Enron Scandal - What Happened and Why

Despite the fact that it's been several years since the infamous Enron financial disclosure, many are still scratching there heads and wondering, "The Enron scandal, what happened and why?" There are still a myriad of unsettled issues: What is happening to the former execs of Enron? What is the legal fallout of Enron and preventative measure created after the fact? As the dust continues to settle on the Enron fiasco, Ritchie cuts to the heart of the issue in God in the Pits: the Jihad-Enron Edition:

During the dot.com explosion of the nineties, kids in their twenties became drunk with the fantasy that they were really worth the millions they made. Well, this was far more than any hard-working middle-age successful exec could stomach. So it wasn't long before a president got his head together with the company's accounting firm to do some creative accounting. You see, most middle-aged hardworking execs are strongly motivated by incentive bonuses that are only paid if the company stock reaches certain levels. Well, anyone knows that the better the books look, the more attractive the stock to potential buyers. What accounting firm could fail to accommodate these needs, especially when their own fees could be affected? Lest anyone think that these bonuses represent only a mild conflict of interest, let me add that most of us could live pretty comfortably for the remainder of our days on just one of these bonuses.

Enron Bankruptcy Claims Analysis

So the "polishing" of the books began. You might want to insert your own verb to describe what happens to the books. We could use a word as mild and ordering the books, or as aggressive as cooking the books. But whatever verb you choose, one would assume that somewhere in some back room where all this work gets done, someone might have asked, "Is this legal?" Proper professional behavior would not ask such a crass question, so it is possible that it was never actually verbalized. But in the unlikely event that it was asked, the answer would be, "Aw! For shame! How could you ask such a thing? Of course it's legal." And this answer is no doubt correct. No firm with as much to lose as Arthur Andersen would ever engage in illegal activity. (Shredding documents doesn't count.)

You see, telling your employees that the stock is good and will continue to rise, while you secretly sell yours is not against the law-as long as you are not under oath. What is illegal about being overly optimistic? Or maybe stretching your optimism until it looks more like a lie? So while the execs communicated a rosy scenario, they knew that the company was only looking stronger because debt was moved off the books to increase the bottom line.

To those who say that the employees shouldn't have had all their eggs in one basket, I say this is precisely what every liar wants, a diversion to a different subject. A naive investor who has all his eggs in one basket needs the truth even more than the professional. Some say that President Bush has already solved this problem by making it illegal to prevent employees from selling their stock. This assumes that the talented people who were creative enough to get around the laws that existed in the nineties will suddenly lack the creativity to get around this one. The implication of new laws is that the Enron scandal was caused by faulty laws or a lack of good ones. This is a preposterous and fatal mistake. Enron was actually caused by a very simple and willful ignoring of the golden rule. If Anderson survives its current scandal, it will be the ultimate proof that crime pays and white-collar crime pays best.

Excerpt from God in the Pits, The Enron-Jihad Edition, by Mark Andrew Ritchie
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