February 5, 2002

Thank you, Mr. Chairman. I commend you again for this hearing, and it is my hope that this hearing will lead to a complete inquiry into these matters that are now before us, including legislative and administrative changes that need to be made in the process.

I wish to begin by thanking you, Mr. Powers, and your counsel for presenting a very useful report on the related-party transactions and other matters. You have done a fine job. I am troubled that some of those who were involved refuse to cooperate. I believe that raises questions into which the committee must go. I am also concerned about the limitations raised by the participation of Mr. Herbert Winokur, a long time director. I will note the report is a devastating document. It outlines an extraordinary web of corporate chicanery and deceit. It provides a very useful starting point for this committee and a significant road map for this committee’s effort to unravel this sorry mess.

I will observe that it reminds me of what used to be said by one of baseball’s greats, "This is deja vu all over again." It brings me back to the days of Mr. Sam Insel and also, perhaps, to Mr. Ponzi and other people of this kind. For those who don’t remember Mr. Insel, and I have only vague remembrance of him, he was a fellow who built enormous pyramids, which he built and milked for the benefit of himself and his friends. It led to significant changes in the law, including the creation of the SEC, the passage of the different securities laws, the Public Utility Holding Company Act and a wide array of other statutory changes to protect investors, consumers, employees, and pensioners. And it looks like something of that kind has to be done again to address the efforts of those who have brought Enron, its investors, its employees, and its pensioners to such a sorry state today.

Your report, in often numbing detail, describes some of the financial sleights of hand that Enron executives used to hide the results of either stunningly inept business decisions or outrageously corrupt behavior by themselves and their friends. It also describes the disgusting self-enrichment by senior executives who sold out their fiduciary duties to the shareholders. And, it describes an extraordinary laxity, if not worse, of those responsible for keeping such behavior in check.

One must ask, how were senior Enron executives able to use the company as their personal financial plaything? First, because of a massive failure of corporate governance. Was the highly paid board of directors simply asleep, or was it corrupt, or was it both? Second, because of an extraordinary failure by accounting and legal professionals to provide objective, independent, and forceful advice. Why were they acting like trained seals to the management? Again, were they incompetent, were they corrupt? We hope that this proceeding and others will lead us to some intelligent answers. Third, because of a massive failure by so-called experts in the credit rating agencies, the investment banks, and the brokerage houses. Why didn’t they ask the tough questions?

What we learn today will set the stage for a much more extensive inquiry into these matters. For example, we will also need to learn much more about whether weaknesses in government regulation of markets for financial instruments and vital commodities may have allowed this rascality to flourish. And we will need to reexamine the special protections that the Congress provided accountants in the Private Securities Litigation Reform Act of 1995, which came forth from this committee with the enthusiastic support of some of the people who are still on the committee. I am sure that they will enjoy explaining their support of that proposal and also their support of proposals which have constrained the SEC in its efforts to lead to a more vigorous, truthful, effective, and pro-public accounting industry.

In any event, Mr. Powers, we are grateful to you for a very useful report, and for your appearance here today.