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Although it’s been several months since Enron was transformed from the nation's largest energy-trading company, with stocks selling at nearly $85 a share, to the nation’s largest bankruptcy, a Kennedy School audience was eager to hear all about the scandal and its ramifications from a panel of experts at an ARCO Forum panel discussion March 18.
"A new culture developed in the accounting profession over the past 15 years that allowed for fuzzy bookkeeping," said Congressman Edward Markey (D-MA), a member of the House Energy and Commerce Committee, one of 10 committees currently investigating Enron’s demise. "Rather than this being the iceberg, this is just the tip."
"The public and investors have a right to be scared to death," said Mary Schapiro, president of the National Association of Securities Dealers Regulation, Inc., the agency that regulates the securities industry and oversees almost all U.S. stockbrokers and brokerage firms. "I’d like to think that Enron is an aberration, but like Congressman Markey, I don’t think it is. This is one of the greatest corporate tragedies, hopefully, in our life time."
Kennedy School lecturer Robert Pozen, former vice chair of Fidelity Investments, said he believes the Enron scandal is a case of "conscious" fraud.
"There’s not much you can do when someone consciously sets out to defraud people," he said. "What’s interesting is how this case caught the public’s attention. People weren’t as upset by the dot.com bubble burst as they are by Enron. People knew the dot.com phenomenon was a bubble. But with Enron, it feels like a fix."
The silver lining in Enron’s trouble, said Pozen, is that people now understand the importance of diversification when investing.
The intense scrutiny has also revealed a need for major changes in the ways business and auditing co-exist, said Schapiro. "We need stronger oversight by the FCC and governance of institutions has to come from independent board members. Auditors also need to have a set of business standards that they follow."
"Remember, Arthur Andersen was a consultant to Enron, not just its auditor," said Markey. "They’re not just the scorekeepers, they’re in the game." Arthur Andersen, one of the largest accounting firms in the world, has been indicted on allegations of shredding Enron-related documents.
Regaining the public’s trust will be critical to moving beyond the current crisis, said Schapiro. "Trust is the hardest thing to gain and the easiest to lose. The markets will recover, I don’t doubt that, but it will take a lot to convince people that it’s safe to come back into the water."