This is a partial transcript from Your World with Neil Cavuto, February 21, 2002. Click here for complete access to all of Neil Cavuto's CEO interviews. 

TERRY KEENAN, GUEST HOST: When it comes to Enron, investors might say, who could've known? And some might respond, well, Wall Street should've known. But my next guest says that they couldn't have known. Joining me now to explain is Marc Lackritz, he's the president of the Securities Industry Association.

And you know, these folks are paid pretty well to know. How come so many Wall Street analysts missed the boat?


KEENAN: All of them, actually.

LACKRITZ: Well, a number of them did because they were getting bad information. I mean, what we had here I think is a massive information failure. And it affected not only our analysts and our bankers, but unfortunately our customers. And from that standpoint, you know, we're as outraged as anybody else about what's happened here, and we're eager to get it fixed. Get it fixed from the standpoint of disclosure reform, accounting reform, and auditing reform, and all those things to assure that the quality of information in the marketplace is the best that it can be.

KEENAN: Yet, that just implies that these Wall Street analysts are very high paid conduits for the company. Shouldn't they be doing their own research? A lot of information was in the public domain in the SEC filings.

LACKRITZ: Terry, I think a couple of things. One is, a number of our analysts asked questions and were either stonewalled or lied to, I think, at least from the record that I've seen. And secondly, I think the analysts did a lot of research, but also there was a certain amount of mania that I think everybody got swept up in. And that's not to justify anything. I think obviously we have a professional responsibility here too.

KEENAN: What outrages me is the fact that not only was Enron one of the biggest fee generators on Wall Street, with all sorts of underwritings for different deals, we now find out that Wall Street also underwrote all of these secret partnerships, and at the same time people from many firms — Merrill Lynch stands out in particular — 100 of their executives invested in these partnerships. So where is the so-called Chinese wall at these firms?

LACKRITZ: Well, Terry, the Chinese wall is between the activities that the bankers are engaged in investment banking division and the analysts. I mean, the walls were set up initially really to preserve fairness in the marketplace and to ensure that there wasn't going to be insider trading on insider information being passed from one...

KEENAN: But these folks had inside information that if the rest of us had we wouldn't have bought Enron stock, because they knew about these partnerships. That's what troubles me so much.

LACKRITZ: But I think obviously the partnerships were off-balance sheet. I think part of the problem here is that we didn't have information on the balance sheet. It wasn't being disclosed, either to the analysts or to the public. And from that standpoint, I think if you look at all the filings, you're not going to find adequate disclosure here at all. I mean, what you have is...

KEENAN: Yet you don't...

LACKRITZ: Go ahead, I'm sorry.

KEENAN: You don't think that the folks that were underwriting — I'll use Merrill Lynch in particular because I'm the most familiar with the goings-on there — but the folks who were underwriting and selling these partnerships might not have also been underwriting Merrill Lynch's publicly traded stock or debt — or Enron, excuse me.

LACKRITZ: I think you're talking about Enron.

KEENAN: Yes, Enron stock.

LACKRITZ: I think they have may have been engaged in that, but that has nothing to do with the Chinese wall. The Chinese wall is really from the standpoint of protecting analysts and their research recommendations. What you want to do is protect advice in the marketplace. You want to make sure it's as objective as possible. So the Chinese walls were set up actually in 1987, it was a policy decision that was made by the Congress with a lot of broad support from the regulatory agencies and other folks, really to preserve the integrity of the marketplace, so that one side of the firm couldn't benefit from the other side of the firm, or couldn't benefit unfairly I think is the better way of putting it.

KEENAN: All right. Thanks for your insights. We appreciate it.

LACKRITZ: My pleasure, Terry.

KEENAN: Marc Lackritz, president of the SIA.

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