The White House has confirmed two senior cabinet members were forewarned of oil company Enron's looming financial crisis.
Moreover, Attorney General Mr John Ashcroft has excluded himself from acting in the criminal inquiry because he received campaign funds from the company’s chairman, it has emerged.
President Bush has ordered a review headed by Treasury Secretary Mr Paul O'Neill of US pension and corporate disclosure rules, but Mr O’Neill is one the Cabinet officers who was made aware of Enron’s troubles.
In a series of stunning disclosures that followed Wednesday's announcement of a criminal investigation into Enron, the energy firm's auditor, Andersen, said its employees had destroyed documents related to Enron's balance sheet.
Mr Bush's team has close ties to Enron and its chairman Mr Kenneth Lay, a major Bush campaign contributor. Last autumn, Mr Lay called Mr O'Neill and Mr Bush's 2000 campaign manager, and now Commerce Secretary Mr Don Evans, to warn them of Enron's mounting financial problems, the White House said.
In an indication Enron may have been seeking a financial rescue, White House spokesman Mr Ari Fleischer said Mr Lay raised the case of Long Term Capital Management, a hedge fund that received a government-orchestrated private bailout in 1998.
Mr O'Neill and Mr Evans both said they opted to do nothing. Mr O'Neill rejected the suggestion that Enron had asked for a bailout.
"It was an information request, telling me that they had problems and that he thought that we would want to have our technical people talk with their technical people," Mr O'Neill said.
The Justice Department on Wednesday announced it had opened a criminal investigation into Enron, whose December bankruptcy threw thousands out of work, devastated investors and wiped out the pension plans of many employees when its stock price plunged.
Mr Ashcroft removed himself from the investigation, which is expected to focus on whether the firm misled investors about its accounts, because Enron gave him political contributions for his run for a US Senate seat in his home state of Missouri.