Thursday, Jul 24, 2008
As both the House and Senate start their multiple queries into the collapse of Enron, the lead auditor takes the Fifth.
Jan 25, 2002 | Like Charles Dickens' Ghost of Christmas Future, former Securities and Exchange Commission chairman Arthur Levitt Jr. came to the Senate on the first day of this year's Enron hearings bearing nothing but pessimistic gloom.
As star witness before the Senate Governmental Affairs Committee Thursday morning, Levitt warned of "systematic" problems in the capital markets, an "emerging crisis of confidence" in these markets and "a cultural change eroding" the business world. After his testimony, outside the hearing room in the freshly de-anthraxed Hart Office Building, Levitt painted an even starker picture, predicting to reporters that revelations of other "Enrons" -- minus the egregious incidents of fraud -- would be made public in the next few months.
Because of the problem of "disguising the numbers and hiding the numbers in earnings" brought to light in the Enron scandal, Levitt said, other companies will be forced to 'fess up to "Enron-like problems in terms of numbers that mislead." These companies, he said, will have to amend their misstatements, which would be costly to investors. This was due to the "animal juices" salivating throughout Wall Street, Levitt said, leading to rampant and destructive quomodocunquizing throughout the investment world.
"Enron's collapse did not occur in a vacuum," Levitt said during his testimony. "Its backdrop is an obsessive zeal by too many American companies to project greater earnings from year to year." Calling the actions "gamesmanship," Levitt had harsh words for everyone: the business executives who "bend the rules and tweak the numbers"; their companies that bend to the desires and pressures of Wall Street analysts instead of dealing honestly with their earnings; those analysts who too often "overlook dubious accounting practices and too often are selling potentially lucrative investment banking deals"; the auditors preoccupied with pleasing the client instead of picking up the company's problems; and on and on.
Enron's particular scandal of shell partnerships, allegedly corrupt executives, hyperoptimistic analysts, complicit auditors -- not to mention the strumpetocracy in the White House and on the Hill -- squished all too easily and inconspicuously into this already sullied cesspool.
Two years ago, Levitt issued warnings that accounting agencies like Arthur Andersen LLP should not be permitted to serve companies like Enron as both auditor and consultant. But he saw these concerns washed away in a sea of corporate campaign contributions.
Thursday, Levitt returned to a chastened Senate. The Senate hearing, chaired by Sen. Joe Lieberman, D-Conn., was just the first of many public explorations of Enron's various defalcations that will be held by at least seven congressional committees in the coming months.
"This scandal cries out for thorough congressional investigation to make sure that nothing like this ever happens again," Lieberman said.
"Where were the watchdogs here?" asked the committee's ranking Republican, Sen. Fred Thompson, R-Tenn. "Where were the auditors? The law firms? The board of directors? The analysts? The governmental agencies?"
While Lieberman and Thompson opened their inquiry, on the other side of the Capitol Dome members of the aggressive House Energy and Commerce Committee sat and listened to fired Arthur Andersen LLP partner David Duncan invoke his Fifth Amendment right against self-incrimination. Duncan, until last week the company's lead auditor of Enron, supervised a mass shred-a-bration of Enron-related documents. As Duncan refused to comment, Rep. Jim Greenwood, R-Penn., chairman of the committee's investigations and oversight subcommittee, lashed out from the dais. "Enron robbed the bank, Arthur Andersen provided the getaway car and they say you were at the wheel," he said.
The House hearing, chaired by Rep. Billy Tauzin, R-La., also featured current Andersen representatives, all of whom tried to pin the blame on Duncan. A committee spokesman later called their attempts "unconvincing."
Enron was all the rage throughout the city. Inside the Capitol, Senate Majority Leader Tom Daschle, D-S.D., introduced a new word into the political lexicon. "I think that we are slowly Enronizing the economy," the South Dakotan told reporters. "Enronizing the budget." Daschle used the term to try to equate Enron's collapse with Bush's budget proposals. Like Enron, the argument goes, the Bush budget took from the poor and middle class and gives to the rich.
At the White House, spokesman Ari Fleischer was asked if the president was going to ask his biggest supporter throughout his political career, former CEO "Kenny Boy" Lay, to contribute "$29 million of the $30 million he got away with" to an employees fund, as several politicians have done with their Enron contributions. "The president thinks the best way to help them is through changes that can possibly be made to the nation's pension laws," Fleischer said.
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