The Enron affair exploded around the Bush Presidency last night, as his administration's top legal officer was forced to remove himself from the newly launched criminal investigation and the accounting firm that audited the failed energy giant's books admitted it had destroyed thousands of documents relating to the case.
Yesterday, the White House shifted into full scandal defence mode. Mr Bush intervened in the affair directly for the first time, ordering the Treasury Department to review federal pension regulations. He also denied he had ever discussed the company's difficulties with Kenneth Lay, Enron's chairman and a long time friend and benefactor of the President.
An especially shocking aspect of the Enron débacle has been the way in which senior executives were able to cash in up to $1bn (£700m) of Enron stock and options in the 18 months before the company began to unravel last autumn while many employees, obliged to hold stock in pensions schemes, saw retirement funds virtually wiped out.
Already, civil suits have been filed against 29 Enron directors and senior executives, charging they sold shares while knowing the company was in dire trouble. The Justice Department investigation will examine whether Enron, in the last few years, was no more than a giant fraud.
It was disclosure of unreported debts shielded by secret partnerships run by senior Enron executives, and its October admission that it had overstated its profits by $586m in the previous four years that created the crisis of investor confidence that drove Enron into bankruptcy at the start of December. In the process, what was once the seventh-largest US corporation saw its shares plunge from $85 to under $1 apiece, in the largest corporate collapse in US financial history.
Last night, Arthur Andersen, Enron's accountants stunned the US financial community by revealing its employees had destroyed a "significant" number of paper and electronic documents relating to its audit had been destroyed. The Securities and Exchange Commission, Wall Street's top regulatory body, described the admission as an "extremely serious matter".
In a separate embarrassment for Mr Bush, Attorney General John Ashcroft, head of the Justice Department and thus the country's top law enforcement official, announced he would have no involvement in the investigation. Mr Ashcroft reportedly accepted up to $60,000 to help his failed 2000 Senate campaign.
In the short term, the probe could take some of the sting out of the Congressional hearings due to start next month into the collapse. Scheduled witnesses, including Mr Lay and other senior executives, are likely to be the object of the federal investigation and under threat of criminal indictment, they may be able to say little to interrogators on Capitol Hill.
Even so, the once-close relationship between Mr Lay and the President will come under ever-fiercer scrutiny. Denying he had ever discussed Enron's finances with Mr Lay, Mr Bush said had not seen him since last May. He expressed "great concern" for the people who had entrusted their money to Enron, and then "for whatever reason, based upon some rule or regulation, got trapped in this awful bankruptcy."
The real target for Democrats will be the large political donations Enron made to the Republican party, including more than $100,000 to Mr Bush's election campaign, and a similar contribution to the 2001 inauguration gala.Reuse content