Scott Cleland, chief executive officer of The Precursor Group, will tell Congress tomorrow that market controls must be strengthened to prevent another Enron Corp. collapse.

Precursor is an independent research firm based in Washington. Cleland will testify on December 18, 2001 before the Senate Commerce Committee that conflicts of interest rampant throughout the U.S. capital markets system virtually ensure that future Enron-type collapses will occur again unless the internal controls of the system are substantially strengthened.

“The U.S. capital markets system clearly failed thousands of Enron investors, pension holders, creditors, employees and customers. It is clear that the system will continue to fail investors, until the root cause (rampant conflicts of interest throughout the system) is brought under control,” Cleland will say in his testimony.

“Increasingly, baby boomer Americans depend on their investments in market-vulnerable times and company pension plans to supplement Social Security and adequately fund their retirement,” Cleland commented. “Now more than ever, we need the internal controls capital markets rely on (auditors, research analysts, and boards of directors) to function with integrity to ensure the protection of investors’ financial security.”

Wall Street research analysts were still touting Enron as a “buy,” “strong buy,” or “hold” stock even as the company’s financial problems became apparent, according to various financial web sites. The sites which track the research recommendations show that even with the recent dramatic news documenting Enron’s financial deterioration, only two research analysts were advocating “sell” or “strong sell” orders to their clients. In contrast, nine research analysts this month and 12 research analysts last month advised their clients to “hold,” “buy,” or “strong buy” shares of Enron.

Cleland will lay out five recommendations in his testimony, which he believes would strengthen investor confidence in the capital markets system. They include:

• Official regulatory and industry policy should discourage conflicts of interest that can undermine critical internal controls

• Prohibit auditors from consulting for companies they audit and from conducting “independent” audits of their own internal audits

• Strengthen the overall objectivity of the investment research system so investors get more unbiased research and are more aware of conflicts of interest

• Discourage analysts from owning a financial stake in the companies they cover

• increase awareness and vigilance of the press to stock manipulation, especially as it applies to “pro-forma” accounting and “Street expectations.”