These are trying times for the Securities and Exchange Commission and its chairman, Harvey Pitt. Already under heavy criticism from various lawmakers for potential conflicts of interest, the agency received a scathing 127-page report yesterday from a Senate committee investigating the Enron collapse.

The report examined the failures of various watchdogs that could have alerted the investing public to Enron's crumbling house of cards: the company's board of directors; its auditor, Arthur Andersen; investment banking firms that aided in obscuring Enron's financial condition; attorneys involved at all levels; Wall Street analysts who continued to recommend the stock; and credit rating agencies who failed to downgrade the energy giant's debt rating.

But the most troubling failure came from the SEC itself. In a letter to Pitt, the committee said his agency "ultimately failed to fulfill its mission to protect investors" in at least three ways:

  • It did not review any of Enron's annual reports after 1997, in which it could have discovered "opaque and questionable references to transactions with entities run by the company's own Chief Financial Officer."

  • It failed to follow up to make sure Enron met certain conditions and requirements the agency imposed on the company.

  • It took a "lackadaisical approach" in its handling of an exemption request that ultimately allowed Enron to receive regulatory benefits it may not have been entitled to.

Not mincing words, the committee said that "some of the enormous losses suffered by workers and investors might have been prevented" had the SEC been on its toes. In short, "The investing public expects and deserves more meaningful protection from the ultimate market watchdog."

Lest we leave now and let the senators off the hook, it's worth noting they played down their own part in Enron's collapse. As The Wall Street Journal notes, "The report doesn't mention, however, the role Congress itself played in limiting the SEC's financial resources during the 1990s, in response to lobbying from corporate interests and the accounting profession."

Unfortunately, there's plenty of blame to go around here. Enron investors and employees were failed by many incompetent or deceitful people.