On December 2, 2001, Enron declared bankruptcy. Immediately regulators cracked down, passing the Sarbanes-Oxley Act which requires executives to sign off of accounting statements and to be criminally liable for their accuracy. Ten years later, have things improved?
Tom Fowler of the
Houston Chronicle reported that
Sam Buell, one of the first prosecutors on the federal government’s Enron Task Force and now a law professor at Duke University, said that he was
dumbfounded by the extent to which Enron’s lessons have been lost. “We thought Enron was the 9/11 of the financial markets, that it was a cataclysm that would change the world. The financial collapse of 2008 is evidence that it didn’t. Enron was the canary in a coal mine warning about the systemic problems that we needed to look at, particularly where it comes to risk management.”
Stephen Arbogast, a University of Houston finance professor and author of the book on the Enron collapse,
said “That’s the piece of the Enron story that carries over to the financial community. The money for the bankers is so big, they’re so acculturated to the idea that they can make so much money in the short term that the long run really doesn’t matter.”
Nancy Rapoport, a law professor at the University of Nevada, Las Vegas and author of a book on Enron, said that “until we change the incentives for people meeting their quarterly projections, we are going to continue to create cheats.” Eliot Spitzer agreed,
saying that “when you begin to mix research and underwriting, bad things will happen… Human nature being what it is, when your bonus depends on getting the IPO done, you’re going to say what you need to say.”
The question is what can be done and whether any additional regulation would truly have a chance of succeeding.