It's Not Just Enron Anymore
The Los Angeles Times
April 9, 2002
EDITORIAL
Jittery investors rightfully are hammering the stock
prices of companies whose financial reports present
more questions than answers. Adelphia
Communications Corp.'s market value tumbled by
51% on fears that accounting practices were
benefiting company founder John Rigas, whose
family controls the cable television giant. Qwest
Communications International Inc.'s share price has
been cut by half because of accounting concerns.
The need for serious reforms is no longer debatable.
New World Restaurant Group (bagel stores), Reliant
Resources Inc. (energy) and KeySpan Corp.
(natural gas) late last week joined the growing list of
companies facing SEC investigations. The chief
executive of the company that publishes TV Guide is
scrambling to placate shareholders after
acknowledging that he wrongly recorded an anticipated legal settlement as
revenue.
The rash of Securities and Exchange Commission investigations is further
spooking investors already rattled by the recession, the war on terrorism and the
Middle East. Additional scrutiny is welcome, even if it increases market turmoil
in the short term, because investors need full disclosure to navigate what a
federal regulator describes as the "seductions and terrors" of the market.
Regulators must discover how widespread accounting irregularities were at the
end of the 1990s economic boom. Xerox Corp., for example, will pay a record
$10-million SEC fine and restate five years of financial results. The SEC also
says Waste Management Inc. inflated profits by $1.7 billion in the late 1990s.
Investors are trying to do their part. The SEC is fielding an average of 525 e-mail
complaints daily, up from an average of 365 a year ago. Ten years ago, an SEC
chairman described his agency's toughest challenge as "how to deal with the
confusion and lack of information among investors." The situation, from the
investor point of view, is worse today.
Investor confidence requires that accountants employ clear, factual language that
casts light instead of shadows. The SEC deserves the budget and manpower to
make that happen, and to cope with the post-Enron surge in enforcement and
monitoring.
Yes, it would be grand if all corporate executives were to return to managing
their companies for long-term growth and quit concocting gold-plated earnings
reports that attempt to prop up stock prices. It would also be fun to see pigs fly.
Only the SEC can enforce truth and transparency. It is a task that SEC
Chairman Harvey Pitt has seemed reluctant to embrace. The latest batch of
corporate confessions should clear up his doubts.
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