The New York Times reports Friday that “A report by the staff of a Senate panel has concluded that Robert E. Rubin, chairman of Citigroup’s executive committee (one of Enron’s largest creditors), “did not act contrary to law” in the weeks before Enron collapsed by suggesting to the undersecretary of the Treasury that he urge major credit-rating agencies to delay issuing a downgrade of Enron.
Citigroup stood to lose more than $1 billion that it had lent to Enron if its credit rating was downgraded and the company subsequently collapsed. Mr. Rubin had been asked to make the call by the head of Citigroup’s investment banking unit at the time, Michael A. Carpenter, according to the staff report by the Senate Governmental Affairs Committee.
Obviously, this “staff report” was leaked to the New York Times in advance of its general release Friday, meaning it was either leaked by Senator Joe Lieberman’s staff on the Committee on Governmental Affairs, or Senator Carl Levin’s staff on the Permanent Subcommittee on Investigations. And the purpose, of course, was to spin the story as best as possible by giving it to a Democrat-friendly newspaper in hopes of preempting charges of cover-up by both Lieberman and Levin in their treatment of former Clinton Treasury Secretary Robert Rubin, a darling of Democrats.
However, to his credit, Times reporter Richard A. Oppel Jr. does a pretty good job of straight reporting. He writes, in relevant part:
According to the Senate report, officials at Moody’s Investors Service — one of the major credit-rating agencies — decided the night of Nov. 7, 2001, to downgrade Enron’s rating, putting it below investment grade. Within hours, Enron and officials at Citigroup and J. P. Morgan Chase — which had also lent the company large sums — started an aggressive campaign to forestall the downgrade.
By 9 a.m. the next day, two top officials of J. P. Morgan — its chief executive, William B. Harrison Jr., and its vice chairman, James B. Lee — had called a senior Moody’s official, Debra Perry. Ms. Perry later told staff members on the Senate committee that ‘she had never been contacted by such high-level bank officials’ about a rating on a company. J. P. Morgan and Citigroup officials met with Moody’s officials for three hours that afternoon. After lenders agreed to provide additional financing and changes were secured in terms of a proposed acquisition of Enron by Dynergy Inc., Moody’s officials agreed that night to lower Enron’s rating but to keep it above investment grade.
At 2:30 that afternoon, Mr. Fisher returned a message from Mr. Rubin. According to Mr. Rubin, the report says, he first told Mr. Fisher that the suggestion he was about to make was “probably a bad idea.” Then he stated that a downgrade of Enron might “wreak havoc in the markets.” He “then asked Fisher what he thought” of calling the credit-rating agencies and asking them to delay downgrading Enron while lenders decided whether to lend more money to the proposed Enron-Dynegy merger.
Mr. Fisher refused, and, according to the Senate report, “Rubin replied that he thought that was probably the right decision.” According to Mr. Fisher, the report says, Mr. Rubin also mentioned that a “nonpublic equity investor” was involved in discussions about Enron.
And here’s the kicker. Oppel reports that “[i]nterviewed by Senate staff members, Mr. Rubin said the phone call to Mr. Fisher was ‘not only proper, but I would do it again,’ and that the effect Enron’s collapse would have on energy markets was worth bringing to the attention of Treasury officials. Asked whether government officials should intervene in a ratings action, Mr. Rubin told staff members that ‘he had not given the matter a great deal of thought.’”
Despite all the noise Democrats like Lieberman and Levin made about Enron, and their efforts to tie the company’s corruption and bankruptcy to the president, vice president, and the Republican party, Rubin was the only major political figure who sought to use his influence to conceal the true financial status of Enron. And he did so not out of concern for energy markets, as he apparently told Senate staffers, but in response to a request by Carpenter, the head of Citigroup’s investment-banking unit, who was concerned about a $1 billion loss should Enron’s true financial condition be accurately reflected in its public credit rating.
If Rubin had succeeded in persuading Fisher to intervene with Moody’s, an independent credit-rating company, Citigroup would have been able to minimize its losses by dumping its bad Enron credit on unwitting investors. Talk about insider trading!
Levin, who forced numerous others to testify publicly about their conduct — some of whom had far less information to offer than Rubin — refused to call Rubin because to do so would discredit the Democrat claim that Enron was a Republican scandal. Moreover, Rubin is a valued adviser to, and supporter of, numerous Democrats, including Senator Tom Daschle. The Democrats had no intention of allowing this scandal to reach Rubin.
In any event, the staff report’s conclusion — that Rubin’s sleazy actions, for which he arrogantly makes no apologies, did not violate any law — is not a decision congressional committees are empowered to make. The Securities and Exchange Commission and the Justice Department’s criminal division should take a close look at Rubin’s conduct and make their own legal determinations.