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CNN Sunday Morning

Interview With Michael Weisskopf

Aired July 07, 2002 - 07:35   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: A Senate investigation directly blames Enron's board of directors for the energy giant's collapse. A copy of the Senate report obtained by "Time" magazine cites, among other things, misleading accounting, as well as off the books partnerships that hid a billion dollars in debt and inflated profits. Now as you probably know, Houston-based Enron declared bankruptcy last December, after its stock collapsed.

And as you might expect, Robert Bennett, a lawyer for Enron, calls the Senate investigation "a stacked deck against Enron from the get go."

Michael Weisskopf is a senior correspondent for "Time" magazine. He joins me live from Washington.

Good morning, Michael.

MICHAEL WEISSKOPF, TIME MAGAZINE: Hi, Kyra.

PHILLIPS: All right, let's talk about the details of this report and what exactly does it allege?

WEISSKOPF: Well, it's a very harsh indictment of one slice of the Enron management which thus far has avoided much blame. And that is the board of directors. This is a group that was set up to serve as an independent check on this company and a protective filter for shareholders. And what the report says is basically they knew about and failed to stop all the abuses at Enron, some of which you mentioned. The conflicts of interest, the hiding of assets and the risky accounting practices.

PHILLIPS: Now I mentioned a few names to you earlier on. Of course, CEO Ken Lay and Wendy Gramm, wife of Senator Phil Gramm, they've become household names, as you have said. But it doesn't single these two out specifically, correct?

WEISSKOPF: They are both, of course, named in the report. Wendy Gramm, wife of a U.S. senator from Texas Phil Gramm, was on the audit committee. And that -- a point is made of that. Ken Lay is singled out for some unorthodox compensation practices, including the borrowing of $77 million, repayment with stock. And what this was in effect was selling a great deal of stock without requiring him to disclose it.

PHILLIPS: How damaging is this report for Enron?

WEISSKOPF: It's especially damaging for this kind of elite panel, which had a strong oversight role. It was supposed to have been really watching more closely. And it will be particularly difficult for those kinds of people and they're well known names to keep their seats on other boards now. Many of them straddle boards and make their living that way.

PHILLIPS: Enron lawyers are calling this report unfair. What has Enron reaction been to this report?

WEISSKOPF: It's pretty much what they said all along, which is that the board was mislead by the company management and that it really was kept in the dark. It wasn't aware of it. What this report does is go right to the heart of that defense and shows that in fact they were aware that Arthur Andersen, auditors for instance, made them very -- made it very clear that the county practices were on the edge, as Andersen said, and that at one point, the CFO reported a $2 billion cash flow within a six month period, which is just extraordinary. And nobody even asked questions about it on the board.

PHILLIPS: What does the Senate do now since the report has been issued? What's the next step?

WEISSKOPF: Well, there will be hearings and continuing investigation. This is done by the permanent investigative subcommittee of the Senate, led by Carl Levin. And they'll continue digging and having hearings.

PHILLIPS: Michael Weisskopf, senior correspondent for "Time" magazine, always good to see you. Thanks, Michael.

WEISSKOPF: Good to see you, Kyra.

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