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Commentary: Enron's Clout Won't Sway the SEC

By Mike McNamee

For Securities & Exchange Commission Chairman Harvey L. Pitt, the SEC's investigation into Enron Corp. (ENE) could hardly have come at a worse time. The future of Pitt's ambitious agenda of reforms in securities regulation could depend on how well he handles this case.

Enron's political clout and close ties to President George W. Bush create real risks for the SEC. Enron CEO Kenneth L. Lay is a longtime Bush backer, and the company was the biggest corporate contributor to the President's campaign. A Bush appointee, Pitt is attempting a delicate balancing act. He has made it clear he wants to speed up the SEC's enforcement, in part by rewarding companies that cooperate with probes. But he insists the SEC will still come down hard on true corporate miscreants--and knows that any signs of let-up could jeopardize the rest of his reform agenda.

Enter the Enron probe. The fine shadings of securities enforcement--where most cases are settled by negotiated penalties, not court-imposed fines--often make it hard for outsiders to tell whether the SEC is being tough or lenient. But Pitt must go out of his way to make it clear that the Enron case is handled by the book--getting the same strict scrutiny from the SEC as any other, less connected company.

For now, top SEC aides say that's happening. The SEC Enforcement Div. in Washington is looking into whether Enron adequately disclosed to shareholders the risks of its complex deals with Andrew S. Fastow, the company's former chief financial officer. Agency insiders say Pitt and his fellow commissioners will be briefed on the case as it proceeds. But they insist Pitt hasn't heard from the White House or Enron's other political allies.

TOP LOBBYIST. Enron's connections are numerous. Besides Lay's links to Bush, an Enron director, Wendy Lee Gramm, is the wife of Texas Senator Phil Gramm, top Republican on the Senate Banking Committee. And Enron spreads its lobbying budget--$2.13 million in 2000--across both parties. Just this year it hired four lobbying firms with Democratic roots. Enron says it lobbies heavily because it operates in regulated industries. It notes that electric utilities outspend it 35 to 1.

On Oct. 31, a special committee of Enron's board hired William R. McLucas, former SEC enforcement director, to represent it. McLucas should know that any attempt to muscle the stock cops is likely to backfire. Pitt, who joined the SEC out of law school in 1968, "remembers how the [Nixon-era] SEC tainted itself by turning a blind eye to [fugitive financier] Robert Vesco," says an agency veteran. Pitt has too much riding on the Enron probe to let its connections sway his judgment. McNamee covers finance in Washington.

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