"Investors frequently know little about the stocks they purchase," the Senator said, "and as a consequence there is a heavy reliance by individual investors on professionals whose job it is to look at one industry, or perhaps even one company, closely and make a recommendation on the purchase or sale of the company's stock."
Senator Collins said it was important to determine whether conflicts led analysts to perform so miserably in their evaluations of Enron.
Analysts generally work for the same investment houses that seek to do business with the companies their analysts rate. As a consequence, do these "sell side" analysts, as they are known on Wall Street, come under pressure to base their conclusions on more than just the numbers? Many analysts believe that it is better to know the true picture of the company even if they can't reflect it in their recommendations because to do so would be lose their contact. As a result, a code develops. Analysts use terms such as "hold."
"To you or me, ‘hold' would mean that an investor should neither buy nor sell. Wall Street insiders, however, understand that a ‘hold' rating means that stock should be gotten rid of quickly," the Senator said.
"Some financial analysts have pointed out that some of the information Enron gave them was inaccurate or incomplete. Analysts would ask questions but be brushed off or even lied to. But, why didn't they press for answers or see the lack of information as warning signs?" the Senator said.
In addressing the Committee, Senator Collins said it was clear to many analysts that something was missing, and that there was something wrong with Enron. "But the thing that was missing, of most importance, wasn't information. As one observer noted, what was missing most was skepticism."