Senate subcommittee says Enron board at fault

WASHINGTON (CNN) -- A Senate subcommittee released a report Sunday holding Enron's board of directors directly accountable for the energy giant's collapse.

The 60-page document from the Permanent Subcommittee on Investigations (PSI) is the result of months of interviews, testimony, and review aimed at determining what role the board played in the activities leading to the corporation's downfall and what steps it could have taken to protect the stockholders.

A lawyer for Enron disputed the report's findings and said the investigation had been a "stacked deck" from the very beginning.

The report cites numerous failures by the board, including the failure to stop Enron from using misleading accounting, the failure to ensure the independence of the company's auditor, Arthur Andersen, and the failure to protect shareholders from unfair dealings in an outside partnership run by the company's chief financial officer.

"The subcommittee does not accept the board's claim that it was out of the loop and can't be blamed for Enron's collapse," the subcommittee chairman, Sen. Carl Levin, said. "The evidence shows that the board knowingly went along with Enron's high-risk accounting and off-the-books deceptions."

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The subcommittee's ranking member, Sen. Susan Collins, said the board's actions and inactions "clearly contributed" to Enron's demise.

Houston-based Enron filed the largest bankruptcy in U.S. history on Dec. 2, having allegedly used thousands of off-the-book partnerships to hide nearly $1 billion in debt and to inflate profits.

Washington attorney Robert Bennett, who represents Enron, said he found the report unfair but was not surprised by its findings.

"It's a very selective use of the evidence, and largely in this characterization of that evidence," Bennett told CNN. "I think that this was an exercise from the very beginning in coming out with a negative report from the board. ... I think it was really a stacked deck."

Bennett said the report raised "some justifiable questions" on issues of governance, but the rest was "largely old hat."

Among the subcommittee's findings:

Enron, once one of the largest companies in the United States, allegedly used thousands of special-purpose partnerships to hide nearly $1 billion in debt and inflate profits. It has laid off some 4,200 employees and was delisted from the New York Stock Exchange.

The subcommittee said it issued more than 50 subpoenas, reviewed more than 350 boxes of documents and interviewed 13 Enron board members as well as representatives from Andersen, Enron, and experts in corporate governance and accounting. The subcommittee held a hearing May 7 with those experts and former and current Enron board members.

In issuing its report, the subcommittee recommended steps which publicly traded companies should take to strengthen oversight and independence.

They include prohibiting any accounting practices that put the company at risk with generally accepted accounting principles and result in misleading financial statements, prohibiting conflict-of-interest arrangements and off-the-books activities that give a false impression of a company's health, and preventing excessive executive compensation.

Subcommittee members also recommend prohibiting an outside auditor from providing internal auditing or consulting services and from auditing its own work for the company.