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CNN Live Sunday

Ken Lay Scheduled to Testify Before Congress Tomorrow

Aired February 03, 2002 - 17:01   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: Now the latest on the fallout of Enron's collapse. Some members of Congress should get an earful tomorrow from Enron's former chief executive officer. Kenneth Lay will testify before a Senate and a House subcommittee. Today, lawmakers are responding to Enron's internal audit of its troubles, the so-called Powers report, and the accounting firm Arthur Andersen also is weighing in on that report. CNN's Allan Chernoff join us from New York with the latest. Hi there, Allan.

ALLAN CHERNOFF, CNN FINANCIAL NEWS CORRESPONDENT: Hi, Fredricka.

Well, let's talk about Andersen efforts at damage control today. First of all, of course, the reputation of the firm severely tarnished, so Andersen is turning to someone with a sterling reputation to help out, that being Paul Volcker, the former chairman of the Federal Reserve. Mr. Volcker now will head an independent oversight board that will be reviewing Andersen very closely, and Mr. Volcker said that they will recommend changes to Andersen's audit practice.

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PAUL VOLCKER, FORMER FEDERAL RESERVE CHAIRMAN: I can remember when Arthur Andersen, made-an-America auditing firm, accounting firm was considered the cream of the crop. And I would like to see Andersen return to leadership in the industry.

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CHERNOFF: Joseph Berardino, the chief executive officer of Andersen, said he had two primary goals right now: Number one, to improve Andersen's reputation, and also to improve the quality of the work. He described this new board as a first step toward achieving those goals.

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JOSEPH BERARDINO, CEO, ARTHUR ANDERSEN: This is not something that just looks good, and then, you know, months later you get a report that says nothing. This is about helping us come up with answers to fundamental questions about what the American public expects from an auditing firm.

(END VIDEO CLIP) CHERNOFF: Now, Andersen's reputation of course has suffered a severe blow as of Saturday, because of that Powers report. In fact, the Powers report did say quote: "Andersen did not fulfill its professional responsibilities in connection with its audits of Enron's financial statements."

Andersen is shooting back with a statement of its own, saying that the Powers report "does not reflect an independently credible assessment of the situation, but instead represents an attempt to insulate the company's leadership and the board of directors from criticism by shifting blame to others."

Now, the Powers report is a detailed study, it is 217 pages ,long and it goes through many of the investment partnership that were highly controversial at Enron. These partnerships, according to the report, were used to conceal losses, to inflate profits, and also to hide massive debt at the company. And in fact, the details of the report are very critical, not only of Andersen but also of top management at Enron, of the board of Enron as well, and of the outside law firm Vinson & Elkins.

And so, a lot of criticism there. And now, the chair of the House Energy & Commerce Committee is saying he believes the report is pointing to violations of securities fraud.

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BILLY TAUZIN (R-LA), ENERGY & COMMERCE CHAIRMAN: Not only were there corrupt practices, not only was there hiding of the fact that debt was being put off the balance sheets and profits were reported that didn't exist, but we found more than that. I think we are finding what may clearly end up being security fraud.

(END VIDEO CLIP)

CHERNOFF: And Mr. Powers will be testifying before a subcommittee of Mr. Tauzin's committee on Tuesday on Capitol Hill -- Fredricka.

WHITFIELD: All right, thanks very much, Allan. Allan Chernoff, for that report, thank you.

Well, reporter Julie Mason with the "Houston Chronicle" is keeping a close watch on these Enron developments, and she joins us now from Washington. Thanks very much for joining us, Julie.

JULIE MASON, "HOUSTON CHRONICLE": Thanks for having me.

WHITFIELD: Well, tomorrow is going to be quite a buzz of activity on Capitol Hill. If you were a committee member, what questions might you have right off the bat?

MASON: Well, there is so many questions that the committee members want to ask. As you know, Fredricka, this is the first time that Ken Lay is going to be speaking publicly about his role in the collapse of Enron. A lot of people will be watching very closely to see what his strategy is. Obviously, we have seen a lot of passing the buck, dropping the other guy in the grease. Is he going to take responsibility or not? What did he know, and when did he know it? That's what the committee members want to know.

WHITFIELD: Among those who are going to be taking stand but likely to also take the Fifth in addition to Ken Lay, Fastow, the former financial officer as well. What do you suppose the behavior, the composure is going to be from Fastow? Do you think it's likely he's going to be taking the Fifth?

MASON: Yes, apparently he has notified the committee that he and his aide Mr. Kopper plan to take the Fifth.

It's a different strategy. Certainly, they are facing litigation, they're facing criminal investigations. And when you take the Fifth, you lose the PR battle, but you do cover yourself in the case of subsequent litigation.

Now, Mr. Skilling, who is also named in the Powers report, and was the former executive at Enron, he has not indicated that he is going to take the Fifth, so he could be talking.

WHITFIELD: Now, what timing that this Powers report would be released on the eve of these hearings? How significant or how empowered might those committee members be now, given that they've had a chance, or some have had a chance, to take a look at that report?

MASON: Well, I don't think it has dissuaded any of the very zealous members of Congress to from their zeal to investigate Enron. Certainly it's perhaps a modified mea culpa. It seems to have given them more fodder. They are already talking about some criminal penalties, some criminal allegations that they have discerned from reading the report. So it's given them more fuel rather than taking away their ardor for investigation.

WHITFIELD: And of course I guess it also gives them a little bit more fuel to push for any kind of regulation changes, particularly on accounting measures?

MASON: That's the thing. You know, a lot of reform could come out of this. They are talking about a lot of 401(k) reform on Capitol Hill. There could be more. Obviously, some more transparency in accounting. Things like that are being talked about. So even if we are not going to get obviously indictments out of these hearings on Capitol Hill, but there could be some measures of reform. Too late to help the Enron workers, unfortunately.

WHITFIELD: All right. Thanks very much, Julie Mason, for joining us in from Washington. And I'm sure you are hoping you get one of the front-row seats there on Capitol Hill.

MASON: Any seat will do.

WHITFIELD: All right. Thanks very much.

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