Congressional investigators have discovered “substantial evidence of illegal activity” by the once-powerful Enron Corp. and its top-level executives to “deceive the public” about its financial condition, House Energy and Commerce Committee Chairman W.J. “Billy” Tauzin (R-LA) said in an opening hearing statement Wednesday.

Moreover, the House committee has concluded that Enron’s former outside auditor, Arthur Andersen LLP, “knew or should have discovered the fraudulent nature” of the controversial off-the-book partnerships, particularly the ones managed by former Enron CFO Andrew Fastow, he said. “We have found that Enron’s financial statements violated numerous existing accounting rules,” mislead investors and overestimated Enron’s net income by more than $1 billion, Tauzin said.

The damning comments came as the House committee approved a resolution that awarded Tauzin, along with ranking member Rep. John Dingell (D-MI), the authority to issue subpoenas at will to pursue the investigation of “Enron, Andersen and related matters.” The resolution was proposed by Tauzin, with a concurrence by Dingell. The unusual action was necessary, the committee leaders said, to eliminate the delay involved in getting the committee together to vote on individual subpoenas.

In another development, Tauzin said Wednesday he has asked Rep. Joe Barton (R-TX), chairman of the energy and air quality subcommittee, to suspend further action on his panel’s electricity deregulation legislation until congressional investigators can “thoroughly understand” the impact of Enron’s collapse on the energy markets. Barton is expected to hold a hearing next week on Enron’s impact on the energy industry.

The House panel already has subpoenaed Fastow, a central figure in the unfolding scandal that has engulfed the Houston energy trader, to appear before the panel Thursday.

Fastow, who previously had agreed to appear voluntarily before the House committee, had a “change of heart” following the release of a blistering Enron report last Saturday that suggested his questionable activities contributed significantly to the financial failure of the company last year, a committee spokeswoman said. The subpoena compelling Fastow to appear was served late Monday. He is expected to invoke his Fifth Amendment right against self-incrimination when he comes before the committee.

Fastow invested directly in the questionable off-the-book partnerships whose losses led to Enron’s fall, and walked away about $30 million richer, according to the report that was prepared by a special investigative committee of Enron’s board of directors. The committee conducted a three-month internal probe of the partnerships, which sported names such as JEDI, LJM, Chewco, Braveheart, Raptor, and Rhythms.

Fastow has hired famed criminal attorney John Keker of San Francisco, who prosecuted Oliver L. North in the Iran-Contra affair, to represent him in the criminal probe being conducted by the Justice Department, according to a report in The Washington Post.

The House committee also has subpoenaed former Enron officer Michael Kopper to appear at the Thursday hearing. He is expected to invoke his Fifth Amendment right against self-incrimination as well.

Both former CEO Jeffrey Skilling and Richard A. Causey, chief accounting and information officer, so far have indicated that they will voluntarily come before the House committee Thursday, the committee spokeswoman said. Neither has signaled that they plan to take the Fifth Amendment.

The House committee plans to subpoena former Chairman Kenneth L. Lay to appear at a hearing in late February, the spokeswoman said. The House Financial Services Committee already has served a subpoena for Lay to appear on Feb. 14, while the Senate Commerce Committee will subpoena Lay for a hearing scheduled for next Tuesday (see Daily GPI, Feb. 6).

Lay had been scheduled to come before the House and Senate panels this week, but he abruptly canceled his appearances following what his lawyer said were “particularly disturbing” and “inflammatory” remarks made by key congressional lawmakers last weekend. Lay’s lawyer, Earl Silbert, said the comments reflected a “prosecutorial” tone.

While both Tauzin and Dingell embrace an extensive investigation of the Enron scandal, the two are at odds over whether the Enron meltdown is an isolated event. Tauzin said he believes the Enron debacle represents “an old-fashioned example of theft by insiders and a failure of those responsible to prevent that theft.” He called Enron a “huge aberration,” which was not indicative of the rest of corporate America. He said the committee should first find out where current rules and laws were violated before imposing new rules. In the past, Tauzin — who has received large campaign contributions from Arthur Andersen over the years — has opposed more stringent accounting standards.

Dingell, on the other hand, sees the Enron-style accounting problems as being more widespread, and said he intends to pursue legislation to improve the accountability of companies and their auditors.

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