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CNN Live Saturday

Interview With Robert Lenzner

Aired February 02, 2002 - 14:09   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.
FREDRICKA WHITFIELD, CNN ANCHOR: An issue from the Enron scandal emerged today in the president's weekly radio address. President Bush never mentioned the failed energy giant by name, but he did call for a uniform investment standard for company employees and executives.

(BEGIN AUDIO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: It is unfair for workers to be denied the ability to sell stock, when executives are free to sell their stock. Right now, though, companies can create what are called blackouts when they switch the management of their retirement accounts from one investment firm to another. During the switch, employees don't have access to their 401(k)s and can't buy or sell.

These blackouts usually happen because a company is looking for better service for its employees. But when employees can't sell, executives shouldn't be able to sell either.

(END AUDIO CLIP)

WHITFIELD: Meanwhile, the Justice Department has asked the White House to preserve all of its Enron-related records, dating back to January 1, 1999. The administration says the White House is one of several agencies to receive that order. Well could questionable accounting practices force more American companies like Enron to similar disasters?

That's the cover story for the latest "Forbes" magazine. The magazine's Robert Lenzner joins us now from New York with his insights.

I hope I didn't destroy your name, because I seem to be doing that all day.

ROBERT LENZNER, "FORBES" MAGAZINE: No, you got it right. All right. They usually get it wrong, but you got it very right.

WHITFIELD: All right. Very good, thank you.

Well, you know, it has been said that there has been information that was left off the books of Enron; information that would have red- flagged the company. What kind of information are we talking about? LENZNER: We're talking about tens of billions of dollars of debt which were taken off the balance sheet and put into partnerships and never revealed. What my article, "Time Bombs in the Vault," is about is that the big banks have a footnote that tells you that they have promised to lend hundreds of billions of dollars, but nobody knows who they're lending it to and how safe it is. And in this particular case, Enron, they had to loan them $3 billion in late October, and that $3 billion is now worth about $600 million. So the banks -- all- totaled, there are about 46 if them -- lost $2.4 billion.

They also lost a pile of money on Kmart. And there are other loans that they've had to make from these footnoted promises to loan that have turned out badly, and there'll be more in the future. I think that's what -- what this is about is there's going to have to be more disclosure of what these off balance sheet items are, both for banks and for industrial companies. And the SEC has called for that; there's going to be reform. So that investors will know what they're getting into when they buy and sell stocks.

WHITFIELD: Well the ordinary employee just might not have these kind of details about the intricacies of the balance sheet. So what do you recommend, if anything, to employees out there who wonder, is their company next?

LENZNER: Well I think what the president said -- he didn't go all the way, but he should have in his address today. What should happen is there should be a limit on the amount of the company's stock that can be put in your 401(K), because that's your retirement plan. If something happens to the company, and the retirement plan is 80 percent invested in the company, you're wiped out.

You're supposed to be diversified as an investor. So there's going to have to be a law passed that makes it absolutely mandatory that these retirement plans are not stuffed with the company's stock, and that the employees -- the ordinary employees who don't really understand the sophisticated financial things going on here -- are protected. They must be protected, and that's what's going to happen. That's going to be the first concrete reform to come out of the Enron scandal.

WHITFIELD: Well you know last -- just last night on CNN, the U.S. Chamber of Commerce's Tom Donahue (ph) said he disagrees with any kind of changes across the board -- changes that would affect the accountants. Do you agree with him?

LENZNER: No, I disagree with that completely. I don't know why he would have said that. It's simply stupid, because back in 1933 we formed the Securities and Exchange Commission in order to give investors protection for their investments. Now we're finding out that the accountants have been playing all these games that are -- this was a conspiracy to mislead the market about the value of Enron. And the accountants played a real role in it, and they also played a role in covering it up because they -- they were destroying documents.

So there has to be hearings about the accountants. There has to be some government oversight institution on the accounting profession. There has to be very tight rules about how the accountants will mesh with the company. There has to be absolute mandatory laws that say that the numbers that tell you the value of a company must be disclosed in very simple terms.

So, no, I disagree with that completely. This is a scandal and something must be done about it.

WHITFIELD: OK. I don't think you're alone out there. Robert Lenzner, of "Forbes" magazine, thanks very much for joining us. This is the issue that he's talking about. Read all about it in the February 18 issue of "Forbes" magazine.

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