices, not restructured energy markets.

But White House critics say that rules exempting energy futures from the stricter regulatory controls in place for other commodities allowed Enron to “game” the system.

US officials anticipate new SEC proposals that will tighten reporting requirements in and outside the energy sector so that no company can hide losses by using off-balance-sheet transactions. Meanwhile, the Labor Department may also seek reforms to 401K pension plans so employees have more flexibility to reduce their employer’s stock in their portfolios.

That likely won’t satisfy Capitol Hill. Five congressional committees have held or are planning hearings on Enron’s troubling collapse, and a Senate committee plans to issue subpoenas Friday (OGJ Online, Jan. 3, 2002).

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