Man Without Qualities

Wednesday, January 30, 2002


We are now in “Confession Season!” This is not a religious concept. Rather, it is one of those periods during the year when public companies issue press releases and give interviews confessing that they will, or may, not be as profitable as they previously thought (or let the market believe), and, more rarely, to other market sins. This confession season is different, very different. Many companies are coming forward with extensively restated earnings – an event at one time considered an alarming rarity. Other companies - Global Crossing, Tyco – are widely felt to be racked by accounting irregularities and other possible serious improprieties.

Perhaps this is all just Enron fallout.

But there seems to be more to it than that. Many people on the “buy side” (that is, the people and funds who buy securities for investment purposes) are viewing the current confession season as amounting to a market-wide admission that much of the economic performance of the latter Clinton years was seriously and widely misreported and misaccounted.

So why are Arthur Levitt and his Securities and Exchange Commission not being called to account? Mr. Levitt has succeeded in one of greatest public relations spin control tricks in recent years. He has convinced the media that he is a kind of hero in the Enron disaster because he proposed – and let go of – some rules that would have limited the ability of accounting firms provide both audit and consulting services to the same public company client. Of course, no one has demonstrated that his rules would have made any difference whatsoever in the Enron case – but the media is buying anyway. This hero status has been obtained despite the fact that almost all of the alleged Enron chicanery occurred while Mr. Levitt was the principle regulator charged with oversight of Enron’s financial reporting. So, hats off to Mr. Levitt and his public relations consultant!

But the current confession season suggests that the problems in public company accounting go way beyond Enron – assuming Enron’s financial statements are as pernicious as the media and political establishment are asserting. Is Mr. Levitt to be given a free ride even where a large number of the companies he was charged with overseeing wander off the clean accounting reservation?

Consider Global Crossing. Mr. Levitt’s spin in the Enron matter has been that his SEC was distracted from its oversight of “established companies” by the great rush of the public offerings. Perhaps. But Global Crossing was not an “established company.” It was a spectacular, hot, new company run by Gary Winnick – best known for his prior, close and extensive connections with Michael Milken. Did any of that suggest to Mr. Levitt that Global Crossing was worth extra scrutiny? If not, why not? One would think Mr. Levitt has a lot of explaining to do here.

But the issues appear to go way beyond Enron and Global Crossing – even if Tyco turns out to be fine.

Simply put, why is Mr. Levitt getting an easy free pass on Enron? And why is he not being questioned much more aggressively on Global Crossing and what is coming to look like a very wide practice of accounting irregularities committed on his watch at the SEC?

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