Government Affairs Committee Investigating Enron: Sen. Collins Looks Into Conflicts of Interest
WASHINGTON, Jan. 24–Senator Susan Collins, a member of the Governmental Affairs Committee, yesterday called the Enron case “a tragedy” for the small investors and employees who have lost their retirement accounts. She spoke after participating in a hearing on what the government might have done to prevent the financial debacle.
“The Enron scam should never have happened. It represents a colossal failure of all the mechanisms that are supposed to safeguard the investing public,” Collins said.
Arthur Levitt Jr., the former chairman of the Securities and Exchange Commission (SEC), testified that the Enron scandal was an example of the “cultural, economic erosion created by a business community that is highly competitive.”
Levitt was among five witnesses who talked about how the Enron collapse could have been prevented and what should be done to make sure something like it does not happen again. The hearing launched the first phase of investigations that will also look at alleged internal malfeasance and conflicts of interest by Enron and its former accounting firm, Arthur Andersen LLP.
Committee chairman Joseph Lieberman (D-Conn.) said the panel will consider “changes in law and regulation that will strengthen the watchdogs in and out of the federal government so that nothing like the Enron scandal ever happens again.”
Much of the talk during the hearing concentrated on how Enron hid from its employees the failing stock value of the company and on a possible conflict of interest involving its former accounting firm.
“There are too many conflicts of interest that affect the presentation of fair financial statements,” Collins said. “In the case of Arthur Andersen, not catching and not revealing to the public the deceptive financial data on Enron’s financial statements is a kind of conflict of interest.”
Conflicts of interest between companies and their auditors, the witnesses and committee members agreed, are one of the major causes of corruption.
Collins and Sen. Carl Levin (D-Mich.), the chairman of the Governmental Affairs Permanent Subcommittee on Investigations, will look into the inner workings of Enron’s collapse, while the full committee will investigate how federal agencies and federal laws could have better protected the thousands of Enron employees from losing pension funds.
According to Collins, independent investors are the losers when the investment analysts who are supposed to be recommending stock choices fare better financially when the stock does well.
On the other hand, Collins said, two brokerage firms downgraded the stock when Enron-affiliated investment analysts falsely told employees the stock was strong. The firms were identified as Merrill Lynch and Prudential by Collins’s press secretary, Felicia Knight, who added that the two firms had no ties to Enron.
“For a system that places heavy reliance on the obligation of some to safeguard the interests of others,” Collins said, “we are remarkably lenient – perhaps even lax – in allowing conflicts of interest.”
Published in The Bangor Daily News, in Maine.
