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Rating agencies scrutinized
SEC tells House panel that firms should have forseen Enron's collapse.
March 21, 2002: 7:22 AM EST

NEW YORK (CNN/Money) - U.S. Securities and Exchange Commission officials believe debt rating agencies such as Standard & Poor's Ratings Group and Moody's Investor Service Inc. should have spotted Enron Corp.'s tenuous financial footing before the energy trader collapsed, according to congressional testimony reported by the Wall Street Journal.

"We believe it is an appropriate time and in the public interest to re-examine the role of rating agencies in the U.S. securities markets, and to conduct a public examination of the potential need for greater regulation in this area," SEC commissioner Isaac Hunt told the House Financial Services Committee, according to the Journal.

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The ratings agencies contend that they were not able to properly assess Enron's financial situation because the company provided them with misleading information.

Standard & Poor's managing director Ronald Barone told the committee that Enron failed to disclose information about the private partnerships that eventually led to its collapse, despite assurances it had done so, the Journal reported.

Click here to check Enron fallout stocks

A representative for Moody's, John Diaz, labeled Enron's public disclosures and responses to specific questions from Moody's as "misleading and incomplete," according to the paper.

The committee was unsympathetic to the rating agencies' testimony. "It seems there isn't much value added by either analysts or credit raters," said Sen. Fred Thompson, R-Tenn. "[Rating agencies] don't really go beyond the documents, although you have the right to."

The SEC's chairman, Harvey Pitt, also told the panel that he did not support separating auditing and consulting services in accounting firms, a practice that raised the question of conflict of interest with Enron's former auditor, Arthur Andersen LLP.

Pitt, who represented each of the Big Five accounting firms as a private attorney, said "stripping down accounting firms so that they only produce audits will result in worse audits," according to the Journal.  Top of page






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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.