[Congressional Record Volume 148, Number 6 (Monday, February 4, 2002)]
[Senate]
[Pages S262-S263]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           ENRON CORPORATION

  Mr. NELSON of Florida. Madam President, I am a member of the Commerce 
Committee and we were looking forward to the opportunity of questioning 
the immediate past CEO of the Enron Corporation today. Unfortunately, 
he did not appear before the committee as had been expected, and I did 
not have the chance to pose some questions to him.
  Specifically, I would have asked about the public institutional 
investors, like State pension funds, whose retirement funds around this 
country lost so much money because of their investments in Enron stock. 
There are more than 20 pension funds--and in the Chair's home State of 
California there were some 4 or 5 pension funds, not only from cities 
such as San Francisco, but likewise one of the more major statewide 
pension funds of California which was the pension fund that was second 
most in losses as a result of having purchased Enron stock. The 
specific amount for one California pension fund--and it was just one of 
about five--was about $145 million.
  Far exceeding that was the $335 million that was lost as a result of 
the Florida public retirement system holding Enron stock and finally 
selling it for 28 cents a share.
  One could wonder, what does this have to do with all of the rumors 
and rumors of rumors of what was going on? It has to do this: Why would 
an outside money manager named Alliance Capital Management Company, 
previously associated with an Enron Corporation board member, purchase 
almost 3 million shares of Enron stock after October 22, which was the 
date that the Securities and Exchange Commission announced its 
investigation?
  In addition, the company announced on October 17 a loss of $1.2 
billion. As a matter of fact, in a short period of time, just a little 
over 3 weeks, the stock value of Enron dropped from $32 a share to a 
month later at $9 a share.
  On October 22 when the Securities and Exchange Commission announced 
that it was going to start its investigation, the stock value started 
plummeting, and still this money manager continued to buy Enron. Money 
managers for the Florida pension fund are selected by the State Board 
of Administration of Florida, which is the board that runs the Florida 
retirement system. This money manager purchased almost 3 million shares 
of Enron stock for the Florida Board of Administration--starting at $32 
and dropping all the way to $9 per share. Two weeks later when it 
became apparent that Enron had gone bust, the Florida retirement system 
sold its shares for 28 cents a share; thus, losing this humongous 
amount of over $300 million.
  What seems to me to be interesting, and the question that I wanted to 
ask of the immediate past CEO of Enron is: Was there ever any 
direction, was there any evidence of any direction, was there any 
information of direction from Enron to public pension funds throughout 
the country, like the Florida retirement system, to purchase the stock. 
The stock was falling and I wanted to ask if public pension funds were 
asked to purchase Enron in order to prop up the value of the shares. I 
wanted to ask if Enron thought that public pension funds could help 
stabilize the value of the stock so company loans that were supported 
by collateral of Enron shares would not be called on for repayment by 
the company.
  What was the motivation that would suddenly cause an institutional 
investor like a pension fund, known for professionalism, and 
conservative handling of investments--and when each of the three 
trustees are sworn under a fiduciary duty to protect the assets of the 
retirement fund--why would purchases of almost 3 million shares of 
Enron stock be made within a 3-week period, when the price of the stock 
is dropping like a rock? I would hope that a public pension fund would 
purchase mostly solid investments, at very low risk, instead of very 
risky investments.

  Had I been at the Commerce Committee, that is the question I would 
have asked. Today I have tried to communicate what I would have asked, 
and I thank the Chair for the privilege of sharing this information 
with the Senate.
  I take this opportunity to comment and illustrate what I wanted to 
ask the former CEO of Enron by showing a chart, which dramatically 
illustrates the fact of how the Florida retirement fund purchased 
shares of Enron stock even while the stock price was dropping like a 
rock. As mentioned previously, stock prices were $32 on October 17 when 
Enron announced it had over $1 billion in losses. On October 22, 5 days 
later, the stock is just below $25 when the Securities and Exchange 
Commission announces an investigation of Enron.
  Lo and behold, at this point, on the day of the announcement of an 
investigation by the SEC, an outside money manager for the Florida 
retirement system--which I point out again, is supposed to protect the 
retirement system's assets for the future and present retirees. 
Florida's public pension plan is fully funded and guaranteed, not by 
the shareholders, but by the taxpayers of the State of Florida. We can 
see from October 22 to November 16 what happened to the value of the 
stock. In the period of only a little more than 3 weeks, one of 
Florida's outside money managers, Alliance Capital Management, 
purchased shares at $22 each, and continued purchasing until the end of 
November, the money manager purchased shares at $9 each. The chart 
illustrates that the stock dropped precipitously in that 3-week period 
in what is supposed to be one of the most conservative of investment 
portfolios to protect the security of the state and local workers in 
Florida.
  And finally the money manager sold all of the shares for Florida on 
November 30 at 28 cents a share, with a $335 million loss in the 
portfolio for Florida state and local workers and retirees. Other 
public pension funds suffered losses, more than $1 billion overall; 
however, the biggest loss of $335 million occurred in Florida.
  Within this short period of 3 weeks, the purchase of almost 3 million 
shares after all of this information about the difficulties of the 
company had been made public, the question is: Why?
  If any evidence is ever found that in fact there was some direction 
for outside money managers like this one for Florida--who, by the way, 
this outside money manager included a principal executive back last 
summer who still sits on the Enron board--what was the motivation here? 
Did they think this was a good stock buy, as they have said? Or was 
there a motivation that somebody was whispering in their ear, telling 
them to buy as the stock was getting into trouble? We need further 
exploration and a through review of Enron's relationships with 
institutional investors.

[[Page S263]]

  It is a dramatic story, that additional shares were purchased as 
disturbing information starts to come out about the company: 302,000 
shares purchased on October 22; 125,000 shares purchased on October 25; 
374,000 shares purchased on October 29; 318,000 shares purchased on 
October 30.
  On November 8, Enron admits it has overstated profits by $568 
million. On November 13, lo and behold, the Florida pension fund buys 
another 582,000 shares, just 5 days after Enron admitted publicly that 
it had overstated its profits by $568 million.
  Then, on November 14, the Florida pension fund buys another 479,000 
shares. How did this happen? On November 16, the Florida pension fund 
buys another 210,000 shares. And, sadly, on November 30 the Florida 
pension fund sells 7.5 million shares at 28 cents a share, thus 
incurring the $355 million loss.

  I know a little bit about this because in my previous life as the 
elected State Treasurer of Florida, I sat on that pension board. The 
three-member board of trustees called the State Board of 
Administration, includes the Governor, the Treasurer, and the 
Comptroller. The board typically does not involve themselves in the 
day-to-day activities of the buying and selling. Far from it, in the 
past, the board--when I was there, we would not touch that with a 10-
foot pole. That was left to the professional money managers.
  But policy was set by the board. One of the most interesting times on 
the board that I had was as the swing vote to determine whether or not 
the Florida retirement system would sell--get rid of--its portfolio of 
tobacco stocks. Clearly, I knew what I wanted to do because I thought 
that it made good social policy to get rid of tobacco stocks. But I had 
a higher duty as a trustee of the State Board of Administration. I had 
a duty, a fiduciary duty to the retirees and future retirees, to the 
economic sanctity of the retirement fund. The threshold was very high 
on what we should and should not do in setting policy. So, too, what 
the professional, full-time managers should and should not do with 
regard to the purchase and sale of assets, including stock: a fiduciary 
duty for only the best, the most safe, and the least risky kind of 
investments. Why? Because we were trustees for all of the state 
retirees and future retirees of Florida.
  As a former Florida State Treasurer, I want to express my concern 
openly in the Senate. Clearly when I see activity such as this, where 
almost 3 million shares are purchased within a 3-week period while the 
value of the stock is dropping. After the last purchase on November 16, 
only 2 weeks later the entire portfolio of 7.5 million shares are sold 
for only 28 cents a share. Why did this happen?
  Had the former CEO of Enron appeared in front of the Commerce 
Committee today I would have asked him that question. I would have 
asked him if he had no direct knowledge, then who would? Who would have 
made those choices, and why one of his board members, Mr. Frank Savage, 
who used to be one of the managers of Alliance Capital Management--why, 
even though at the time of this purchase in October and November he was 
not one of the managers--why would such purchases of a risky investment 
that turned out to be so costly, why would that investment have been 
made? Had I had the opportunity today in the Commerce Committee, that 
is what I would have asked. Rhetorically, to the Senate, I ask some of 
these questions. And as we get into the investigation of this Enron 
debacle, these questions must be answered.
  Thank you for the opportunity to speak to the Senate. I yield the 
floor.
  The PRESIDING OFFICER. The Senator from California is recognized.
  Mrs. FEINSTEIN. Madam President, I thank the distinguished Senator 
from Florida for his comments. The largest retirement pension system in 
the United States is in the State of California.
  Those systems have had very significant losses. I think his comments 
are very well designed and should be taken as a major indicator of 
fault and problems. I am sure when the hearings are held that as a 
member of the Commerce Committee, the Senator will have the good 
opportunity to point this out very clearly.

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