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It's Not Just Enron Anymore

April 09, 2002

Jittery investors rightfully are hammering the stock prices of companies whose financial reports present more questions than answers. Adelphia Communications Corp.'s market value tumbled by 51% on fears that accounting practices were benefiting company founder John Rigas, whose family controls the cable television giant. Qwest Communications International Inc.'s share price has been cut by half because of accounting concerns. The need for serious reforms is no longer debatable.

New World Restaurant Group (bagel stores), Reliant Resources Inc. (energy) and KeySpan Corp. (natural gas) late last week joined the growing list of companies facing SEC investigations. The chief executive of the company that publishes TV Guide is scrambling to placate shareholders after acknowledging that he wrongly recorded an anticipated legal settlement as revenue.

The rash of Securities and Exchange Commission investigations is further spooking investors already rattled by the recession, the war on terrorism and the Middle East. Additional scrutiny is welcome, even if it increases market turmoil in the short term, because investors need full disclosure to navigate what a federal regulator describes as the "seductions and terrors" of the market.

Regulators must discover how widespread accounting irregularities were at the end of the 1990s economic boom. Xerox Corp., for example, will pay a record $10-million SEC fine and restate five years of financial results. The SEC also says Waste Management Inc. inflated profits by $1.7 billion in the late 1990s.

Investors are trying to do their part. The SEC is fielding an average of 525 e-mail complaints daily, up from an average of 365 a year ago. Ten years ago, an SEC chairman described his agency's toughest challenge as "how to deal with the confusion and lack of information among investors." The situation, from the investor point of view, is worse today.

Investor confidence requires that accountants employ clear, factual language that casts light instead of shadows. The SEC deserves the budget and manpower to make that happen, and to cope with the post-Enron surge in enforcement and monitoring.

Yes, it would be grand if all corporate executives were to return to managing their companies for long-term growth and quit concocting gold-plated earnings reports that attempt to prop up stock prices. It would also be fun to see pigs fly.

Only the SEC can enforce truth and transparency. It is a task that SEC Chairman Harvey Pitt has seemed reluctant to embrace. The latest batch of corporate confessions should clear up his doubts.

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