Senate Panel To Hear Call For Reform In Wake Of Enron

WASHINGTON -- Financial collapses such as the one that befell Enron Corp. (ENE) will occur again unless controls against conflicts of interest in capital markets are strengthened, an independent financial researcher will tell a Senate panel Tuesday.

"The U.S. capital markets system clearly failed thousands of Enron investors, pension holders, creditors, employees and customers. It is clear the system will continue to fail investors until the root cause - rampant conflicts of interest throughout the system - are brought under control," Scott Cleland, chief executive of the Precursor Group, said in his prepared testimony.

"Increasingly, Baby Boomer Americans depend on their investments in market-vulnerable 401(k) and company pension plans to supplement Social Security and adequately fund their retirement," Cleland will testify.

"Now, more than ever, we need the internal controls capital markets rely on - auditors, research analysts and boards of directors - to function with integrity to ensure the protection of investors' financial security."

He will advocate policies that discourage conflicts of interests among auditors and directors that can undermine internal controls, and that prohibit companies from providing consulting services to companies they audit.

Cleland also calls for ensuring objectivity and unbiased research among Wall Street analysts, such as by prohibiting them from having a financial stake in the companies they cover.

Even as Enron's problems became apparent, many analysts were still listing Enron as a "buy," "strong buy" or "hold" investment, Cleland noted.

Cleland is among 10 witnesses slated to testify Tuesday before the Senate Commerce Committee's panel on consumer affairs.

Five Enron-employee witnesses will testify about how their personal investments were affected by the company's stunning collapse in equity value.

Enron stock was more than $80 a share a year ago, but has plunged below $1 in the wake of revelations of questionable financial practices that hid the company's debt and overstated earnings.

Arthur Andersen, Enron's outside auditor, will offer a witness, as will the AFL-CIO and the Motley Fool, an on-line forum for information on personal investment.

Kenneth Lay, Enron's president and chief executive, has declined an invitation to testify Tuesday, but has promised to appear before the Senate panel during another hearing, committee staff said.