Up In Smoke

Enron used political ties to rid itself of regulators. But in the end, its supposed free-market trailblazing only burned investors.

"Lay concluded early on, as any smart lobbyist does, that it doesn't do any good to support somebody that might be right ideologically but can't get elected," says former Enron lobbyist and consultant George Strong, who has known Lay for a quarter-century. "With very few exceptions, you'll find that Enron was pretty astute on making decisions on who to give money to."

As unlikely as some of those decisions seemed at the time, they paid off. Sheila Jackson Lee, arguably the most liberal member of Congress and inarguably the most vocal, became a Ken Lay "project" in her upstart 1994 race for the 18th District. As her fund-raising chairman, Lay rallied the Houston business community to join her against their common foe, incumbent Craig Washington.

"We all had to give $250 to get rid of Craig," says a Lay associate. "But she was a pain in the ass to him." The source says that after her election, Jackson Lee would call Lay "two or three times a day trying to get us to hire her cronies for big money."

So many politicians hit up Lay that fund-raiser Walden had to run interference for him.
So many politicians hit up Lay that fund-raiser Walden had to run interference for him.
Enron's special Cactus Fund reflects the complexity of the company's trading practices.
Enron's special Cactus Fund reflects the complexity of the company's trading practices.

Freshman Houston Congressman Ken Bentsen also knew the influence wielded by Lay and Enron. The Democrat got jolted in November 1996 when Lay unexpectedly jumped ship to endorse his Republican runoff opponent, Dolly Madison McKenna, for the 25th Congressional District. "He was probably the senior corporate citizen in Houston," says the congressman. "And they were the go-to people. He was the go-to guy."

The Enron chairman explained to reporters at the time that he simply had allegiance to McKenna, an old family friend. That was coupled with his fears that Bentsen's substantial labor backing would inevitably drive him to the left.

After Bentsen beat McKenna, Bentsen waited for Lay to apologize for the flip-flop. He thought it was coming several months later when an Enron staffer called and asked if Lay could meet with him.

"Being the nice gentleman I am, I say, 'Sure. Come on over,' " Bentsen chuckles. "So he comes in and sits down. I keep waiting for him to say, 'Oh, we had a disagreement but you won, and we want to try and work with you.' "

According to Bentsen, Lay talked about the need for energy deregulation but never mentioned the election, as if it were some faux pas between friends unworthy of comment. In 1997, Bentsen received contributions of $1,000 each from Lay and his wife, and $500 from the Enron PAC and a Lay-hosted fund-raiser. All in all, it was an implicit apology that probably spoke more eloquently than anything Lay might have said face-to-face.

Enron and its leader went on to give a total of $45,000 to Bentsen in the '90s, the highest amount it contributed directly to any member of the House of Representatives.

Lay and Enron, in fact, became synonymous with political contributions and candidates, mostly Republican, who regularly made pilgrimages to Houston to fill up their campaign tanks.

Sue Walden remembers all the calls from officeholders requesting that Lay host Houston fund-raisers. "A lot of elected officials on the federal end think Houston is a cash cow because we have the oil and gas industry here and they want a way in. Especially those on oil and gas, natural resources, deregulation, those sorts of committees, would come to Enron and ask Ken to host an event."

"Ken would do it," Walden explains. "It's hard to say no to a sitting senator or congressman."

Eventually the feeding frenzy became too intense. Walden says she had to try to shield the chairman from the ceaseless demands. "I'd say, 'Ken is just overused on this right now, let's give him a break. Find someone else, and I'll get Enron to help.' We'd go that route. I'd try to protect Ken a little bit, because you can't go to the well too many times."

Lay's much-touted role as one of the $100,000 pioneers for Bush's presidential campaign is not quite what it seems, says the fund-raiser. When the deadline came for contributions, the chairman was still a bit short.

"He hadn't made it yet, so I transferred $30,000 or $40,000 from my [fund-raising] account codes to him so he could get pioneer status on this big event day," says Walden. Fund-raiser Heidi Kirkpatrick worked with Walden, concentrating more on Democrats.

"It's like you visit Houston, and you visit Ken Lay," says Kirkpatrick. "He was pretty much the top target for fund-raising on both sides of the aisle."

While Bentsen may have been a big individual recipient, Enron's real go-to guy in the House was Sugar Land Republican Tom DeLay. According to an Enron source, DeLay was particularly aligned with the new Enron order under Jeff Skilling.

"Skilling and DeLay think the same on 'dereg': They are free enterprise, open markets, they believe it," says the source. "There's just a natural bond, plus DeLay is majority whip."

But the fight against reporting requirements would require a well-connected Senate commander, Phil Gramm of Texas.

Senator Gramm first attacked the Financial Accounting Standards Board, which had recommended that derivatives be included on companies' balance sheets. At a Senate banking committee hearing in 1997, Gramm challenged FASB chairman Ed Jenkins to reach a "broader consensus" from the business community. Jenkins replied that the standards board held 123 public meetings before concluding that reporting practices for derivatives were inconsistent, allowing different companies to report the same transactions differently.

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