Just wondering [rolleyes]

NEVER!  Fat cats always weasel out of it somehow.  At worst they serve a few months at a country club prison playing tennis then return to their cushy lifestyle.

Don't know about Lay and the rest, but the political fallout has just begun.  I figure it has already cost Phil Graham and Dick Armey their seats.  Lots of Texas state legislators are unexpectedly throwing in the towel.  Any surprise retirements in the coming months have to be viewed as potential Enron casualties.

I'm sure some of my Mutual Funds got zapped on account of this...but the really scary part...I was just about ready to buy Enron! Its a good thing I'm always putting stuff off...

And Enron's accounting firm, Arthur Anderson I believe, those guys need to do time. They should reopen Alcatraz just for them.

Enron are good buddies with the current administration, but I don't know if that will keep them out of Club Fed.

And are GWB and/or Cheney themselves dirty and how dirty??

One of the guys at our shooting club lost $200M on Enron.  I guess if you bought Enron at $0.16 on Tuesday you could have a play but who'd a'thunk?

I'm just wondering has anyone been shown to have violated any laws?

Seems as if there should be a crime before complaining that the fat cats never do real time.

I will say that, yes, officers at Enron will do time, and the auditors at Anderson will at least be tossed from the industry, if not do time.

There are too many allegations of true wrongdoing at Enron - cooked books, divisions operating that aren't on the books, and plenty of insider trading for the executives that cashed in before the stock price took a header.

Remember, that elected representatives base their decisions on pleasing the greatest number of voters.  There are a lot more pensioners / investors that lost their shirts, than there are Enron execs.  Elderly women crying who had their nest eggs in Enron and were doing great but are now penniless make for the best witnesses.  

The Bush administration, if not tossing them to the lions, will at best remain mute on Enron.  They will stand aside and let the Justice department have at them.

Two years from now, those responsible will have their heads on pikes.

Seems as if you should have more facts at your disposal before you determine that there's no crime.

As the proud and foolish owner of 1000 shares,
I have to agree with jimmybcool.  Can someone
point out the crime?  I haven't heard of it yet.

The laws governing such trickery are not as
clear-cut as some other laws.  Enron and their
auditors have mountains of lawyers on the payroll.

My prediction - there will be great gnashing of
teeth and loud grandstanding by the polititians,
all trying to gather votes and support.  But there has been no crime with a 'controling
legal authority'.

DanM

I have not seen any one of substancial knowledge in law accuse any one in ENRON of any violation.
I have seen many reports of people loosing the lifes work in the companies demise... all  of them foolish to comit all of their savings to one company.
Any one ever heard the term... diversify???
CAN'T SHOOT THE FAT GUY CAUSE THE SKINNY GUY WAS STUPID!

Now call me dumb on this one but when stock was something like thirty cents a share I went and bought 200 shares. I could dump it now and make my money back if I wanted to but I am just waiting to see what the value will be in a year or so.

I've seen that stock bounce around under the $1 point, much higher than $.30, so your buy wasn't entirely dumb.  I wouldn't play ENE though.

The thing is, I used to really admire Enron after it received a lot of media coverage during the California energy crisis.  Gray Davis was crying foul because Enron was 'gouging' California; that is; not selling electricity to the state at the same price the state was selling it to its residents.  Boo effing hoo.  I was totally keen on a company that screwed over California, and traded exotic things like weather derivatives.  I suggested Lordtrader apply for a job with them.  This was back in February 2001.

The crime is that they didn't disclose all the debt that they were carrying, and overstated their profits from trading.  What they did was so goddamn complicated it seemed like no one was willing to take the effort to see if it was sufficiently profitable.

Wall Street received so much business from Enron in M&A's and debt underwriting, they weren't overly critical of their sketchy auditing and earnings reports.

So if this hotshot company ISN'T making as much money as they suggested, but IS way way way over their heads in debt they didn't bother to tell creditors and shareholders, and the executives had full knowledge of it but sold their shares at the all time high about 11 months before the SHTF, I would say that is criminal.  Wouldn't you?

Immoral - yes.
Ruthless - yes.
Devious - yes.

Criminal - some opine yes, some opine no.
I don't pretend to know.

DanM

[digsoutreason1.02]
Ahem, and may I say ahem?  

Read this one about the 401(k) calamity:

[url]http://reason.com/ml/ml122701.shtml[/url]

Read this one as a reminder of how the market works:

[url]http://reason.com/ml/ml122001.shtml[/url]

[):)]
NSF

I could see this happening 4 years ago.

I the words of W.C.Fields....

I work in the utility business so may be it would be considered insider trading

Fraud IS a crime, and there was plenty of that!
This is not speculation.
They consistantly misreported information.

The employees at Enron didn't have a choice in their 401K, If they participated in it it all had to be in Enron stock. The employees couldn't sell theirs but the fat cats dumped theirs the week before the crash.

It was bull shit from the very beginning.

They were selling contracts for energy before they had sources to sell from.

It was merely speculation.

Well maybe then YOU could enlighten me?  What were they convicted of?

03shooter:  It is widely reported by the sloppy
and not particularly enchanted by the whole
truth reporters that the 401k participants were
forced into ENE stock.  The non-Geraldo type of
reporters actually take the presious time to
report that only the employee match was ENE
stock.  There is a big difference.
I don't mean to minimize the employee loss at
all.  Just trying to remind us all that the
media that are making $ off the story are the
same media that twist RKBA issues to make a buck.
Many employers provide the 401k match in the
company stock.  It is not uncommon.
I hate to be typing here possibly appearing to
be defending the Enron big-wheels.  I agree they
are scum.  But...

DanM

Maybe if someone kneecapped a few of their executives---their buddies at the tennis club may think twice before doing it to their employees......Sorry about that--just the way my mind works.........Dick

The Enron thing was the perfect example of the fears of liberals, as it pertains to runaway capitalism,,, a bunch of fat cats screwing over all the regular Joes to stuff money in their own pockets.

It's assholes like these executives who give corporations the bad name that they have.

If it weren't for jerks like these the liberals wouldn't have so much to bitch about. Power corrupts and absolute power corrupts absolutely. I say hang the bastards.

How long has Enron been around?  I am asking because everybody is crying about how their "retirement plan" is worthless.  

Stocks go up and down.  I think that it is ok that in a free market a company might go bust.  

I don't hear many facts.  I just hear a lot of hand wringing and accusations.

I don't work for Enron, but I doubt that any of their employees would care if our small business folded.

"I don't work for Enron, but I doubt that any of their employees would care if our small business folded."  POSTED BY TORF



So you're pormoting apathy now?

Get a few of the facts before you start implying that we shouldn't care about what is happening with them. This is just exactly the kind of case that sets precident/new law to protect employees of all corporations.

Was what the executives did criminal??? Well I guess that's for the courts to decide. But my mind is already made up (to an extent). I don't know if it was illegal but it was certainly immoral. The guys who ran the company into the ground grabbed all the money they could and kept anyone else from doing the same and then jumped into the only life raft while leaving all the others to sink with the ship. Well I give a rats ass about it and certainly want to see these guys get taught a lesson so that my company's execs will think twice before screwing me and mine over this way.

I've been watching the Enron discussion here with something like dismay.

Just so you all know wherefrom I speak, I hold a Juris Doctor (JD) with a specialty in Corporate Law from a top 10 U.S. Law School.  I've been in Investment Banking for going on 8 years, when I founded my own bank (which will remain nameless for the moment) based in Europe but with a strong U.S. presence.  In particular we help European clients invest in the United States and still keep their shirt.  We did a lot of business related to Enron, particularly helping European clients buy and sell large blocks of the firm.  At one point we represented a group in Switzerland considering a takeover of Enron.  We were also tangentially involved in Enron's initial capital raising.  I personally had occasion to work with Enron's M&A group back in 1998 and 1999 and met with Ken Lay on four occasions.  We were also involved with Dynergy, but bowed out because of conflicts of interest due to our client's strong positions in Enron.  I also had close dealings with Enron when they opened EnronOnline in late 1999.

At the time Enron was quite a sharp firm.  They had done very well diversifying themselves from a pipeline logistics firm, to a Natural Gas hedger and eventually to an online trading shop of high caliber.  Early on Enron filled an important gap.  Because of deregulation producers and utilities were held to spot energy prices (which are very hard to cope with and predict).  Enron did quite a good job of assuming the risk, hedging it away with a closely watched trading system and providing long term contracts to utilities and producers.  Just about anyone reading this benefited from cheaper energy prices because of Enron's expertise in this field.  And I do mean anyone.  I cannot overstate how serious a benefit it was for there to be price stability- obtained with market forces- on both ends of the pipeline.  Of course, it was a great excuse for California to bitch that they were being "gouged."  (They signed an agreement with Enron buying X amount of power and promising to pay 4X if they bought any emergency power, then accused Enron of gouging when they mismanaged their own power system so badly they had to rely entirely on more expensive emergency power for months at a time, all the while they were STILL exporting power to the southwestern states.  But then, normal capitalism and rationality have never applied to California).

By the mid 1990s electricity was being deregulated the same as gas had been.  Enron expanded to cover this market as well.  Enron was instrumental in developing interesting and useful financial instruments, like temperature indexes, to give investors and end users more options to deal with risk in energy.  (temperature indexes were an outstanding tool.  A farmer could by options on a low temperature scale so that if his crop was ruined by an unexpected frost he would still be protected.  A utility could hedge against a heat wave, benefiting if the price went up and being able to afford the additional peak power needed).  Enron had the best trading group I have ever seen.  You couldn't be an expert trader and not think about working for Enron.  They were exceptional.  They literally invented some of these markets and were the only player in them.  EnronOnline was doing $3 billion in trades a day on slow days.

When Enron started making mistakes is when Jeff Skilling took over the firm from Ken Lay.  Skilling believed that Enron would be better served focusing on its trading operations and divesting itself of its tangible assets.  That's when we started to get nervous.  Eventually Skilling announced on a conference call I attended that it was his intention to move to 90% trading, 10% hard assets and that they were at about 80/20 right then.  That's when we recommended our clients get out.  Without those hard assets, Enron would be nothing more than a commodity trading house and if that's what our clients wanted we'd tell them to invest in Morgan Stanley or Goldman Sachs.

We were probably the only people to do this.  Enron was the goose that laid the golden egg.  No one was selling it unless it was to cash out.

We didn't suspect any wrongdoing at Enron.  We didn't expect any fraud.  We just weren't in the habit of putting our clients into risky trading operations.  (Most of our clients are much more conservative than that).

Having said all that, if you told me back then that Enron would have sunk to a penny stock, I would have raised an eyebrow and excused myself.

At one point we were asked to help sell some of the assets Enron wanted to be rid of.  For the most part we were the wrong people to call so we directed Enron elsewhere where they eventually had trouble selling the assets.

It was at this point that Skilling started setting up outside partnerships.  These partnerships would issue bonds, pledging Enron stock as collateral.  Then they would buy assets from Enron.  What this meant was that effectively Enron was using investor money to buy assets from Enron.  Those assets were then off the books, and if they were sold cheaper than Enron wanted, those loses would go to the partnerships and Enron would have already posted the gains from the sales of assets at the higher numbers.  I remember thinking this was odd when we were looking at some of the sales they wanted us to help with, but I chalked it up to disorganization, not malice.

The real alarms were in Aug. or so, when Skilling quit and Lay took over again.  I always though Skilling saw something he didn't like and decide to bail quietly, but I had no way of knowing.  By October the dam broke.  Enron had to take $2.2 billion in charges which it labeled "accounting errors" and it was pretty obvious that Enron was going to get a downgrade in credit.  That would have bumped about $4 billion more of debt into the "immediately due and payable" column.  We all sort of doubted Enron had that kind of cash around.

Eventually it turned out that Enron had $1 billion less cash than it was supposed to.  You should know the rest of the story.

Now having said all that, let's look at some misconceptions about Enron:

On Arthur Andersen:

ECS says:


Sean_Burke Says:


This isn't very realistic.  Auditors, believe it or not, can't really cope with clients who just outright lie to them.  Auditors can ask sage questions, put the answers in the report they give and otherwise make sure that the math is there, but with a firm like Enron, no auditor is going to visit every plant, touch every asset, record every serial number.  Enron had 2100 subsidiaries at one point in time.  It's just not possible, nor is it expected, for audit firms to be able to prevent fraud in a case like that.  Sure, Andersen will take some heat for being the auditors that got caught holding the bag, but I promise you that no accountants on this earth would have done much better.  You simply can't deal with things if a client won't even give you the most basic of truths, or if the client makes things so obscure that you can't tell what is happening.  As it turns out, the accounting standards in place in the U.S. today don't even really prohibit the partnership gambit Skilling framed and Lay used.  The accountants are the wrong people to blame.

On trading by Enron insiders:

Sean_Burke says:



I know of no allegations currently that there was illegal insider trading.  Most of the executives who sold did so on the advice of their investment managers.  Believe it or not people tend to sell stock when the price gets to 80-90x what they paid for it.  All you have to do is look at Yahoo to see that all these trades were filed for, approved by SEC and executed.  Mind you, Lay and Skilling both lost hundreds of millions because of stock they did not sell.  The belief that the "fat cats" somehow escaped unharmed is awfully silly.  I know of one executive and investor who lost upwards of 1.5 billion, or 97% of his fortune.  Ouch.

On the failed pension fund:

Sean_Burke says:



It bothers me every time I hear this.  Enron employees who were in the Enron pension and 401k plans and who chose to keep all their assets in Enron were just as greedy and blind as anyone else.  Contrary to all these reports floating around, Enron employees had their pick of 25-30 different 401k dispositions, only one of which was 100% Enron.

03shooter says:



Totally false.  What did actually happen with the 401k is that Enron changed the fund manager the day of the bankruptcy filing so that no one could change their 401k plan that day or for 30 days afterwards.  By that time most of the employees' stock was near worthless anyhow.  If they left it all in Enron I feel for them, but only long enough to change the channel.  You don't leave all your money in one stock unless you can afford to lose it all.

This noise about "fat cats" dumping their stock "the week before the crash" is also nonsense.  Lay and Skilling held about 2.5 million shares a piece when the price crashed.  Insiders can't just "dump all their stock."  They have to file with the SEC and get an approval and wait 30-90-120 days before selling.  Take a look at the filings for the "fat cats" on yahoo.com.  Lay sold about a million shares or so since December 2000.  Most of those sales were automatic.  He'd get options with his salary and they would immediately be sold and put back into the market in indexes or other stable investments.  (Most executives do this).  He was stuck holding 2.5 million personally and another 1.7 million in trusts when the price popped.  He lost nearly $210 million that way.

On whether a crime has been committed:

DanM says:



I actually think the reverse.  The controlling legal authority will be the Security and Exchange Act and it has pretty severe teeth.  If it turns out that Enron, a publicly held company, willfully held back material information (which seems VERY clear right now) someone is going to get burned hard.  Also, try to remember who the big investors in Enron were.  (Do a bit of research).  People tend to end up dead around these types on a regular basis for amounts much smaller than the hundreds of millions, or billions, that Lay and Skilling lost them.  I doubt that "fat cats" are going to skate this time.

raven says:



Again, the above is pretty much BS and rumor.  All you have to do is get a calculator and look at Yahoo to see who lost what when and who sold what when.

The real nastiness is with these "Chewco," "Jedi1," and "Jedi2" firms.  JEDI stands for Joint Energy Development Investments, but really was an offshore firm (Caymans) that cut deals with Enron and (seems to have) diverted funds to the owners of Jedi, and Chewco in the form of "consulting fees."  These firms were also funded by Enron, either directly, or through a bank guarantee which Chewco would then take to an institution as collateral for a loan.  Also, Enron did a similar thing with firms called "Raptor."  (One of these invested in Rhythms- the bankrupt DSL provider).  It was the Raptor firm that caused the 1.2 billion charge when Enron liquidated it (and paid its investors) for $35 million.  Raptor had notes outstanding to Enron for 1.2 billion, which Enron had listed as an asset.  Enron, on liquidating Raptor, suddenly lost 1.2 billion in assets.

On the complicity of Wall Street:

raven says:



This is just a fundamental misunderstanding of Wall Street.  No one knew the auditing or earnings were "sketchy."  There was pretty much no way to know unless Andersen had caught errors, which we already discussed above.  Second, there wasn't a lot of debt underwriting actually done for Enron.  It was all done for Enron's partners, which few firms knew to be directly connected to Enron.  There wouldn't be a conflict in this case.

It's easy to use Enron to prove about anything.  Fat cats will stick it to you.  Deregulation is bad.  Deregulation is good.  Capitalism is bad.  Capitalism is good.  Fat cats are greedy.  Employees are greedy.  Start looking with your own eyes, do your own research and please, turn off Fox News and MSNBC.

Austrian, Let me thank you for a report that I
am totally amazed by. I think a lot of people would pay money to see such a well written critique of the enron situation. Thank you for you time and expertise. And If you are actually just joining us, Welcome.

Wow! Let me toss in my thanks, too. I was starting to get the impression that the media reports were a bit "overstated". Problem is, it's clear from your dissertation that you have a keen knowledge of this stuff and even your analysis concludes that the "experts" were fooled also. Makes it kinda hard to separate the diamonds from the BS in the media reports. Once again, thanks for the education.

Thank you for the excellant Q&A.  It seems that everyone gets labelled around here.  I am glad that someone gets the facts straight and is willing to share them.

Welcome Austrian!

Austrian,

Thanks for taking the time to comment on the ENRON situation.  Any predictions on how the post-mortem will turn out?

No, I am not promoting apathy, I am just reciting a basic capitalistic truth.  There are winners and losers.  The winners tend to be the folks that keep trying after losing.

What do you mean, get a few of the facts?  I didn't give out any facts.  All I did was try to pour cold water on all the Enron lynching going on around here.  I think Austrian pointed out the relevant facts.

I agree that bad things tend to precipitate laws, but this is a bad thing.  These laws do not take into consideration the "law of unintended consequences", and generally stand in the way of a proper free market.  What we really need is to educate people about economics.

Your last paragraph is very illustrative.  Apparently you think that you will eventually be screwed over by your employer, and the only thing saving you is the fear of God that they will go to jail.  Are you inplying that no company should ever fail?  Are you suggesting that when a company does fail that all the execs be found guilty?  If they did illegal things, sure, but otherwise, all they did wrong was making more money than others.

Quite frankly, the company I work for does not owe me anything.  I work there, and as long as I do, I get paid a salary.  That is my compensation.  Any retirement benefits etc. are given to me optionally.  They are not required to do so.  I also have the option of quitting if I find a better job.

If you don't want to be hassled by "the man", start your own business and build it as best as you can.

There are two things that should come out of this:

1.  Standard Accounting Practices should be modified to prevent this "off the book" partnership nonsense.

2.  Pension/401k plans should require a "risk disclosure" in a grade form (AAA - DDD) which the company can either have generated by a third party or take the default lowest rating.

One thing prevents these kinds of messes.  Accurate and complete disclosure.  Period.

These two things would have significantly improved the situation for investors and for employees, who would then be able to make their own choice about either signing up for the "All Enron" plan (with a high risk rating) or a S&P500 index (with a B or AA rating).  (In reality I think there is sufficient disclosure in these but the rating system should make them moron resistant).

This other bullshit about forbidding this, and regulating that, eliminating the other and legislating it all- that's all crap.

If people are going to be stupid we have to let them.  If you make a plan idiot proof they will just build a better idiot.  Better to give everyone "informed consent" and let the thoughtful and careful prosper.  If I put all my retirement savings in south american igloo kits then I probably deserve what I get.

"What do you mean, get a few of the facts? I didn't give out any facts. All I did was try to pour cold water on all the Enron lynching going on around here. I think Austrian pointed out the relevant facts.

I agree that bad things tend to precipitate laws, but this is a bad thing. These laws do not take into consideration the "law of unintended consequences", and generally stand in the way of a proper free market. What we really need is to educate people about economics.

Your last paragraph is very illustrative. Apparently you think that you will eventually be screwed over by your employer, and the only thing saving you is the fear of God that they will go to jail. Are you inplying that no company should ever fail? Are you suggesting that when a company does fail that all the execs be found guilty? If they did illegal things, sure, but otherwise, all they did wrong was making more money than others."   POSTED BY TORF



First of all, I never accused you of spouting false facts. I accused you of making statements without knowing the facts, which your original post even admitted to.

Secondly, I have no fear of my current company screwing me over.

What I had a problem with was the apparent freezing of stock by the company either during or right after the execs sold off most of theirs. They litteraly kept the employees from saving anything before the big fall. I'm sure that Austrian can clarify anything I'm mis-stating but my opinion is primarily based on that. I live here in the Houston area and have seen a lot more coverage of the whole event and consequences it has had than people in other areas (probably). Let me also say that I agree with earlier statements about people being foolish to keep their entire savings in the single company stock but that's another subject.

So quit trying to put words in my mouth. I'm not promoting the intervention of government into how a company is ran, just the intervention into how it is destroyed. That is when you have all the rats scurrying around for whatever they can steel.

Just seems to me that you are painting with a pretty broad stroke.  
I know for a fact that one of your "rats", Ken Lay, turned down his golden parachute worth more than 100 million dollars.
The coverage you speak of is slanted heavily in the "evil business man" direction, as it always is.

Many people made a great living at Enron for a number of years.  They bought houses, cars and put their kids through college.  If they came away from this thing with nothing, then it was their own fault.  Investments do not always win, and it seems that the people we are supposedly supposed to feel sorry for made horrible investment decisions.

I don't feel particularly sorry for a company going bankrupt.  It has no feelings.  The owners lost everything they had when it went down, its upsetting, but that happens everyday.  Like I said before Brokaw/Jennings/Rather won't be wringing their hands if our small business goes under.

I was not putting any words in your mouth.  I simply addressed what you wrote.

Austrian:  A tip of the hat to you.  Thanks and
welcome.
DanM

Did they?

OK I'll answer my own question. Tonite on the news I see Arthur Anderson officials are saying some of their accounts destroyed documents relating to the ENRON funky deals that caused the company to go bankrupt.

I'll even go one step further and say the accounting firm knew Enron's earnings were grossly overstated and did nothing. [rolleyes]

"(CNN) -- Former Enron executive              Maureen Castaneda says document                 shredding at the energy trading giant          began October 31 when the Securities           and Exchange Commission announced a formal investigation into Enron's                    finances and continued until at least           mid-January."

[:O] Imagine that

[url]http://www.cnn.com/2002/LAW/01/22/castaneda.cnna.cnna/index.html[/url]

Not quite.  SAS (Statement on Auditing Standards) #82 was brought about by accountants
repeatedly saying, when they got sued, that it wasn't their responsibility to uncover fraud.

SAS 82 says that the audit must be designed to uncover fraud.  Whether AA did or not, or how well, is yet to be proven, but reports of their wholesale and sudden shredding of documents
do not paint a pretty picture, and raise serious questions about their role.

Testimony, along with the remaining evidence ( and that which can be reconstructed), may show that there was reason for Andersen to question what was going on.  And if you are the auditor and have doubt about whether you are getting full & complete disclosure, you need to decide whether you can make an informed opinion on the financial statements (i.e., do you want this client?).