The news this morning for Citigroup, Inc., one of Enron's largest creditors, is bad.
The New York Times reports that "senior credit officers of Citigroup misrepresented the full nature of a 1999 transaction with Enron in the records of the deal so that Enron could ignore accounting requirements and hide its true financial condition, according to internal bank documents and government investigators." The Wall Street Journal reports that Enron "marketed similarly structured deals to a slew of other companies." And yesterday, the Washington Post reported that Citigroup, along with J. P. Morgan Chase & Co., "transferred billions of dollars to Enron ... in recent years in what amounted to loans that Houston energy trader concealed as it struggled to survive ."
Given the central role played by Citigroup in concealing Enron's debt from investors, the general public, and government regulators, why, then, hasn't former Clinton treasury secretary, Robert Rubin, now the chairman of Citigroup's executive committee, been called to testify before Congress? In particular, why hasn't the chairman of the Senate Governmental Affairs Committee, Senator Joseph Lieberman, sought Rubin's testimony? After all, Lieberman is heading up the Senate's investigation into Enron's bankruptcy and fraudulent dealings.
And there's ample reason to hear from Rubin. In addition to this week's disclosures about Citigroup's assistance in cooking Enron's books, during Enron's final days Rubin played a direct role in attempting to conceal Enron's financial condition from credit-rating agencies. Specifically, on November 8, 2001, Rubin made a telephone call to Peter Fisher, the Treasury Department's undersecretary for domestic finance, seeking Fisher's intervention with Wall Street credit-rating agencies on behalf of Enron when those agencies were about to downgrade Enron's ratings.
As reported on January 12, 2002 by the Associated Press, according to Treasury Department spokeswoman Michele Davis: "Rubin asked Fisher what he thought of the idea of Fisher placing a call to rating agencies to encourage them to work with Enron's bankers to see if there was an alternative to an immediate downgrade. Fisher responded that he didn't think it advisable to make such a call. Rubin said he thought that was a reasonable position. Fisher made no such call."
Rubin's spokesman, Michael Schlein, told AP that Fisher's characterization of the phone call was "largely accurate." He added that Rubin "had prefaced the call by saying, 'This may not be the best idea,' and in the end agreed with Fisher that it wasn't a good idea." Neither the fact that the call was made nor the purpose of the call are in dispute.
Moreover, AP reported that at a March 21, 2002 hearing before Lieberman and his committee, John Diaz, managing director of Moody's Investors Service, a major credit-rating agency, Diaz testified that Rubin had contacted him about seeking a higher credit rating for Enron. Diaz said nothing came of Rubin's telephone call. However, this was the second time Rubin intervened in an attempt to keep Enron's credit rating high.
When asked why credit-rating agencies delayed the lowering of Enron's rating, Diaz said that Enron executives lied to his agency in the fall of 1999 about its complex web of partnerships and that "material information was missing."
Consider Lieberman's remarkable reply: "I feel as if you weren't as aggressive as you should have been. We have got to look seriously at creating some kind of system of accountability and monitoring of what the agencies are doing."
Yet, Lieberman knew that Rubin, on behalf of Citigroup which had an approximate $1 billion investment in Enron and the potential of large merger and other fees in pending deals on at least two occasions, sought personally to protect Enron's credit rating. Still, as best as I can tell, Lieberman has never asked Rubin to testimony before his committee. Furthermore, Carl Levin, chairman of the Senate Governmental Affairs Committee's Permanent Subcommittee on Investigations, which is holding a hearing today on "The Role of the Financial Institutions In Enron's Collapse," has, to the best of my knowledge, not sought Rubin's testimony. (An inquiry I made to Levin's subcommittee asking whether Rubin would be a witness at today's hearing went unanswered.)
On January 14, 2002, while being interviewed about Enron's collapse on the NewsHour with Jim Lehrer, Lieberman said, in part:
The stock was being touted by executives of the company, while they, in fact, were selling theirs and average stockholders were holding on and in the process of losing their life's savings, so this was a really shocking and unsettling scandal in which greed and arrogance, deception and fraud and maybe criminal behavior was involved.
Lieberman's supposed concern for "average stockholders" and "their life's savings" clearly doesn't outweigh his political interests in covering up Rubin's central role in helping to prop up Enron and protect Citigroup's investments. If Lieberman were to force his fellow Democrat to testify about his conduct, the Democrats might lose their election-year issue. Meanwhile, Citigroup's stock value has declined by more than ten percent, to the lowest level in nearly three years, on news of its deceptive activities. (Source: National Review, July 23, 2002; "Joe Lieberman's Cover-Up"
Indeed, actions by Congress and the Securities and Exchange Commission have the potential of creating a smoke screen that will prevent real accounting reform. The Senate itself is the major reason corporations have been able to duck option expensing. On May 3, 1994, the Senate, led by Senator Joseph Lieberman, pushed the Financial Accounting Standards Board and Arthur Levitt, then chairman of the S.E.C., into backing down from mandating that options be expensed. Mr. Levitt has said that he regrets this retreat more than any other move he made during his tenure as chairman. (Source: New York Times, July, 24, 2002; "Who Really Cooks The Books?")