Lawmakers criticize Enron executives; auditor acknowledges problems
Wednesday, December 12th 2001, 12:00 am
By: News On 6
WASHINGTON (AP) _ Lawmakers heaped criticism Wednesday on executives of collapsed Enron Corp., saying they enriched themselves through inside trading and slick financial gimmicks while running the energy-trading company into the ground.
Accounting firm Arthur Andersen LLP, Enron's longtime auditor, defended its work for the company but acknowledged that financial reporting practices must change. Andersen's chief executive said the firm notified Enron's audit committee on Nov. 2 of ``possible illegal acts within the company.''
As Congress opened its investigation of one of the biggest corporate failures in history, no Enron officials attended the hearing of the House Financial Services subcommittees on capital markets and oversight.
Kenneth Lay, the chairman and chief executive who is a friend of President Bush and a big campaign contributor, declined an invitation to appear. He said in a letter that he had to be at an Enron bankruptcy proceeding Wednesday.
Lay said in a statement that ``it has always been Enron's policy to be open with its accountant.''
The Securities and Exchange Commission, which is investigating Enron and Andersen's auditing of its books, filed an action in federal court Wednesday seeking to compel Enron's former chief financial officer, Andrew Fastow, to comply with a subpoena. Fastow was the lead architect of complex partnerships that allowed Enron to keep some $500 million in debt off its books and let executives profit from the arrangements.
Fastow did not show up for a scheduled meeting with SEC attorneys on Wednesday, but did appear at a news conference in New York beside David Boies, the attorney who represented former Vice President Al Gore in last year's disputed election. Boies said Fastow would meet with the SEC once the two sides can set a date.
Enron's swift descent into federal bankruptcy court left countless investors burned and thousands of employees out of work and with decimated retirement savings.
``Many people have been deeply hurt,'' said the chairman of the capital markets panel, Rep. Richard Baker, R-La.
Enron executives were ``just having too much fun,'' he said. They cashed out more than $1 billion in company stock while ordinary employees were barred from selling it from their Enron-heavy 401(k) accounts as share prices plunged, Baker said. Worth more than $80 a year ago, Enron's stock has tumbled to less than a dollar a share.
Amid the company's strife, nearly 600 employees deemed critical to its operations received more than $100 million in bonuses last month as Enron faced a merger that unraveled and then bankruptcy.
Houston-based Enron, which only months ago was the nation's seventh-biggest company in revenue, has acknowledged it overstated profits for four years.
The SEC itself faced questioning by some lawmakers of its handling of the Enron case. They asked Robert Herdman, the SEC's chief accountant, why the agency did not become concerned early this year when Enron executives dumped millions of dollars of stock.
The SEC's first action came on Oct. 17 _ a letter to Enron requesting more information after it reported big third-quarter losses, Herdman noted.
He said recent accounting irregularities by big corporations ``may shake investors' confidence in our system of financial reporting and our capital markets.'' Herdman said the SEC plans next year to adopt rules tightening disclosure requirements for companies.
Joseph Berardino, Andersen's chief executive, said the accounting firm ``will have to change ... the accounting profession will have to reform itself. Our system of regulation and discipline will have to be improved.''
Enron also is under investigation by the Justice Department. The Labor Department is looking into Enron's handling of its employees' retirement benefit plans.
To solicit information about alleged misconduct at Enron, the senior Democrat on the House Government Reform Committee has set up an Internet tip line at http://www.house.gov/waxman/index.htm