Contrary to prior claims by Enron Corp. board members that they were left in the dark about the company’s shady activities, a Senate subcommittee has found the board of directors knew about and therefore shared the blame for many of the financial irregularities and the ultimate collapse of the former energy giant.

In a 60-page report issued on July 7, the Senate Governmental Affairs Committee’s Permanent Subcommittee on Investigations said Enron’s board of directors failed on several scores to: 1) protect company shareholders from unfair dealing in the questionable LJM partnership in which former Enron CFO Andrew Fastow had a personal financial stake; 2) require the company to disclose of off-the-book liabilities; 3) ensure the independence of the company’s then auditor, Arthur Andersen; and 4) monitor or halt abuse by former Chairman Kenneth Lay of a company-financed, multi-million dollar personal credit line.

The Senate panel “does not accept the board’s claim that it was out of the loop and can’t be blamed for Enron collapse,” said Subcommittee Chairman Carl Levin (D-MI). “The evidence shows that the board knowingly went along with Enron’s high-risk accounting and off-the-books deceptions.”

For the report, the subcommittee staff said it interviewed 13 former and present Enron board members, as well as reviewed numerous documents and minutes related to board meetings. It concluded that there were more than a dozen incidents over the past three years that should have raised red flags with the board about the illegal activities at the company.

“While the evidence indicates that, in some instances, Enron board members were misinformed or misled, the subcommittee investigation found that overall the board received substantial information about Enron’s plans and activities and explicitly authorized or allowed many of the questionable Enron strategies, policies and transactions now subject to criticism. Enron’s high-risk accounting practices, for example, were not hidden from the board. The board knew of them and took no action to prevent Enron from using them. The board was briefed on the purpose and nature of the [off-the-books] Whitewing, LJM and Raptor transactions, explicitly approved them, and received updates on their operations. Enron’s extensive off-the-books activity was not only well known to the board, but was made possible by board resolutions authorizing new unconsolidated entities, Enron preferred shares, and Enron stock collateral that was featured in many of the off-the-books deals,” the report said.

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