The Enron Scandal
A National Debacle that
Reflects Systemic Problems
in Our Political-Economic System

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Fun & Games at Enron:

"Kinder [former President of Enron] receiving a budget report from then-President Jeff Skilling, who played himself [in a January 1997 bar party skit].

When the pretend Kinder expressed doubt that Skilling could pull off 600 percent revenue growth for the coming year, Skilling described how it could be done.

"We're going to move from mark-to-market accounting to something I call HFV, or hypothetical future value accounting," Skilling joked as he read from a script. "If we do that, we can add a kazillion dollars to the bottom line."

Skilling abruptly resigned from Enron in August 2001 before news of its troubles surfaced, and has professed ignorance about much of what went on under his watch." 12/16/200, Associated Press

The Roll Call

Enron: Players & Lies

Time Magazine Persons of the Year 2002

I have learned one very sad lesson in American business- loyalty and integrity are rare in the marketplace- only naked ambition and greed seems common. It can be hypocritically couched in flowery words, even religion, but the bottom line is making money and more money... In the end however, the unjust will have their just desert. For in old age, money is no consolation on one's deathbed- when all one's past memories will float by and the pain inflicted felt a thousand times. See also an article by Dr. Paul Wong of the International Network on Personal Meaning: "Lessons from Enron- Corporate Culture Matters!

Senate Investigates
the "Teapot Dome" Scandal

"The Framers of the Constitution envisioned a system of government whereby each branch of government would watch the other in a balance of power system. The one development the Framers did not anticipate was a system in which all three branches of government have become unduly influenced by what is today the dominant power in American politics: unaccountable global corporations. In that situation, the citizens of the country must step in and reform the process. A first measure in that process is a thorough and honest investigation which will reaffirm Felix Frankfurter's maxim - that underpins the Securities Laws of the United States -- that "sunshine is the best disinfectant.""- Carl J. Mayer, from his 1/21/2002 press statement for the Citizens Agenda for Reform/Enron Press Conference, See Also:; Representative Henry Waxman's Enron Tip Line for Enron Whistleblowers; Bigger than Enron- PBS Frontline Report.


The Roll Call

Arthur Andersen Found Guilty of Obstructing Justice; 6/15/02

Former Rite Aid Officials Indicted:
U.S. Says Executives Inflated Profits, Diverted Funds; 6/21/02

WorldCom Says Its Books Are Off By $3.8 Billion
U.S. Criminal Probe Reported; 6/26/02

Xerox Restates 5 Years of Revenue
'97-'01 Figures Were Off by $6.4 Billion; 6/28/02

Bush SEC Delay Called 'Mix-Up'
Under Scrutiny, White House Shifts Blame for '91 Late Filing; 7/3/02

U.S. Corporate Watchdog Served At Troubled Firm:
Providian Settled Allegations of Fraud; 7/12/02

Unconventional Transactions Boosted AOL Sales
Amid Big Merger, Company Resisted Dot-Com Collapse; 7/18/02

Ex-broker says Salomon gave IPOs to CEOs to win business; 7/18/02

Enron: Players & Lies

Players Lies
Arthur Andersen, LLP Enron's financial statements were fair, accurate and independent. Destruction of Enron/Andersen documents was due to a rogue Andersen employee who did not know he was committing a crime. See 5/14/02 Washington Post, article by Carrie Johnson, "Enron Auditor Admits Crime: Andersen's Duncan Ordered Shredding."

There is no conflict of interest between audit and management advisory services. Audit results are seldom negotiated with the management of the company being audited.

What's a little (half billion dollar) overstatement in earnings and 1.2 billion overstatement in shareholder equity? 50 million dollar errors are "immaterial" and do not warrant restating financials.

"See no SPEs (Special Purpose Entities), Hear no SPEs." Regarding SPE's and other corporate "tricks" used for the sole purpose of keeping debts off the balance sheet and artificially inflating stock prices (of stocks sold by insider top executives at their peak value), see: Washington Post 2/1/02 article by David S. Hilzenrath and Albert B. Crenshaw, "Firms Face Demand for Openness No One Knows How Much Business Is Off the Books."

Fully cooperating with Enron, Congressional, SEC and Justice Department investigations.

Bush and His Cabinet Didn't know about Enron collapse before it was public and didn't dump Enron Stock as a result.  Bush hardly knew Ken Lay. Didn't have energy policies influenced by Ken Lay and other Enron officials. See: Washington Post, 2/27/02: "Judge Orders Release of Energy Task Force Records." Actively involved conservation and consumer groups in developing energy policy. See Washington Post, 3/26/02: "Energy Contacts Disclosed
Consumer Groups Left Out, Data Show,"
NRDC review of the work of the Cheney Energy Task Force.

Enron's failure is not different in kind from other catastrophic business failures. Accounting industry can police itself without oversight. No need for a Special Independent Prosecutor. Accounting & energy industry lobbyists/top executives don't/didn't influence appointments to the SEC and FERC. Enron executives gave Bush 700K because they liked him (but hardly knew him).

The SEC is aggressively investigating insider trading allegations by Bush and the Bush cabinet.

The Enron collapse will not increase pressure for real campaign finance reform. It's not lucrative to work for who you once regulated/audited, or regulate who you once worked for (the revolving door).

Energy deregulation had no impact on the California energy "crisis" and the downfall of Enron. Army Secretary Thomas White had no knowledge and/or participation in Get Shorty, Fat Boy, Death Star, Ricochet and other strategies used by the Enron wholesale energy group to artificially raise and manipulate energy prices during the California 2000-2001 energy crisis.

Congress Large hard and soft money contributions to over 70 members of Congress didn't influence laxness in energy trading regulation, energy deregulation and lax SEC accounting industry regulation. Wasn't aware of problems with 401K/ESOP tax/pension regulation and abuses. Republican Senator Phil Gramm (and spouse) are going to be unscathed by the investigations. Lie: Corporate tax laws are fair. Truth: Enron didn't pay federal corporate income taxes for four of the last five years- corporate welfare.

Truth: Congress has backed off of strong accounting industry regulation because of pressure from Accounting industry lobbyists. See 5/12/02 Washington Post article by Jackie Spinner, "Sullied Accounting Firms Regaining Political Clout."


Enron Corporation's Dabhol power plant in India
Enron: History of
Human Rights
Abuse in India

Upheld the interests of Enron's stockholders and employees- first. Did not lie about off shore accounts and the company's financial condition to employees and stockholders. Created a positive, humble and ethical business environment free from corporate greed. Put the interests of rank and file over senior management. Enron's Executives (corporate cowboys) didn't dump over a billion dollars of Enron stock prior to the collapse and make huge sums. "Independent" Outside/Inside Corporate Directors, Board Members and top executives of Enron fulfilled their fiduciary duties to its' shareholders and were free from conflicts of interest. Transactions between SPEs/partnerships and Enron were at arms length and not tantamount to embezzlement by Enron corporate officers and top executives. Jeffrey K. Skilling, former Enron CEO and Harvard Business School graduate knew nothing about the illegalities in Raptor and other partnerships- he was an innocent victim. Changing pension plan administrators when Enron stock was under pressure (sinking) was an exercise in fiduciary responsibility and not a deliberate attempt to keep employees from dumping Enron stock. Didn't attempt to buy any politician, journalist, bureaucrat, etc. who could influence energy rules or regulations. See: 2/10/02  Washington Post article by Joe Stephens: "Hard Money, Strong Arms And 'Matrix'-
How Enron Dealt With Congress, Bureaucracy"

Enron was a humane company that did not engage in human rights abuses.

Enron Corp. did not manipulate the California electricity market with such maneuvers as transferring energy outside the state to evade price caps and creating phony "congestion" on power lines. See 5/7/02 Washington Post article by Peter Behr: "Papers Show hat Enron Manipulated Calif. Energy Crisis."

Wall Street and the Banks Didn't know that Enron's primary (and only profitable) business was trading unregulated derivatives, not energy production and other "core" business areas. Credibility and transparency of corporate financials statements were frequently called into question. Enron collapse will have little effect on faith in our capital markets and is a unique case. Analysts seldom have conflicts of interests with and financial relationships to the company's they rate/trade. Analysts always disclose such conflicts. The "Wall" is never pierced.

Citigroup, J.P Morgan Chase and others did not help Enron disguise loans as commodity trades, thus helping Enron keep millions of dollars of debt of its books . See 7/23/02 New York Times article by Richard A. Oppel Jr. and Kurt Eichenwald, "Citigroup Said to Mold Deal to Help Enron Skirt Rules."

The above is not to belittle the integrity of the many ethical individuals who work in academia, private industry and government. The challenge is for them is to turn their good intentions into lasting and constructive political and economic change.


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