Interview of Richard Breeden, Former SEC Chairman
BILL HEMMER, CNN ANCHOR: Congressional hearings are part of the massive investigation today into Enron's collapse. We saw the Senate Commerce Committee last hour vote to subpoena the former CEO, Ken Lay. That vote unanimous, 23-0 on Capitol Hill. Let's talk more about it right now, what we can expect from the hearings and beyond, the wider investigation too. Richard Breeden is a former chairman of the Securities and Exchange Commission. He is live in New York this morning. Richard, good to see you, thanks, sir, for your time today.</s>RICHARD BREEDEN, FORMER SEC CHAIRMAN: Good morning, Bill.</s>HEMMER: What do you make of this subpoena, the net effect here is what, if anything?</s>BREEDEN: Well, I don't think it is -- will be any surprise to people that Ken Lay is going to be subpoenaed, and when he does show up, he will probably take the Fifth Amendment.</s>HEMMER: And then we go from there to what?</s>BREEDEN: Well, the investigations that are going on on three different tracks. One in Congress, one in the Justice Department on criminal activities, and one in the SEC, and all three are very important. Congress is right now producing more facts, more disclosures, because it's a public process. The criminal proceeding and SEC proceedings are private processes until charges are brought.</s>HEMMER: There's is a question that came up in Washington yesterday that I really think goes to the heart of a potentially much broader issue here. Not just Enron, but other companies across America and across the world for that matter. And the question was, can you tell us at this point if there are other Enrons out there, and the answer was, no, we can't say right now. Can anyone, or is this a dangerous pit waiting that is just waiting to fall into?</s>BREEDEN: Well, Bill, I'm not sure that's the exactly the right question. Obviously, you never know about crimes until you discover them. There may be other Enrons out there, but I think what went on at Enron as disclosed in the report that was issued this weekend, the Powers' report, that was discussed on Capitol Hill yesterday, is not the norm. It's not usual. This was behavior that not only was across the line of normal corporate behavior, it was, in some sense, off the planet. So investors shouldn't overreact in thinking that every company does business the way Enron does.</s>HEMMER: Try this one on, I think you just answered it. How common is it for some companies, large companies, to have such a complex -- really, this massive web of relationships and partnerships with other companies?</s>BREEDEN: Well, there are a lot of complicated companies in the market, but Enron went beyond just being complicated. This report points out that many of these partnership transactions that occurred took place for no economic purpose. There wasn't any risk shifting, the company wasn't gaining anything. The transactions were done 100 percent for the purpose of doctoring the numbers, and that, I think, is something that is very different from what you would expect to see in a major company.</s>HEMMER: Are people going to go to jail for this, sir?</s>BREEDEN: Oh, absolutely. I think the U.S. parole board right now is probably paroling some people at Allenwood prison to make room for some new tenants. There's no question that if the facts that are laid out in that report prove to be accurate, and that is an "if," and everybody entitled to have their side presented in a court of law, but if those facts are correct, then there's a number of people who are in pretty deep trouble.</s>HEMMER: Richard, if you were advising Ken Lay at this point, what would you tell him? Lay low or go public?</s>BREEDEN: I think his lawyers have to make that call. It's based on his judgment, his best interest. I think every lawyer in the country would say that facing the kind of inquiries he's facing, that testifying under oath before Congress is probably not a very wise thing. The question of whether he wants to speak to the court of public opinion is something only Mr. Lay can decide.</s>HEMMER: Is it possible, Richard, that he did not know?</s>BREEDEN: I don't think so. Depends on what -- know what, is the question. The report paints him as very remote, not a very attentive CEO to say the least. Paints him as passive in the face of wrongdoing going on by Mr. Skilling, Mr. Fastow, and others. Whether it's possible -- I'm sorry, I'm a little bit skeptical. It just strains my ability to believe that a CEO could not know about hundreds of partnerships and a billion dollars of extra income added to the financials.</s>HEMMER: I'm way over time here, but now that I got you here. I want to get this final question in. Ultimately, if there is a silver lining on this Enron mess, what will it be for other investors and other companies down the road, sir?</s>BREEDEN: Well, I hope there is a silver lining here. I think this whole affair is focusing a lot of needed attention to the importance of the auditing profession and the quality of audits and the importance of ethics as well as obeying the law in the boardrooms of America, and I think we can hope for a renewed sensitivity to principles of business ethics, and obeying the law.</s>HEMMER: Richard Breeden, former SEC chairman. Thank you, sir. Much appreciated. Come on back, okay?</s>BREEDEN: My pleasure, Bill. Nice to be here.</s>HEMMER: You got it. Okay. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com