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Senate Subcommittee Blasting Enron's Board of Directors

Aired July 8, 2002 - 05:15   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL COSTELLO, CNN ANCHOR: The Senate permanent Subcommittee on Investigations is blasting Enron's board of directors. A Senate report says the directors are partly responsible for the collapse of the energy trading company.

Our financial news correspondent Allan Dodds Frank has details on that report.

(BEGIN VIDEOTAPE)

ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): Enron's board of directors failed its paramount duty to protect shareholders and bears responsibility for the company's collapse. That is the harsh conclusion of the Senate committee which interviewed the company's directors, five of them testifying in May.

In its report released Sunday, the committee found that Enron's directors, who each earned about $350,000 a year, ignored numerous questionable practices and conflicts of interest among Enron executives. The committee says the directors also repeatedly authorized high risk accounting practices.

In a telephone interview, Senator Carl Levin, Chairman of the Permanent Investigations Subcommittee, told CNN...

SEN. CARL LEVIN (D-MI), CHAIRMAN, PERMANENT INVESTIGATIONS SUBCOMMITTEE: Basically what we found out is that they knew it was going on. They had the warnings. They were put on notice. And they cannot escape responsibility.

DODDS FRANK: The report concludes that the company's directors authorized deals that enriched Enron's chief financial officer, Andrew Fastow, by $45 million at the expense of the company and its shareholders.

Among the other findings, the board repeatedly ignored red flag warnings from auditors at Anderson that Enron's accounting was aggressive and might not stand up if challenged. The board allowed Enron's officers to create 3,000 special entities that allowed management to move nearly $20 billion of the company's debt off the books, hidden from clear disclosure to investors. The board also approved excessive compensation for Enron's CEO Kenneth Lay and other top officers and failed to stop Lay from abusive use of a multi- million dollar credit line. (on camera): The lawyer for the outside directors tells CNN Financial News the report is unfair and its outcome was predetermined. And he adds, "There are a lot of culpable people in this matter, and it's not the directors."

(voice-over): Congressman Billy Tauzin, whose committee has been conducting a similar investigation, was not buying that argument.

REP. BILLY TAUZIN, (R), LOUISIANA: They took everything at their word, they never looked behind the numbers, they never questioned any of these transactions. It was an embarrassment, I think, to think that these folks, highly qualified people, were so out of touch with what was going on in this corporation.

DODDS FRANK: The report was far more critical of the directors than was an investigation initiated by Enron. That report claimed the directors were often misled by management, but should have been more aggressive and vigilant.

Allan Dodds Frank, CNN Financial News, New York.

(END VIDEOTAPE)

COSTELLO: And the recent Enron and WorldCom accounting scandals have put corporate responsibility right in the spotlight. It will be the topic of conversation today at a 12:30 news conference headed by Maryland Senator Paul Sarbanes, who is chairman of the Senate Banking Committee. Sarbanes will also be a guest during the 8:00 Eastern hour of AMERICAN MORNING with Paula Zahn. Of course, that's right here on CNN right after DAYBREAK.

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