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Jewish World Review Jan. 30, 2002 / 17 Shevat, 5762

Dick Morris

Dick Morris
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Consumer Reports

The odd couple: Chris Dodd and Arthur Andersen -- DEMOCRATS seeking to blame Bush and the GOP for the Enron scandal need to look more closely at their own house --- especially at the work done by former DNC Chairman, Senator Christopher J. Dodd..

While many candidates of both parties have received campaign contributions from Enron and its self-serving "independent auditor" Arthur Andersen, very few have passionately fought their cause in Washington as diligently as Chris Dodd. Dodd has received more money from Arthur Andersen than any other Democrat - $54 843.00 - and has aggressively worked to insulate Arthur Andersen and other accounting firms from liability to defrauded investors in cases like Enron.

Moreover, it was on account of Dodd's tireless efforts that Arthur Andersen was able to act as both "independent auditor" and management consultant to Enron for $100 million a year, a role fraught with conflict -of -interest , that has been identified as one of the major causes of the debacle and an arrangement that makes a joke of the concept of outside auditors to protect shareholders.

In 1995, it was Dodd who jammed through legislation, overriding President Clinton's veto, to protect firms like Arthur Andersen from lawsuits in cases just like Enron. The Dodd bill limited liability for lawyers and accountants for "aiding and abetting" corporate fraud by their clients, making them liable only for their proportionate share of the blame, rather than for the entire fraud. So, if an accounting firm kept secret the true picture of a corporation's finances, it would only be liable for a percentage of the total fraud on the investors.

From a shareholders point of view, this creates problems because the fraudulent company has usually stolen all of the assets before the shareholder learns about it, so there's nothing left. From an accounting company's point of view, its great - the shareholders cannot pin the total losses on you.

And from Arthur Andersen's point of view, it was really wonderful, because they were facing thousands of lawsuits for their role in securities fraud. A grateful accounting industry showed its appreciation to Senator Dodd by contributing $345,903.00 to his campaign between 1993 and 1997. Every major accounting firm pitched in - Deloitte & Touche, Ernst & Young, Coopers & Lybrand, Peat Marwick, and Price Waterhouse.

During that same time period, Dodd also received $523,551.00 from the Securities and Investment industry, who were thrilled with other provisions of the bill which placed limitations on securities lawsuits and protected companies that had made predictions about future earnings that did not turn out to be true. Consumer groups had opposed the legislation, and the U.S. Public Interet Research Group labeling it :"The Crooks and Swindlers Protection Act"

But Dodd's services to Andersen didn't stop there. Every initial analysis of the Enron scandal lays much of the blame on the conflict of interest that Andersen faced in both auditing and consulting for Enron at the same time. Auditors must be independent to assure that companies do not report misleading financial data to stockholders. Once Arthur Andersen got up to $100 million a year in consulting fees from Enron, does anyone really believe that they would have blown the whistle on its shady books? But, when the S.E.C. tried to bar this conflict of interest, it was Chris Dodd who according to the Associated Press, "brokered a deal" to stop the SEC action.

As a result of Dodd's intervention, the SEC agreed not to issue a ban on the practice of auditing and consulting for the same client. Such practices have led to what Senator Barbara Boxer (D-Calif) called "the kind of hide-the-debt shell game that took place at Enron."

In an ultimate act of hypocrisy, Dodd has now actually introduced legislation to ban accounting firms from doing consulting for companies it audits, precisely the same policy he killed when the SEC was considering it. But now that this issue is in the public debate, Dodd is pretending to be an advocate for the shareholders. The Enron workers who lost their pensions and the Enron shareholders who lost their portfolios know it is too late for them. And Arthur Andersen knows it makes no difference to them now.

JWR contributor Dick Morris is the author of, among others, The New Prince. Comment by clicking here.


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© 2001, Dick Morris