WASHINGTON, Dec. 12 (UPI) -- Arthur Andersen LLP Chief Executive Officer Joseph Berardino on Wednesday described the collapse of energy giant Enron Corp. a "tragedy on many levels" and said some responsibility for the transparency problems should be borne by its auditor.
But Berardino also said that a full investigation is needed to determine how Enron successfully hid massive trading losses from auditors, regulators and the public.
"Many questions about Enron's failure need to be answered, and some involve accounting and auditing matters," he said. "I ask that you keep in mind that the relevant auditing and accounting issues are extraordinarily complex and part of a much bigger picture. None of us here yet knows all the facts."
Berardino testified Wednesday before the House Financial Services Committee. The committee chaired by Mike Oxley, R-Ohio, asked Enron officials to come and discuss the issue with lawmakers. Enron Chief Executive Officer Kenneth Lay, however, declined to attend the hearing, citing a scheduling conflict with a bankruptcy hearing. But Oxley and Richard Baker, R-La., who chairs the Capital Markets Subcommittee, said they would eventually subpoena company officials if they did not agree to appear soon.
In the past month, Enron -- which once had a market capitalization close to $80 billion -- has seen its share price drop from a 52-week high of above $80 per share to under a dollar, the downgrading of its credit to junk bond status, the collapse of a $10 billion merger with rival energy trader Dynegy, and finally, bankruptcy.
The bankrupt energy trader is accused of hiding losses from ventures that fell outside its usual power marketing, derivative trading, risk hedging and software platform operations.
Berardino said Arthur Andersen would not have approved audits of the company books if it knew of these ventures -- one of which was with a firm called Chewco Investments LP.
"Very significantly, at the time of our 1997 procedures, the company did not reveal that it had this agreement with the financial institution," Berardino testified. "It is not clear why the relevant information was not provided to us."
The accounting firm informed Enron on Nov. 2 that it could face a legal investigation on its finances.
Lawmakers have opened several investigations into the Enron situation. Besides Wednesday's hearing by the House Financial Services Committee, representatives from the House Energy and Commerce Committee have demanded that Enron officials turn over all records related to Enron's management and ventures and plan extensive hearings into the resulting collapse.
Energy and Commerce Chairman Billy Tauzin, R-La., has also asked the Securities and Exchange Commission to provide a comprehensive record of documents related to Enron's accounting practices. Several Senate committees also plan examinations of the company's practices.
Enron will undoubtedly also face additional scrutiny for its power trading practices by other sets of regulators and lawmakers. Enron innovated the treatment of electricity, futures, natural gas, bandwidth, and even weather futures as investment vehicles, areas bound to draw the attention of investigators for their complexity and cash flow.
Baker said Enron appeared to be an investment vehicle for its corporate officers more than a company beholden to its shareholders.
"It has behaved like a hedge fund that happened to own a power company," Baker said. "Over the last three years, one executive sold thousands of shares of Enron ... worth a total of $353 million. What did this man know and when did he know it?"
Rep. Ken Bentsen, D-Texas, who represents Houston, Enron's hometown, implied that Enron executives intentionally violated securities laws, resulting in the collapse of the share price. And because Enron employees were encouraged or forced to hold a high portion of their retirement plans in now worthless Enron stock, Bentsen is concerned about the future economic health of many of his constituents.
"While the impact of Enron's collapse will be felt in many quarters, not the least of which is Houston where thousands of employees have lost their jobs and apparently their savings, this hearing will focus on the failure of the company's corporate governance structure to properly oversee management along with serious questions about Enron's outside auditor," he said.
"The scope of our hearing today must determine whether Enron's management knowingly violated securities laws regarding disclosure or whether those laws allowed for the company to limit disclosure of certain financing structures which had the result of understating liabilities and overstating assets and revenues," he added later.
