What Can We Learn from Enron?

By Linda Minor February 5, 2002 The Enron investigation should be viewed as an opportunity toonce and for alllearn how the money works. By the money I am referring to good ol American capitalism. What the term capital implies is surplus money not needed for use in day-to-day survival. It can be in the form of savings, trust funds, charitable or educational endowment, or profits desired to be invested. Capital has to have a source. Think in terms of your own money. Most of us live from paycheck to paycheck. We may make enough money to treat ourselves to nice vacations or luxury automobiles from time to time, but many of us never have any excess capital for investment other than what is invested for us in pension funds. So where does capital which is loaned out (debt) or invested in (equity) new development of industry or real estate construction originate? In American history we were taught about the Boston tea party which led to the American revolution. That was the beginning of American capitalism. The tea that was dumped in Boston Harbor belonged to the East India Company, which was a monopoly favored by the British Crown. The company had been chartered by the CrownQueen Elizabeth I at that timeto engage in trade in the East Indies, the sole source of spices such as nutmeg, cloves, cinnamon, and pepper. Because of the great demand, particularly for nutmegwhich was touted as a medicinal panacea including a cure for the plaguethe profits to be made were gargantuan. However, the risks were also very great for those who invested in the shipping enterprise. So who did have money to invest at that time, in mid-17th century England? The same people who ran the ships that engaged in the slave trade. The same men who owned the ships that took colonists to America. The same shipping merchants who contracted with the Crown to deliver convicts from English debtors prisons to Australia. They had risen from feudalism in the City of London and become freemen, forming themselves into guilds, which obtained monopolies from the Crown to engage in their respective trade or craft. By the mid-18th century these merchants and tradesmen would organize the Freemasons, centered around the occult lore derived from many centuries of trade with Levant merchants. It was these chartered companies that created English capitalism, though the English found they were not as successful at it as were the German merchant princes who elected their own monarch and created the Hapsburg Empire. Their capital had been acquired through the mining of salt as well as base minerals which could be used in industry. But they also took advantage of their human resources, and learned to conscript young men whose services could be sold as mercenary soldiers to be used outside their own region. The German princes, notably the Fuggers, lent the excess profits from such enterprises to the Queen of England who was then engaged in rivalry with the Dutch and Portuguese over control of the East Indies. During this colonial period, Adam Smith made his study of capitalism called The Wealth of Nations while employed by the East India Company. Somewhat earlier, Thomas Gresham had been engaged in a study of currency exchanges and devised a system that England could use to get out from under the massive debts owed to the Fuggers and other German princes.

Gresham is given credit for designing the Royal Exchange created to stop the drain of English gold to Germany. The Royal Exchange was of course based within the City of Londonan area previously owned by Roman Empire. This was also the area descended upon by the Lombards from Italy, who centuries before had brought Venetian trade and banking concepts to London. It was also within this area that the palatial East India Building was constructed, the site of which would later become Lloyds Shipping Registry, an office building that in the 1980s would lease six floors to the Saudi-Pakastani bankers called BCCI. Was this a mere coincidence? So this type of trade and industry was at the outset of the American colonial existence the source of venture capital. By 1776 there had been 5 or 6 generations of native-born Americans who were ready to compete with foreign capital. But they were forbidden at the time to engage in any industry or trade without permission from the Crown or without paying a tax that supported the chartered companies, none of whose profits were distributed back to the Americans. The Crown itself did receive a share of any profits made by the companies it chartered since the price of granting the charter was a percentage of revenue given back to the government. Once the American revolution had been successfully waged, there was still the problem of financing the new government. The war had been funded by borrowing from other countries, primarily France, and that debt had to be repaid. Additionally, if the country were to be successful, entrepreneurs willing to risk their labor, still had to turn to persons with a surplus of funds to invest in them and their ideas for creating profit. This is where we have been taught about the fight between the federalists and anti-federalists in our American schools. But our textbooks have not clearly instructed us about all aspects of the problem. For example, we may have studied the Supreme Court case cited as Woodward v. Board of Dartmouth, in which the Supreme Court held that even though the treaty which ended the war between the American colonies and the British government left the British with no political power within the United States, any contracts which existed prior to the treaty were to be fully enforceable. Thus, in the case of the Dartmouth charter, the Crown still had the power to appoint successor trustees to the college board of trustees. What that case meant was that the British merchants who had financed the colonists up until the war, were able to collect those debts in American courts. Since real property laws, however, are written by state legislatures and not the federal government, many states at the time passed laws making it illegal for foreigners to own real property within the state, or laws with similar import. This legal impediment gave rise to the practice of secret cooperation between British and American businessmen, reflected in undisclosed nominee agreements for purposes of British ownership of land. *** My own interest in Enron stems from some of the research I did several years ago when I lived in Houston. I worked in the real property division of the county attorney's office and was assigned in about 1993 to help investigate allegations made against county judge Jon Lindsay. A man named Bill Chester, who was about to plead guilty of bank fraud arising out of transactions in the mid-1980s when he was employed by Robert Corson, came to my boss in order to disclose personal information he had on crimes he may have been involved with or witnessed in addition to defrauding banks by rigging appraisals of real property to be used in

loans, etc. He told our office that he had been involved with cash payments to Lindsay and was privy to meetings held between Lindsay, Corson and others to discuss the need to build a road through a tract of land Corson had contracted to buy from General Homes, a land development corporation based in Houston. This land was outside the municipal limits of the City of Houston, but was not a desirable location for a county road supervised by the commissioner for that precinct, who at the time was a Democrat, "Squatty Lyons." Commissioner Lyons was not interested in talking to the land developers about a road in this area. However, the county judge had the responsibility of planning the construction of a toll road extending north from Houston to the northern edge of Harris County. Although the land was some distance from the toll road route, the developers convinced Lindsay that an access road could be diverted through this property. In order to build this road, significant drainage work had to be done, all at the expense of the toll-road budget or county flood control funds. Under the terms of Corson's contract with General Homes, he was required to have the road and drainage work constructed within a year after buying the property. General Homes retained a lien to secure payment of a promissory note given back to the seller for the purchase price. It was hoped that Corson could then resell the land at a higher price. It was decided that bribing the county official with $100,000 was cheaper than actually paying for the construction of the required road and drainage. My assignment was to search through deed records, etc. to find anything I could to support claims of the judge being involved in illegalities in land transactions. I also had copies of disclosures Lindsay had made about his assets, and I checked for the possibility he may have acquired the securities as payment for other favors. In looking at the transaction, it was my feeling that General Homes was deeply involved in the fraud and bribery. While researching this company, I talked to Pete Brewton, who had discussed Corson and Lindsay in his book, The Mafia, the CIA and George Bush. He referred me to an accountant--who had worked for Corson--who had helped him with research. The only information she could give me was that the Bronfman family had been involved in General Homes. Bronfman Family Ties to Houston through Gulf Interstate Exploration (GIX) So I started to learn all I could about the Bronfmans. Then I researched the corporate history of General Homes in old SEC files. I also checked individual names in the "assumed name" records of the county. When I checked the name "Bronfman," I pulled up the name of an entity called Gulf Interstate Exploration, a subsidiary of Gulf Interstate. I searched these names in the real property records and found that the attorneys who represented Robert Corson (Lackshin & Nathan) also had for some years represented a bank called Central National Bank, the majority stock of which was owned by Gulf Interstate. The building where this bank had its offices, as well as an adjacent office building, together known as Central Square (located at 2100 Main just south of the Pierce Elevated) and a newer office building 9 blocks north at 1200 Main in downtown Houston, were built and owned by a company called Century Properties, controlled at the time by Kenneth Schnitzer. Gulf Interstate Exploration (GIX) Ties to Houston Natural Gas

Gulf Interstate bought 40% interest in Central Square around 1968. The newer building, called the Houston Natural Gas (HNG) Building, was built for its core tenant, HNG, and for another tenant--Capital National Bank--located across the street. HNG merged with the InterNorth corporation (formerly Northern Pipeline Co.) in 1985, changing the name to Enron. In a newspaper article in 1985 the Houston Natural Gas Building was said to be owned by Prudential Insurance and BP Pension Fund although the real property records did not reflect that ownership. There must have been a securitization of the landlord's interest in the leases sold to the British investors, whose accounts were handled by the British bank of N.M. Rothschild. British Petroleum was privatized during Margaret Thatchers years as prime ministerin approximately 1986about the same time Enron was created from Houston Natural Gas and InterNorth of Omaha. HNG also had leased space in the Americana Building (23,600 square feet) and 80,000 square feet in the Continental Resources Building at 3040 Post Oak Blvd. adjacent to the Galleria shopping center. The Continental building also leased space to Florida Gas Transmission, a subsidiary of Enron, and ANR Pipeline, a company based in Detroit which is now a subsidiary of the Coastal Corporation (formerly owned by Oscar Wyatt and now a subsidiary of El Paso Corporation). Because most people dont understand complicated real estate title transactions, the importance of physical location and real estate ownership often gets ignored. But it is one type of record that cannot be hidden, although the entities holding title can be very difficult to trace. What follows is an attempt to connect events that happened in the 1960s and 1970s in Houston to the Enron corporation that exists today. The Americana Building was constructed pursuant to a lease in 1956. The land was owned by First City Bank, a bank resulting from a merger between the First National Bank and the City National Bank founded by James A. Elkins of the law firm Vinson & Elkins. At some point Elkins sold the bank to Samuel Belzberg, Canadian "businessman" who was one of Michael Milken's big junk bond customers. Incidentally, Belzberg's daughter Lisa is married to Matthew Bronfman, brother of Edgar Bronfman, Jr. as well as being the son of Ann Loeb Bronfman, one of the principals in Gulf Interstate Exploration (GIX), whose parent corporation bought the leasehold estate in the Americana Building in 1961. Other principals of GIX included related families of Loeb, Lehman and Gimbels, which also had a big interest in Federated Department Stores, which owned the Foley's store across the street from the Americana Building. The original leasehold provided for a simultaneous sublease to Foley's for parking in the basement and on the first five floors. Federated also owned R.H. Macys, which was reputed by EIR in its book Dope, Inc., to be a massive money laundry for dirty cash. As stated therein: Macys is a strange company, for that matter. Strictly speaking, said one of their managers, Macys is not a retail store. They dont make their money by selling goods. They use retail sales as an excuse to make short-term loans, overnight or one week loans, or to play the money markets.... Macys owned its own bankthe R.H. Macy bankto manage all of its money-market operations. Hypothetically speaking, Macys is the ideal entity through which to conduct really gigantic dirty-money transfers.

R.H. Macys was involved in a joint venture with the English merchant bank Hambrosthe First Empire Bank--in Buffalo, New York. According to Dope, Inc. at p. 175, First Empire was banker for most of the Buffalo dry-goods trade. Dope, Inc. reveals that James H. Carey, the CEO of First Empire (which had two directors from Macys on its board) had worked first for Chase Manhattan Bank, then Hambros in 1969 before serving as a director of [drugsmuggling airline] Airborne Freight, which did business with Max Fisher. In Houston, First Empire Bank also purchased a one-half participating interest in certain mortgage loans held by Barnett-Winston Investment Trust, an unincorporated business trust created in Jacksonville, Florida. The Winston in Barnett-Winston was James O. Winston, Jr.-a relative of W.S. Farish III, whose mother married architect Hugo V. Neuhaus, Jr., whose family owned an interest in the Houston investment bank Underwood Neuhaus. Winston, who was married to Ella Botts Rice (Howard Hughes, Jr.s first wife) was named to the board of governors of Rice Institute in December 1959 by then-chairman George R. Brown, at the same time John W. Mecom was appointed to the board. The family connections between Neuhaus and Farish are shown in the following excerpt from the Handbook of Texas website: Hugo Victor Neuhaus, Jr. was married twice, first to Mary Wood Farish, the widow of his cousin William Stamps Farish, Jr., in 1947, and, following her death in 1979, to Olive McCollum in 1985. He was the stepfather of William Stamps Farish III. Neuhaus died in 1987. His second wife, Olive McCollum, was the daughter of Leonard F. McColluma close business associate of the Farish family, having worked first for Humble Oil, then becoming chairman of Continental Oil before founding the Capital Bank in 1965. Hugos mother, Kate Neuhaus, was a daughter of Jonas Shearn Rice, making her related to the wives of both W.S. Farish, Sr., whose Humble Oil became Exxon, and his brother Stephen P. Farish, who sold his oil company (Navarro) to Continental Oil. The Barnett in the Barnett-Winston trust refers to E. WILLIAM BARNETT, who is currently the chairman of the Rice board of trustees, as well as being a partner in the Baker & Botts law firm. According to the Rice website, Barnett serves on the board in 2002, along with James A. Baker III, James A. Elkins III, Dr. Frederick R. Lummis, Jr., and Michael R. Lynch of Goldman Sachs, and with Trustee Advisors, Judy Ley Allen (married to Robert H. Allen, mentioned in the Unauthorized Biography of George Bush), William S. Farish III, Gerald D. Hines, William P. Hobby, Baine P. Kerr, J. Hugh Liedtke, and Louisa Stude Sarofim (the adopted daughter of Herman Brown and was formerly the wife of wealthy investment banker, Fayez Sarofim). Trustees Emeriti include Jack T. Trotter (who was made notorious by Pete Brewtons disclosures), Charles W. Duncan, Jr. (Jimmy Carters cabinet member who was also mentioned in Brewtons book), and Josephine Abercrombie, daughter of Houston oilman James Abercrombie, as well as Versailles, Kentucky neighbor of W.S. Farish III. The April 25, 1969 edition of the Houston Post contained the following item in the business section:

Capital National Forms Bank A new Swiss bank has been formed by Capital National Corporation of Houston and the Paravicini Bank, Ltd. of Berne, Switzerland, along with a number of prominent corporate sponsors, including two other Houston companies.

The other two Houston firms investing in the new bank are Brown & Root Overseas, Ltd. of London, which is affiliated with Brown & Root, Inc., Houston heavy construction and engineering concern, and Gray Tool Company, Ltd., London, affiliated with Gray Tool in Houston. Other prominent corporate investors in the new bank include the Boeing Company, Seattle, Wash; Distillers Corporation-Seagrams, Ltd., Montreal; Minute Maid, S.A., Zurich, an affiliate of the Coca-Cola Company; Utilities & Industries Management Corporation, New York, and the Schlesinger Organization of London and Johannesburg, South Africa. [] J.F. Paravicini of Berne will be chairman of the new bank, to be called the Bank for Investment and Credit Berne, Ltd., and J.F. McCollum [sic] of Houston is to be vice chairman. McCollum, chairman of the Capital National Corporation, is also chairman of the Continental Oil Co. and holds board memberships with Morgan Guaranty Trust Co. of New York, J.P. Morgan & Co., Inc., Consolidation Coal Co. and Lincoln Consolidated, Inc. He said the primary purpose of the new bank will be to provide financial services required by corporations with multi-national operations. Lovett Baker, president of the Capital National Bank said the move by Capital National Corporation will give Capital National direct access to a European partner. Both the investors and the banks corporate and individual customers will benefit greatly from the new banks handling of Eurodollar financing, foreign exchange, and other banking services, he said.
Lovett Baker, was the nephew of James A. Baker III. Lovetts mother Adelaide Lovett (daughter of Rice Universitys first president, Edgar Odell Lovett) married James Bakers brother, W. Browne Baker. Clearly the reason Capital National Bank chose the Paravicini Bank as its partner was its knowledge that Paravicini had no reluctance to launder drug profits, as became obvious in 1973 when the Paravicini Bank was indicted by a Federal grand jury of conspiring with a Lehman Brothers broker and with Billy Mellon Hitchcock between 1965 and 1971 to buy $67 million worth of stock entirely on credit. Hitchcock, given immunity for his testimony in the 1973 trial of LSD merchants, Nicholas Sand and Robert Timothy Scully, received only a slap on the wrist for falsifying dates of brokerage records and lying about money found on his courier who was arrested with $100,000 cash on him in 1968. His association with Sand and Scully dated back to April 1967 when Hitchcock helped Augustus "Owsley" Stanley III, LSD kingpin, open an offshore account at Fiduciary Trust by sending his courier to pick up the cash from Owsley's deposit box in New York to deposit in Nassau. Sand was an associate of Owsley's who needed a source of supply for chemicals in order to manufacture STP ("angel dust"). Hitchcock put him in touch with a "reputable English source," Charles Druce. Lee and Schlain, Acid Dreams, p. 489:

Hitchcock and his friend and attorney, Seymour Lazar, both owned shares in Resorts International, the successor to Mary Carter Paint, and had accounts in the Castle Bank &

Trust. Lazar also knew Bernie Cornfeld, owner of IOS mutual funds. Robert Vesco, who took over IOS from Cornfeld, is said to have created Global Holdings and Global Natural Resources (a shell corporation set up in British tax haven Isle of Jersey) in order to buy Resorts International stock. (See Arthur Herzog, Vesco, p. 151). Seymour Lazar also paid the legal fees of Harry Rhoden, the attorney who attempted to probate Howard Hughes' "Mormon will," which named Melvin Dummar as a beneficiary, along with Rice University, William Lummis (Hughes' first cousin as well as W.S. Farish's wife Libbie's cousin) and Ella Rice Winston, Hughes' first wife who was W.S. Farishs sister-in-law. After Ella divorced Howard Hughes she married James O. Winston, Jr., an investment banker who worked for Rowles Winston and Co. and was a director of Freeport Sulphur Co.
According to an article in June 8, 1973 New York Times, the Swiss Banks attorney was Arnold & Porter of Washington, whose records were subpoenaed and ordered by the judge to be turned over to the U.S. Attorney. The bank changed its name in 1971 to the Metopolitan Bank, which was taken over by the Securities Management Company, a Swiss holding company based in Geneva, 25% of which was held by First National City Bank through a European subsidiary.