The Real Deal About Enron,

an interview with Catherine Austin Fitts

By Daniel Armstrong

[Daniel Armstrong is a writer and novelist based in Eugene, Oregon. Mr. Armstrong is a graduate of Princeton University and attended the University of Oregon School of Journalism.]

 

 

If my years working on the clean up of BCCI and the S&L crisis taught me one thing that I would communicate today to the shareholders, retirees and employees who have been harmed, it is this: people like those on the board of Enron absolutely make money from insider trading, bid rigging and fraud, and they do so with help from the highest levels.

-- Catherine Austin Fitts.

What investment banker Catherine Austin Fitts invariably emphasizes in her discussion of global money flows is the extent to which criminal proceeds play a part in the real world economy. This should come as no surprise to anyone. Not after all America watched their pension funds stripped away, while dot-com CEO's pocketed millions of dollars in profits from stock market "pump-and-dump'' schemes. Not after energy traders like Enron, Dynergy, and Reliant have been accused of using the California energy crisis to manipulate the market, causing vicious price hikes, rolling browns out and power shortages. No. In this past year, our naivetÿ and trust in Wall Street, perhaps the world in general, has collapsed much like the World Trade Center did that fateful September morning.

The world really isn't any different, it's just that some of the veils have been shorn away, and long-time Wall Street insider Fitts figures there's no sense pretending innocence any longer. Tax evasion, insider trading, drugs sales, black budgets, and terrorism are a significant part of global economic dynamics. It's simply how the money works in a financial system where so-called creative accounting methods are as transparent as mud and money laundering is part of the quantum mechanics of financial law. "The Real Deal,'' as Fitts refers to her straight-on analysis of money flows, "is that financial fraud, in all its wide variety of deceits, is the most profitable business on the planet today.'' Based on her eleven years experience on Wall Street and eight working with federal agencies cleaning up HUD and several large banking scandals, my guess is that Ms. Fitts knows what she's talking about.

This is not Paul Volker

The United States Department of Justice estimates that $500 billion to $1 trillion in criminal proceeds are laundered annually worldwide. It may be twice that. And the Real Deal is you can't do accurate economics if this isn't accounted for. Sums this large---hundreds of billions of dollars, says Fitts, can only be laundered into the system through Wall Street and the central banking system. Companies like WorldCom, Tyco, and Global Crossing. Banks like Citigroup, JP Morgan-Chase and the New York Fed. This isn't wild talk. We've heard it all in the unraveling of the Enron web already. The largest banks do the largest business transactions and they are the only ones capable of disguising the underside of these vast financial flows. This is curious and profound commentary from a former Managing Director and board member for the elite New York investment firm Dillon Read, Inc. and onetime Assistant Secretary of HUD. When she looks at the Enron bankruptcy, with her BCCI and S&L clean-up experiences to draw upon, she aptly quotes Yogi Berra, not Paul Volcker, to describe what she sees: "It's deja vu all over again.''

Catherine Austin Fitts began her career in 1978 at Dillon Read in corporate finance and mergers and acquisitions. Eight years later she became the firm's first woman Managing Director and board member. Her success raising capital for the renovation of New York's subway system, City University of New York, and several other major projects prompted Business Week to refer to her as a "Wonder Woman'' and generated a reputation in financial circles that she could fix anything.

Fitts left Dillon Read in 1989 to join the first Bush Administration, working as Assistant Secretary to Jack Kemp at the Department of Housing and Urban Development with the task of "fixing'' HUD and the Federal Housing Administration and cleaning up the S&L scandals. In 1990, she was named to the Securities and Exchange Commission's Emerging Market Advisory Committee. A year later, President Clinton's Treasury Secretary Nicolas Brady and Chief of Staff John Sununu, asked her to be a governor on the Federal Reserve Board and a member of the board of Sallie Mae. This was heady stuff for a woman of forty. But she'd already started her own investment bank and software firm, Hamilton Securities Group, Inc and turned down the Federal Reserve offer.

In 1993, Hamilton Securities, Inc successfully won a competitive contract bid with HUD to re-engineer portions of its $500 billion portfolio of mortgage insurance, mortgages, and properties. While fulfilling its contract, repackaging and auctioning off $10 billion of defaulted FHA loans, Hamilton developed a package of software tools to access publicly available online government financial records. This included an online disclosure and bid optimization system for the sale of defaulted HUD loans and an easy-to-operate program called Community Wizard, which allowed local users to create "place-based'' data bases to track government money flows and facilitate business in their own neighborhoods.

Hamilton's efforts and loan sales software would save the FHA funds billions of dollars and earned Vice-President Al Gore's Hammer Award for re-engineering government. Also Community Wizard, perhaps Hamilton's most powerful innovation, became the central piece in prototyping a computer-learning center and data processing service in the Edgewood Terrace apartment building, as part of Fitts' idea to move neighborhoods from government subsidy to entrepreneurial business through private markets and investment. Following her very successful career line, Fitts again was a shining light in the dark world of federal credit and balance sheets.

An unforeseen side-effect of online tools like Community Wizard, however, was that while clearly showing how clean money worked in neighborhoods, the software also showed how the dirty money worked, inadvertently, providing a checks and balances for the use of federal housing monies. Certain HUD problems became more visible. This included suspicious patterns of high HUD mortgage defaults in the same areas that were the target of CIA complicit narcotics trafficking con- firmed by CIA Inspector General investigations into the so called "Dark Alliance'' allegations published by Gary Webb and the San Jose Mercury News in the summer of 1996. "These are the types of HUD mortgage scam that have been popularized by The Soprano TV show," says Fitts, "and were instrumental in combination with narcotics trafficking with destroying my childhood neighborhood." The detailed "place-based'' data provided the basis to estimate who had been getting inside sweetheart deals or where fraud was indicated. There were also many discrepancies in HUD's books---later it became apparent that they ran into the tens of billions of dollars.

http://www.solari.com/gideon/legal/background/DesidnBk/place.htm

Source: http://www.solari.com/gideon/legal/background/DesidnBk/lasfhd.jpg

http://stacks.msnbc.com/news/845423.asp?cp1=1

The next thing Fitts knew she was under investigation by the DOJ, FBI, and the HUD Inspector General in response to a series of law suits filed by a HUD contractor Ervin Associates whose servicing contracts and responsibilities doing defaulted mortgage workouts had been displaced by Hamilton's loans sales auctions. This began a process of eighteen audits, investigations and inquiries as well as a smear campaign to discredit Fitts personally and professionally. For all its benefit to accounting clarity and the efforts of honest people, Community Wizard's open window to federal money and credit was not what the politically inbred contractor fraternity wanted.

Seven years and all hell to pay later---she compares her life during this period to that of the character played by Will Smith in the movie Enemy of the State---Fitts and Hamilton Securities, Inc emerged entirely exonerated from all allegations of wrong-doing. More than that, it was proven she had done a lot of good for the taxpayers and communities. In these times, when honesty and accountability must be held at a premium, Fitts' bold revelations into the holes in HUD's books and several other federal agencies, as well as her insights into the relationships between government and banking syndicates, have made her more respected in serious financial circles than ever before.

Today Catherine Austin Fitts is Solari, Inc, a pioneering investment advisory firm aimed at bringing the power of investment databases and equity finance to neighborhoods. That is, she's out there with a positive vision, offering to all communities what she prototyped at Edgewood Terrace in 1994. Make no mistake about it. Fitts is all Wall Street experience and straight-ahead common sense. She minces no words bringing transparency to the now one-year-old Enron fiasco. "I will bet the last dollar I have that Enron was part of the largest laundromat of stolen and tax evading dollars in American history and that the Department of Justice's primary goal is cover-up.'' And, as the following interview will attest, she's seen enough in her time to lay out a pretty convincing case.

 

INTERVIEW:

 

DA: In 1989 and 1990, Catherine, you worked for HUD Secretary Jack Kemp in the first Bush Administration. Kemp was a member of the oversight board for the Resolution Trust Corporation (RTC) that was set up for the S&L cleanup. Part of your responsibilities at HUD was to provide regulatory support to Kemp and to the RTC people and its operation, regarding mortgage and property disposition. Also, between 1994 and 1996 you served as a board member of First American Corporation, after former New York Banking Commissioner Harry Albright was appointed Trustee of the First American Resolution. You were there to assist in selling First American financial assets and unraveling its BCCI connections.

 

CAF: That's correct. I was initially brought into the Bush Administration to ensure that the Federal Housing Administration (FHA) at HUD was sound and to help clean up the Iran-Contra Fraud at FHA/HUD. There were also fraud issues related to regulatory responsibility in the Freddie Mac, Fannie Mae, Federal Housing Loan Bank system, and the U.S. mortgage market---that dovetailed into the S&L work. After I left HUD, I became a board member of Carteret Savings & Loan to help some old partners with more S&L clean up. Since my days at Dillon, Read, I had a reputation for successfully re-engineering financial situations that others thought were hopeless.

 

DA: Beginning in 1996, your company Hamilton Securities, Inc, which was on a competitive contract with HUD as a financial advisor, was sued by HUD contractor Ervin Associates and then investigated by the Department of Justice for alleged insider trading, bid rigging, fraud, and conflicts of interests. No basis was found to support any of those allegations by their investigators in 1996, then again in 1999, and finally a year ago, they dropped all investigations. Those allegations against Hamilton are similar to those filed against Enron Corporation. So not only have you been part of the clean up of several large and complex fraud cases, but you have also been on the receiving end of a DOJ investigation---on allegations not terribly different than those in the Enron case. Additionally, you were a member of the SEC's Emerging Market Advisory Committee from 1990 to 1993. Clearly, you must have a pretty good sense of corporate law and first hand knowledge of what goes on in government fraud investigations. I know from articles you have written that you are not fully convinced the investigation of Enron is in good faith---also that you feel a lot of mistakes and omissions were made in the way the DOJ initiated its investigation. Can you explain some of this?

 

CAF: There are seven steps that should have been taken if the federal intelligence, investigation, regulatory and prosecution agencies were serious about stopping the Enron fraud, getting our money back and holding guilty parties accountable. All seven are based on two fundamental principles that you always see working when prosecutors and investigators are doing a competent job. The first fundamental principle is: Make sure you have control of all the data and information about money and how that money is used in the organization. The second fundamental principle is: Make sure you use that control---of the data and information---to gain control of any cash that was stolen or wrongfully used. Let me emphasize at the outset that Enron's management and board of directors and their accountants and banks have admitted to securities violations, gross negligence, sham transactions, and obstruction of justice. So let's not skirt the issue: we have a self-proclaimed criminal enterprise. I believe that Enron was also engaged in additional financial fraud and money laundering.

 

DA: Michael Kopper, the first Enron employee to be arrested, pleaded guilty to one count of conspiracy to commit wire fraud and one money-laundering charge in late August of this year.¹ Is this what you mean by additional financial fraud?

CAF: This is just the narrowest sense of what I was suggesting. I will expand upon that as we go along. The first thing a serious investigation, regulatory and enforcement effort does is to establish control of both the records that document how the money works and the cash. It helps to compare financial fraud such as Enron participated in to a game of basketball. The ball is the cash and you want to keep your eyes on the ball at all times. Keeping that in mind, let's walk through the seven steps of what a competent investigation and prosecution effort should have done. The first step is to get control of all the documents. By all the documents I mean all the papers and digital records of Enron and its 3,000 subsidiaries and special purpose entities that inform "how the money works'', both onshore and offshore. You also make sure you get control of all the Enron-related records at their banks, auditors and other vendors, both onshore and offshore. It's impossible for us to tell, from where we are, the exact extent of the subpoena or other discovery actions that have been taken, but clearly there's a great deal that has not been done, particularly offshore, just based on the public record.

 

We know the government permitted extensive shredding of documents by Arthur Andersen and Enron, something that is incredibly disturbing because it proves that months into an investigation, the SEC and DOJ chose not to assert the initial control that was essential to the success of any such investigation.

 

DA: And, in your case with Hamilton Securities, an instance where government auditors later verified your innocence, the DOJ wasted no time, seizing your office, your records, and your cash.

 

CAF: Yes. To me this is the big giveaway. The DOJ simply did not take timely control of Enron's documents. In Hamilton's case, DOJ and their informant were responsible for destroying the digital infrastructure of a company whose operations and equity value was dependent on those databases, software tools, and documentation. They took extreme measures to get control of all digital and paper records---even when their own investigators had documented there was no need. In Enron's case, the DOJ politely skipped over all of this--- and the second step in an investigation: you never allow the transfer of assets before you assert the appropriate controls. And yet we've seen the government readily permit the transfer of Enron Online to the Just one of the little guys Union Bank of Switzerland (UBS), one of Enron's largest creditors. So now it's very possible that a great deal of information that would be needed for a proper investigation is under the protection of the privacy laws of a Swiss bank.

DA: As I understand it, Citigroup and Morgan-Chase, who have both been mentioned in the Enron web, were also part of the bidding process for Enron Online that took place in January of 2002. ²

CAF: Yes, one would expect that. Like UBS, they were major Enron creditors. But what's interesting, and perhaps quite significant to note, is that a recent addition to the UBS board is Lawrence Weinbach, a former chairman of Arthur Andersen, the accounting firm that shredded Enron documents. DA: I saw that. Lawrence Weinbach had been the CEO at Unisys since 1997. Prior to that he spent nine years as managing partner and chief executive for Andersen Worldwide---which includes Arthur Andersen where Weinbach began his career in 1961. ³ UBS announced Weinbach as Chairman of their Audit Committee Board on February 22 of 2002. ⁴ UBS bought Enron's North American wholesale electricity and natural gas trading business on January 18, 2002. ⁵ The timing is certainly curious.

 

CAF: Enron was also permitted to sell and transfer its gold bullion and gold derivatives trading operation. Understand that to be able make these two sales and transfers of Enron Online and the gold operations, as quickly and quietly as they were, in the middle of an initial bankruptcy filing, was nothing short of miraculous based on what I'm told by bankruptcy attorneys. In combination with the illegal shredding, it would have permitted the coordination of the cover-up of possible money laundering or financial fraud between the banks and Enron Online. These sorts of things will be easier to keep hidden because one of the creditors and trading partner banks now controls what is probably the most likely guilty entity. Thus the ability of any prosecutor to play the banks and the target off against each other in the discovery and investigation process is diluted or lost.

 

DA: So the government allowed the transfer of assets in a way that may prevent access to the documents and personnel necessary for a successful investigation and recapture of stolen monies. Does this also mean that the bank records can be coordinated with Enron Online discovery behind the protection of attorney client privilege?

CAF: It would appear that way. Sales and transfers of assets have proceeded without complete and timely federal control of paper and digital records, including computers and all data storage devices. Unlike Enron, Hamilton did not shred documents and provided redundant copies of records and back up computer tapes to counsel who provided assurances to the federal government that no originals would be destroyed. The documents sequestered by Hamilton included records of all subsidiary entities.

DA: In these first two steps, controlling records and assets, above and beyond collecting Arthur Andersen's documentation, communication with Enron's banks surely must be a critical part of this initial process. We've already mentioned Morgan-Chase and Citigroup as Enron creditors. But there is a specific accusation that senior credit officers at Citigroup manipulated records to hide a $125 million Enron debt to Citigroup. ⁶ From what I've read, it's unclear if the federal investigators will fully pursue this. But don't the banks have to be largely involved? Compliant, perhaps complicit, to the point of assisting?

CAF: Indeed, both Citigroup and J.P. Morgan-Chase, Enron's two lead banks, were called to task and to testify before the permanent subcommittee on investigations of senate government affairs committee on July 23rd . Both banks had been verified as complicit in creating "special purpose entities'' (SPEs) to round trip transactions as a way to loan money to Enron without calling it a loan. In the course of this maneuver, Enron and its trading as well as lending partner, Morgan-Chase, created the fa®ade of a business/trading activity as opposed to a borrowing activity thereby falsely boosting their revenues. While both banks denied this, the testimony and documents provided to the Senate, clearly support the Senate's position---making this even more egregious and suggesting the banks themselves created and controlled the SPEs.

DA: On September 13th a federal judge dismissed Morgan-Chase fraud claims against its insurers, perhaps, preventing the bank from collecting $935 million in loses on gas and oil trades with Enron. ⁷ Then in its own defense, Morgan-Chase attorneys argued, incredibly, that the insurers knew the deals were shams intended to hide loans to Enron. What does all this double-talk by Morgan-Chase mean?

CAF: That we need to know if Enron or, at least, Enron Online was essentially a SPE for New York Fed member fraud and money laundering. This brings us to a question critical in getting to what was really going on at Enron---the part outside investors played in the Enron game. We can get to that from the third step of our investigation. You always get document and cash control, if you can, before a bankruptcy filing.

DA: Enron filed for bankruptcy protection on December 2nd. ⁸

CAF: Yes, Enron filed for bankruptcy before the feds asserted control, and well after numerous members of the Bush Administration were informed that Enron was teetering on the verge of collapse, and after what appears to be many efforts by the administration to help them keep going, and long after SEC investigations had begun. When Enron filed for bankruptcy, its own board worked over a four-month period to "investigate what went wrong.'' This was only possible because of DOJ complicity at the time. And this is important. A bankruptcy filing gives Enron additional powers and rights to protect themselves, particularly from the class action lawsuits that, on a private basis, could dig out some of the data about how the money worked and those bank relationships you brought up---even if the DOJ and SEC don't succeed in digging this out or are, in fact, covering it up.

DA: What you're saying is, yes, an investigation is going on, but as congressional investigators slowly stumble through the testimony---it's been a year now, they have given Enron a chance to work over or obliterate the evidence. And you feel this is deliberate?

CAF: It looks that way. Enron's bankruptcy filing created a stay against all suits against Enron. Those directed at board members and management could proceed. Hence private discovery of Enron's records may be limited. Watching this process, my question is did the DOJ specifically help Enron get into bankruptcy, and define their investigations, so as to protect the information from class action investigation?

DA: The law firm Milberg Weiss has a consolidated class action lawsuit against Enron management and directors in the U.S. District Court in Houston right now. The lead attorney William S. Lerach will charge certain Enron executives and directors, its accountants, law firms, and banks with violations of the federal securities laws and that they engaged in insider trading. ⁹ So Mr. Lerach is seemingly serious about this private investigation. Will the timing of the bankruptcy filing get in Lerach's way?

CAF: My best guess is that the bankruptcy filing has helped ensure that any monies laundered and/or stolen through Enron and the monies that investors made on the pump and dump of Enron stocks has had plenty of time to get away. The good news is that federal court's dismissal of Morgan-Chase's fraud charges against its insurers may be just what Milberg Weiss needed to proceed against Enron's complicit banks, attorneys, and CPAs. This could be the key to the recovery of billions for employee pension funds and other shorted investors here and around the globe. In the meantime, however, federal investigators are steadily chewing up time by slowly giving up or indicting Arthur Andersen, then others in Enron management. But the real bad guys are not in the management or Arthur Andersen. The real bad guys are the private investors, working through the banks or investment firms, who have already gotten their money out and so far are scheduled to keep it---and those members of the board, if any, who traded under third party names. These are the people and institutions who have the power to ensure that people like Ken Lay and Andrew Fastow are hired in the first place and who ensure that the right regulators are in place to ignore what is going on, perhaps even help it along.

Graphic: J. Ward

DA: So Ken Lay's not one of the big guys?

CAF: As far as I'm concerned, Ken Lay was just the lead patsy. We're talking about a top ten Fortune 500 company with annual revenues exceeding $100 billion---which suddenly fell off the map. What the Enron CEO's made was nothing compared to what the inside-trading investors made---both with corporate assets liquidated out before the implosion or in the pump and dump of stocks. And many of these investors look to be from the same syndicate that I saw playing the Iran-Contra/S&L game in the eighties.

DA: "Syndicate.'' Now there's a loaded word. Webster's defines a syndicate as "an association of bankers, corporations, etc, formed to carry out some financial project requiring much capital, especially to gain control of the market in a particular commodity.'' Sounds quite like Enron's position in the energy market. Can you be more specific about this syndicate you just referred to?

CAF: Sure. Let's see what Milberg Weiss uncovers. But in testimony already, former Chief Accountant of the SEC, Lynn Turner, offered that these banks and investment banks "shopped their structured finance vehicles'' around to other corporations. Turner indicated that in one case where the SEC was able to intercede on his watch, a bank had people sign privacy agreements as not to divulge details of the scheme proposed to regulators and others.

DA: Then these are the kinds of linkages we're looking for---the little private "courtesies'' that quietly make the syndicate a whole. What about the investors working through these banks---are they the bad guys you keep referring to? Who are they?

CAF: I don't believe it's appropriate to throw out names here---without lengthy explanations and qualification. To understand how the investors use interlocking corporate designs and trusts to protect themselves, I recommend going to Linda Minor's series Follow the Yellow Brick Road: From Harvard to Enron or Pete Brewton's book The Mafia, CIA, and George Bush or Truell and Gruwin's book False Profits---also Tom Flocco's work on Harken Energy helps.

(http://www.newsmakingnews.com/lindaminor/lm3,19,02harvardtoenron,pt1.htm)

 

DA: Then these networks of investors, which in no far stretch of the word are syndicates, they are the ones protected by the mishandling of the investigation?

 

CAF: They will try to get away with the money, yes. And all the right documents may have already been shredded to ensure that---which takes us to the fourth step: You never permit shredding of documents. There are lots of different ways to work with the attorneys, the accountants and other people to ensure that shredding doesn't happen. Not only has it happened, but also Arthur Andersen and Enron have admitted to what appears to me to be criminal obstruction of justice, by shredding the documents. This is even more shocking because of the government's right to assert control over any federal contracts and seize government payables owed to the guilty parties. Enron, since 1997, has enjoyed substantial federal contracts, and Arthur Andersen enjoys very significant and sensitive federal contracts. Those contracts can be cancelled at the convenience of the government, and it can be done within the space of 24 hours. I have direct experience with the government doing this.

 

DA: That is, when your company Hamilton was being investigated?

 

CAF: Precisely. Which moves us along to the fifth step: You assert control of all the company cash, both onshore and offshore. Because of laws passed in connection with the War on Drugs and related money laundering and RICO laws, the Department of Justice and the US Treasury have developed an extensive infra- structure dedicated to seizures of cash and other assets---both company and personal---in situations where fraud is indicated. Typically, proof of fraud or an indictment or a conviction is not required. Indeed, as I just said, I have personal experience with the Department of Justice asserting rights of seizure against company and management and board member's personal assets when their own investigators have determined that there is no fraud and the parties are entirely innocent. Hence, this is an area where law and practice combines to make it possible for the DOJ to seize cash and assets aggressively when they want to. Investigators used the mere possibility of fraud as a pretext to demand control of all Hamilton records. Notwithstanding indisputable evidence of fraud, no reports indicate actions by the government to seize any records or offices from Enron. We have to wonder why? When Manuel Noriega was sent to jail, my understanding is that we used PROMIS software system to sweep offshore bank accounts and seize back $2 billion of his money. The technology here is important. Tools like PROMIS software and "Echelon'' under the control of the DOJ and NSA and other military and intelligence agencies have the capacity to track and identify worldwide bank deposits and flows and to transact through bank settlement systems to effect seizures.

 

DA: Thus operationally we have the capacity to track Enron's bank transactions and take back significant monies and haven't?

 

CAF: I have been told that the congressional audit teams have preserved some settlement system records. However, I am skeptical. The proof is in the pudding. A year has passed. Where is the money? The failure to assert control of the records and money for this length of time can only be a cover up.

 

"Pug'' Winokur, another happy investor...

...''crime that pays is crime that stays!''

DA: By cover up, you mean a way to steal and launder money all at the same time?

 

CAF: You might say it that way. But a cover up is also a method to protect people and institutions---that is, to keep the pieces of the syndicate in place. For instance, it is my understanding, that PROMIS is managed for the Department of Justice by the military contractor DynCorp. Again the technology is important. The sophistication of surveillance and communication technology today is even beyond what Hollywood can imagine. And curiously enough, Herbert "Pug'' Winokur, who was DynCorp's Chairman and lead investor from 1989 to 1997, and who is still Chairman of DynCorp's compensation committee, was the Chairman of Enron's Finance Committee through all of Enron's worst days---that is, until June 6th of 2002 when he resigned.

 

DA: Thus the ex-Chairman of Enron's Finance Committee has intimate connection to the DOJ's most powerful tool for watching bank deposits and money flows.

 

CAF: It's more than that. DynCorp is also the lead contractor for the DOJ Asset Forfeiture Fund. So if DOJ wanted to do a seizure of any assets in connection with Enron, presumably they would have to turn to Pug's company to seize Pug's assets as a fiduciary, an investor and an individual. Not surprisingly, we have one indication that seizures are not even on their radar screen. Very shortly after they neatly got Enron Online tucked away inside the Swiss mountain range---some very important news slips out of the Cayman Islands.

 

It is a press release from the Cayman Islands. Enron SEC filings indicate that there are approximately 700 Enron subsidiaries in the Cayman Islands. This is a huge number of subsidiaries for a company to have---in one of the great offshore money havens of the world. The government of the Cayman Islands says, in this press release, that it would be delighted to cooperate with U.S. investigators and prosecutors on an investigation of Enron, but as of this date they have not yet received a request for assistance From everything I can see, there has been no effort to assert control of the data about the money because there was no effort to identify and recapture stolen or fraudulently made company money. Never believe someone who says we need to take action to make sure that this does not happen again. The only way it will not happen again is if you get the money back this time. Remember, it's all about the cash. Crime that pays is crime that continues.

Graphic: J. Ward

DA: While in the instance of Hamilton Securities, here is a company doing something good for people, saving taxpayers money, whose work results in the agency effort winning Vice-President Gore's Hammer Award for re-engineering government, and the rug got pulled out from under you. What do they say, "No good deed goes unpunished.'' For white-collar crime, it seems more like no bad deed goes without its reward.

 

CAF: Ouch! The sixth step in a competent investigation is you assert control of all the insider trading and personal cash where probable fraud exists, both onshore and offshore. Enforcement officials can also assert control of all the capital gains that were made on insider trading or probable insider trading. You do not need to have proof of fraud or an indictment or conviction to assert control over those stock market profits made by the Enron board and management and their affiliates or partners participating in insider trading fraud with them. You can freeze or seize the personal assets of current and former Enron employees and auditors and any other parties implicated in potential fraud. The DOJ communicated openly that they had the right to seize personal assets of Hamilton management, board members, and agents as a result of possible company fraud. Based on Enron confessions, it is hard to understand why there have been no seizures of the insider trading profits and personal assets of a number of key Enron management and board members as well as, potentially, its auditors and private attorneys. The idea that Ken Lay was paid $50 million a year to be oblivious to what was going on and that he sold over $100 million in stocks just at the right time and should be allowed to keep all this money because he is a good guy is financial, ethical and legal insanity. It is, however, a perfectly rational decision if the goal is to protect the syndicate's winnings, key government officials, and operations that facilitated the fraud.

 

DA: The government has frozen $23 million from the personal assets of Michael Kopper and Andrew Fastow. ¹⁰ This is something. Or would you contend these are just the little guys taking the rap?

CAF: The management are all little guys. I'll say it again, the big guys are the guys who have the cash that was laundered through Enron, stolen/liquidated out of Enron, or made in pumping and dumping Enron's stock. The big guys are the "street,'' the syndicate players. Harvard Endowment appears to be a candidate for investigation in this respect. Which leads us back to Mr. Winokur. He was a member of the Harvard Corporation which runs both the university and Harvard's $18 billion endowment---one of the largest investors in the U.S. Winokur resigned from Harvard Corporation on April 5th, due to pressure from the stu- dent group "Harvard Watch'' for his connection to the Enron dealings. ¹¹ Coincidently, two days later, Robert Rubin, Clinton's Treasury Secretary and now on the board of Citigroup, was selected to fill the gap on Harvard Corporation's board. ¹² And recall that is was Rubin who placed a call to the Treasury to make a modest inquiry if anything could be done to save Enron. Just another courtesy among "friends,'' you might say.

DA: According to "Harvard Watch,'' Highfields Capital, the investment firm that manages part of Harvard's endowment, sold 3.5 million Enron put options for an estimated $120 million profit. ¹³ And that was after the Harvard Business School wrote five studies praising Enron's business model in the two years prior to the collapse. ¹⁴ More courtesy within the network?

 

CAF: Pump then dump. That is the way it works. During the S&L crisis, an investor would make money selling assets to a developer at 2 to100 times market value financed by an S&L. Then they would buy the assets back at 10 cents on the dollar after the crash. So they made money on the "pump'' and then money on the "dump''. Meantime, if the feds needed a fall guy, they would have DOJ and the SEC go after the developer or the S&L CEO. The reality was that the bank regulators would never had allowed such things to go on if the investor and their investment syndicate had not been rigging the right laws and regulations and pushing regulator "indifference'' or "incompetence'' throughout. The developers and S&L CEO's and management were the small time fraudsters or patsies. It was the quiet guys who made the big money behind the scenes who were the real bad guys. They got away scot free.

As far as I'm concerned that is why Enron happened. The folks who made money on Iran-Contra were able to rise to and consolidate control of the investment community, media, and government. Unfortunately, part of the reason this happens is that honest government enforcement career staff is put in the position of landing on Normandy Beach with water pistols. As an example, the SEC during the last administration, fought vigorously against the "street'' on any number of accounting issues, and any number of "new financial structures'' that obfuscated financial transactions. The under-funding of these efforts and the lack of serious political support play a significant part in allowing these kinds of fraud to happen.

DA: You link the S&L crisis with Iran-Contra. Are you saying it's the same network of people---or using that word again, the same syndicate that perpetrated Iran-Contra also perpetrated the S&L meltdown?

CAF: Go back to the books and articles I mentioned earlier. The S&L Crisis was simply part of Iran-Contra--- an intentional systemic fraud. Our banking governance and regulatory structure did not work for a reason. The people in charge did not want them to---everyone involved made a lot of money, both in ripping off the S&L's or HUD or the banks. Then they made money buying up the assets cheap after the crash. It was a pump and dump of the real estate market, with the S&L's as the primary financial patsy that had to be refinanced out by the taxpayers. Very few got held responsible. The message was "crime pays.'' Both the Clinton and Bush groups were Iran-Contra winners.

DA: Clinton too? Is that why Clinton never brought up Iran-Contra during the 1992 election?

CAF: Can you spell Mena, Arkansas?

DA: I'm sorry, Catherine, I just don't want to believe this.

CAF: No one does. That's how they got away with it. The seventh step in a legitimate investigation is you cancel federal government contracts, particularly sensitive ones, and seize payables and any other assets available where criminal behavior at the top of the organization indicates that the organization is a criminal enterprise. So I would ask: If Enron and Arthur Andersen by their own admission are guilty of criminal violations of destroying evidence, of cooking the books, and you have Enron board members saying that Arthur Andersen and the management lied, then on what basis should they not be immediately disbarred from doing business with the federal government?

DA: On March 15th of this year, the General Services Administration did prohibit new contracts with Enron for twelve months and with Arthur Andersen for the duration of the present indictment. ¹⁵

CAF: Almost four months after Enron declared bankruptcy. Those contracts could have been cancelled with- in the space of 24

hours---as soon as there was any evidence of wrongdoing. And cash that was owed under those contracts could also have been seized as an offset for a variety of things, whenever probable fraud is evident. Why should Enron be rewarded with government contracts after causing the fraudulent energy billing of Americans in the billions. Would you continue to hire and use a person or company who has just stolen your money? Of course not. It is interesting to note that Arthur Andersen spin-off Accenture has been hired by the Pentagon through IBM to sort out the defense department's missing trillions.

Graphic: J. Ward

DA: While, in the case of Hamilton, you experienced the Clinton Administration DOJ acting to this very purpose---canceling contracts and seizing monies. In fact, HUD still owes you somewhere between two and three million dollars for work completed on contracts you had with them. CAF: The Hamilton case proves indisputably that when there is a will, federal investigators can quickly and aggressively assert control over records of an investigative target. They can do so even when their own investigators take the position that there was no wrongdoing. They can do so when they have strong assurances as to subpoena compliance and protection of documents, and they know that their combined actions will shut down the company, smear the reputations of its founders, management, and investors and cause employees to lose their jobs and the value of their company stock.

DA: But the DOJ dropped their investigation of Hamilton, and you were proven innocent of the allegations made by Ervin & Associates. How in the world did you win your battle?

CAF: There were many reasons. I think the principle reason was the extraordinary support of literally hundreds of decent men and women throughout government and among the many people who had worked with me and the people who stayed on to help. This group tried to do the right thing or to support us in whatever ways they could---as did my family and friends. We did not have the support of the rich and powerful, but we had the support of the "little people.'' When the little people work together, we are far more powerful than we know. As the support of the "little people'' allowed the truth to come out, numerous former colleagues and associates returned to support after they realized that very prestigious and powerful sources had misled or lied to them. There is an old saying, "truth comes together and lies fall apart.'' That is what happened. The full story of our success is a story of miracles, big and small. I believe that our freedom comes to us from divine authority, and my story provides a concrete example. One of the miracles was that our attorneys included a few fighting Irishmen who stuck with it when the going got tough.

DA: Are you still hounded by the DOJ?

CAF: Managing the liquidation of Hamilton remains a full time job.

DA: What do you mean?

CAF: The DOJ has not moved to dismiss the qui tam against us, nor, as you mentioned, have we been paid monies owed Hamilton. We are in litigation between Hamilton, DOJ and Ervin & Associates with two cases in disco very now and scheduled for trial next September and one case not yet scheduled despite years of effort. I think the absence of any DOJ action to pay us versus generous settlements and sole source contracts unnecessarily awarded to Ervin speak for themselves. I anticipate I will spend years in litigation defending Hamilton against Ervin and holding both Ervin & Associates and John Ervin personally accountable and collecting monies owed by the government to Hamilton over DOJ's opposition. My estimate is that the federal enforcement establishment may have spent more to target me over the last six years in this litigation then they spent to get Bin Laden before September 11th. The fact that they have provided generous inside deals to Ervin who helped drive honest people out of government and ensure that billions were lost by government is particularly disturbing.

DA: What does this mean to you? That is, compare the treatment you received and the treatment presently being given to Enron? CAF: Congress did all this screaming and ranting and raving that really makes it seem like they are doing something significant. Now what's happening? I'm sitting there, watching this unfold---then nothing. As far as I'm concerned, it's "deja vu all over again.'' They are covering Enron up, exactly the way they covered up the S&L stuff, which was a very similar situation. It was a bunch of guys from Houston and New York Fed member banks and Wall Street who got together and stole a couple of hundred billion dollars. It is the same private syndicate---so here we go again---and Congress is playing the same cover-up game, again. So, basically, the comparison becomes an out and out contradiction of values. Hamilton was wrongly accused and its assets were destroyed. Enron is getting kid-glove treatment, while the stolen money is getting away.

DA: Okay, Catherine, you've laid out your argument. You've seen this from the inside. You've seen this from the outside. At the very least, the congressional investigation has been lax, inefficient, and disturbingly slow. Mistakes and omission have occurred. But you keep calling it a cover-up. You've said Enron management provided the fall guys and that the big winners are really outside the company, the second and third party Enron investors and banks that were able to get huge sums of money out before the collapse. These are the real inside traders. You've also mentioned Enron and the S&L crisis in the same breath as though Enron was to some extent an intentional play from the outside---not just endemic greed in a few members of Enron management. You've even suggested that some of the same players were involved across the span of the S&L fraud, BCCI/Iran-Contra, and Enron. I struggle here. I think most of us want to reject this idea of systemic syndicated crime---especially at the level you're talking. But you are one of the few people in the entire world, who has seen all of this up close as an inside investigator. Now, it could be said, that because of what the DOJ and HUD did to you, you're just slinging mud at the U.S. government and certain HUD contractors. From talking to you many times over several months, I have to say, however, I don't get that feeling from you at all. This is simply my opinion. In the end, I don't like what you're telling me, but your argument is compelling. So let's have it. You mentioned a "bunch of guys from Houston and the New York Fed and Wall Street.'' Clarify this as best you can. Who or what's at the bottom of Enron? In your opinion, what is the Real Deal?

CAF: My recommendation is to start by studying Herbert "Pug'' Winokur, who, I mentioned earlier, chaired the finance committee of Enron's board. He is the top guy responsible on the board to know how the money works and to make sure it is working in the way that it is supposed to. Pug was a member of the Powers investigation, the committee set up to investigate the financial operation that Pug himself oversaw.

He was a board member of Harvard, overseeing the Harvard Endowment that invested heavily in Enron, as well as a co- investor active with Harvard. He is also on the board as the former Chairman, lead outside investor and cur- rent Chairman of the Compensation Committee of DynCorp. It is important to ask the question as to why our congressman and senators, when they have had Winokur in front of them and he was saying yah-yah, they let him get away with it?

DA: I heard your comments on Winokur in your interview with KPFA's Dennis Bernstein. The DynCorp connection is big. With DynCorp providing information via PROMIS to the DOJ---including the US Attorney's offices, the FBI, and the SEC, Winokur, presumably, has access to huge amounts of information, including banking records and e-mail, for all the members of Congress. The suggestion here is he's the twenty-first century J. Edgar Hoover. Everyone is afraid of him.