Senator warns Enron ‘may face prosecution’

Two members of Congress today said Enron could face prosecution after claiming the company manufactured income out of its off-the-books partnership deals that led to financial disaster.

‘‘We’re finding what may clearly be securities fraud,’’ said House Energy and Commerce Committee Chairman Billy Tauzin.

Senator Byron Dorgan said that in a failed deal for Blockbuster Video, an Enron partnership named Braveheart borrowed $110m (€127.7m) from a Canadian bank and the company booked the money as income.

‘‘They were doing almost no business, but they manufacture income from a bank loan,’’ said Dorgan. ‘‘That’s the kind of thing that went on over and over and over again. We want to know what Ken Lay knew.’’

Dorgan, a Democrat, was presiding at a Senate Commerce Committee hearing tomorrow at which Mr Lay, Enron’s former chairman, was to testify.

Tauzin said former chief executive Jeff Skilling backed away from signing his name to off-the-books partnership deals.

‘‘What does that say about his knowledge of whether these deals were honest or corrupt?’’ asked Tauzin, a Republican.

The energy trading giant slid into the biggest bankruptcy in US history on December 2.

The company, once the country’s seventh largest, and its accounting practices are under investigation for possible criminal violations by the Justice Department.

A web of complex partnerships kept some $500m (€580.6m) in debt off the company’s balance sheet, hidden from investors and federal securities regulators.

Tauzin described an instance in which Enron engaged in a less-than-arms-length transaction: An Enron employee and her boyfriend were negotiating an off-the-books partnership deal with each other.

‘‘They were really sweethearts; they ended up getting married,’’ said Tauzin. ‘‘When they signed the deals, they signed as married partners, one against the other.’’

Dorgan said the question of criminality is ‘‘a judgment for the US Justice Department’’ to make, but he said that ‘‘one billion US dollars in profit was booked here that didn’t exist. That’s trouble.’’

Dorgan said some executives at the top made millions of dollars while employees lost their savings and shareholders lost their shirts.