Top Dem Opened the Door    

By Dick Morris  
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Democrats seeking to blame President Bush and the GOP for the Enron scandal need to look more closely at their own house - especially at the work done by the former Democratic National chairman, Sen. Christopher J. Dodd.

While many candidates of both parties have received campaign contributions from Enron and its "independent auditor" Arthur Andersen, very few have passionately fought their cause in Washington as diligently as Chris Dodd.

It was on account of Dodd's tireless efforts that Arthur Andersen was able to act as both "independent auditor" and management consultant to Enron for $100 million a year. That role - so fraught with conflict of interest that it makes a joke of the concept of outside auditors protecting shareholders - has been identified as one of the major causes of the debacle.

In 1995, it was Dodd who rammed through legislation, overriding President Clinton's veto, to protect firms like Andersen from lawsuits in cases just like Enron. The Dodd bill limited liability for lawyers and accountants for "aiding and abetting" corporate fraud by their clients, making them liable only for their "proportionate" share of the blame, rather than for the entire fraud.

So, if an accounting firm kept secret the true picture of a corporation's finances, it would only be liable for part of the total fraud on the investors.

For shareholders, this law is awful - the fraudulent company has usually lost nearly all its value before the shareholder learns about it, so there's nothing left. For the accounting firm, though, it's great - the shareholders can't pin the total losses on you.

And from Andersen's point of view, it was really wonderful, because they were already facing thousands of lawsuits for their role in securities fraud.

A grateful accounting industry showed its appreciation to Sen. Dodd by contributing $345,903 to his campaign between 1993 and 1997. Every major accounting firm pitched in - Deloitte & Touche, Ernst & Young, Coopers & Lybrand, Peat Marwick, Price Waterhouse. (Dodd has received more money from Arthur Andersen than any other Democrat - $54,843.)

From '93 to '97, Dodd also received $523,551 from the securities industry, which was thrilled with other provisions of the '95 law that limited liability from securities lawsuits, notably for firms that failed to live up to their predictions about future earnings.

Consumer groups had opposed the legislation - the U.S. Public Interest Research Group labeled it "The Crooks and Swindlers Protection Act."

But Dodd's services to Andersen didn't stop there. Every analysis so far of the Enron scandal lays much of the blame on the conflict of interest that Andersen faced in auditing and consulting for Enron at the same time.

Auditors must be independent to assure that companies do not report misleading financial data to stockholders. Once Andersen was getting up to $100 million a year in consulting fees from Enron, does anyone really believe that they would have blown the whistle on the firm's shady books?

But when the SEC tried to bar this practice, so ridden with conflict of interest, it was Chris Dodd, along with Rep. Billy Tauzin (now R-La., though a Democrat until August 1995), who according to the Associated Press "brokered a deal" to stop the SEC action.

As a result of Dodd's intervention, the SEC agreed not to issue a ban on the practice of auditing and consulting for the same client. Such practices have led to what Sen. Barbara Boxer (D-Calif.) called "the kind of hide-the-debt shell game that took place at Enron."

In an ultimate act of hypocrisy, Dodd has now actually introduced legislation to ban accounting firms from doing consulting for companies it audits - precisely the same policy he killed when the SEC was considering it.

Now that this issue is in the public eye, Dodd is pretending to be an advocate for the shareholders. But the Enron workers who lost their pensions and the Enron shareholders who lost their portfolios know it is too late for them. And Arthur Andersen knows it makes no difference to them now.

This column originally appeard in the New York Post.

 

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