Officials Seek Enron Insider to Aid Probe

WASHINGTON —  The Justice Department’s investigation of Enron Corp.’s collapse could take years and involve a review of millions of paper and electronic records, so the agency has begun looking for a shortcut: an insider who would tell all in exchange for leniency from potential criminal or civil prosecution, authorities confirmed Sunday.

It is a path well trod by federal authorities in other complex white-collar investigations of corporations: Gain the full cooperation of someone high up enough in the hierarchy to have extensive knowledge of its operations--and potential culpability in questionable acts--but not so high that there aren’t others in even loftier positions to merit offering a deal.

Current and former Justice Department and FBI officials confirmed that such a process is underway but did not discuss details, saying it is perhaps the most sensitive part of the investigation as it gets up to speed.

“It’s obvious: You look for the weak points, someone you have leverage on, who is in a position where they know a lot and has a great deal to lose,” said one FBI official, who spoke Sunday on the condition of anonymity. “That will be one of the first points of the investigation. You gain enough information against that person to say, ‘This is the only course of action for you that makes sense.’ ”

And, said two high-ranking senators investigating the burgeoning scandal, it appears as if some executives both at Enron and at its auditor, the accounting firm Andersen, may have engaged in potentially criminal behavior.

“Clearly, on the face of it, some of the activities carried out by the [Enron] corporate executives were not legal, and in violation of rules and regulations--if not laws,” Sen. John McCain (R-Ariz.) said Sunday on CBS’ “Face the Nation.”

Sen. Joseph I. Lieberman (D-Conn.), on the same show, also had harsh words for Enron executives.

“We know that they were trading fast and loose with offshore corporate entities that were hiding their debt from the public,” said Lieberman, chairman of the Governmental Affairs Committee, which is conducting one of several congressional investigations into the company’s failure. “We know that they were saying things to the public, to shareholders, the retirees . . . about how the stock was going to go up and--at the same time they were selling their stock right then.”

The swiftness of Enron’s collapse hinged in large part on the company’s disclosure in the fall of more than $600 million in losses, the restatement of three years of financial results as well as the existence of scores of complex, off-balance-sheet partnerships. Authorities say they need one, or several, expert guides to help them navigate such byzantine practices.

Both senators said they will reserve judgment on whether such acts were illegal until the various investigations--including those by the congressional committees, the Securities and Exchange Commission and the Labor and Justice departments--are complete.

But they also suggested that executives at Andersen, known until last year as Arthur Andersen, may have violated the law if an Oct. 12 internal memo directed workers to destroy all audit material on Enron--except for “work papers”--when it became clear that Enron was in deep financial trouble. The two senators were asked about the memo, first reported in Time magazine, by “Face the Nation” moderator Bob Schieffer.

“This kind of memo, to destroy documents, raises very serious questions about whether obstruction of justice occurred here,” Lieberman said. “ . . . If this memo is what it looks like, I’m afraid that the folks at Arthur Andersen could be on the other end of an indictment before this is over.”

On Thursday, Andersen acknowledged destroying a “significant” number of documents related to the Enron audit. On Sunday, the company said: “We acknowledge that there were internal communications that raise questions. Until we know more, it would be inappropriate to comment further. We will take actions at the appropriate time.”

Despite the senators’ comments, authorities said it was far too early to speculate on whether actions by Enron executives and the company’s auditors went beyond poor judgment and into the realm of criminal wrongdoing. But they confirmed that they will focus on the destruction of corporate documents, conflicting statements about Enron’s financial health, the creation of scores of corporate partnerships and other matters that could amount to criminal violations of fraud and securities laws.

The Justice Department said last week that its top criminal prosecutor in Washington will oversee an Enron task force employing lawyers and agents from at least four cities--an indication that it expects the investigation to be complex.

The FBI is being joined by other agencies, possibly including the Internal Revenue Service, to determine whether laws were broken as the Houston-based company tumbled from its perch as the world’s largest energy trader, its market value falling from $60 billion to that of a penny stock in a matter of months. Enron’s sudden fall culminated Dec. 2 in the biggest bankruptcy filing in U.S. history and the loss of thousands of jobs.

A senior FBI official in Washington said agents have spent weeks in Houston, Washington, New York and San Francisco identifying documents--and people--likely to figure in the investigation. Already, federal prosecutors in Houston have sent out grand jury subpoenas to potential witnesses.

“Just look at the sheer size of the corporation,” one senior FBI official in Washington said. “This is not a small bank we’re talking about here.”

A senior Justice Department official with the Clinton administration, who helped oversee similar corporate investigations, said a knowledgeable cooperative witness could make or break such a complicated financial case.

“This could be a nightmare of an investigation. The key will be if the FBI can flip someone on the inside, someone who says, ‘I want to be around to watch my children grow up and go to college,’ ” the former official said. “They will cut a deal with somebody. . . . I am sure they are reaching out to people; it could short-cut what could take them a matter of years to a few months.

“Especially when you get to a jury,” the former official said, “you need someone on the witness stand saying, ‘This is what we did.’ ”

In such cases of alleged corporate wrongdoing, the difference between filing criminal or civil charges often centers on the issues of knowledge and intent, current and former Justice officials said.

If Enron executives did indeed sell their stock before it was about to decline significantly in value, how much of the details did they know of the company’s impending collapse?

And did they then take any actions to deceive stockholders, employees, Wall Street and the public into believing that the company was in better financial condition than it was?

If so, the former senior Justice Department official said, “I think there is huge criminal exposure” for Enron and its auditors.

Many FBI agents assigned to the task force are forensic accountants--specially trained financial experts who will pore over documents to establish a trail of decisions by top executives. These could point to illegal acts or indicate that the executives engaged in unethical behavior or used judgment that, though poor, did not rise to the level of criminality.

But, the former Justice official and others said, authorities also will be using old-fashioned investigative techniques to home in on those company employees who could testify about the knowledge and intent of corporate executives, or who could point investigators to potentially incriminating documents, meetings and discussions.

“You look at the universe of who the people are who could have known [about wrongdoing],” the former Justice official said. “You do research, talk to friends, people on the outside. You ask around and then approach people.”

Chances are that some executives already may be considering cooperating in the civil and criminal probes of Enron, officials said.

“All of the people with potential liability have lawyers and have already gone to them and said, ‘I have a problem,’ ” the former official said. “Some of those lawyers will say, ‘Look, do you want me to go to the FBI and see if we can start discussions?’ A good lawyer who handles white-collar defense would be almost committing malpractice by not at least exploring this.”

Once an executive showed a willingness to cooperate, negotiations would ensue between FBI agents and federal prosecutors, on one side, and the prospective witness and his or her lawyers, on the other, over what the person knows and would be willing to say under oath.

Decisions on who would be allowed to “make a deal”--traditionally without any specific promise of leniency--probably would be made at the highest levels of the Justice Department. A formal offer would then be made.

The individual accepting that offer, the former Justice official said, “could get probation or even immunity--no prosecution at all--while others could face significant prison time” if criminal charges are filed.

Such agreements can be controversial, especially in such a high-profile case, authorities said. Not only did thousands of people lose their life savings in Enron’s collapse, but the company’s extensive lobbying efforts--and the campaign contributions by its employees, directors and political action committee--give the case a political aspect as well.

“They’ll need to balance someone who knows a lot with someone who would have a relatively minor-enough role to give them immunity. There will only be a small number of people they will let in,” said the former Justice official.

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