Wall Street analysts who continued to recommend Enron's stock as the company careened toward bankruptcy last fall told Congress Wednesday they formed their assessments objectively and were not pressured by their firms that invested in Enron.
It didn't become evident to them that the company was in serious trouble until just before its collapse, the analysts testified.
Analysts are on the defensive for their role in Enron's failure. They can have potential conflicts of interest in a system in which they are often compensated for helping their investment firms get lucrative business arranging mergers or stock offerings for the same companies the analysts cover.
"It now seems clear that too many analysts failed to ask 'why' before they said 'buy,'" Sen. Joseph Lieberman, D-Conn., chairman of the Senate Governmental Affairs Committee, said at a hearing at which four analysts from big investment firms testified.
Ten of 15 analysts who followed Enron were still rating it as a "buy" or "strong buy" as late as Nov. 8, two weeks after the Securities and Exchange Commission announced it had opened an inquiry into the energy-trading company's accounting. The company entered the biggest bankruptcy in U.S. history on Dec. 2.
"I did not own Enron stock," testified Anatol Feygin, a senior analyst at J.P. Morgan Securities Inc. "I have complete freedom with respect to the recommendations that I make concerning any (stock) and my compensation is not tied to the recommendations that I make. ... I have never received any compensation in any form from any company that I analyze, including Enron."
An independent analyst, Howard Schilit, told the senators his review of Enron's financial statements found numerous problems that should have been noted by analysts covering the company.
Schilit is president of the Center for Financial Research and Analysis in Rockville, Md.
As Congress continued to delve into the biggest corporate bankruptcy in U.S. history, Federal Reserve Chairman Alan Greenspan said Enron's collapse underscores how fragile companies can be when their main business is production of intangible services, such as energy trading in Enron's case.
"The rapidity of Enron's decline is an effective illustration of the vulnerability of a firm whose market value largely rests on capitalized reputation," Greenspan said. "Trust and reputation can vanish overnight. A factory cannot."
Greenspan has predicted that the controversy around the Enron debacle will lead to changes in accounting practices and government oversight.
A key figure in the Enron drama, former company chief executive Jeffrey Skilling, defended himself at length Tuesday as senators said they didn't believe him and former colleagues continued to contradict him.
Putting himself at potential legal risk for the second time this month, Skilling testified at a Senate hearing and dominated the scene during a five-hour appearance with an Enron vice president, Sherron Watkins, and President-Chief Operating Officer Jeffrey McMahon.
Watkins, separated from Skilling at the witness table by his lawyer, told the Senate Commerce Committee she had no doubt Skilling was aware of the problems posed by Enron's use of partnerships that were largely buttressed by company stock, contrary to normal accounting practices.
Sharply disputing Watkins, Skilling denied he had misled former Enron Chairman Kenneth Lay, who recently resigned.
"I never duped Ken Lay," Skilling declared, using Watkins' wording from a previous statement.
Watkins characterized Lay in harsher terms than she had at a House hearing earlier this month, saying Tuesday that he missed an opportunity to "salvage" the company when she warned him of problems last summer.
Skilling, who cashed in $66 million of company stock, resigned abruptly in August around the time that Watkins was warning Lay of potentially serious accounting problems.
Defiant throughout, Skilling accused lawmakers of grandstanding and wasting the public's time.
"The entire management and board of Enron have been labeled everything from hucksters to criminals," Skilling said in an opening statement. "These untruths shatter lives and do nothing to advance the public understanding of Enron."
As the 5½-hour session drew to a close, senators lost patience with Skilling.
"I have great difficulty believing your testimony," said Byron Dorgan, the North Dakota Democrat who chairs the Senate Commerce consumer affairs subcommittee. "I wish I could believe your testimony. But somebody wasn't home at Enron."
Millions of investors nationwide lost money, and thousands of current and former Enron employees lost the bulk of their retirement savings — in accounts loaded with Enron stock — when the company failed.
A dozen congressional committees, the Justice Department and the Securities and Exchange Commission are investigating Enron's collapse and Andersen's role as its accounting firm.
Also Tuesday, a videotape was played of an Enron employee meeting in 1999 that showed Skilling displaying his salesmanship. He nodded in agreement and smiled broadly when another company executive responded "absolutely" to an employee's question, "Should we invest all of our 401(k) in Enron stock?"
Meanwhile, a former Enron treasurer, Ben Glisan, has given Justice Department prosecutors an outline of what he knows about the financial transactions involved in Enron's downfall, people close to the criminal investigation said Tuesday. Glisan's move could lead to an immunity agreement with Justice to avoid criminal prosecution.
Glisan, later fired from Enron, assisted Enron's former chief financial officer, Andrew Fastow, and executive Michael Kopper in the transactions with the partnerships.
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