Don't they know we get it? We understand that the scams perpetrated at Enron ( ENRNQ) and the fraud that eventually led to the destruction of billions of dollars in investor capital weren't the work of some isolated group of cowboys at one company in Houston. Decades of work under Republican and Democratic presidents by the biggest and brightest of accounting firms and investment banks, by legions of lobbyists and lawyers, led to a rewriting of the rules in a way that made an Enron possible. And some of the people who now loudly express shock and outrage over the scams perpetrated at Enron -- figures such as Harvey Pitt, chairman of the Securities and Exchange Commission, and Sen. Joseph Lieberman (D., Conn.) -- were instrumental in creating this system. That worries me. Investor confidence in the fair workings of the capital markets has been badly shaken, and restoring that confidence is a pressing need. But the track record of the current major players makes me wonder if we're going to get meaningful, confidence-restoring reform anytime soon.
Pitt was a critical lobbyist in defending the industry's right to regulate itself through groups such as the industry-funded but toothless Public Oversight Board. And he was instrumental in winning passage for the 1995 Private Securities Litigation Reform Act that shielded corporate executives from liability if they made dubious financial projections. Is anyone surprised that Pitt's solution to the current crisis is more self-regulation by the accounting industry? Christopher Dodd. The 1995 law grew out of the savings and loan scandal that had cost the accounting industry more than $1 billion in damages in the early 1990s. Since the accounting firms had approved the fraudulent and misleading savings and loan books, the government successfully argued that accountants should be liable for part of the bill. The massive lobbying by the accounting industry -- and by its new allies among the technology companies of Silicon Valley -- was an effort to make sure that didn't happen again in some future investment scandal. Like the current one. Sen. Dodd (D., Conn.) was one of the point men in that effort, lobbying members of the House of Representatives personally to round up enough votes to overturn President Clinton's veto of the bill. From 1989 through the end of 2001, Dodd received more than $500,000 in campaign contributions -- more than any other currently sitting senator -- from accounting firms and their employees, according to the Center for Responsive Politics. Dodd is now chairman of the Senate Banking Subcommittee on Financial Institutions. Joseph Lieberman. Connecticut's other Democratic senator hasn't been any slouch either when it comes to supporting accounting firms on Capitol Hill. He played a key role in killing two major pieces of accounting reform over the last eight years. In 1994, the Financial Accounting Standards Board, the very slow-moving accounting industry body in charge of setting what is known as generally accepted accounting principles, proposed rules that would require companies to charge the value of stock options granted to workers against current earnings. You can imagine how popular that was with high-tech companies. The Senate passed a Lieberman-sponsored resolution urging the Financial Accounting Standards Board to back off on its proposed rules. Under the intense pressure, the board did. In 2000 Lieberman joined with 13 colleagues to write a letter to the board, urging it to postpone rules that would have called for new disclosure on mergers and acquisitions. Again the board backed off critical parts of its new rules. Lieberman chairs the Senate's Governmental Affairs Committee that is holding hearings on Enron. According to The Wall Street Journal, one of the questions he wants the hearings to answer is, "Why did Enron's auditors allow the company to overstate its profits for years by over a half-billion dollars?" Michael Oxley and Billy Tauzin. I'd hate to give the impression that only senators and Democrats carried water for the accounting industry. Rep. Oxley (R., Ohio), now head of the House Financial Services committee, was a big mover in the 1995 effort to pass the Private Securities Litigation Reform Act that could now limit the liability of the accountants and Enron executives his committee is grilling. Rep. Tauzin (R., La.), who has had nothing nice to say about Enron's accountants in this go-round, is the biggest recipient of campaign contributions from that firm in Congress, with the total reaching almost $60,000 since 1989. Tauzin, who heads the House Commerce Committee and who is holding hearings, too, has pulled in almost $290,000 from the accounting industry as a whole since 1989, according to the Center for Responsive Politics. The Securities and Exchange Commission. Commissioner Pitt may have a hopeless conflict of interest, but the problem stretches far beyond the office of the commissioner or the current administration. As a regulator, the SEC isn't about to deter anyone. For example, in 2000 the SEC fined Arthur Andersen $7 million over a botched audit at Waste Management ( WMI). (The accounting firm neither admitted nor denied committing any offense.) That was the largest fine ever against a U.S. accounting firm -- but it still represented less than 10% of the $80 million fee Arthur Andersen received for its accounting work from Waste Management in 2000. Not only are fines so small that they're hardly a deterrent, but the odds that the SEC will catch anyone are extremely small and about to get smaller. The Bush administration's budget for fiscal 2003 includes a 6.6% increase for rent, computers and security, but not a single dollar to hire more accountants or lawyers to beef up the enforcement of securities regulations. And this after the Enron scandal broke!