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posted by Preston Peet
[EMAIL PROTECTED]
http://www.nytimes.com/2002/03/07/business/07ENRO.html?todaysheadlines
March 7, 2002
Army Official Kept Options on Enron Stock Until January
By ALEX BERENSON
Thomas E. White, a former top executive of the Enron Corporation
(news/quote), promised to give up any financial interest in Enron when he
became secretary of the Army, but held options to buy 665,000 shares until
early this year.
After he became secretary in May last year, Mr. White provided only
fragmentary disclosures about his stock options to Army ethics officials,
according to letters released yesterday by the Senate Armed Services
Committee. He sought and received an extension to dispose of his stock. But
even after he sold 380,000 Enron shares for more than $10 million, he
continued to hold the options, without the approval of ethics officials, the
letters show.
Options give their holder the right but not the obligation to buy a share of
stock at a specific price. As the price of the stock increases, the options
become more valuable. Enron's stock declined steadily last year until the
company filed for bankruptcy protection in early December.
Mr. White forfeited his options on Jan. 17, the letters show, after a
discussion between the Army's general counsel and staff members for the
Armed Services Committee. Because Mr. White did not disclose the prices at
which the options could be converted into shares, their value last year is
unknown, though they were certainly worthless by the time they were
forfeited.
In a letter to Mr. White dated March 1, the chairman and the ranking
Republican member of the Armed Services Committee said that he had failed to
carry out his ethics agreement. "We do not believe that your actions
satisfied the requirements of this committee," wrote the chairman, Senator
Carl Levin, Democrat of Michigan, and the ranking Republican, Senator John
W. Warner of Virginia.
Mr. Levin and Mr. Warner criticized Mr. White's handling of the options, as
well as a $688 a month annuity Mr. White received from Enron in exchange for
turning in stock he had held in a retirement plan.
Last month, the Office of Government Ethics, which reviewed Mr. White's
actions, said the "spirit of the ethics agreement" that Mr. White signed
required him to "sever all ties with Enron."
The office did not take a position on whether Mr. White's decision to hold
665,342 stock options in Enron violated that spirit. It noted that Mr. White
had said he had recused himself as secretary from any decision that might
affect Enron.
So far, Mr. White has largely escaped unscathed from Enron, where he earned
millions of dollars from 1998 through 2001 as vice chairman of Enron Energy
Services, which sold power to big companies.
Former employees of Enron Energy Services have said that the unit used
various accounting methods to inflate its results during Mr. White's tenure.
In 2000, the division said it was profitable but actually lost hundreds of
millions of dollars, the former employees said.
Mr. White has not responded to detailed questions about his role at Enron,
or what he knew about the accounting methods of the division he helped run.
In an interview in late January, he denied any wrongdoing and said he
thought Enron's accounting practices were proper.
Yesterday, Mr. White did not respond to questions by e-mail message about
his options holdings.
Through their press secretaries, Mr. Levin and Mr. Warner declined to
comment on Mr. White's actions, referring instead to their March 1 letter.
The Armed Services Committee will probably not hold hearings into Mr.
White's conduct, one Congressional staff member said, who added that Mr.
White's behavior does not seem to have generated a "critical mass" of
opposition.
On May 4, after being nominated to become Army secretary, Mr. White signed
an ethics agreement promising to sell his shares in Enron, as well as his
options and his stakes in several Enron retirement plans, within 90 days of
joining the government. He also promised to sell his holdings in other
companies, mainly technology companies, doing business with the Army.
On May 24, Mr. White became secretary, and within weeks, he began selling
Enron stock. He took no action on his options, which were potentially
valuable. To gauge the value of options, information is needed about when
they expire as well as the prices at which they can be exercised.
If Enron's stock was trading above the exercise price, Mr. White could have
immediately exercised the options and sold the shares, pocketing the
difference. For example, if Enron's stock was trading at $50, and the
options had an exercise price of $40, each of the options would be worth
$10.
Even if Enron's stock was trading below the exercise price, the options gave
Mr. White a way to profit if Enron's stock rose.
On Aug. 9, Mr. White asked the Senate committee in writing for four months
to shed his various holdings, including his Enron shares and two partnership
stakes he held that might take time to liquidate. He did not mention his
Enron options in that letter, but he did include a memorandum to the Army's
ethics office where he mentioned in passing that he planned to hold the
options until after he had received payments from the partnerships.
Mr. White did not explain in his memo why he needed to hold the options
indefinitely or whether they had any relationship to the partnerships, which
apparently had nothing to do with his Enron holdings. He did not respond to
questions about these issues yesterday.
Four days after Mr. White's letter, the Senate committee turned down his
request for a four-month extension but granted him an additional 90 days.
The committee also requested that Mr. White "let us know when your
divestiture had been completed."
On Oct. 23, Mr. White requested another 90-day extension from the Senate.
Again, he said the need for the delay was related to complications with his
partnership interests. He did not mention the options this time.
The committee never granted that request, and Mr. White continued selling
his Enron stock, disposing of his final shares by Oct. 30. He continued to
hold his options until Jan. 17.
At that point, the Army general counsel told the committee's staff about the
options, as well as the monthly payment that Mr. White had been receiving
from Enron.
Mr. White immediately wrote Enron to forfeit the options. By then, Enron had
filed for bankruptcy protection, and its stock was trading for pennies a
share with little prospect of recovery, so the options were essentially
worthless.
Yesterday, Mr. White wrote Mr. Levin and Mr. Warner, thanking them for
accommodating the delays he faced in disposing of his partnership holdings
and promising once again to comply with the ethics agreement.
"I appreciate the assistance of the committee," he wrote. "In the meantime,
I am proud to be serving the dedicated men and women of the United States
Army."
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