WINNERS AND LOSERS IN MULTIPLE FAILURES AT ENRON AND SOME POLICY CHANGES
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WINNERS AND LOSERS IN MULTIPLE FAILURES AT ENRON AND SOME POLICY CHANGES
WINNERS AND LOSERS IN MULTIPLE FAILURES AT
ENRON AND SOME POLICY CHANGES
by
Hrishikesh D. Vinod, January 27, 2002. (revised April 9, 2002)
Professor of Economics, Fordham University, Bronx, New York
Director: Institute of Ethics and Economic Policy
E-Mail: Vinod@fordham.edu
The paper can be read at
Web page: www.fordham.edu/economics/vinod/cie/enron.htm
ABSTRACT
Many of us in the anticorruption community have been calling for better enforcement of
“Conflict of Interest” provisions of existing laws, ban on shell corporations, especially those in
money laundering havens. It is clear that if these had been followed, Enron fraud might have
been detected and thousands of investors may have saved billions of dollars in losses due to
Enron bankruptcy of December 2, 2001. Enron paid no taxes in four out of the last five years,
had 5000 partnerships for shifting losses and debt off-balance sheet. It used fancy
mark-to-market accounting devices to hide and defraud. Why various checks and balances
failed in this case? Besides listing the various failures we indicate eleven groups of winners and
six groups of losers. While it is fashionable to count Enron employees among losers due to their
401(k) losses, we argue that employees were also among bulk recipients in the mass transfer of
wealth from investors. We include many specific policy proposals to promote transparency,
curb corruption, and prevent various abuses. Since the so-called “Chinese Wall” regulations
separating investment banking and other business of brokerages have failed, we call for a
break-up of such brokerages. An Appendix includes the two cows joke updated for Enron.
JEL Categories: G34, G28, D21, D43, D73, F36, M41
How Board of Directors Failed?
The Enron board should have known of the massive fraud and losses. The outside or
independent directors were very well paid and Enron also supported some charities near and
dear to outside directors. For example Enron gave $600,000 to the University of Texas
Anderson Cancer Center in Houston where John Mendelsohn and Charles A. Lemaistre are
respectively current and past president. This meant that outside directors failed to be sceptical
about management actions. On June 28, 1999 and on Oct. 12, 1999 the board approved a waiver
of the company's conflict of interest rules to allow Andrew S. Fastow, the chief financial
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officer, to set up private partnerships that would earn him $30 million. The authority to grant
such exemptions represents a giant loophole and should be removed. Such authority should
require a proxy vote by all shareholders.
Good corporate governance depends on informed decision-making by the board. It appears that
Enron management may have hidden critical information about accounting gimmicks and
deception financial statements from the directors.
How Lawyers Failed?
The outside lawyers can check corporate misbehaviour. The law firm Vinson & Elkins failed in
this. Moreover, the whistle blower Sherron S. Watkins had specifically asked not to use V&E
due to conflict of interest. Yet, Enron asked V&E to review books and told Ken Lay that no
widespread review was needed. Mr. Lay did unload 627,000 Enron shares at a high price. The
Enron lawyers approved hundreds of improper transactions and partnerships. Attempted firing
of attorney Joel Ephros by Enron executives shows that individual attorneys were
systematically discouraged from challenging the deals. Mr. Mintz’s memo of May 22, 2001 to
the CEO (Skilling) about Fastow’s conflicts of interest was ignored.
How IRS, SEC and Energy Regulators failed?
Transforming itself along the years from an operator of gas pipelines into an energy-trading
pioneer, Enron could claim to be America's seventh-largest company in 2001, but that did not
prevent it from avoiding the payment of income taxes in four of the last five years. Clinton’s
treasury did object to monthly income preferred shares (MIPS) but did not convince the US
Congress due to lobbying. It is a tax avoidance scheme, which enabled companies to mask the
size of their debt. Enron used many tricks to hide its debt for a long time using mysterious
partnerships. Enron was registering a $618 million third-quarter loss on Oct. 16, 2001 with the
company value having declined by $1.2 billion.
At the Federal Energy Regulatory Commission, Enron got a rule that exempted trading in
electricity contracts from reporting requirements. There appears to be a conflict of interest here
since the exemption built on a 1993 ruling by the futures commission that exempted energy
trades. The chairwoman at the time was Wendy L. Gramm, the wife of Senator Phil Gramm.
Large political donations allowed Enron to avoid all oversight. Lawrence Lindsey, the top Bush
adviser was a former Enron consultant. He oversaw a study of the impact of Enron's problems.
Enron pretended to espouse free markets when it suited its interests on the wholesale energy
distribution side. On the energy production side Enron tried to force electric utilities to get out
of generation business by law. The regulatory opportunism was practiced worldwide, especially
in Latin America, and the regulators failed to notice it.
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How Employees Failed?
It is surprising that most of the thousands of employees of Enron, including clerks working in
accounting departments and various middle managers did not see that revenues and costs were
in mismatch on such a massive scale. It appears that they were co-opted by lavish perks and the
go-go greed of the Internet bubble of 1990’s. Two exceptions seem to be Sherron S. Watkins,
who wrote to the CEO that company might “implode in a wave of accounting scandals,” and
Maureen Castaneda, who brought proof of document shredding. Why did the employees not
create an internal buzz about the existence of 5000 tax haven partnerships designed to hide
something? Did Enron threaten the employees against speaking out in E-mails or web pages?
There should have been many more employees who came forward, since their own 401(k)
pension funds were invested in Enron stock. Ms. Cindy Olson, a trustee of 401(k) plans was
aware of the problems and did nothing. Of course, 401(k) plans have tax advantages and Enron
tried to maintain an air of secrecy and gave extra compensation to those involved with offshore
partnerships, also known as special purpose vehicles (SPVs). Employees may have been
threatened with dismissal if they dared to expose Enron.
How accountants failed?
Not willing to risk losing such a lucrative client as Enron, Arthur Andersen submissively signed
off on deceptive earnings reports, and eventually blamed its lead Enron auditor, David Duncan,
whom they dismissed on the charge of destruction of Enron-related files. Mark Zajac, a risk
analyst at Anderson had sent E-mail on Oct 9, 2001 that there was “red alert” or risk of
financial statement fraud at Enron and yet Anderson did not act. Enron’s chief financial officer
(CFO) A. S. Fastow was also the general partner in many partnerships that lacked economic
substance, but were vehicles to enrich executives.
Arthur Levitt Jr., the former chairman of the Securities and Exchange Commission wanted to
bar accounting firms from performing auditing and consulting work for the same client, but 13
US senators and 20 House members intervened to quash the plan. Since accountants’ Financial
Accounting Standards Board (FASB) is funded and overseen by accounting firms and their
clients, this creates a conflict of interest.
Mark-to-market accounting: In 1997 Enron created Energy Services division to profit from the
deregulation of electricity markets. Lou L. Pai, who sold $353 million in Enron stock, ran it.
The entity was designed to use mark-to-market accounting technique which let them report
profits when Enron signed a contract based on 10-year assumptions about future energy prices,
energy use, etc. Its sales representatives got large cash bonuses and Enron reported large profits.
The basic idea behind this type of accounting was to get banks to value their buildings closer to
market prices. Here the asset in question was Enron stocks, not buildings.
So called “Chinese Wall” requirements state that Wall Street firms receiving information in
their capacity as investment bankers cannot be shared with other parts of the firm. The intent of
this law obviously excludes information about serious accounting fraud by company. American
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accounting firms advised Veba the utility company in Germany to not go forward with a 1999
merger with Enron due to accounting fraud; they failed to alert the investors about it.
Special purpose vehicles (SPVs) including partnerships and shell companies are used to take
debt and losses of the balance sheets. Many corporations including banks and insurance
companies use SPVs, asset backed securities (ABS) and collateralised debt obligations (CDO).
These vehicles can be abused and accounting practices have not kept pace with controlling
them. If large multinationals like Citibank control banking, insurance and several other
businesses, the manager of one entity may correctly think that they are selling risk through
SPVs, CDOs, and ABSs, but the buyer of the risk may ultimately be Citibank itself. The
accountants need new ways to make these stretched links transparent to the investors.
How Financial Press, Specialized Stock Analysts and Rating Agencies failed?
Fortune 500 list of largest American companies ranked Enron as No. 7 with $101 billion in
revenue, although this because Enron included amount of transactions, rather than the profits.
With proper accounting of basic facts Enron would had only $6.3 billion in revenue and should
have been ranked 287th by Fortune. In March 2001, a sole article in Fortune by Bethany
McLean questioned Enron’s finances. However, most of the rest of the financial investigative
reporting did not discover any problems.
Rosy scenarios about the future of Enron were invented and a multiplier effect was observed on
stock prices as the stock analysts assumed that the rosy picture will continue forever. The press
needs to learn the following lesson: During the speculative bubble economy, the business
leaders start managing for the gratification of speculators and against the interests of the
investors. A bond analyst Mr. Scotto at a French securities firm BNP Paribus, which had
investment banking relation with Enron, lowered Enron’s rating from “buy” to “neutral” in his
August, 23, 2001 research report. He even noted that Enron did not have hard assets. Enron
complained about Mr. Scotto’s report, he was immediately demoted, put on family leave and
fired on Dec. 5, 2001.
The stock analysts (with John Olson as the only exception) were all bullish and even after the
stock started to collapse, did not see the extremely weak fundamentals, let alone the coming
bankruptcy. Since stock analysts' compensation is tied to investment banking deals, there is an
obvious conflict of interest. It is not surprising that Goldman Sachs, Lehman Brothers, Salomon
Smith Barney and UBS Warburg, etc. recommended Enron stock. A study by H. Hong of
Stanford University and J. Kubik of Syracuse University of promotions at brokerage houses
shows that bullish analysts are more likely to be promoted.
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Independent rating agencies Moody’s Investor Service, Standard & Poor's and Fitch retained
“investment grade” rating for Enron up until just a few days before bankruptcy. They did not
even notice great discrepancies between a company's reported earnings and its retained
earnings. They also did not do adequate cash flow or debt equity analysis, which should have
questioned why Enron was so cash starved in 2001.
California public employees’ retirement system (CalPERS) recognized the conflicts of interest
in partnerships at Enron by December 2000, but did not warn anyone about it. Thus a watchdog
of shareholder rights failed to bark, perhaps because it too was co-opted by invitation to profit
from Enron’s JEDI partnerships.
Entities who profited from Enron.
Sixty billion dollars lost by Enron investors in a pyramid investment scheme represented a
massive transfer of wealth to all those who got paid by Enron and to those who cashed out
before it was too late. It is the recipients of these billions who were the winners in this saga. In
retrospect, many recipients of the Enron gravy train were getting hush money.
1) Employees of all foreign and domestic Enron units are the top winners. Most Enron
employees also got lavish perks. Enron’s current and past top executives are obvious big
winners. However, a large bulk of the cash and other benefits did go to rank and file employees
of Enron and its contractors. Many might have been jobless earlier, if Enron was exposed
sooner.
2) Enron auditors (Andersen), their employees and consultants.
3) Investors who sold their Enron stock soon for a profit. This is characteristic of a Ponzi
scheme. Highlands Capital Management, with ties to Harvard University, bet that Enron stock
would fall and profited to the tune of over $50 million.
4) Members of the board of directors of Enron and its affiliates, Investment bankers, their
lawyers and accounting firms got very well paid.
4) Family members and friends of Enron executives got lucrative deals. For example, Enron
CEO Ken Lay helped his son Mark and his sister Sharon. Similar treatment was given to the
friends and family members of Enron board of directors. James Prentice, a Trustee of Enron’s
401(k) plans sold Enron stock worth about $1 million, while discouraging others from doing so.
6) The number of politicians paid off by Enron amount to 71 senators and 188 congressmen
from both political parties. Some interesting people on the list include President Bush, members
of investigative committee, Attorney General John Ashcroft, another Congressional
investigator, Billy Tauzin, a ranking Republican on the Senate Banking Committee, Phil and
Wendy Gramm. President’s top political strategist Karl Rove had recommended that Enron hire
a Republican consultant. According to National Institute on Money in State Politics, Enron gave
$1.9 million to more than 700 candidates in 28 sates since 1997 to achieve deregulation in 24
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states. Entire United States attorney's office in Houston received Enron money. Several
politically connected individuals got Enron cash. Enron lobbied hard in UK and gave $52,000
to UK Labour party politicians. The largess to politicians allowed Enron to circulate its wish list
to top decision makers.
7) Mr. Fastow and other Enron executives who managed 5000 Enron partnerships offered
separate set of lucrative deals to banks, Wall Street firms and wealthy individuals. For example,
stakeholders in a partnership named LJM2 were given detailed information denied to Enron
shareholders. Since they received fantastic returns, nearly 100 Merrill Lynch brokerage firm’s
executives invested their own personal cash totalling $16 million. For example, Joint Energy
Development Investments (JEDI) returned 23 percent annually for its life, and a second JEDI
was to return 194 percent annually.
8) The list of Enron consultants is large and includes several prominent economists, journalists,
and lawyers. For example, Paul Krugman, before he worked as a columnist for the New York
Times, got $50,000 for writing in Fortune magazine and Peggy Noonan of Wall Street Journal
got around $40,000 for speech writing.
9) Some near bankrupt solar and wind power companies were bought for Enron’s pious
campaigns for renewable energy to buy up liberal environmental constituency. Energy
deregulation in 24 states will help consumers by bringing competition.
10) Some worthy charities such as museums and universities, especially in Texas, got Enron
funds. University of Nebraska in Omaha got an endowed chair in Economics. University of
Houston got two Ken Lay endowed chairs. There is an Anderson chair at the Florida State
University and one planned at the University of Texas.
11) Cayman Islands and similar tax havens got business. Some 60 ‘phantom’ businesses were
registered in Mexico. Some 140 were in the Netherlands to benefit from “Dutch sandwich” tax
avoidance.
Entities who lost.
The victims of the Enron affair are as follows
1) Millions of investors worldwide lost some $60 billion. The losers include millions of mutual
fund investors including widows and orphans. Florida’s State board of administrator’s pension
fund lost $325 million.
2) Enron workers who lost their jobs and life savings. Enron workers were told by top
executives that loyal workers should buy and hold Enron stock and were discouraged from
diversifying their holdings. A bad timing of the change of retirement plan administrators meant
that employees were barred from unloading any stock in their 401(k) accounts in late October
and early November, just when the stock price crashed dramatically.
3) Enron claimed one life. J. Clifford Baxter, a former Enron Vice Chairman lost his life by
suicide.
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4) US Taxpayers as a whole lose when Enron abuses the tax code by clever accounting. There
were other ways in which Enron exploited taxpayers. For example, Enron managed to bag $450
million from US taxpayers to underwrite its India investment.
5) Externalities: Accounting profession is discredited due to Enron. Investor confidence in the
stock market and capitalism is eroded. If investors cannot believe the numbers published by
major corporations, it will take decades to restore. For a while, Enron discredited making
money the old-fashioned way by earning it honestly through voluntary buying and selling.
Since the inability of greedy capitalists to regulate themselves is exposed, all will have to accept
greater regulatory burdens. Large ($51.3 trillion) and global self-regulated complex derivative
securities markets facilitate hedging, which permits shifting of business risk to credit-worthy
outside party for a price. Enron used shell companies like Raptors (whose only asset was Enron
stock) to hedge with itself to mislead investors. Expensive regulations are likely to impose
additional costs on derivatives markets. Qwest communications overpaid for Enron’s fiber optic
network and capacity and services and Enron overpaid on the contract in a swap deal in Sept.
2001 worth about $500 million despite the glut in fiber optic capacity. It was meant to lift
revenues artificially to get accounting benefits for both companies. However, net revenues of
Qwest did not benefit and Qwest shareholders lost in the swap.
6) Foreign Losers: India’s debt was downgraded by S&P on August 13, 2001 partly due to
failure of Enron investment in India. The infrastructure project of electricity generation by
importing liquefied natural gas (LNG) by ships from the Middle East dates back to June 1992.
This was judged to be too expensive by the World Bank. Yet, by bribing Indian politicians,
Enron convinced Maharashtra State to use LNG technology for Enron’s $5 billion investment in
August 1994. This was untenable from the start and led to losses for Enron starting in year
2000. When faced with electricity rate hikes, not unlike the governor of California during the
rolling blackouts of summer 2001, Maharashtra politicians refused to honour written contracts
with Enron. This worsened the atmosphere for all foreign direct investment (FDI) in India. In
the end, the corruption and the downgrade will hurt all Indians for years to come.
Policy Changes and Corporate Governance
In conclusion there is a plenty of blame to go around and American capitalism must wake up to
fix the problems revealed by this case. It exposed the rich and powerful aristocracy in America
is also capable of massive fraud. In support of eternal vigilance the anticorruption activists
would hope to see the following reforms to prevent future Enrons. A similar failure of
Oklahoma City bank called Penn Square needed a $4.5 billion federal bailout twenty years ago.
It too had off balance sheet liabilities and lead to various congressional hearing, but they did not
prevent Enron.
1) Financial Disclosure and Accounting Reforms: Ban SPVs (shell companies, partnerships)
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and ban the “off balance sheet” transfers of corporate debt. Financial Action Task Force
(FATF), international body against money laundering, has identified several countries that
provide tax havens and money laundering services to criminals, terrorists and corporate
swindlers who cheat ordinary investors. We suggest placing low limits on all financial
transactions between public companies and banks or corporations in haven countries worth
more than small amounts with full disclosure of even the small amounts. Ban loans to
executives, which skew the intent in compensation disclosure rules. The disclosures of insider
buying and selling of stocks should be reported within a week by the brokerage, which
implements the transaction, as well as by the insider. Ban trust-preferred securities or monthly
income preferred shares (MIPS) designed to hide debt and avoid taxes. These securities are debt
for tax deduction of interest payments but appear as preferred stock of a subsidiary company
leading to misleading balance sheets. All these abuses are involving subsidiary shell companies
must be banned for preserving the integrity of financial disclosures. Accounting technique
called “secured equity linked loans” (SELLs) link with equity prices and permit abuses which
need to be closed.
2) Ban Auditors from doing consulting work for companies they audit. For better transparency
auditors should grade the company A, B, or C, say, to reveal the quality of compliance with
respect to the spirit not just the letter of generally accepted accounting practices (GAAP). For
example, aggressive accounting would lead to a C grade. We need some quality control on audit
reports to identify and solve problems before complaints are made.
3) Markets in asset backed securities and collateralised debt obligations need new regulations to
prohibit their abuse. When public companies use such ABSs and CDOs, greater transparency is
needed. Ban the use of derivative securities to inflate assets, which enabled Enron to increase its
year 2000 assets from $2.2 billion to $12 billion.
4) Force greater simplicity and transparency in corporate financial reports. Material facts should
be made available to investors in simple language. There should be limits on the use of
footnotes designed to obfuscate and hide. All payments to employees by company stock
including stock options should be counted as compensation expense at current stock prices as
FASB has wanted, at least since 1997. We should ban all such gimmicks, which give false
appearance of profitability. Whistle blowers who expose unethical conduct need financial
incentives and real protections against reprisals and harassment. The public needs more
information about analysts’ conflicted loyalties.
5) Ban mark-to-market accounting for intangible assets. Capitalized value of hypothetical future
gains simply cannot be current profit. Require that auditors grade the company A, B, or C, say;
to reveal the quality of compliance with respect to the spirit not just the letter of generally
accepted accounting practices (GAAP).
6) To prevent management from hiding critical information from the board, provide for a
secure, possibly anonymous channel of communication between the board and employees/
shareholders. This channel should be well advertised with bold links on the Company’s web
page provided. The independent members should be two-thirds or more of the board and should
meet at least once a year without the CEO and upper management representatives. To align the
interests of owners and the board members, it may be useful to pay them in stock options with
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vesting periods of five or more years. SEC should blacklist directors of bankrupt companies,
especially if negligence is discovered. Once a director is found to have permitted deception in
any public company he or she should be blacklisted and prohibited from serving on the board of
directors of any other company for say five years. The members of the board who serve on audit
committees should be blacklisted for failure to check on auditors. Independent board members
should be truly independent. Require shareholder approval of granting of stock options to top
executives. Ban large loans between outside directors and corporations leading to conflicts of
interest. (e.g., loan to Mr. Musser of Tyco).
7) Divestiture: Bring back Glass-Steagall Act mandating separating of lending and investment
banking repealed in 1999. Break up large Merrill Lynch, Citibank type banks and brokerage
houses into two separate entities (a) brokerage account management and research on
companies, and (b) investment banking.
There is massive conflict of interest between the two activities and “Chinese Wall” regulations
have failed to protect investors. In fact the “Chinese Wall” has supported the current culture of
“Don’t ask, don’t tell” at Wall Street firms. Since private companies like Enron cannot be
forced to use Enron critics as investment bankers to sell Enron stock or partnerships, break up
seems to be the only solution to this fundamental conflict.
Merrill Lynch’s investment banking chief David Bayly, vice chairman Thomas Davis, chief of
the energy investment banking Schuyler Tilney, among others, invested their own money in
Enron partnerships. These raise important conflict of interest, privacy and disclosure issues
implying that the break up would have to be followed by vigilance. Citigroup Inc. lent money to
troubled Enron Corp. in October 2001, hedged its own bets with credit-linked notes and pitched
Enron bonds to clients at the same time.
Eliot Spitzer, New York State Attorney General has accused Merrill Lynch (April 9, 2002) of
biased and distorted stock recommendations and released internal e-mails. One e-mail from Oct.
9, 2000 said “we bend backwards to accommodate [investment] banking,” another said
“breaking the link between writing and rating [investment instruments] is a partial solution but I
think the issue is much deeper”. Still another e-mail of Nov. 16, 2000 complaining about
sacrificing retail investors at the cost of corporate clients said “John and Mary are losing their
retirement because we don’t want Todd to be mad at us”.
Enron entity called LJM2 had such attractive returns (212% in 3 months) that Merrill raised
$394 million when Enron was seeking only $200 million in 1999. The investors were select
clients of Merrill and included unexpected names like Arkansas Teacher Retirement System
($30 mill.), Institute of Advanced Study in Princeton ($5 mill). A divestiture proposed here
would have generated a more public announcement of investment opportunity and a probe into
the true nature of LJM2.
An example of how Enron was able to intimidate analysts follows. Mr. Chung Wu of UBS
Paine Webber wrote the opinion to take some money off the table by selling Enron stock at
$36.88 on August 21, 2001. Mr. Patrick Mendenhall of Paine Webber wrote back to Enron that
Paine Webber continues to have buy recommendation and fired Mr. Wu in less than three hours
on that day. Such intimidation will be exposed under divestiture.
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CSFB (Credit Suisse First Boston) executives Laurence Nath and Sominic Capolongo were
directors of Atlantic Water Trust (Enron off-balance sheet entity). If divestiture proposed here
was made before Enron collapse, Enron’s bankers (Citibank, J.P.Morgan, Credit Suisse) would
not have faced lawsuits accusing them of participating in phony transactions to defraud
investors.
8) Curb worldwide corruption. Curbing political corruption requires campaign finance reform,
enforcement of rules requiring disclosure of contacts between lobbyists and decision makers.
The 1977 foreign corrupt practices act (FCPA) needs more teeth with explicit punishments for
indirect paying of bribes through lawyers and consultants acting as intermediaries.
Acknowledgment: I have benefited from reading various articles in the New York Times,
Financial Times and Wall Street Journal. Special thanks to Monica Voitovici for summarizing
Stevenson and Gerth’s January 20 article in the New York Times, which started this paper.
Appendix 1: Two Cows joke updated for Enron:
Under feudalism, you have two cows. Your lord takes some of the milk. Under fascism, you
have two cows. The government seizes both, hires you to take care of them and sells you the
milk. Under communism, you have two cows. You must take care of them, but the government
owns all the milk. Under capitalism, you have two cows. You sell one and buy a bull. Your herd
multiples; you sell out, invest the money and retire on the income.
With Enron, you have two cows. You borrow 80% of the forward value of the two cows from
your bank, then buy another cow with 5% down and the rest financed by the seller on a note,
bearing interest at twice the prime, callable if the market cap of your publicly listed company,
whose stock you've put up as collateral, goes below $20 billion. You sell the three cows to your
publicly listed company, using letters of credit opened by your brother-in-law at a second bank,
then execute a debt/equity swap with an associated unit, so that you get four cows back, plus a
tax exemption for five cows.
To continue: The milk rights of six cows are transferred via an intermediary to a Cayman
Islands firm secretly owned by the majority shareholder, who sells the rights to seven cows
back to your listed company. The annual report trumpets that the company owns eight cows,
with an option on one more. All of the above transactions are cheerfully blessed by your
independent auditors, who, of course, served as consultants on said transactions, but only after
the fact.
You're all set now to disclose, via press release and conference call with analysts, that Enron, a
major owner of cows, will begin trading cows over the Web. Analysts proclaim Enron the
prototypical New Economy Company, bull the shares to the moon, enabling you to sell huge
gobs of the stock and use part of the proceeds to buy a top-of-the-line shredding machine.
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Appendix 2: Famous quote on Enron:
Rep. James Greenwood, R-Pa., the oversight and investigations subcommittee chairman said to
David Duncan, Andersen's lead auditor “Enron robbed the bank. Andersen provided the
getaway car. And some say you were at the wheel” reported on Jan. 24, 2002.
Appendix 3: Enron and the English Language:
Enronitis (noun) is an affliction. Companies need to vaccinate against this.
Enronian (Adj.) companies means those afflicted by Enronitis.
de-Enronize (verb). A company can de-Enronize itself by better disclosure of financial
information, by restating earnings, by bringing back the off-the-book transactions to current
balance sheet.
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