Good Hands 1

"We're In Good Hands!"

Part I

Sunday 3-3-02, 4:15pm PST

Editorial By Ike Iossif/President/CIO. Aegean Capital Group, Inc.

(The following views reflect the beliefs of Mr. Iossif and are not necessarily the views of Aegean Capital Group, its principals, directors, employees, and/or other affiliated companies and individuals.)

The following is the first of a two part editorial regarding my views not that much on the Enron debacle specifically, but more so, on the causes that contributed to the Enron tragedy. Part two, will be published in two weeks and it will cover another favorite subject of mine, CNBC.

A few weeks ago I was watching the Congressional hearings featuring Mr. Duncan, the Andersen auditor in charge of Enron's audit. Here is the opening statement from Mr. Jim Greenwood, (R-Penn.), chairman of the Oversight and Investigations Subcommittee.

REP. JIM GREENWOOD, (R) Pennsylvania: Mr. Duncan, Enron
robbed the bank. Arthur Andersen provided the get-away car and
they say you were at the wheel. I have a specific question for you,
Mr. Duncan. You were fired by Andersen last week for orchestrating
an expedited effort among the Andersen-Enron engagement team to
destroy thousands of paper documents and electronic files relating
to the Enron matter, after learning of an inquiry by the Securities
and Exchange Commission into Enron's complex financial transactions.
Did you give an order to destroy documents in an attempt to subvert
governmental investigations into Enron's financial collapse,
and if so, did you do so at the direction or suggestion of anyone
at Andersen or at Enron?

Unfortunately for the American public, it will never get -from these farcical hearings- the truth it deserves. The reason for that, is because the good congressman forgot to mention something very important in his opening statement, he neglected to include a very prominent bunch of scoundrels who also failed the American public. You see, the good congressman should have said:

REP. JIM GREENWOOD, (R) Pennsylvania: Mr. Duncan, Enron
robbed the bank. Arthur Andersen provided the get-away car and
they say you were at the wheel, and Congress was all too happy to provide the fuel for the get-away car!

Can we expect such clarity and straightforwardness when it comes to uncovering the reasons of Enron's collapse? I am afraid not. Mr. Paul Solman of WGBH-Boston reported on 2-22-02 for "News Hour with Jim Lehrer"

"Over the last decade, Enron has given almost $6 million to federal candidates and parties. Arthur Andersen has given just over $5 million. President Bush has received more than $700,000 from Enron over his political
career. Senator Phil Gramm, who helped deregulate the energy industry, has gotten more than $100,000 from Enron, and $76,000 from Arthur Andersen. On the Energy and Commerce Committee now investigating Enron, Chairman Billy Tauzin received $57,000 from Arthur Andersen. Democrats got money, too. Presidential Candidate Gore, a little over $13,000 from Enron. Senators Chris Dodd and Charles Schumer each took tens of thousands from Andersen." (http://www.pbs.org/newshour/bb/business/jan-june02/watchdogs_2-22.html)

So, not to worry we're in good hands!

In an interview with Margaret Warner for "News Hour with Jim Lehrer" on 1-17-02, Mr. Arthur Levitt -the previous S.E.C. Chairman- had the following to say with regards to "standards"

MARGARET WARNER: Wait. Let me interrupt you what do you mean standard
setters?

ARTHUR LEVITT: We have an independent standard setter called the FASB, but they're funded by the very companies for whom they provide
standards and they are subjected to huge pressure from corporate America and from the Congress. As a result of this every time they come out with a standard that may be controversial or not to the liking of the business community, they are held up literally for years by a constant series of debate and harassment and threats of legislation. The system has broken down and we must expedite the process of establishing standards. I think Mr. Pitt's suggestion for an oversight body for the accountants is important, but I hope
the details will be worked out so that the accountants can't defer the mate findings of this panel, whatever it may be, for years as they have now until other litigation is settled. This question of deferral is a very important one.

And then later on in the same interview he responds to a question by Mrs. Warner with regards to the prospects for reform:

MARGARET WARNER: Mr. Levitt how do you rate prospects?

ARTHUR LEVITT: I think the prospects are good, the times
call for it. I think Harvey Pitt has the experience and strength to fight the enormous opposition he will get from within the industry and probably once again from the Congress.
(http://www.pbs.org/newshour/bb/business/jan-june02/sec_1-17.html)

The former Chairman of the S.E.C. squarely, unambiguously and unequivocally identified Congress as one of the two biggest sources of opposition for reform. Why would he say that? Well, in 1999 he was forced to compromise with the big 5 accounting firms after being pressured by the Chairman of the Energy and Commerce Committee -which is now also "investigating" Enron- Billy Tauzin who was all too happy to receive $57,000 from Arthur Andersen! The good congressman threatened to cut-off badly needed additional funding for the S.E.C. according to the S.E.C.s Chief Legal Counsel -during the Levitt years- It should be noted, that Chairman Tauzin, also received contributions not only from Arthur Andersen, but also from the other four accounting firms that make up the "Big Five." All in all, the good congressman has received a total of $290,000 in campaign contributions from the accounting industry as a whole, according to the Center for Responsive politics. Of course, it does not come as a surprise to anyone that our elected representatives do not discriminate with regards to whom they are taking money from.

So, not to worry we're in good hands!

Here is another excerpt from Mr. Solman's piece for "News Hour"

PAUL SOLMAN: According to reports, Chairman Tauzin is the person who negotiated the deal between Arthur Levitt and the accounting industry that allowed auditors to continue to get consulting contracts.

REP. HENRY WAXMAN: What happened in this particular instance was that Congressman Tauzin and others who were in charge of this effort to weaken these rules, insisted that the big five accounting firms meet with the SEC and sign off on any regulations. And Arthur Levitt had to just keep on giving and giving and giving to get anything at all done.

http://www.pbs.org/newshour/bb/business/jan-june02/watchdogs_2-22.html)

So, not to worry we're in good hands!

Of course we can't pass on not mentioning the other good congressman for Ohio, Mr. Michael Oxley. Rep. Oxley(R-OH) was instrumental in passing the Private Securities Litigation Reform Act in 1995, that limits the liability of accountants and corporate executives in Enron-like incidents. The good congressman is now chairing the House Financial Services committee, which incidentally is also holding hearings on Enron. But wait, this is not all. You see, congressman Oxley got some big help in passing the above mentioned legislation. The help came from the efforts of no other but the current head of the S.E.C., Mr. Harvey Pitt himself. Mr. Pitt, in his illustrious and impressive career has managed to represent every single one of the Big-Five accounting firms, plus the American Institute of Certified Public Accountants, which happens to be the accounting industry's chief lobbying group. Mr. Pitt was instrumental in winning passage of the Private Securities Litigation Reform Act in 1995. He was also the coordinator in 1999,of the lobbying effort by the Big Five, that resulted in weakening the proposed rules by Mr. Levitt, and allowed auditors to continue to get consulting contracts.

So, not to worry we're in good hands!

Of course, I would be doing you a disservice if I left out the pious and righteous Mr. Lieberman (D-CT). The good senator chairs the Senate's Governmental Affairs Committee, which of course is also holding hearings on Enron. The righteous senator was instrumental in killing -in 1994- efforts by the FASB adopt GAAP rules that would have required companies to count options as an expense to income. Furthermore, the pious senator in 2000, co-wrote along with another 13 not-so pious senators a letter to the FASB, urging the board to change its mind with regards to adopting stricter disclosure rules for mergers and acquisitions.

So, not to worry we're in good hands!

Since we live in a democracy, and thank God the First Amendment still stands, I could not resist to be politically incorrect, and dare criticize the President. Mr. Bush realized that the public's interests need to be protected, so, while Congress was in recess, he appointed Mrs. Cynthia Glassman, a principal with Ernst and Young, to the S.E.C., thus assuring that in these trying and difficult times for the accounting industry, the industry will have a majority representation in the commission. In case you did not know the commission is made up of five members, three of whom at the present time have close ties to the accounting industry, Mr. Pitt., Mr. Atkins and Mrs. Glassman.

So, not to worry we are indeed in good hands!

Ike Iossif

President/CIO. Aegean Capital Group, Inc.

Executive Producer

MarketViews.TV