SEC, Wall Street system failed to detect Enron failure

WASHINGTON -- The Securities and Exchange Commission and Wall Street's system of informally policing big corporations failed in their duty to detect the impending accounting failure at Enron, a Senate panel finds in a new report.

The Senate Governmental Affairs Committee, which has investigated the role of government and industry watchdogs in Enron's stunning collapse since early this summer, said the oversight system must be tighter.

It said the oversight failures included financial analysts, credit-rating agencies and auditors as well as the SEC.

Criticism of the SEC was also coming from the House side of the Capitol. Democratic leaders there are angry with the SEC's reported rejection, amid Republican and industry opposition, of pension fund director John Biggs to head the new independent board to oversee the accounting industry established by a law enacted this summer.

"We strongly urge you to resist bowing to pressure to reject a candidate due to industry opposition," House Minority Leader Dick Gephardt, D-Mo., and other Democrats wrote SEC chairman Harvey Pitt. Biggs is chairman and chief executive officer of TIAA-CREF, the teachers' pension fund which is one of the nation's largest.

The Senate committee has received some 2,500 pages of documents under subpoena from the White House related to contacts with Enron officials. But it did not address that issue, a potential political embarrassment for President Bush, in its lengthy report.

Panel spokeswoman Leslie Phillips said recently that committee investigators were continuing to examine the documents.

The report released Monday said the SEC staff failed to review Enron's earlier financial reports filed with the agency. Had they done so, it said, "they would have had an opportunity to uncover some of the problems with the company's financial practices that appear to have been signaled in those documents."

Leeway 'abused'

In addition, the report noted, the market watchdog agency made earlier decisions allowing Enron to engage in certain accounting practices and exempting the energy-trading company from some federal requirements.

"The leeway afforded Enron by these determinations in certain cases appears in fact to have been abused by the company in ways that ultimately played a role in Enron's collapse," the report says.

SEC spokesmen couldn't be reached for comment Sunday night. They have previously noted that the lack of review of Enron's financial filings and exemptions for the company occurred under the Clinton administration.

Houston-based Enron slid into one of the biggest corporate bankruptcies in U.S. history last December, toppled by a complex web of thousands of partnerships used to hide some $1 billion in debt from the SEC and shareholders. Its failure, which decimated the retirement savings of thousands of employees and hurt individual investors and pension funds nationwide, became the first in a series of big company scandals that shook public confidence in the stock market and the integrity of corporate America.

Last week, the Justice Department charged Andrew Fastow, Enron's former chief financial officer and the alleged mastermind behind the partnerships, with fraud and conspiracy.