Undoing

The financial debacle at Enron Corp. underscores the need for increased oversight of auditors, as well as the need for greater autonomy and objectivity by the Financial Accounting Standards Board (FASB), financial analysts, corporate auditing committees and company boards of directors, former Securities and Exchange Commission (SEC) Chairman Arthur Levitt Jr. told a Senate hearing Thursday.

As regulators and lawyers pick apart the details of Enron Corp.’s undoing, a letter written by a company executive to CEO Kenneth Lay last year raises the possibility that the company may have to reduce past earnings by another $1.3 billion. The letter discloses two investment vehicles — one not previously disclosed — which could cut into earnings more than its four-year restatement in an 8-K filing with the Securities and Exchange Commission (SEC) last November (see Daily GPI, Nov. 9, 2001).

Within days after Enron Corp. filed the largest bankruptcy in history, the focus of the seemingly never-ending financial nightmare shifted last week from the company’s headquarters in Houston, TX, and Wall Street to the political epicenter in Washington DC, with lawmakers on Capitol Hill quickly scheduling hearings to find out “how this happened” and the Department of Labor opening an investigation into the possible mishandling of retirement funds of Enron employees. This action comes on top of the ongoing investigation by the Securities and Exchange Commission (SEC) into the embattled energy trader.