The little guy was let down by all of them—executives, board members, auditors and stock analysts. They all failed to signal trouble at Enron before it collapsed, and their negligence (or worse) offers the single broadest example of how workers and individual investors have been abandoned by so many of the people they have relied on to look out for their interests in complex financial matters. Each of these groups of professionals had a conflict of interest—a financial stake in keeping investor dollars flowing into Enron stock. And the erstwhile government and industry watchdogs over these professionals face similar conflicts at other big companies. As Enron's stock dropped from $80 to under $1 in less than a year, thousands of employees saw their life savings wiped out in the company's 401(k) retirement plan. They weren't the first to suffer that fate. Devastating stock declines have hammered the 401(k) savings of workers at such companies as Lucent, Waste Management and Xerox. And other big plans are vulnerable. Coca-Cola, for example, has 81% of its 401(k) assets in Coke stock. The venerable beverage company is no Enron, yet Coke's slumping stock has been pinching 401(k) participants for years, sliding 49% from its peak in July 1998. Other firms that have more than 70% of plan assets tied up in company shares include McDonald's, Procter & Gamble and Texas Instruments.

Protecting the $1.8 trillion that 37 million Americans have in 401(k) plans is suddenly a hot issue in Washington. Senators Barbara Boxer of California and Jon Corzine of New Jersey propose forbidding plans to invest more than 20% in any one stock. In an opinion last month, the Labor Department made clear that it won't hold firms liable for third-party advice they make available to 401(k) investors, which could encourage them to offer it, and a bill from Representative John Boehner of Ohio would advance the ball by legally removing liability for specific asset allocation and other employer-sponsored advice. President Bush ordered "a policy review to protect people's pensions," which is vague but moving in the same direction. Calpers, the big public-employee pension fund in California, says it will press firms it invests in to reform their plans to encourage broad diversification. Michael Sparno, a midlevel manager for Xerox, wishes such reforms had come a couple of years sooner. As the shares of his once mighty employer tumbled in price from $60 to $10 in less than two years, his 401(k) account—roughly 30% invested in Xerox stock—took a big hit. "I'm reviewing things now with a much more hands-on approach," he says. He is contributing less to the 401(k) and investing more in real estate and alternative tax-favored accounts like a Roth ira. Yet Sparno and other 401(k) victims must accept some responsibility for their troubles. In most plans, the only stock you must hold are shares the company gives you as a matching contribution. Where retirement-fund disasters have occurred, employees have generally been found to own more company stock than necessary. That was the case at Enron, where management's do-no-wrong hubris filtered down to employees, who rode their 401(k)s to huge paper gains between 1998 and 2001. Even as the stock began to slide, many believed it would come back stronger than ever—or were too dumbfounded to sell.

None of this exonerates Enron management, which hid the depth of the firm's financial problems and talked up the stock while top managers were selling their personal stakes. The rank and file had an additional problem: the 401(k) plan was in a lockdown—assets were frozen during an administrator change—for part of the stock's collapse. "Not only are you on your own, but you have to watch your back," advises Eli Gottesdiener, a Washington attorney who represents 401(k) participants at Enron. What can you do? Start by telling your Congressman and Senators that you support efforts to lift restrictions on when you can sell company shares that have been given to you and to place limits on how much employer stock can be stuffed into a 401(k) or other employer-sponsored plan. But the most important step is for you to take charge of your retirement account. First, make sure you're safely in a mix of diversified stock and bond mutual funds at all times, in case one of your investments drops suddenly or your plan is locked down for several weeks. Next, hold as little as possible of the stock of your employer, whose fortunes already affect your job security and career advancement. Most big companies match part of each worker's 401(k) contributions in company stock, which can't be shifted into other investments until you reach age 50. As soon as you hit that magic birthday, shift those holdings into diversified stock and bond funds. If your employer gives you options to buy company stock, cash them in periodically after the stock has made a strong move higher. You'll owe tax. But you can take what's left and diversify. And if you buy stocks outside your 401(k) plan, avoid the shares of companies in the same industry as your employer. The Enron scandal has revealed that many auditors and accountants—at that company and elsewhere—are rubber-stamping stooges of management. It's common practice for accounting firms to collect consulting fees from companies whose books they audit, often doubling their revenue from one client, as was the case with Arthur Andersen and Enron. Any accountant who raises flags in an audit puts his firm's consulting fees at risk. That's a clear conflict of interest and should be outlawed. Short of that, publicly traded companies should be required to change auditors every few years. A new auditor would have a strong incentive to point out, and not get blamed for, any questionable work by his predecessor. Some have suggested that regulators stop requiring annual audits altogether. "An audited financial statement used to mean something," sniffs Ed Cowart, a money manager at Eagle Asset Management.

"Things have deteriorated to where auditor comments are meaningless." Audits haven't slowed an epidemic of misstated corporate earnings reports. From 1990 to '97, an average of 49 companies a year had to restate their results. That number jumped to 91, 150 and 156 over the next three years, reports Financial Executives International, which studies accounting issues. In each case, shareholders were deceived. The firms that restated earnings between 1997 and 2000 lost a collective $41 billion of market value the week following their announcements. With the problem growing so broad, it might be just as well to skip the independent audits, which have turned into sham endorsements that mislead investors. Until the system is reformed, what can an individual investor do? Watch for independent analysis from agencies like Moody's, Standard & Poor's and Value Line. Look skeptically on any stock for which accounting issues have been raised. Tyco International has been the subject of accounting questions for two years, during which the stock has gone nowhere. New questions flared last week, and the stock tumbled 8%. Sarah Teslik, executive director of the Council of Institutional Investors, is worried that for all the clamor in Washington, not much will change. The Securities and Exchange Commission's proposal to set up an independent oversight board for the accounting industry is just another form of self-policing and won't be effective, she says. "Too many people have a real interest in keeping things the way they are," she says, noting that many former lawmakers end up as corporate-board members while officials at the sec are often accountants themselves or, like sec chairman Harvey Pitt, former lawyers for accountants. Teslik is especially concerned about corporate-board reform, and would like to see board members held personally liable for gross mismanagement. At a minimum, she wants greater disclosure of conflicts of interest. At Enron, for example, directors were partners with management in various side investments or earned big fees as consultants. Employees and investors should look out for such conflicts. "Almost uniformly, when companies go bad, there is a pattern like this," Teslik says. "The company is trying to buy silence." Another way investors can monitor a company is by listening in on analyst conference calls, which are open to the public via the Internet. You will get a sense of the questions that management is dodging.

The conflicts of stock analysts at big brokerage firms have been well aired since the dotcom collapse. Too many serve the investment bankers at their firms rather than investors. That was a big problem with Enron. The company floated billions of dollars of debt and spent billions more gobbling up smaller companies—all of it amounting to a fountain of fees for Wall Street firms that stayed in the company's good graces. Analysts, who often get paid on the basis of the underwriting business they help secure rather than on good stock picking, were under tremendous pressure not to ask tough questions and to maintain their buy rating. This subject was probed in Congress last summer, and the brokerage industry has responded with guidelines for ethical behavior. As a result, many firms are disclosing more conflicts. So take a close look at research documents to see whether an analyst has bought or sold any of the stock under review or if the firm is or has been an underwriter of the company's stock or debt. When in doubt, the wise investor should be skeptical about stocks touted by brokers or other representatives of big firms like Merrill Lynch and J.P. Morgan Chase. Instead, seek independent information and advice from StandardandPoors.com, and from good financial websites like Morningstar.com and Fool.com. Financial conflicts are also common among experts who advise us closer to home. Ask Laura and Barry Marks, who lost their stationery store, Fine Lines, in Katonah, N.Y., after their insurance agent told them they couldn't get flood insurance—and they were flooded. "We asked for a complete commercial package to cover any type of inevitability, down to a letter falling off of our sign," Barry Marks says. But their insurer didn't offer flood insurance; only Uncle Sam does. That means private insurers have no incentive to market it, which is why many agents are misinformed. In recent years, insurance companies have found new ways to shift risk to policyholders. Fast disappearing is homeowner coverage that guarantees replacement. Among the very largest underwriters, only Chubb still offers this once common policy. Others shift the risk of miscalculating a home's value to the homeowner.

But careful shoppers can still find replacement coverage at smaller firms. Your financial planner may be selling you poorly performing annuities and other products that earn him a fat commission. One solution: hire a fee-only planner who agrees to be paid by no one but you. Similarly, the real estate agent helping you buy a home may try to rush you into one that's not appropriate just to get a deal done quickly. One solution: hire a buyer's agent who works only for you. In these cases and others, you often have to pay a little more on the front end to save on the back end. And you're wise to invest time researching the person who will guide you. That way you won't have to research every new issue that arises in your financial life.

— With reporting by Bernard Baumohl and Eric Roston/ New York and Jeffrey Ressner/Los Angeles