SEC is blasted in Enron fraud

WASHINGTON -- A Senate panel investigating Enron Corp.'s collapse said the Securities and Exchange Commission missed early signs of financial abuses at the energy giant, raising questions about whether the agency is "effectively functioning as the lead market watchdog that it is meant to be."

The investigation by the Governmental Affairs Committee, led by Sen. Joseph Lieberman, D-Conn., found a "systemic and catastrophic failure" by those charged with protecting investors -- including stock analysts, credit-rating agencies and the SEC, according to the committee's report, which is to be released today.

Some of the harshest words were directed at the SEC, whose chairman, Harvey Pitt, has been criticized for not being more aggressive in rooting out corporate wrongdoing -- although many of the shortcomings highlighted in the committee's report date to before Pitt took over as chairman in August 2001.

"The SEC, with its relatively small staff, does not, and is not set up to, directly perform many of the tasks necessary to root out corporate fraud," the report says. In a list of suggested reforms, the report recommends that the agency dramatically upgrade its oversight of corporate finances, including performing random corporate audits.

Enron's descent into bankruptcy last December, after disclosures that it used off-the-books partnerships to hide debt, spawned a frenzy of congressional hearings; contributed to passage of sweeping accounting reforms; and culminated last week in the arrest of Andrew Fastow, Enron's former chief financial officer, on charges of fraud.

Enron also faces two separate investigations by federal grand juries: one in Houston that is looking into the company's financial collapse; and another, out of San Francisco, that is investigating the role played by Enron and other electricity marketers in the California energy crisis.

The Senate committee investigation focused on whether the government and private-sector watchdogs could have done more to prevent Enron's collapse and the loss of billions of dollars by its investors, including its employees' retirement savings.