“A Senate panel criticizes the Securities and Exchange Commission for its passive approach to rooting out financial fraud and rebukes credit-rating agencies for failing to act as watchdogs, lapses it says magnified the effect of Enron Corp.’s collapse last year,” reports Peter Behr and Carrie Johnson in today’s Washington Post.

“The Senate Governmental Affairs Committee, in a 127-page staff report to be released today, chronicles what it labeled the missteps of the SEC and private-sector groups charged with monitoring the health of publicly traded companies.”

“The committee’s top-ranking members, Chairman Joseph I. Lieberman (D-Conn.) and Sen. Fred D. Thompson (R-Tenn.), said in a letter to SEC Chairman Harvey L. Pitt that the agency ‘ultimately failed to fulfill its mission to protect investors’ in the Enron debacle.”

“It is not enough for the SEC to investigate securities fraud after the fact, the report said. The agency must do more to prevent abuses from injuring shareholders.”

“The SEC did not review any of Enron’s financial statements after 1997 and did not monitor Enron’s compliance with special accounting treatment it permitted the company to use, the report said. After concerted lobbying from Enron, the SEC allowed the company to use mark-to-market accounting for its energy trades, allowing it to estimate the current value of long-term contracts and include that in its profit figures.”

“Former Enron employees have said mark-to-market accounting was widely misused to exaggerate Enron’s financial results. Although the SEC said the company should use objective standards when using the accounting method, it never followed up to see that the company complied, the report said.”