- The Washington Times - Thursday, February 28, 2002

Wall Street analysts who recommended Enron stock as the company slid toward bankruptcy testified yesterday they were not influenced by their own firms' investments and had seen no signs of serious trouble.
It was the first time financial analysts, whose advice is heeded by investors nationwide and whose firms give millions in campaign donations to lawmakers, were called to account for their role in the Enron debacle.
"It now seems clear that too many analysts failed to ask 'why' before they said 'buy,'" Sen. Joseph I. Lieberman, Connecticut Democrat and chairman of the Senate Governmental Affairs Committee, said during a hearing at which four analysts from big investment firms appeared.
Eleven of 16 analysts who followed Enron were still rating it as a "buy" or "strong buy" as late as Nov. 8, two weeks after the Securities and Exchange Commission announced it had opened an inquiry into the energy-trading company's accounting. The company entered the biggest bankruptcy in U.S. history on Dec. 2.
Millions of investors large and small lost money, and thousands of current and former Enron employees lost the bulk of their retirement savings.
The SEC and the Justice Department are investigating Enron and the role of its longtime auditor, the accounting firm Arthur Andersen.
Federal Reserve Chairman Alan Greenspan said yesterday that when investigators collect all the evidence, they will find that Enron's collapse was triggered by financial markets' sudden loss of confidence in the company.
"Enron is a classic case of a company whose market value is very significantly dependent on the reputation of the firm," he told the House Financial Services Committee in response to questions.
"Trust and reputation can vanish overnight," Mr. Greenspan said. "A factory cannot."
Mr. Greenspan said he did not believe Enron's collapse would have any long-run impact on the economy, but it points to a need for tougher regulations to restore investor confidence in companies' books.
One step would be to make changes in how companies account for huge stock options they award top executives, he said.
Although analysts' compensation may not have been linked to their stock recommendations, several senators said a potential conflict of interest exists because of the investment firms' profitable business ties with companies their analysts follow.
Analysts, who earn an average of $200,000 yearly, often receive bonuses based on overall profits of their firms, which depend, in turn, on the ties with the companies the analysts follow. The four appearing at yesterday's hearing said they get bonuses on that basis.
Some of the analysts also went briefly "over the wall" from the research to the investment-business side of their firms to work on projects.
"You have an appearance problem," Sen. George V. Voinovich, Ohio Republican, told the analysts from Wall Street powerhouses JP Morgan, Lehman Brothers, Credit Suisse First Boston and Citigroup Salomon Smith Barney.
Several big investment firms lent money to Enron, invested in its partnerships, bought Enron stock and recommended it to investors. Now they face hundreds of millions of dollars in losses on the loans.
"I did not own Enron stock," testified Anatol Feygin, a senior analyst at J.P. Morgan Securities Inc. "I have complete freedom with respect to the recommendations that I make concerning any [stock], and my compensation is not tied to the recommendations that I make. … I have never received any compensation in any form from any company that I analyze, including Enron."
Senators asked the analysts how they managed to miss warning signs of Enron's troubles.
What about, for example, when former Chief Executive Jeffrey Skilling abruptly resigned last August?
"Each of us had our own way of interpreting that," said Richard Gross, the Lehman Brothers analyst. It was his firm's view that, at Enron, the management "bench was very deep," he told the senators.

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