In late 1998, lawyers advised Enron Corp. board member Wendy L. Gramm that she faced a "material conflict of interest" if she owned stock in the company while her husband, Sen. Phil Gramm (R-Tex.), was introducing legislation affecting Enron.
"We concluded that Congress was going to debate electric power generation," Sen. Gramm said last week, "and both of us believed -- and especially I -- that it would be better if we didn't own any Enron stock. I was going to be the leader in the debate."
Gramm subsequently involved himself in bills affecting Enron, but the action taken in 1998 has not shielded him and his wife from charges that Enron used improper influence on politicians to push its agenda before it collapsed last year.
Barron's, the weekly financial newspaper, has branded the couple "Mr. and Mrs. Enron." The watchdog group Public Citizen suggested that the coming storm over Enron was a reason Gramm announced Sept. 4 that he would not seek reelection, a suggestion he dismisses. The Senate Governmental Affairs Committee, meanwhile, has subpoenaed records of Wendy Gramm, an Enron board member since 1993 and senior member of the Audit Committee that oversaw the company's financial reporting and internal controls.
Despite all that, an examination of Sen. Gramm's role in legislation affecting Enron reveals a more complex, ambiguous story, in which issues of spousal independence in a powerful marriage mingle with questions about possible conflicts of interest and money in politics.
Complicating the situation is the fact that Wendy Gramm, an expert on some of the financial issues in which her husband is also involved, has often made her views on policy known to agencies and officials, in her capacity as the paid director of regulatory affairs for a policy group at George Mason University. Since 1996, the Mercatus Center has received $50,000 from Enron and another $10,000 from a foundation set up by former Enron Chairman Kenneth L. Lay and his wife.
Wendy Gramm did not return phone calls seeking comment for this article. But her husband denied any improprieties. "Never has my wife tried to influence me on Enron," he said. "My wife has deeply held values, like I do. Anyone who knows her and her academic record knows that's the case. She's nobody's woman but her own."
Sen. Gramm, who has received nearly $100,000 in campaign contributions from Enron or its employees since 1989, according to the Center for Responsive Politics, has also denied knowledge of Enron's impending problems. He said this week that he and his wife "leave office business at the front door." when they go home.
Questions about the Gramms' connections to Enron have focused primarily on legislation in which Gramm was involved in 2000. His wife's Enron compensation that year included at least $78,000 in salary and fees, according to filings with the Securities and Exchange Commission.
In July 2000, Sens. Gramm and Charles E. Schumer (D-N.Y.) introduced a bill requiring states to institute competition in the sale of electricity to retail customers. Former Enron officials recall providing comments on the bill to Schumer's staff, but don't recall discussing it with Gramm.
The legislation also would have given the Federal Energy Regulatory Commission jurisdiction over most "bundled" electricity sales by utility companies, a top Enron goal. Enron attorneys were about to enter a court battle on the bundled sales issue that would go all the way to the Supreme Court.
Gramm, an ardent apostle of deregulation, compared the prevailing federal regulations to "the Pony Express instead of Federal Express," but the Schumer-Gramm electricity bill died in the Senate.
But another bill of vital importance to Enron's energy trading operations was signed by President Clinton on Dec. 28 that same year. Sen. Gramm had a major hand in that bill, which spelled out regulatory guidelines for the exploding new computerized market in over-the-counter "derivatives" -- complex financial instruments traded by banks, financial institutions, oil companies and energy traders.
Gramm said, however, that he entered the picture only after an agreement on energy issues important to Enron was reached. Far from expediting the legislation, Gramm said, he used his Senate prerogative to hold up passage while he worked to improve provisions affecting financial derivatives known as "swaps" and stock futures.
Outside lobbyists and Democrats who worked on the bill generally support his recollection. But for some, Wendy Gramm's position with Enron still left the appearance of a conflict.
Wendy Gramm was no stranger to the arcane world of derivatives, having chaired the Commodity Futures Trading Commission from 1988 to 1993.
A new class of products, called over-the-counter derivatives, was beginning to be traded by banks and businesses outside the regulated exchanges, and big oil companies created a forward market in crude oil to hedge their risks. But a 1990 court ruling in New York left uncertainty as to whether the energy products were, in fact, futures contracts falling under the CFTC.
In 1992, the Democratic Congress empowered the CFTC to clear up the confusion. Gramm led the drafting of rules exempting the energy products, which the commission approved a few days before she left office in January, 1993. In April, under the newly-installed Clinton administration, the a newly-consitituted CFTC made the regulations final.
Five weeks after leaving office, Gramm joined Enron's board.
The company, a major gas trading enterprise, had been part of the coalition of oil and energy companies lobbying at the CFTC for the clarifying rules. And when Congress reentered the debate over derivatives in the 1990s, Enron, which was pioneering the electricity market, was active again.
The main impetus, however, was from banks and financial institutions who wanted an ironclad regulatory exclusion for the vast new computerized, around-the-clock market in currency and interest-rate derivatives spawned by the Internet.
One of the key lobbyists was Mark Brickell, then a managing director of J.P. Morgan, which has since merged to become J.P. Morgan Chase, one of Enron's principal bankers and financial advisers. Brickell, who has helped raise campaign money for Sen. Gramm and knows Wendy Gramm well, said he often discussed the regulatory framework for financial derivatives with both Gramms separately. But he said he never recalls Sen. Gramm expressing interest in the energy provisions.
Under the 1993 rules drafted by Wendy Gramm, energy products had received a broad exemption from regulation, depending on the kind of trading that was going on, but CFTC reserved some jurisdiction.
But when Enron and the energy coalition pushed for an outright exclusion from regulations in 2000, they ran into opposition from the CFTC and some key members of Congress.
Sen. Gramm was exposed to the controversy at a June 21, 2000, Senate hearing at which CFTC Chairman William J. Rainer testified that "the case had not been made" for excluding the energy products.
But sources recall no direct involvement by Gramm during ensuing negotiations in Congress over energy derivatives. "The issues with respect to energy got done over the summer, and Gramm played no role," said Kenneth Raisler, a New York lawyer who represented the Energy Group.
Congressional officials do not recall Gramm attending meetings on the energy issue. On Aug. 25, 2000, the Senate Agriculture Committee, of which Gramm is not a member, passed a far-reaching derivatives bill containing compromise language on energy products. It spelled out CFTC's jurisdiction, but also gave energy trading operations, such as EnronOnline, broad latitude to conduct their businesses.
With the energy matter settled, Gramm moved to put his stamp on the bill. Beginning in September, until the measure was tucked into a sprawling omnibus appropriations bill that passed Congress on Dec. 15, 2000, Gramm blocked action. He cited the need to clear up ambiguous language that he feared could provide an opening for the SEC or CFTC to regulate financial derivatives other than energy products.
Former Enron officials say Lay was one of many executives who telephoned Gramm to plead for the release of the measure, but the senator held firm. Gramm said he did not remember such a call.
Meanwhile, Gramm said, his wife was even more opposed to the bill because of what she viewed as its overly regulatory provisions. One former Enron lobbyist recalls talking to Wendy Gramm about getting the bill with the Enron exemption passed. But she continued to have objections to the bill.
In August 2000, as the CFTC moved ahead with its own version of derivatives reform, Wendy Gramm and a research fellow filed comments with the agency on behalf of the Mercatus Center. They called for "greater flexibility regarding regulatory compliance." And in an indirect reference to the kind of trading Enron engaged in, it urged the CFTC to provide an exemption from the anti-fraud provisions of the Commodity Exchange Act.
The authors argued that the absence of an anti-fraud provision in the CFTC's 1993 exemption for energy products "has not proven to be of concern."
Sen. Gramm said his wife talked to him "plenty" about the derivatives bill, but never about the energy provisions. "The fact that Enron was for the House bill or this bill or that bill never had any impact on her," the senator said. "She opposed it on philosophical grounds. The fact that Wendy was on the Enron board made no difference. This was Wendy Gramm the economist speaking."
Staff writer Peter Behr contributed to this report.
Sen. Phil Gramm (R-Tex.) with his wife, Wendy, who was a member of Enron's Corp. board, denied wrongdoing in the couple's dealings with the failed energy company.
