Congress Takes Aim At Enron
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.
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 subcommittee on capital markets.
The head of Enron's accounting firm told the subcommittee the company withheld critical information, reports CBS News Business Correspondent Anthony Mason.
"It is an illegal act to withhold information from an auditor," said Joseph Berardino, CEO of Arthur Andersen, in his testimony.
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 Enron bankruptcy proceeding Wednesday.
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 subcommittee chairman, Rep. Richard Baker, R-La.
|
As a result, many employees were left "penniless," AFL-CIO official Richard Trumka said at the hearing.
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.
RepLuis Gutierrez, D-Ill, said Enron executives cashing on stock options was "kind of like the captain jumping off the ship."
Enron's former chief financial officer, Andy Fastow, earned more than $30 million from the partnerships before he was fired in October.
The politically connected company, which gave millions in campaign contributions to Bush's campaign and the Republican Party, was vilified by some Democratic lawmakers for exercising what they said was unwarranted influence over U.S. energy policy.
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 Securities and Exchange Commission, which is investigating Enron and Andersen's auditing of its books, warned Wednesday that all company executives and auditors must use accounting policies that are "appropriately reasoned."
"Investors increasingly deserve and demand full transparency," the SEC said.
The agency 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.
The SEC is examining Enron's use of questionable partnerships that allowed the company to keep some $500 million in debt off its books and let executives profit from the arrangements.
Andersen's Berardino 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. And the Labor Department is looking into Enron's handling of its employees' retirement benefit plans.
©MMI CBS Worldwide Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report