By Dick Morris
See Article Online
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
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.
originally appeard in the New York Post.