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Bill Black fake Bernstein see this whole rationalization practice. People do that, and it gets easier, I think, because the SEC allows it. I don’t know if you ever heard of Stanley Sporkin. Sporkin was the SEC enforcement head back maybe 30 years ago. He was the guy who was just hell on wheels about evil conduct. When I was a lawyer at my big law firm, Sporkin was really useful with clients because you could say, “It’s wrong to do it. If you do it, you know what Stanley Sporkin is like. You may end up on the front page of the Washington Post.” We haven’t had a Stanley Sporkin for a long time. TO: Then how prevalent do you think fraud truly is in American business? BB: I don’t think control fraud is frequent in the Fortune 500. But I think we now know that it was not remotely an unheard of thing. Some of the biggest companies in America were at root financial frauds. Enron’s strategic plan was to engage in fraud, which is basically what the Powers’ report shows. As soon as you make it clear that it is fine to scam the numbersnot only fine, but the central business strategywhat kind of message are you sending? We now have several other major firms and charities where that has also proven true. And we have seen all of those folks get clean opinions from big five audit firms, which is really scary. More generally, people are starting to figure out that having something like the high-tech bubble is really bad for the American economy. When you allow values to get way out of whack with the fundamentals, it’s not just money moving around, you can screw up your economy big time. I have some hope that the collapse of our tech bubble, which was one of the largest bubbles in the history of the world, has also scared some folks into thinking that maybe this isn’t such a clever way of doing it. Unfortunately, the attitude was “The rules are silly” and “Aren’t we so clever.”And that combination produces a lot of the worst disasters. TO: Do you think the SEC Chairman Harvey Pitt and the major accounting firms have a real commitment to reform? BB: No. And that’s kind of appalling. They think of these things as hostile, but AA and the others have lost so much more money than they gained. If they simply ran a good business and said, “It would be cheaper to do this right, and to make sure that our audit partners out in the field do it right,” they’d make money, and they would have a vastly better reputation. I have somewhat more hope that there may actually be restrictions put in place, for example, that auditing firms not be allowed to be both the outside auditor and the consultant for the same company. That would be helpful, but I don’t think it will produce much. Then it becomes even more intense: You absolutely have to get the client. So yes, it will reduce one sort of conflict of interest and that’s good, but it may have a negative effect that comes close to counter-balancing it. TO: How do the scandals of today measure up to the S&L scandal? BB: You want my pessimistic way of approaching it? If Keating and Milken didn’t have the small problem of both having confessed to felonies, they would have made Enron look trivial. The key problem that Keating and Milken had was that they found it very difficult to raise equity. Think of what Keating could have done during the greatest stock boom in the history of the world, where you could have no product at all, and it could be worth billions the next day in an IPO. If Milken had still been at the helm during this incredible boom, think what he would have done in leveraged buyouts. It’s staggering. Lay actually got started in part through Milken back in the old days. If the master had been available during this time period, we might be in recession now TO: Will Lay take the brunt of the blame for Enron? BB: [Jeffrey] Skilling is in deep trouble because he has witnesses who are clearly aiming at him. And you have this bizarre non-whistle-blower whistle-blower [Sherron Watkins]. The whistle blowing is when you tell the public, not your boss, and then act like he doesn’t know anything about it. That’s Godsend testimony from Lay’s standpoint. But Skilling also has the wrong persona: unrepentant, and very nasty. The kind that folks love to hate. If you are Bush, and want to show you are doing something, who better than Skilling as a target? TO: Is there a possibility that fraudulent accounting practices could catch up with more companies? BB: Oh yeah. The recession and the collapse of the high-tech bubble act like a stress test. There is no doubt that there are pretty broad-scale games in accounting, and there are a lot of products that didn’t make a whole lot of sense or never came through. The only way typically to hide it is to grow a whole lot moreand with the current economy, the money isn’t even remotely coming in the same way. It will catch up to them because when you lie, you eventually do end up getting caught once it collapses. 5/24/02 THE TEXAS OBSERVER 7