The latest assault on homeland security

Enron: Damage runs from 401(k) catastrophes to loss of confidence in the stock market.

February 06, 2002

THE AUDITOR-ASSISTED Enron debacle is beginning to look like the World Trade Center attack without the fireball. Or, perhaps, fire rages out of sight beneath the surface of American boardrooms.

Daily revelations of the company's breach of trust leave Americans with a model of corporate chicanery that, not surprisingly, is giving Wall Street investors an attack of sell-off nerves. Meanwhile, on Capitol Hill, a dozen or so committees have begun to explore the Texas-based energy trading company and Arthur Andersen, the auditing firm in charge when Enron concealed its imminent fall.

Last weekend, those committees got a report from Enron's own board of directors. It found "a systemic and pervasive attempt" to inflate profits and hide losses from board members, shareholders and the general public. Some 70 percent of $1 billion in earnings reported over a recent 15-month period were not real, the report alleged. Then came the stories of egregious self-dealing in which corporate officers made million-dollar killings while the company died.

Congress must now determine the scope and severity of the offenses. It must immediately pass legislation to protect employee stockholders -- and find ways to enforce its new controls. With their own campaign accounts stuffed with Enron contributions, a fair number of senators and representatives may have to recuse themselves from the process. It's a scandal wrapped in a spectacle.

Democratic Sen. Ernest F. Hollings of South Carolina wants the Justice Department to appoint a special prosecutor -- a request that ought to get serious consideration even if it has some partisan edge. President Bush and Mr. Lay were friends. Enron spent considerable time in the councils of Vice President Dick Cheney while Mr. Cheney was crafting a national energy policy. These consultations and friendships may be innocent -- but who can be faulted for doubting that?

Asked Tuesday if he thought other Enrons were smoldering in the nether reaches of corporate America, Harvey L. Pitt, chairman of the Securities and Exchange Commission, said he hopes the answer is no. But hope has been a woefully insufficient safeguard. Mr. Pitt called for establishment of a regulatory body that would govern the accounting industry.

Congressmen Benjamin L. Cardin, a Baltimore Democrat, and Rob Portman, an Ohio Republican, have offered legislation designed to protect workers and their nest eggs. More proposals are expected in the coming weeks.

The contrast between remedies available to these companies and their victims is striking.

While current and former employees wonder who can help them recover life savings, Andersen hires former Federal Reserve chairman Paul A. Volcker to lead a review of its business practices -- and to give the impression of serious reform.

Enron's former chief executive officer and board chairman, Kenneth L. Lay, hired former Watergate prosecutor Earl J. Silbert to represent him.

Considerable irony pervades the rubble. Those who attacked our country on Sept. 11 accused us of blind devotion to corporate greed. Suddenly, in addition to our determination to find and punish those attackers, we must recognize that they were not the only threats to the nation's well-being.

Most company executives are, no doubt, honest entrepreneurs. And most accountants report how the numbers actually add up. Unfortunately, Enron proves we now have to go well beyond assumptions to aggressive regulation and enforcement.

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