Former SEC Chairman Levitt on Enron's Collapse (Transcript)
2002-01-14 14:49 (New York)
Boynton Beach, Florida, Jan. 14, 2002 (Bloomberg) --
Former Securities and Exchange Commission (SEC) Chairman
Arthur Levitt talks with Bloomberg's Dylan Ratigan via
satellite about the collapse of energy trader Enron Corp.
and the need for an improved oversight process and improved
accounting practices. Levitt is a Bloomberg LP board member.
(This is not a legal transcript. Bloomberg LP cannot
guarantee its accuracy.)
RATIGAN: Well, after a seven-week stock slide and then
filing for bankruptcy on November 8th, the fall of the
largest energy trader, Enron, has brought many issues to the
forefront, ranging from accounting standards; 401(k) plans;
questions regarding auditing practices, in general, and
specifically, in this case, Arthur Andersen.
And Enron, as such, the focus in our visit with Arthur
Levitt. Joining us now from Florida is the former chairman
of the SEC and now a regular contributor to us here at
Bloomberg News, as well as a member of our board at
Bloomberg.
Arthur Levitt, it's good to see you. I say good
morning to you, a happy new year to you.
LEVITT: Good morning, Dylan.
RATIGAN: .and ask you what happened? What went wrong?
LEVITT: Well, what we really had here was an absolute
breakdown of the gatekeepers that would ordinarily protect
individual investors. It wasn't just the accountants,
although certainly they had the oversight responsibility.
It was the brokers who sold this. It was the analysts who
just didn't do their job. It was the rating agencies that
dropped the ball. It was the investment bankers that cooked
up a scheme to hide the obligations of the company and
subsidiaries. The system just didn't work; there wasn't
adequate oversight. And it could happen at other companies
just as well.
RATIGAN: What sort of solution would you suggest?
LEVITT: I think there are a number of things. I think
we have to take a clean look at the way we report out,
accounting standards. Right now, the independent standard
setter is the FASB up in Norwalk, Connecticut. But they are
funded by the very companies that they provide standards for
and the process is slow and cumbersome. We need oversight
of the accounting profession by an independent, perhaps
appointed by the SEC, oversight body that will supervise
them and not require the funding of the trade group that
represents the industry, the AICPA. It's got to be
independent. In addition to that, we need new standards for
analysts, to see to it that they're not comprised by
conflicts of interest that keep them from getting to the
heart of the story.
RATIGAN: You were - you were going to keep going?
LEVITT: I'm saying that these are a few of the issues
that have to be addressed. I think that, in addition to
that, corporate America has got to change the way their
boards are structured in terms of independence. I think we
have to consider very seriously about requiring publicly
owned companies to include at least 50 percent of their
board coming from independent directors, rather than the
present system of requiring only perhaps three.
RATIGAN: Talk to me about realistically, Arthur, what,
if any of what you just described, will actually occur, from
the accounting oversight, to conflict on the research side,
down the line.
LEVITT: I think a lot of it will. This is an
unprecedented business scandal. Occurring at a time when
the market has declined so precipitously, the public is
very, very engaged in this issue. I think there's never
been a better time to redo the way we derive accounting
standards, to redo the way we supervise the auditors. For
years, American business has been working at managing the
numbers in ways which have been deceptive to the American
public.
RATIGAN: Correct me, if I'm wrong, Arthur, but what
you're suggesting would imply that what happened at Enron
was not simply the work of a few executives that had
concocted a scheme of sorts, but at least an implicit
consent by a large number of people to allow this to occur?
LEVITT: I think that's true, Dylan. I think that this
represents the culmination of years of effort on the part of
individuals and corporations and others to kind of move us
towards the edge of the envelope, and, in doing that,
deceiving the public by failing to observe some of the basic
protections that are part of what has made our system so
great.
I think this is a time that we've got to review how
standards are set, how rules are established, how oversight
proceeds in terms of protecting the public interest. Not
ever has the accounting industry focused on the public
interest. Rather, their focus has been in terms of
protecting their own interests. That's got to be addressed.
It's a job for regulators; it's a job for the SEC; it's a
job for investors to ask the right questions.
RATIGAN: Fair enough. Listen, it's a true pleasure,
as always. We'll see you next week. Arthur Levitt with us
out of Florida.
***END OF TRANSCRIPT***
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