The Axis of Avarice
Tales of Enron
It raises grave questions when a private corporation subject to regulation by the Commission is part of the process for selecting the regulators. It is especially troubling when the corporation has been a major contributor to the Presidential campaign. It is even more troubling when it is the only energy company playing a part in the official nomination process. Here is the quo that Enron got for the quid!
We have all read how Chairman Herbert crossed Ken Lay and was replaced. We have all read that two of the Commission nominees came from Ken Lay's list. Now we have confirmation that the nominee vetting process ran through Enron Towers.
Enron gave the quid. They were real pros. Now they are regulated by a bunch of the quos.
Meanwhile, at the other pole of the Axis of Avarice
Four high executives of the Enron Corporation took the
5th repeatedly refusing to answer questions about the company's questionable
partnerships on the ground that their answers might tend to incriminate
them. It is their right. And it is the listener's right to infer that
their truthful answers would probably incriminate them. Meanwhile, echoing
Mrs. Ken Lay's tearful defense of her husband Former Enron CEO exercised
the "Sgt. Shultz" defense claiming that no one told him about
the questionable financial manipulations in the company he was operating.
Here is how the go-go executives skimmed millions out of Enron. It was a two-pronged operation. Just before the end of an accounting period, when the reports on which investors would make decisions were being prepared one of Andy Fastow's partnerships would "buy" an asset - say an underperforming Brazilian power generator subsidiary - from ENRON That would inflate the revenue for the period showing the obligation of the partnership as real money. It also took the subsidiary's liabilities off the books. The report looked good and ENRON stock went up.
Then, following the close of the accounting period ENRON would buy the asset back for a higher price. That brought the underperforming asset back on the books at a higher value while its debt remained the same. That showed a better asset-debt ratio on the books and the next report would reflect that. Meanwhile Fastow and the folks he let in on the transaction got paid cash for the inflated value. At the end of the next period the process was repeated with another partnership, another asset, and another set of investors. Not all of the partners were ENRON insiders. We don't yet know who the favored outside "investors" were.
Each transaction inflated the revenue reported; each transaction "improved" the asset-debt ratio and each transaction ramped up the stock price to inflate the value of the executives' stock-option compensation. More ominously each transaction sucked cash out of the company and deposited it in the pockets of Fastow and Friends.
When this house of cards reached the height of ENRON TOWERS it couldn't be sustained any longer. The asset values had to be written down, the debts came due and the cash was gone. How did the regulators miss this scam? The real question is still unasked and unanswered.
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