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CNN Live Sunday

Senate Subcommittee Blames Enron Collapse on Management

Aired July 07, 2002 - 18:02   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 LIN, CNN ANCHOR: A Senate subcommittee report on Enron places the blame for the company's collapse on the shoulders of Enron insiders. CNN Financial News reporter Allan Dodds Frank has more.

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ALLAN DODDS FRANK, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Enron's board of directors failed its paramount duty to protect shareholders and bears responsibility for the company's collapse. That is the harsh conclusion of the Senate committee, which interviewed the company's directors, five of them testifying in May.

In its report released Sunday, the committee found that Enron's directors, who each earned about $350,000 a year, ignored numerous questionable practices and conflicts of interest among Enron executives.

The committee says the directors also repeatedly authorized high risk accounting practices. In a telephone interview, Senator Carl Levin, chairman of the permanent Investigation Subcommittee told CNN:

SEN. CARL LEVIN (D), MICHIGAN: Basically, what we found out is that they knew what was going on. They had the warnings. They were put on notice and they can not escape responsibility.

FRANK: The report concludes that the company's directors authorized deals that had enriched Enron's Chief Financial Officer Andrew Fastow by $45 million at the expense of the company and its shareholders.

Among the other findings, the board repeatedly ignored red flag warnings from auditors at Andersen that Enron's accounting was aggressive and might not stand up if challenged.

The board allowed Enron's officers to create 3,000 special entities that allowed management to move nearly $20 billion of the company's debt off the books, hidden from clear disclosure to investors.

The board also approved excessive compensation for Enron's CEO Kenneth Lay and other top officers and failed to stop Lay from abusive use of a multi-million dollar credit line.

(on camera): The lawyer for the outside directors tells CNN Financial News the report is unfair and its outcome was predetermined, and he adds, there are a lot of culpable people in this matter and it's not the directors.

(voice-over): Congressman Billy Tauzin whose committee has been conducting a similar investigation was not buying that argument.

REP. BILLY TAUZIN (R), LOUISIANA: They took everything at their word. They never looked behind the numbers. They never questioned any of these transactions. It was an embarrassment, I think, to think that these folks, highly qualified people, were so out of touch with what was going on in this corporation.

FRANK: The report was far more critical of the directors than was an investigation initiated by Enron. That report claimed the directors were often misled by management but should have been more aggressive and vigilant.

Allan Dodds Frank, CNN Financial News, New York.

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