After Enron, tighter rules
cleveland.com
Enron's collapse keeps stirring up dust swept under other corporate rugs.
Financial regulators are nevertheless seeing their way clear to tougher
responses.
After almost two years of investigation, the Securities and Exchange
Commission reached agreement earlier this month with Xerox Corp. on an
unprecedented $10 million fine, reportedly for exaggerating revenue from
its copier business from 1997 through 2000. Xerox neither admitted nor
denied fault, but agreed to redo its financial statements.
Now the SEC has notified two
Xerox executives and Xerox's
former auditor KPMG LLP that
it may file civil charges unless
they can persuade it not to.
KPMG says it can.
After a 10-month investigation,
New York Attorney General
Eliot Spitzer has filed with a
court evidence suggesting that
Merrill Lynch & Co. engaged in
duplicity of a sort many
suspect in the Enron case:
Company analysts seem to
have publicly touted technology
stocks that they privately
characterized as "dogs." Merrill Lynch says that Spitzer has "taken out of
context" such remarks in e-mails among its analysts. The missing
context should be interesting.
After several months of plea bargaining, a former partner in the accounting
firm Arthur Andersen pleaded guilty to "knowingly, intentionally and
corruptly" obstructing the SEC inquiry into the Enron mess by illegally
shredding documents. David B. Duncan, chief auditor of Enron, is said to
be the mother lode of information about the off-the-books transactions that
sent Enron off the rails.
These and other developments should be enough to make financial giants
wish they had listened more and balked less when regulators tried several
years ago to forestall such catastrophe. Enron and Andersen were two
among many major companies, Wall Street Journal reporter Glenn R.
Simpson has noted, that sank an effort by the Financial Accounting
Standards Board to make firms disclose the fiscal wizardry that fuzzed
their risks.
The problem, some auditors say defensively, is not the wizardry itself but
whether it was abused. Yet they relegated even proper uses to footnotes,
either to escape investors' notice or to avoid having to explain.
Either way, investors have now noticed and demanded explanations. The
regulators the industry had cowed now have support from the public and a
Congress disposed to clamp down if regulators don't. And the industry is
now left to argue why they shouldn't. |
