Current and former Enron Corp. officers and directors, the corporation itself and outside auditor Arthur Andersen LLP will receive Senate subpoenas by next week to turn over documents related to the financial failure of the once-powerful energy trading company.

The subpoenas are part of a dual-track investigation that has been launched by the Senate Governmental Affairs Committee and its Permanent Subcommittee on Investigations. Given that the Enron “debacle is so massive,” subcommittee Chairman Carl Levin (D-MI) said the subpoenas were necessary to ensure that Enron officers and board members supply the sought-after documents with “speed and thoroughness.” All Enron board members and officers since January 1999 will be subpoenaed, he noted.

The full committee has scheduled a hearing for Jan. 24, and plans to initially explore why federal agencies and regulators — the Securities and Exchange Commission, Federal Energy Regulatory Commission, Commodity Futures Trading Commission and the Department of Labor — didn’t spot the problems at Enron before the company collapsed. What “could [they] have done more to protect the enormous number of people and businesses that were hurt?” committee Chairman Joseph Lieberman (D-CT) asked.

In addition, a “central focus” of the inquiry will be whether the “defects” that led to the company’s financial downfall were related solely to Enron or to the deregulated energy industry, Lieberman said at a press conference on Capitol Hill Wednesday. The Enron inquiry will be a “priority” of the Governmental Affairs panel in the new year. “In the weeks and months that follow we will look” in “greater detail” at the factors that contributed to Enron’s demise, and try to “fill in the cracks in our regulatory system.”

Some of the questions to be asked will be: why did Enron officials lead investors to believe the company was strong up until weeks before it filed for bankruptcy; why did financial analysts continue to hail Enron as financially solid; why did Enron’s auditors allow the company to overstate its profits for years; why did Enron’s auditors, particularly its outside auditor, permit questionable financial arrangements that some claim were intended to hide company holdings; why did Enron bar its employees from liquidating their 401(k) stock last fall; and how will Enron’s collapse and bankruptcy affect the “future stability” of energy deregulation, according to Lieberman.

The full committee also will explore the “active role” that Enron Chairman Ken Lay played in formulating the Bush administration’s energy policy, specifically “whether the advice rendered [by Lay] was at all self-serving,” said Lieberman. While he believes there are “some interconnections” between the Bush administration and Enron, he noted that this will not be a central issue in the probe.

Lieberman said the full committee hasn’t yet decided whether it will ask Lay, former CEO Jeffrey Skilling and former CFO Andrew Fastow to testify at the Jan. 24 hearing. But, he added, “I would not consider the investigation to have been completed without hearing from Mr. Lay and Mr. Skilling and others.”

The Governmental Affairs Committee and its investigations subcommittee join the growing ranks of Senate and House panels, as well as several federal agencies, that already are investigating Enron and its officers for civil and potential criminal violations.

Levin’s subcommittee plans to primarily explore the internal workings of Enron: the role of its board of directors and officers, as well as Arthur Andersen, in the questionable special-purpose entities (SPEs) and offshore partnerships that are blamed for the company’s failure. It will examine the “layer upon layer of conflicts of interest” associated with the transfer of Enron debt to paper partnerships, Levin said, adding that “something is very rotten in the state of Enron.”

A number of “knowledgeable people on Wall Street were either duped or didn’t care or purposely went along for the ride at the expense of thousands of others,” he noted. The Enron collapse occurred because either existing laws and regulations are “pitifully inadequate,” or because the laws/regs “were violated or a combination of both.”

Although a number of lawmakers have been quick to point a finger at Enron’s outside auditor, Arthur Andersen recently received a passing grade for its compliance with professional accounting and auditing practices in a “peer review” conducted by Deloitte & Touche.

“In our opinion, the system of quality control for the accounting and auditing practice of Arthur Andersen LLP in effect for the year ended Aug. 31, 2001 has been designed to meet the requirements of the quality-control standards for an accounting and auditing practice established by the [American Institute of Certified Public Accountants], and was complied with during the year then ended to provide the firm with reasonable assurance of complying with professional standards,” Deloitte & Touche said in its report.

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