Copyright 2002 The Atlanta Journal-Constitution  

The Atlanta Journal and Constitution
April 18, 2002 Thursday, Home Edition
SECTION: Business; Pg. 1H

LENGTH: 731 words

HEADLINE: Congress opposes a wide Enron fix

BYLINE: MARILYN GEEWAX

SOURCE: Cox Washington Bureau

BODY:
Washington --- Four months and dozens of congressional hearings ago, aggressive accounting practices drove officials of Enron Corp. to seek bankruptcy protection.

Now, as several Enron-inspired bills gain steam, it seems clear Congress is aiming to fix specific, narrowly defined problems rather than creating a new era of energy and financial market regulation.

As a general pattern, Republicans have been backing limited reforms, while Democrats are pushing for more. Neither group is trying to change the system fundamentally. For example, no legislation seeks to eliminate the inherent conflicts of interest involved in corporate leaders having the power to choose, pay and fire their auditors.

Still, several modest post-Enron reform bills have a chance of passage this year: Tightening rules on 401(k) pension plans to make it easier for workers to sell their employer's stock and diversify their accounts. Prohibiting accounting firms, to reduce conflicts of interest, from offering their audit clients certain services such as internal audits and financial systems design. Requiring companies to rotate their auditors after a certain time to make sure the watchdogs don't get too friendly with the corporate executives whose books they examine. Establishing an auditor oversight board to replace the largely self-regulating system members of the profession use now. Rolling back some provisions of the 1995 Private Securities Litigation Reform Act, which makes it more difficult for shareholders to sue accounting firms when fraud causes the stock price to fall. Forcing companies either to recognize the cost of stock options on their income statements or give up options-related tax deductions. Requiring stock analysts to disclose their financial ties to companies they are evaluating.

Consumer advocates who had hoped for a major rollback of energy deregulation are disappointed.

These critics say Enron never could have fooled lenders and investors for as long as it did if Congress had not created a no-holds-barred atmosphere that encouraged fraud.

For example, in the past decade, Congress has excluded from federal regulation the complex financial contracts known as over-the-counter derivatives.

Congress reduced the legal liability of outside accountants. It also removed Depression-era barriers between investment banking and commercial banking. Congress encouraged the liberal granting of stock options.

Enron's implosion demonstrated "deregulation didn't work. It just made it easier for bad actors to manipulate the markets," said Ed Mierzwinski, consumer advocate for U.S. Public Interest Research Group.

And although executives of Enron, a Houston-based energy trader, used controversial financial schemes and off-the-books partnerships to overstate profits and hide debt, most members of Congress have shown little interest in resurrecting regulations for the financial services sector.

Because lobbying by industry representatives has been so intense to protect deregulation, the result may be "Congress will whine about Enron, but then ultimately just wring their hands and go back to business as usual," Mierzwinski said.

Deregulation advocates, though, are pleased Congress is not abandoning the movement to reduce government controls.

Enron's plight "has made people more cautious [about deregulation], but it has not turned things around in a broad sense," said Thomas M. Lenard, vice president of research for the Progress and Freedom Foundation, a conservative research group.

Opponents of re-regulation have fended off consumer groups with the argument that Enron's problems stemmed from individual wrongdoing, not major flaws in the system. Enron got into trouble because "bad guys were doing bad things," said John Palafoutas, a lobbyist for AeA, formerly the American Electronics Association. "They were gaming the system."

The push for new regulation also has been chilled by Treasury Secretary Paul O'Neill, Federal Reserve Chairman Alan Greenspan, and Securities and Exchange Commission Chairman Harvey Pitt, all of whom have urged Congress not to act too quickly while Enron's problems are still playing out.

Hopes to launch a regulation revival this year also are being dampened by the realities of the legislative calendar --- not many working days remain before lawmakers hit the fall campaign trail.

LOAD-DATE: April 18, 2002