The Fall of Enron: How
Could This Have Happened?
Committee on Governmental Affairs
Senator Joe Lieberman
January 24, 2002
(as prepared for delivery)
Statement by Chairman Lieberman - As Delivered
Good morning. With this hearing the Senate
Governmental Affairs Committee begins its investigation of the Enron
scandal. The spectacular rise and fall of an American corporation
and the devastating effects its collapse has had on its employees
and retirees, on its shareholders and customers, and on the
confidence many Americans have in the markets and in their
government.
The basic facts of this story are now well known.
Less than a year-and-a-half ago, Enron was ranked as the seventh
largest corporation in America. The energy trading company was a
bright star on Wall Street, a juggernaut trading at $90 a share at
its height with revenue over $100 billion. Stock analysts couldn't
recommend it fast enough, and the company made millionaires of many
loyal employees who invested their life savings in its stock. Then
last month, Enron's bright star collapsed into a black hole when it
abruptly declared bankruptcy and was exposed as a house of cards
built on greed and deceit. To add insult to injury, average workers
and investors were cheated out of their life savings while a small
group of executives and insiders made off with hundreds of millions
of dollars from well-timed stock sell offs. Today the company stock
is worth pennies and is no longer traded on the New York Stock
Exchange. Five thousand of its employees are out of a job, and
thousands more are reeling in the ruin of their retirement dreams.
One of the nation's top accounting firms, Arthur
Andersen, is accused of helping to conceal Enron's liabilities
instead of reporting them. Public and private employee pension funds
from Florida to California have lost billions of dollars. And at a
time when over 60 percent of Americans own stock in one or another,
the confidence of the investing public in the stock market has been
shaken.
So this is not just a tempest in a teapot, it is
an unprecedented corporate storm that has already hurt thousands of
people and now leaves dark clouds over America's economy and
Americans' confidence in their future personal economic security.
This scandal cries out for thorough congressional investigation to
make sure that nothing like this ever happens again. Yet, because
Enron has made substantial political contributions to members of
Congress and the executive branch, some have questioned the capacity
of any congressional committee to conduct an independent, thorough
investigation of Enron. Now, I think there are two things we, in
Congress, can do to overcome that skepticism and rebuild public
trust. One is simply to do a completely independent and demanding
investigation and that is the intention of this committee. The
second is to pass campaign finance reform.
As for this committee, we have a clear duty under
the rules of the Senate to investigate and we will carry out that
duty by conducting an investigation that is independent,
comprehensive, aggressive, fair and non-partisan. We should neither
jump to conclusions before the facts justify them nor hesitate to
ask tough questions of those in the public and private sectors who
can produce the facts that we need in order to get answers. And we
will follow the facts wherever they lead us. This is a big and
complicated investigation. So our committee has divided it between
the full committee and our lead investigative committees. The
permanent subcommittee on investigations, chaired by Senator Levin
with Senator Collins, as Ranking Republican, will investigate the
internal malfeasance of Enron and its auditors, the role of the
board of directors, conflicts of interest, offshore tax havens, and
insider trading.
Here at the full committee level, we're going to
focus on the external controls and protectors, the federal agencies
and laws, and ask why in this case they couldn't better protect the
thousands of employees and investors who have suffered from Enron's
untimely and unnatural demise. As the Senate's chief oversight
committee, it is our responsibility, again under the Senate rules,
to make sure the federal government is as effective as it can be in
protecting the public interest, because in this case so many have
lost so much. This committee must ask if the relevant federal
agencies- the Securities and Exchange Commission, the Labor
Department, the Commodities Futures Trading Commission and the
Federal Energy Regulatory Commission - did everything they could
have done to protect the public, and if not, why not.
At least one of those agencies was formed way back
in the most serious crisis American capitalism has ever faced, the
Great Depression. It and other watchdog agencies that have followed
were established, I think, to require the fullest disclosure and
fairest play that are necessary to make our market economy work for
the benefit of the many, the broad middle class, and not just the
privileged insider few. Now in the context of the Enron's scandal,
people are asking, and we will ask, whether these agencies need to
be strengthened to perform this critically important function.
Here are some of the questions we're going to ask.
How was Enron allowed to hide its debts and losses and shady
accounting from SEC oversight? Could the Labor Department have
intervened when Enron barred its employees from selling company
stock in the 401(k) plan and blocked them from salvaging what was
left of their retirement nest eggs? Could FERC and the CFTC have
exercised more oversight to rein in abuses that might have
contributed to Enron's collapse? We've got to ask also if the
regulatory agencies need additional powers to prevent this kind of
massive investor rip-off from occurring again.
And we've got to ask, and we will, and Senator
Levin's committee will, why the private sector checks and balances
that we rely on to keep the markets honest and open, the auditors
and analysts and independent corporate directors didn't do their
part to make sure that the Enron investors and employees were
getting the true story.
Are the auditors with their enormous consulting
fees too beholden to management to protect the shareholders'
interests? Are stock analysts too concerned about protecting the
lucrative business relationships of their firms to be objective in
their assessment of companies? Are independent directors with their
stock options and consulting contracts and corporate perks truly
independent? Is the system, in sum, so rife with conflicts of
interest that the average American trusting his or her future to the
stock market is inadequately informed and therefore poorly
protected?
We are going to begin our oversight and
investigation with a series of hearings during the next several
weeks on the most important public policy questions that have
emerged from the Enron scandal. At the same time, we will also issue
written interrogatories to the agencies of the Federal Government
that have had jurisdiction over Enron and to the White House to
determine what they knew and did regarding Enron's regulation by the
four agencies I mentioned earlier over the last several years. We
also plan to request, by subpoena, that Enron and Arthur Andersen
turn over documents related to their contacts with the same federal
agencies and offices. After we collected that information and
conducted additional interviews, we will report our findings to the
public in hearings to be conducted later this year. In the end, I
hope that this committee will have specific recommendations to make
to change the law and regulation, recommendations that will
strengthen the watchdogs both in and out of the federal government
so nothing like the Enron scandal ever happens again.
In today's hearing, we're going to set the stage
for what will follow and try to put the Enron story into context by
defining a set of the most important policy issues that have come
into question as a result of Enron's collapse. The sudden, wholly
unanticipated failure of the nation's seventh largest corporation
under infuriatingly suspicious circumstances, with grave
consequences for thousands of people, is a clarion call for all of
us in government to make sure we are doing all we can to protect the
integrity of our markets that, in their way, have allowed the growth
of the great American middle class and the savings and investments
of the American people.
I would like to say just a few words briefly to my
fellow members of the committee. We are beginning a journey today,
one that will be long and complicated and often controversial. But
it is a very important journey. It's not a journey that was on our
committee agenda for this year. But then Enron happened and now this
committee, which is uniquely charged with oversight and
investigation by the Senate rules, has a duty to act. Along the way,
there will be people outside the committee who will try to distract
us and divide us. For my part, I pledge to you that I will do
everything possible to make sure they do not succeed. I want to end
this journey together as we begin it together today, having found
the truth as best we could and proposing reforms that are the best
we can.
I am very privileged to have Senator Fred Thompson
as the Ranking Republican on this committee. We have worked closely
together over the years. I have great respect for Senator Thompson.
I might even say I like him. I even occasionally enjoy his company.
I would say, in specific regard to this matter, I've consulted with
him as we have shaped our investigative plan and I look forward to
working closely with him as the investigation proceeds. I am also
pleased that Senator Levin and Senator Collins and their staffs are
working closely together on the work of the Permanent Subcommittee
on Investigations. |