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NORTH COAST TIMES E A G L E , APRIUMA Y 2003
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 invest
ment 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 experi
ence and straight-ahead common sense. She minces no words
bringing transparency to the (now more than a 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," she says. And as the following interview will attest,
she has seen enough in her time to lay out a pretty convincing
case.
THE 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 Corpo
ration (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 mort
gage 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
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 dove
tailed into the S&L work. After I left HUD, I became a member
of Carteret Savings & Loan to help some old partners with more
S&L cleanup. Since my days at Dillon Read, I had a reputation
for successfully reengineering financial situations that others
thought were hopeless.
DA: Beginning in 1996, your company Hamilton Securi
ties, 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 other conflicts of interests.
No basis was found to support any of those allegations by their
investigators in 1996, then again in 1997, and finally a year ago
they dropped all investigations. Those allegations against Hamil
ton are similar to those filed against Enron Corporation. So not
only have you been part of the cleanup 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 firsthand knowledge of what goes on in government
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, 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 manage
ment 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 last
year. Is that what you meant by additional financial fraud?
CAF: This is just the narrowest edge of what I was
suggesting I will expand upon that as we go along. When there
is a possibility of any of these kinds of crimes, 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 eye 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 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 supoena 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
shreddings of documents by Arthur Andersen and Enron, some-
*David Horsey, editorial cartoonist for the Seattle Post
Intelligencer, has been awarded a Pulitzer Prize for 2003
He was awarded his first Pulitzer in 1999
YEH LM LtMXNG TUE WILLINGLY BLM
DAVID HORSEY-
thing that is incredibly disturbing because it proves that months
into the investigation, the SEC and DOJ chose not to assert the
initial control that was essential to the success of any invest
igation.
DA: 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 Securities’ case DOJ and their informant were respon
sible 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 documented there was no need. In Enron's
case, the DOJ politely skipped over all 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 Union Bank of Switzerland (UBS), one of Enron’s largest
creditors. So now it's very possible that a great deal of inform
ation 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 been mentioned in the Enron web, were also part of
the holding process for Enron Online that took place in January
2002.
CAF: Yes, one would expect that. Like UBS, they
were major Enron creditors. But what's interesting, and perhaps
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 CEO at
Unisys since 1997. Prior to that he spent nine years as manag
ing partner and chief executive for Andersen Worldwide — which
includes Arthur Andersen where Weinbach began his career in
1961 UBS announced Weinbach as chairman of their Audit
Committee Board on February 22, 2002. UBS bought Enron's
North American wholesale electricity and natural gas trading
business on January 18, 2002. 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 to 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’ve been told by bankruptcy
UNIONTOWN
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: SoJhe government allowed the transfer of assets in
a way that may prevent access to the documents and personal
necessity for a successful investigation and recapture of stolen
moneys. 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 Securities did not
shred documents and provided redundant copies of records and
backup computer tapes to counsel who provided assurances to
the federal government that no originals would be destroyed.
The documents sequestered by Hamilton Securities included
records of all subsidiary entities.
DA: In these first two steps, controlling records and
assets, above and beyond collecting Arthur Andersen’s docu
mentation, 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 manip
ulated records to hide a $125 million Enron debt to Citigroup.
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 the Senate
Government Affairs Committee on July 23, 2002. 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 façade 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 13, 2002 a federal judge dismissed
Morgan-Chase claims against its insurers, perhaps preventing
the bank from collecting $935 million in losses on gas and oil
trades with Enron 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
doubletalk 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 from that 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 December 2,
2001
CAF: 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
keep them going, and long after the 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 itself, 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
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