[Congressional Record Volume 148, Number 14 (Thursday, February 14, 2002)]
[House]
[Pages H510-H511]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 ENRON SCANDAL CAUSES UNBEARABLE GRIEF, ANGER, AND FINANCIAL HARDSHIP 
                          FOR ENRON EMPLOYEES

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Iowa (Mr. Ganske) is recognized for 5 minutes.
  Mr. GANSKE. Mr. Speaker, employees, pensioners, and investors who 
have seen their nest eggs disappear from Enron's bankruptcy speak of 
``unbearable grief.'' They are also really angry that Enron's 
executives cashed out while, in many cases, they were locked in. One 
man told a congressional hearing, ``I could understand now why people 
jumped out of windows in the Great Depression.'' Several of my fellow 
Iowans who used to work for the Nebraska and Western Iowa Natural Gas 
Company that merged with Houston Natural Gas to become Enron have told 
me they have lost most of their life savings. I recently gave a talk to 
a Des Moines Rotary and two-thirds of the 200 people there have lost 
money in Enron, either directly or through their mutual funds.
  The personal toll has been enormous. There has even been a suicide by 
one of Enron's former executives who left the country with millions, 
but could not deal with the collapse of the company.
  The bankruptcy of Enron is the country's largest business failure. 
Its demise is rippling across our economy at a time when investor 
confidence was already shaky. What makes the Enron scandal so serious 
is that it is not an isolated case of corporate greed and fraud. Global 
Crossing and Elan also gave money to someone else, took some of it 
back, and counted the income as revenue without counting the outgo as 
expense. Amazon also resorted to ``pro forma'' accounting when it did 
not like GAAP. Shares in Tyco International dropped 50 percent on 
questions about its accounting.
  My congressional committee, the Committee on Energy and Commerce, is 
holding hearings even as I speak on this Enron implosion and what 
happened and how can we avoid future collapses. My committee exposed 
the shredding of documents by both Enron managers and Arthur Andersen 
accountants. We are hearing today about the woman, Sherry Watkins, who 
wrote the ``smoking gun'' memo in which Enron President Ken Lay was 
informed of sham transactions with partnerships controlled by its own 
employees that were designed to accomplish favorable financial 
statement results in order to conceal large losses resulting from 
Enron's merchant investments. She warned Mr. Lay of ``impending 
implosion.''
  Mr. Lay and others sold millions of dollars of Enron stock, even 
though insiders are prohibited from selling if they have material 
nonpublic information. Ken Lay and the chief financial officer, Andrew 
Fastow, have now taken the fifth before Congress, and Enron CEO Jeffrey 
Skilling very well may have not been totally honest with my committee 
when he testified. Arthur Andersen Accounting Company is in deep 
financial trouble too. Its Enron accountants' actions are under 
investigation, as well as activities at Andersen headquarters. The 
Justice Department is investigating whether crimes were committed, and 
these people may go to jail.
  But that is small consolation to people who have lost their life 
savings. They want to know who is to blame for corporate America's 
largest bankruptcy, and there is much blame to go around: executives 
with no ethics, conflicts of interest on Enron's board, auditors who do 
not ask tough questions, investment banks that kept high-risk leverage 
off the books, stock analysts without the vaguest understanding of 
Enron's schemes. The failure of the Securities and Exchange Commission 
and the Financial Accounting Standards Board, FASB, on rules for 
subsidiaries, and maybe even Congress, should share some of the blame 
for failing to support stricter rules.

                              {time}  1430

  A couple of years ago then-SEC Chairman Arthur Levitt pushed for 
stronger rules to separate accounting from consulting by the same 
firms. I am thankful now that I supported his efforts. The public 
outrage over this economic tragedy is real, and that is why I am 
hopeful Congress will act. Congress is considering the multifaceted 
nature of this problem.
  The 1929 stock market crash prompted legislation to force publicly 
traded companies to submit regular reports that met certain standards. 
Former Treasury Secretary Larry Summers has said that no innovation has 
been more important to the success of U.S. capital markets than 
generally accepted accounting principals.
  The transparency and accuracy of corporate reports inspired investor 
confidence. Unfortunately, with compensation more closely tied to stock 
prices, the incentives for corporate managers to distort the 
information they provide investors has grown.
  It seems to me accounting firms must raise their standards and adopt 
new rules requiring that subsidiaries be included in a company's 
financial statements. Those standards should be enforceable by FASB and 
that the funding of this regulatory board should be independent from 
accounting firms it oversees.
  Investors rely on stock analysts. We need to do many things to fix 
this problem. Last week Paul Volcker said, Accounting and auditing are 
in a state of crisis. Mr. Chairman, to the millions of Americans who 
are depending on their investments for their retirement or their 
children's college educations, Mr. Volcker's statement is not 
hyperbole.
  Employees, pensioners and investors who have seen their nest egg 
disappear from Enron's bankruptcy speak of ``unbearable grief.'' They 
are also really angry that Enron's executives cashed out while, in many 
cases, they were locked in.
  ``I could understand now why people jumped out of windows in the 
Great Depression,'' one man told a congressional hearing. Several 
Iowans who used to work for the Nebraska and western Iowa natural gas 
company that merged with Houston Natural Gas to become Enron have told 
me they have lost most of their life savings. I recently gave a talk to 
a

[[Page H511]]

Des Moines Rotary and two-thirds of the 200 people there had lost money 
in Enron either directly or through their mutual funds.
  The personal toll has been enormous! There has even been a suicide by 
one of Enron's former executives who left the company with millions but 
could not deal with the collapse of the company.
  The bankruptcy of Enron is the country's largest business failure. 
Its demise is rippling across our economy at a time when investor 
confidence was already shaky. What makes the Enron scandal so serious 
is that it is not an isolated case of corporate greed and fraud. Global 
Crossing and Elan also gave the money to someone else, took some of it 
back and counted the income as revenue without counting the outgo as 
expense. Amazon also resorted to ``pro forma'' accounting when it 
didn't like GAAP. Shares in Tyco International dropped 50 percent on 
questions about its accounting.
  My congressional committee, the Energy and Commerce Committee, is 
holding hearings into how this ``Enron implosion'' happened and how can 
we avoid future collapses. The committee exposed the shredding of 
documents by both Enron managers and Arthur Andersen accountants. We 
have discovered the ``smoking gun'' memo in which Enron vice-president, 
Sherry Watkins, warned Enron President Ken Lay of sham transactions 
with partnerships controlled by its own employees that were designed to 
accomplish favorable financial statements results in order to conceal 
large losses resulting from Enron's merchant investments. She warned 
Mr. Lay of ``impending implosion.''
  Mr. Lay, and others, sold millions of dollars of Enron stock even 
through insiders are prohibited from selling if they have material 
nonpublic information. Ken Lay and Chief Financial Officer Andrew 
Fastow have now taken ``the fifth'' before Congress and Enron CEO 
Jeffrey Skilling very well may have committed perjury before my 
committee. Arthur Andersen accounting company is in deep financial 
trouble, too. Its Enron accountant's actions are under investigation, 
as well as activities at Andersen headquarters. The Justice Department 
is investigating whether crimes were committed and these people may go 
to jail.
  But that is small consolation to people who have lost their life 
savings. They want to know who is to blame for corporate America's 
largest bankruptcy?
  My committee is holding wide-ranging hearings. There is much blame to 
go around: executives with no ethics, conflicts of interest on Enron's 
board, auditors who don't ask tough questions, investment banks that 
kept high-risk leverage off the books, stock analysts without the 
vaguest understanding of Enron's schemes, the failure of the Securities 
Exchange Commission (SEC) and Financial Accounting Standards Board 
(FASB) on rules for subsidiaries.

  Maybe even Congress shares blame for failing to support stricter 
rules. A couple years ago, then-SEC Chairman Arthur Levitt pushed for 
stronger rules to separate accounting from consulting by the same 
firms. I am thankful now that I supported his efforts.
  The public outrage over this economic tragedy is real and that is why 
I am hopeful Congress will act. Congress is considering the 
multifaceted nature of this problem.
  The 1929 stock market crash prompted legislation to force publicly 
traded companies to submit regular reports that met certain standards. 
Former Treasury Secretary Larry Summers has said that no innovation has 
been more important to the success of U.S. capital markets than 
``generally accepted accounting principles (GAAP).'' The transparency 
and accuracy of corporate reports inspired investor confidence.
  Unfortunately, with compensation more closely tied to stock prices 
the incentives for corporate managers to distort the information they 
provide investors has grown.
  It seems to me that accounting firms must raise their standards and 
adopt new rules requiring that subsidiaries be included in a company's 
financial statements, that those standards should be enforceable by 
FASB, and that the funding of this regulatory board be independent from 
the accounting firms it oversees.
  Investors rely on stock analysts, Do the analysts, or their firms, 
have a personal stake in seeing a stock do well? The National 
Association of Securities Dealers and the SEC should require Wall 
Street analysts to disclose whether they own stock they recommend and 
whether their pay is based on the investment banking work their firms 
provide.
  For several years I have recommended increased funding for the SEC.
  Corporate executives should disclose more quickly when they buy and 
sell their company's stock. Boards should be strengthened and limits 
should be put on stock options for board members.
  Congress should consider reasonable limits on exposure to single 
stocks in employee pensions. I know several Iowa corporations that put 
limits on how much of their company's stock accounts for an employee's 
pension because they are concerned about their employees having all 
their investment eggs in one basket. Peoples' pensions should be vested 
in a reasonable time and diversified. Executives and employees should 
operate under the same rules on 410k ``lock-outs'' against selling 
stock.
  These are just a few of the ideas being floated in Congress. I 
believe there is some urgency for Congress to act. This crisis needs to 
be resolved before investors lose faith in the integrity of the 
markets. We can already see investors skittish about a stock if there 
is even a hint of accounting shenanigans.
  Last week Paul Volcker, Jr., the former Chairman of the Federal 
Reserve said, ``Accounting and auditing in this country is in a state 
of crisis.'' To the millions of Americans who are depending on their 
investments for their retirement or their children's college education, 
Mr. Volcker's statement isn't hyperbole!

                          ____________________