Who Killed the SEC's "Double-Dipping" Rule?
: The Senate's Own Double-Dippers

by Charlie Cray

In 2000, over a year before the Enron collapse, Arthur Levitt, the former chairman of the Securities and Exchange Commission, proposed reforms that would have barred accounting firms from doing both auditing and consulting work for the same client -- a practice commonly known as "double dipping." Levitt’s proposal went nowhere due to resistance from members of Congress who threatened to pull the SEC’s funding.

Could that be because these congressmen were themselves "double-dipping" – i.e. taking money from both Andersen and Enron?

Thirteen Senators in particular (many were members of the Senate Banking Committee) led the effort to pressure Levitt to abandon the proposed rule.

Senator Amt. Received*    
  From Accounting From Andersen From Enron
Wayne Allard (R – Colorado) 80,000 13,500 1,000
Evan Bayh (D- Indiana) 90,000 15,750 2,000
Robert Bennett (R – Utah) 87,000 13,805 8,053
Jim Bunning (R – Kentucky) 71,000 13,224 769
Mike Enzi (R – Wyoming)   6,500 4,500
Phil Gramm (R- Texas) 245,000 76,850 101,350
Rod Grams (R- Minnesota) (Ret.)      
Chuck Hagel (R – Nebraska)   11,493 13,331
Rick Santorum (R- Pennsylvania) 90,000 18,450 1,000
Charles Schumer (D- New York) 386,000 38,584 21,933
Richard Shelby (R – Alabama)   6,500 3,500
Robert Torricelli (D- New Jersey) 121,000 18,500 2,000
Ron Wyden (D – Oregon)   33,590 4,000

(Source: Center for Responsive Politics; amounts from accounting industry 1995 - 2001; from Andersen PAC 1989-2001; from Enron 1989-2001)
Strong opposition also came from senior members of the House Energy and Commerce Committee, especially Chairman Tauzin and Representative Oxley:

Michael Oxley (R – Ohio) 87,000 12,500 5,850
Billy Tauzin (R- Louisiana) 153,000 57,000 6,464

According to The Hill, spokespersons for Schumer, Bayh, Gramm, Torricelli, Allard, Enzi, Shelby and Hagel now say their bosses never threatened the SEC’s funding, while spokesmen for Allard and Bayh dispute that their bosses even opposed the rule.

But all of them either sent a letter to Levitt explaining why they opposed the rule, or publicly voiced their opposition to the former SEC chairman’s actions. And ex-SEC employees say the accounting industry was working hard to get the senators to support a rider to cut SEC funding.

The threats apparently worked; Levitt relented and the SEC adopted only a slight restriction on conflicts of interest. Rather than banning "double dipping," the SEC ruled that companies must merely disclose how much they receive in auditing and consulting fees from each client. That’s why we know, for instance, that Arthur Anderson, Enron’s auditor, also received $27 million from Enron in consulting fees.

At the time the SEC proposed the rules, some of the senators were quite outspoken against the rule.

Senator Phil Gramm:
"Our accounting firms are the envy of the world. Some of the most respected companies in America are the very companies that would be dismembered by this proposal. And it seems to me that if we’re going to see this happen there has got to be hard evidence that A, there’s a problem, and that, B, this dismemberment is going to solve the problem. And I think that basically is the question … I’ve sort of set out as the standard that’s got to be met if these changes are going to be made and sustained. They’re the things that I worry about."

(Hearing on SEC Audit Rules before the Securities Subcommittee of the Senate Banking, Housing and Urban Affairs Committee, September 28, 2000)

Senator Gramm:
"When a government agency makes proposals that will dismember major
segments of the American economy, that agency bears the very heavy
burden of proof of public benefit. The SEC has not yet met that test."

("Auditors demand SEC retreat," Lucinda Kemeny, Sunday Times (London), Business, October 22, 2000)

Senators Gramm and Shelby:
''We are concerned that the commission has singled out the accounting profession without any tangible evidence of an acute problem. … A rush to judgment by the SEC in this setting biolates principles of good government that we know you share.''

(Letter reported in: "Auditors Overcome Past Tensions with Congress to Win Support in SEC Dispute," JH, Securities Week, Vol. 27, No. 32; Pg. 9. August 7, 2000)

After the Enron collapse, Gramm recused himself from any congressional investigations, citing his wife’s participation on Enron’s board. Gramm has also announced his retirement.

Senator Michael Enzi:
"We’re bringing a lot of attention to the accounting profession that really isn’t justified based on the examples that are given. We’re worrying about a train wreck, and the first bolt hasn’t flown out of the train to begin with. … In any situation, there are a couple of bad actors and the bad actors usually drive what we do in Congress. And usually the solutions that we come up with as a Congress don’t solve the bad actors. They just put an extreme burden on the people who were good actors to begin with."

(Hearing on SEC Audit Rules before the Securities Subcommittee of the Senate Banking, Housing and Urban Affairs Committee, September 28, 2000)

After the Enron collapse, Enzi cited a national survey that reported 82 percent of high school seniors failed a basic personal finance quiz. Enzi said the collapse of Enron is also an indicator of the urgent need for money management education.

(Press Release, Senator Mike Enzi, "ENZI EMPHASIZES NEED TO COMBAT FINANCIAL ILLITERACY," February 5, 2002)

It’s no surprise that Senate Commerce Committee chairman Ernest Hollings says he would turn "a suspicious eye" on any response from SEC chairman Harvey Pitt to the Enron scandal, citing Pitt’s work for the accounting industry (including Andersen) before he joined the SEC in August, 2001.

While most of the Democratic Party leadership has delivered a weak riposte to the Bush administration’s claim that the Enron bankruptcy is a "business scandal" and not a political scandal, Hollings has accused the Bush administration of running a "cash and carry government for former energy trader Enron." Hollings said he’d look at recommendations from Pitt with a "jaundiced eye."

But even the whitest of hats in Washington are a bit gray. Hollings hasn’t called on Pitt to resign, or at least recuse himself, as Attorney General John Ashcroft did from the Justice Department investigation. When Multinational Monitor contacted a spokesperson for Hollings, he explained that instead of asking Pitt to recuse himself, Hollings’ position is that Pitt’s conflicts of interest require the Justice Department go one step further and appoint a special prosecutor, so that the investigation can be completely impartial.)

But why not do both? Is Hollings holding back on calling for Pitt’s recusal orresignation because he received $16,960 from Andersen between 1989 and 2001?

Other Sources:
Alexander Bolton, "13 Senators pressured SEC to abandon proposed audit rule," The Hill, 1/23/02, page 1.

Center for Responsive Politics, www.opensecrets.org. Data from Federal Elections Commission.

Stephen Labaton, "Enron’s Many Strands: The Regulators," New York Times, 2/7/02.