Fraudulent ramping of Internet investments was '50 times' worse than Enron, says Welch

Jack Welch, the former chief executive of General Electric, launched a scathing attack on the bulge-bracket investment banks of Wall Street yesterday, saying they had only been saved from their fraudulent ramping of Internet investments by the Enron scandal.

Mr Welch also hit out at the European Commission which blocked his last planned deal as head of GE, the blockbuster acquisition of Honeywell. He described the commission as a "kangaroo court".

The dot.com bubble was a much more serious scandal than Enron, according to Mr Welch, who stepped down from GE in autumn 2001.

"The fraud perpetrated by the investment banks over dot.coms was 50 times worse than what went wrong with Enron. You'd have the head of every Wall Street bank before Congress right now. Enron saved their butts," he said.

Only one investment bank has so far been punished over its dot.com advisory activities. CSFB, which had a major share of Internet flotations, was subject to a criminal investigation by the Department of Justice. The inquiry was dropped but a separate investigation by the Securities and Exchange Commission led to the bank paying out a $100m (£70m) settlement. Investigators examined methods used to boost the share prices of Internet companies as they were floated and were concerned that some investors were allocated Internet stock in return for unusually high commissions.

Mr Welch said Enron was a one-off situation, a failure of corporate culture. He said the market had failed to concentrate on cash generation.

"There's one thing you can't beat, it's cash. For all the smart analysts out there, Enron didn't have any cash for three years," he said.

He hoped that the fall-out from Enron would not lead to lots of "knee-jerk" new regulation, which he thought unnecessary.

"It will have a big impact until something else comes along. The answer is to select [company] leadership with integrity, who can establish the right corporate culture," he said.

Turning to last year's decision by Brussels to block GE's proposed acquisition of Honeywell, the deal that was supposed to crown 20 years at the helm for Mr Welch, he said that competitors are given too big a say in Europe about transactions.

He added: "There is no recourse to the [Brussels] decision. That is outrageous. This is a kangaroo court. There's no one [to turn to] who has an impartial view. They're judge and jury. There just isn't any transparency."

Mr Welch said the only way of getting the deal through, after rivals such as Rolls-Royce and Thales were given their say, would have involved huge divestments. "Once we would have finished plucking, the chicken wasn't worth having," he said.