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'Enron deception started at top'

Enron Corp tried to systematically manipulate its financial results and deceive shareholders as top executives raked in personal gains of tens of millions of dollars, the author of an internal inquiry into the company's collapse told Congress on Monday.

"We found a systematic and pervasive attempt by Enron's management to misrepresent the company's financial condition," said William Powers, dean of the University of Texas Law School, before a House Financial Services subcommittee.

In a report Rep Christopher Shays said "blows my mind," Powers described a vast web of off-the-books partnerships designed by Enron and its auditor Andersen, the Big Five accounting firm, that hid losses and enriched Enron managers.

"There were failures in the performance of Enron's outside advisors. And there was a fundamental default of leadership and management," starting with former chief executive Kenneth Lay and reaching to the board and senior managers, Powers said.

"Within Enron, the checks and balances simply broke down," he said, adding that "the auditors were paid a great deal of money to help design these (partnership) vehicles."

As Congress began a week of hearings on the downfall of the former energy trading giant, the capital markets subcommittee heard from Powers and Securities and Exchange Commission Chairman Harvey Pitt, who once worked for Enron's auditor.

In a three-hour discussion with lawmakers, Pitt was asked if other Enrons lurked among America's 17,000 publicly traded companies. He said he hoped not, but added, "At the present time, no one can give you the assurance that you seek."

Once the seventh-largest company in America, Enron last fall named Powers to its board to probe events then pushing the company toward filing the largest bankruptcy in US history on Decemebr 2, hammering investors and destroying thousands of jobs.

MANAGERS MADE MILLIONS

He issued a 218-page report on Saturday that found Enron fattened its profits by nearly $1 billion through a network of financial partnerships used to hide losses, while top managers made millions of dollars "they should never have received."

He laid some of the blame for Houston-based Enron's woes at the feet of Lay and of Jeffrey Skilling, a chief operating officer who was briefly CEO before he resigned last August.

Powers said former Enron chief financial officer Andrew Fastow made "at least $30 million," while former senior executive Michael Kopper made "at least $10 million" through their involvement in off-the-books partnerships doing complex deals with Enron involving company stock and asset sales.

"We are told Skilling knew and was involved in these agreements. There were a handful of individuals -- Fastow and others -- who were designing these both to manage Enron's financial statements and to enrich themselves," Powers said.

Powers said the Enron board of directors failed in its duty to provide leadership and oversight. "In the end, this is a tragedy that could and should have been avoided," Powers said.

He blamed Enron's demise on "a flawed idea, self-enrichment by employees, inadequately designed controls, poor implementation, inattentive oversight, simple (and not-so-simple) accounting mistakes, and overreaching in a culture that appears to have encouraged pushing the limits."

The company that was one of President George W Bush's biggest political contributors today is under investigation by nine congressional committees, the Justice Department, the Securities and Exchange Commission and the Labor Department.

After Powers' report was released on the weekend, former Enron CEO Lay canceled plans to testify before a Senate committee and before the capital markets subcommittee.

ONE LAST CHANCE

House Financial Services Committee Chairman Rep Michael Oxley said late on Monday he was preparing to subpoena Lay to appear before the subcommittee, while giving the former Enron chairman one last chance to appear voluntarily.

"The committee intends to issue the subpoena and to compel Lay's appearance," said the Ohio Republican in a statement.

Lay resigned from the Enron board on Monday, having already resigned as chairman and CEO on January 23, under board pressure.

Subcommittee Chairman Rep Richard Baker, a Louisiana Republican, complained that Andersen, Enron's auditor should have done more to draw attention to the company's problems.

In 2000, Andersen got $25 million for audit work and $27 million for other services from Enron, leading to criticism in some lawsuits that the firm's audit judgment was biased.

Baker called for more auditor independence, either by requiring new standards of responsibility or by separating "the auditor from the corporation entirely, by requiring external audits to be paid for by someone other than the corporation."

Baker said, "Perhaps, as some have suggested, it's time to have the stock exchanges engage the auditors and report their findings simultaneously to the exchange and the corporation."

In response to questions about requiring companies to change auditors every few years, Pitt said, "Mandatory rotation definitely is a serious idea worthy of consideration."

Ohio Democratic Rep Stephanie Tubbs Jones asked Pitt about any possible conflict of interest between his present job and his 20-year career in private law practice representing top corporate clients and accounting firms, including Andersen.

"When I left private practice, I left my clients behind," Pitt replied. "We have made a decision, I have, that I will not participate and I am not participating in any investigation that is specifically focused on an accounting firm."

Pitt elaborated on his January 17 proposal for a new accounting supervisory body to be called the Public Accountability Board, saying it should be funded "not by the accounting profession but from the entire private sector.

He reiterated his vision for a board having "at least a predominant majority" of members unaffiliated with the accounting profession. His original proposal was criticised by some as too closely aligned with the profession.

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