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CNN Live At Daybreak

Enron Also Managed To Deceive Analysts

Aired February 28, 2002 - 06:17   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.
CAROL COSTELLO, CNN ANCHOR: We have more on Enron now. The fall of that energy giant caught a lot of people by surprise, including some top financial analysts.

Tim O'Brien of CNN Financial News analyzes what went wrong with the analysts.

(BEGIN VIDEOTAPE)

TIM O'BRIEN, CNNFN CORRESPONDENT (voice-over): Just five days before Enron went bust, Curt Launer, Managing Director of Equity Research at Credit Suisse First Boston was still recommending buy. How could he have been so wrong? Easy...

CURT LAUNER, EQUITY RESEARCH, CSFB: It now appears that some critical information on which I relied from my analysis of Enron was inaccurate or incomplete. Furthermore, Enron never publicly disclosed the alleged use of the Raptor investment vehicles. It now appears that these entities may have engaged in trades with Enron, simply to establish artificially asset values. Had I known any or all of these items, the information would have significantly effected my analyses and recommendations.

O'BRIEN: Launer, of course, was not alone. Eleven of 16 analysts who followed Enron was still rating at a buy or strong buy as late as November 12th, two weeks after the Securities and Exchange Commission announced it was investigating Enron's accounting. Wall Street has been shaken by the thought Enron might not be alone.

SEN. JOSEPH LIEBERMAN (D), CONNECTICUT: The average investor today, I'm afraid feels like a swimmer who's seen a shark. He or she doesn't know how many more sharks are in the water and whether there are any lifeguards on duty.

O'BRIEN: Enron's questionable accounting may have been aggravated by the well-established bias in favor of buy ratings that critics attribute to conflicts of interest.

FRANK TORRES, CONSUMERS UNION: Unfortunately, too many securities analysts have become cheerleaders for the companies their firms are doing business with. Investors don't need more cheerleaders. They need critical evaluations and analysis.

O'BRIEN: The SEC and Wall Street are trying to develop new rules to increase the independence of analysts, to prohibit linking an analyst's compensation to specific investment banking deals, and to require analysts to disclose if they own shares in any of the companies they are covering.

(on camera): And Congress is just itching to step in and help. Pre-Enron, there was a fervor in Washington, fueled in part by the Bush administration toward deregulation. Now, lawmakers all over town are asking themselves, "What can we do to prevent whatever happened at Enron from ever happening again?"

Tim O'Brien, CNN Financial News, Washington.

(END VIDEOTAPE)

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