New rules won't cure all problems surfaced by Enron, SEC chairman says

by Marcy Gordon
The Associated Press

WASHINGTON - New regulations won't cure all the problems uncovered by the Enron collapse, leaving lawyers and accountants to tackle serious ethical issues, the chairman of the Securities and Exchange Commission said yesterday.

Harvey Pitt, in a speech to attorneys and judges, said the Enron case has had an impact far beyond the large number of people who were "callously injured."

Investors nationwide lost money on a stock that had been a Wall Street favorite, and thousands of Enron employees were stripped of their retirement savings in accounts loaded with Enron stock as the company slid into the biggest bankruptcy ever on Dec. 2.

With many investors unnerved by the Enron disaster and distrustful of the accuracy of the financial reports of big companies, lawmakers and regulators - including the SEC - have scrambled to propose changes in accounting rules and the financial reporting system for companies.

"Enron makes even more apparent the immediate need for necessary changes in our system," Pitt said at a conference of the Federal Bar Council in Puerto Rico. Copies of his speech were released in Washington.

Still, Pitt said, "Not all problems can, or should, be cured with regulations or legislation."

He said the Enron debacle shows it is improper for companies' lawyers to help find ways to evade legal requirements, or otherwise act against the public interest, even if within the bounds of the law.

Accountants, unlike lawyers, must not act as advocates for the companies whose books they audit, Pitt said.

In response to a question from an audience member, Pitt called Enron "a bigger problem than the savings and loan scandal" of the late 1980s and early 1990s, which led to a federal bailout of hundreds of billions of dollars.

Both the SEC and the Justice Department are investigating Enron and the role of its longtime auditor, Arthur Andersen LLP, which has acknowledged widespread destruction by its employees of Enron-related documents.

As Congress presses its wide-ranging investigation of the Enron collapse, the company's former chief executive officer, Jeffrey Skilling, is scheduled to testify next Tuesday at a hearing of the Senate Commerce Committee. Also testifying is Enron executive Sherron Watkins, who first warned former chairman Kenneth Lay last August of serious accounting problems involving the partnerships that were used to hide more than $1 billion in debt and eventually brought down the energy-trading company.

Other key Enron figures, including Lay and ex-chief financial officer Andrew Fastow, have invoked their Fifth Amendment right against self-incrimination and refused to answer lawmakers' questions. Skilling's testimony earlier this month before the House Energy and Commerce Committee's investigative panel prompted some key lawmakers to say they did not believe his version of events. Rep. Billy Tauzin, R-La., chairman of the full Energy and Commerce Committee, suggested Skilling could face formal accusations of perjury.

Watkins, an accountant and vice president, testified last week before the same panel that she believed Skilling and Fastow - along with Enron's accounting firm, Arthur Andersen, and its outside legal advisers - duped Lay and the board of directors.

Skilling's lawyer, Bruce Hiler, has disputed those statements. Asked yesterday whether Skilling planned to testify next week, Hiler replied, "No change in plans right now." He declined further comment.

Investigating committees in the House and Senate recently have widened their inquiries to include powerful Wall Street players such as investment firms that both financed Enron bond sales and invested in the company and financial analysts who recommended buying Enron stock as the company foundered.

"We're trying to determine if any promises, or for that matter, any threats were made to investment bankers" by Enron executives to get the banks to invest in the partnerships, said Ken Johnson, a spokesman for Tauzin.

Concern about Congress' investigation of Enron spreading to Wall Street further soured the market's mood yesterday and sent stocks tumbling. The Dow Jones industrial average lost 157.90 points, or 1.6 percent, to close at 9,745.14 - the lowest finish since Feb. 7, when the index closed at 9,625.44.