WASHINGTON – Federal regulators will act quickly to tighten reporting rules for companies to prevent another Enron-style disaster and will not wait for Congress if it takes too long, the head of the Securities and Exchange Commission said Friday.
"As efforts proceed in Congress, and as solutions are debated in the press, the (SEC) cannot wait. We must act," SEC Chairman Harvey Pitt said in a speech to securities lawyers. "If legislation fails, or takes too long for passage and enactment, we would be faulted for not taking steps to minimize the likelihood of another Enron."
The SEC and the Justice Department are investigating Enron and its longtime auditor, the Arthur Andersen accounting firm.
With many investors unnerved by the Enron collapse and distrustful of the accuracy of big companies' financial reports, the SEC recently announced that it will propose changes to tighten corporate disclosure rules.
Among other things, the new rules would require prompter filing by companies of their quarterly and annual reports and of stock purchases and sales by company officers and directors.
Lawmakers also have put forward proposals, including the creation of an independent body to oversee the accounting industry and impose new restrictions on auditors also performing consulting services for corporate clients.
Pitt last month proposed a new private-sector body to regulate accounting.
He said Friday that the Enron debacle has brought to light serious ethical issues faced by accountants and corporate attorneys.
"Confidence in our capital markets cannot be maintained if the public believes everything is a game to enable corporations to rely on lawyers and other professionals, who in turn rely on a literal reading of the law or governing principles," Pitt said. "That ... is a major flaw in our system that Enron has exposed."
As Congress presses its widening investigation of Enron's collapse, a Democratic lawmaker said Thursday that a videotape of a meeting at Enron shows company executives urging employees to invest all their retirement money in Enron stock.
Rep. Henry Waxman said a video from 1999 seems to conflict with recent Senate testimony by Enron executive Cindy Olson. She testified Feb. 5 that the company would like to have given investment advice telling employees to diversify their holdings but was legally prohibited from doing so.
In a letter Thursday to Sen. Joseph Lieberman, Waxman said a woman identified only as "Cindy" on the video responds "absolutely" when asked by an employee, "Should we invest all of our 401(k) in Enron stock?"
Enron executive Jeffrey Skilling nodded in agreement to the word "absolutely," according to Waxman. The California Democrat said Enron Chairman Kenneth Lay, chief operating officer Skilling and vice chairman Joseph Sutton were at the podium when the question was asked and answered.
Calls to Enron headquarters in Houston and to the office of Skilling's spokeswoman seeking comment were not returned.
Lieberman chairs the Senate Government Affairs Committee. During a visit Thursday with Portland General Electric employees in Oregon, he said Congress should not wait until hearings are over before passing legislation to protect retirement plans.
"We need to act as soon as possible," he said.
When Olson testified before Lieberman's panel, she testified that Enron would have encouraged employees to diversify their holdings.
"We tried to talk about diversification with respect to choice in the 401(k)," Olson said. But "there's a fine line that employers have with respect to giving investment advice. And so we were concerned about stepping over that line."
The videotaped evidence "seems to contradict testimony that Ms. Olson gave the committee about her own role in encouraging Enron employees to invest their 401(k) savings in company stock," Waxman wrote.
The congressman said Enron lawyers recently provided nine videotapes of the company's all-employee meetings, which consisted of presentations and responses by management to employees' questions.
The videotape about the 401(k) plan and Enron stock is labeled Feb. 1, 1999, but Waxman said the meeting refers to events that took place well after that date and that the meeting probably took place in early December 1999.