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No More Enrons

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What Else We Must Do to Prevent More Enrons (a list of recommendations):

1) Eliminate Auditor Conflicts of Interest. The failure of auditors to catch the accounting fraud at Enron, WorldCom and other companies has been attributed in part to the auditors' lack of independence. Although Sarbanes-Oxley prohibited certain forms of consulting, exemptions for tax consulting and weaknesses introduced in the SEC's final implementing rules have left loopholes in the ban. According to industry observers, corporations are still hiring auditors to do a significant amount of non-audit work. For example, fees paid by corporations for tax consulting as a percentage of audit fees was 43 percent in 2003, down only slightly from 57 percent in 2002. Accountancy Age reports that we can expect the big four accounting firms such as Ernst & Young to step back into the consulting arena once the terms of agreement for the sale of their consulting arms expire.

2) Restore the Rights of Defrauded Investors: The willingness of the market system's "gatekeepers" (i.e. accountants, lawyers and bankers) to aid and abet the fraud that infected so many companies and caused so many workers, pensioners and small investors to lose their lifetime savings is in large part traceable to a series of court decisions and tort "reform" laws passed in the 1990s. The civil justice system should be strengthened so that the victims of corporate crime have a chance to pursue the fraudsters in court.

3) Erect a Firewall Between Research Analysis and Investment Bankers: Analysts at the big Wall Street Banks were caught pumping stocks that they privately derided as "crap" because their own firms were underwriting the stock or otherwise tied to the company. The only way to ensure objective stock ratings is to place a strict separation between research and other banking operations.

4) Rein in Rabid Speculation: Regulate Derivatives. Experts in financial policy suggest that the rapid spread of derivatives -- the notorious financial instruments whose value is derived from other assets -- has increased the risk of a system-wide collapse of financial markets. Warren Buffett calls them "ticking time bombs." The use of derivatives by rogue traders and speculators played a significant part in many of the major financial scandals of the 1990s, including Long Term Capital Management, Barings, Orange County, and Enron. Senator Phil Gramm (R-TX) and his wife Wendy Gramm (ex-head of the Commodities Futures Trading Commission) helped Enron by reducing federal regulation of energy derivatives. Where they are not banned outright experts say that derivatives should at least be subject to the same reporting requirements as other financial instruments traded on licensed stock exchanges.

5) Protect Pension Rights. Enron's top executives cashed out while locking down workers' retirement accounts so that 15,000 employees were forced to watch their 401(k) accounts evaporate as the stock plunged. Yet Enron is only one example of a broad assault against workers' retirement security that is occurring at company after company. Federal policy needs to be drastically changed to improve retirement security and worker control over their own benefits.

6) Get Corporations Out of Our Elections . The Enron scandal underscored the need for fundamental reforms that keep corporate money from overwhelming the public interest by buying access and influence over regulators and legislators.

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