In a report released on Monday, the Senate Governmental Affairs Committee said the Securities and Exchange Commission (SEC) had ducked responsibility for going in search of fraud and poor practice at the now-bankrupt energy trading group.

If the SEC is to play a role in detecting and rooting out financial fraud, it will need to make this an explicit goal and develop new processes to support it

Senate Committee report

"Systemic and catastrophic failure" was behind the agency's failure to review any of Enron's financial reports from 1997 onwards, the report said.

And the dozens of other misstatements and scandals, both major and minor, which have been revealed in USA Inc's biggest names went on right under the SEC's nose because it simply was not looking for them, the report's authors said.

Free ride

The committee, headed by former Democratic vice-presidential candidate Joseph Lieberman, pointed to specific exemptions given to Enron in the 1990s thanks in part to pressure from its Republican supporters in Congress.

"The leeway afforded Enron by these determinations in certain cases appears in fact to have been abused by the company in ways that ultimately played a role in Enron's collapse," the report said.

And despite giving the company an easy ride, the SEC never followed up its own rulings to check the company was behaving itself.

General failings?

All in all, the SEC had fallen down on the job of protecting investors, wrote Senator Lieberman and the ranking Republican on the committee, Fred Thompson.

"The public filing review process is designed almost exclusively to assure compliance with the form of disclosure requirements, not to detect wrongdoing," they wrote.

"If the SEC is to play a role in detecting and rooting out financial fraud, it will need to make this an explicit goal and develop new processes to support it."

The result, they said, was that "investors were left defenceless".

Lobbying

As the report was being delivered to Harvey Pitt, now chairman of the SEC, Democrats in the House of Representatives were picking up on reports that the agency has ditched its first-choice candidate to head up the new watchdog overseeing the tarnished accountancy profession.

John Biggs, a prominent pension fund director, was widely tipped to head up the new Public Company Accounting Oversight Board.

But US newspapers say the accounting industry's lobbyists have been briefing against him, saying he would be far too radical.

"We strongly urge you to resist bowing to pressure to reject a candidate due to industry opposition," wrote Dick Gephardt, the leading Democrat in the House, in a letter to Mr Pitt.

In Mr Pitt's defence, the Wall Street Journal pointed out that much of the trouble alluded to by Sen. Lieberman predated Mr Pitt's arrival at the SEC.

And it noted that the idea of treating stock options as an expense, one of the key features of reformers' ideas for cleaning up accounting standards, has always met with staunch opposition from numerous lawmakers - including Senator Lieberman.