|  | | 2004 News and Press Releases | | |
HEADLINE NEWS:
When Companies Investigate Themselves
Kathleen Day and Ben White
WashingtonPost.com. December 31, 2004
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EXCERPT: When a whiff of accounting irregularities at Enron Corp. rocked Wall Street in the fall of 2001, the energy-trading firm's board of directors hired the law firm of Wilmer Cutler & Pickering to do an internal investigation of the company. Board members expected the lawyers to find a few pieces of dirty laundry that, once aired, might be embarrassing. But they hoped the investigation also would allay investors' worries about widespread fraud, allowing Enron to move out of crisis mode and back to business as usual. The Wilmer lawyers weren't as sanguine. "We didn't know if we would find bodies buried in the basement or simply a broken door latch that could be easily fixed," said William R. McLucas, former head of enforcement at the Securities and Exchange Commission and Wilmer's lead attorney in the investigation. McLucas cautioned the Enron board that his team would have to follow the investigation wherever it led and that serious problems might be uncovered. The directors, already facing damage to Enron's viability and their own reputations, decided the risk was worth taking. At least it would forestall an investigation by the SEC, which had opened one but agreed to stand down until the board's review was finished. As it turned out, the report McLucas handed the Enron board in February 2002 detailed widespread fraud at the company. In doing so, it also provided a guide to wrongdoing for criminal and civil prosecutors -- and investors eager to file class-action lawsuits. Despite that painful outcome, Enron-style self-initiated internal investigations have become the tool of choice for corporate directors under siege from charges of wrongdoing at the companies they are supposed to oversee. |
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