Wall Street Journal (10/28/08); Berman, Dennis K.

While lawmakers announced in the wake of the Enron scandal that justice was served and executives would learn from the example, the current financial crisis has led many to conclude that nothing has been learned. "Enron was a gnat compared to what's going on," said Sidney Powell, a Texas attorney for former Merrill Lynch & Co. employees. "There is blame far and wide here The whole system needs to be retooled." Current laws, though, will make prosecutions difficult, as they give wide latitude to executives, and convicting them will not remedy the fact that the entire political and regulatory system failed the public as well. In Lehman's case, for example, CEO Richard Fuld failed to take opportunities to sell the company before it fell into bankruptcy, moved into real estate just as the boom was ending, valued the company's commercial property portfolio as much as 35 percent higher than other firms, and insisted the company's financials were strong just hours before its collapse. Prosecuting Fuld and other executives will be tricky, though, as Fuld was in a difficult position, says University of Illinois law professor Larry Ribstein. If he had erred "on the side of panic, or state the risk pessimistically, he's got a full-scale bank run," he said. "If he gets optimistic, it's bordering on fraud." Meanwhile, of the 56 hearings held by the House Financial Services Committee in 2006, none addressed the issues that have caused the current financial crisis. Further, SEC Chairman Christopher Cox testified before the committee that year that financial reporting today is more reliable and transparent and that there is greater corporate accountability. Now what's needed is finding the root causes, says Ribstein, or else "we could go through all this and have no assurance the same thing won't happen again."(www.wsj.com)

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