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Spitzer tells SJU directors failed to curb Enron CEO

By Courtney Dentch

Sitting in a roomful of lawyers looking back on the downfall of energy giant Enron, it’s easy to see the warning signs that were ignored or just explained away that led up to the company’s implosion.

What’s not so easy to see is the best way to reform securities regulations to prevent other such accounting scandals.

That was the goal of “Enron and its Aftermath,” a national symposium hosted by St. John’s University School of Law Friday. The daylong conference featured panel discussions on all elements of the scandal, including securities regulations, corporate governance, pensions and benefits, and the role of professionals, as well as a keynote speech by state Attorney General Eliot Spitzer.

Enron, which is under investigation by federal prosecutors for its dealings with banks and outside auditors, filed for bankruptcy protection Dec. 2.

Criminal investigators are in the process of trying to build a case that the Houston-based company fraudulently engineered a series of off-the-books partnerships that hid its true financial state from the Securities and Exchange Commission.

Arthur Andersen, Enron’s auditors, along with outside lawyers approved many of these transactions.

The symposium at the college’s Jamaica campus was designed to address the laws governing securities trading and corporate governance, two areas that have been cited in the Enron case, said Michael Perino, an associate professor at St. John’s and the primary organizer of the conference.

“It was pretty obvious from the headlines that we were on the verge of a potentially huge change in how we regulate securities,” he said. “This seemed like a very logical thing to do.”

The Enron debacle has unleashed a series of high-profile arrests of corporate executives accused of looting other large U.S. companies.

Lawyers and students from across the country attended and led the panel discussions, bringing a wide variety of opinions to the table, Perino said.

“The goal is to get people together who have different ideologies and views to have a discussion on where do we go from here,” he said.

Fortunately, the only place to go is up, Spitzer said during his keynote address.

“The game’s over,” he said. “It’s beginning to end because sunlight is the best disinfectant. The investment banks know they have to change.”

In the years prior to Enron’s implosion, corporate governance had entered the era of the imperial chief executive officer who is in almost dictatorial control of his company, Spitzer said. He pointed out how each link in the chain designed to keep the CEOs in check had failed. The links cover every aspect of investment banking from the board of directors to the shareholders, auditors to lawyers, and analysts to investment banks.

One of the most prevalent problems that helped create the Enron scandal was that some of the links forgot who they were working for. Auditors and analysts who were supposed to be reporting the finances of a company to the public and the shareholders were reporting to the CEO, and lawyers who saw misconduct were not reporting it, Spitzer said.

“The people left out were the shareholders,” he said. “It’s a con game. That’s the essence of this dynamic.”

But the shareholders are also responsible for not taking a more active role in the management of the company and the election of the board of directors, he said.

“The people whose money was being played with weren’t being heard from,” Spitzer said. “No amount of regulation will take the place of shareholders whose money is at risk pounding on the CEO’s door and saying, ‘don’t do that.’”

Reach reporter Courtney Dentch by e-mail at TimesLedger@aol.com, or by phone at 229-0300, Ext. 138.