As the economy collapses and families struggle through difficult times, I went back to where it all began, the first of the, “Two Big To Fail” corporations.
Early Fall 2001
Washington DC
The Enron Lawyer
Washington DC and lawyers, I don’t want to say the city is infested with them because I will get sued but the city has rat pack lot of them. This is a chance encounter with one, when looking back it foreshadowed a disaster on the horizon.
The Enron Scandal
Mr. Smiths is a faded Victorian bar on M Street the heart of party capital in the capital city. A cozy place with an Irishmen and a Scot tending bar. They made a perfect combination of the ancient skills of two well-known cultures who gave us Irish Whiskey and Scotch. Victorian in style and rumor has it there is supposed to be an outdoor garden with an open roof, pleasant music, a relaxed setting to enjoy a pleasant home cook meal. I wouldn’t know never made it pass the bar.
Note: First an explanation, of sorts of how the Enron scandal came about: You are a rancher named En Ron and you have a neighbor Arthur Anderson. En Ron owns two cows, sells one of them to himself and leases the other one back to himself. Now he has four cows and Arthur swears to it but no one has seen the cows in weeks. Taking the four cows he sells them to an offshore herder who never takes procession of them but leases them back to you. Now your herd is up to eight cows, even though one of the two and only two cows has been made into steaks for a big back yard bar-b-que to celebrate the success of your herd building. So with the remaining eight cows you buy a big ole pickup with Arthur swearing on paper you have eight cows for collateral. But still no one has seen the cows in months. You tell all your neighbors about how you are going to breed your herd and make millions, so they all contribute to get in on the action. You have another bar-b-que. So your herd has grown to 16 cows, the original and only two are now in your freezer ready for the next big celebration. Now your farm electricity has been turned off and for no clear reason, so you call it a brown out. Then the repo man comes to get the truck you bought on the success of your herd which is now in a freezer in the basement rotting since you could not pay the electric bill and Arthur goes to jail. Basically that is the Enron Scandal. Just multiply it by about a couple of billion.
The Enron Lawyer and transparency in accounting.
“You look fam- il- yer to me.” The obviously drunk man at the end of the bar said to the gentlemen sitting next to me.
“No I don’t and lets keep it that way.” He snapped back.
“What the fu..”
“Come on, drink up and get you arse outta her” the Irish bartender snapped back. The drunk, cussing, finish the last swallow of his beer, leaves the bar, telling all how he was going to sue the place. Before he was able to make it to the door, 20 lawyers had handed him their cards.
“ I remember my first beer.” I said out loud for all to hear.
The man next to me smiled and declared.
“Rough day, just had to sit through a six hour Senate hearings.”
More of brag, than a compliant. I knew that the Enron hearings had been going on all week. The nation’s biggest financial scandal with billions of dollars and thousands of people’s lives at stake.
“Are you with Enron?” I asked.
“Counsel to the financial branch.” He said. Again more of a brag than a statement, this was his time in the limelight he was enjoying his 15 minutes of fame.
Just then my friend Terri showed up, she was an accountant with the National Lab in Oak Ridge Tenn. and the Enron scandal was the talk of the accounting profession. Arthur Andersen the première accounting firm in the world, at the time, was ready to take a fall and probably go out of business.
We all introduced ourselves, and the lawyer was smitten with the attractive woman that joined me and the conversation began in earnest.
Terri asked “How were they so successful in hiding all those losses for so long”.
Lawyer “They weren’t hiding them, their transparency was not as evident as some would prefer.”
“Transparency as in an off shores that were not subject to SEC scrutiny, is that the transparency that some would prefer.” Terri countered.
Luckily for me, as I said, Terri was quite attractive, she was a stylish 50 something who was of superior intelligence but lacked total common sense. So the Enron lawyer enjoyed the banter between the two of them, as she bluntly went into the fray.
“We both know that offshore are the best hedge against punitive taxes that a corporation accrues, there is even..” he paused gaining his composure knowing he was no longer in front of The Senate but in front of the bar. “It is the duty of the executives to improve the bottom line, one resource is to cut tax liability, no executive responsible to the share holders would not take advantage of an off shore.”
“Granted but Enron was manipulating the generally acceptable accounting practices to cover its losses, losses in the billions when it was reporting record profits, that transparency is what seems to have landed everyone here.” Terri snapped back. Seems this was a big deal in the accountant community.
Ahh that word “generally accepted”, very loose and about the only thing I did understand from their conversation, Enron was using the Nuremberg defense, it was ok to cook the books I have a mortgage, kids and a boat, plus define generally accepted.
Accountants and the law existing together at a little spot in the universe called Mr. Smiths, to discuss historical events one person at a time. I understood some of what was going on but both professions left me in the dark. When does a loss become profit and a crime justified? All I know is that by the time this conversation was done, I am sure the Enron lawyer was looking forward to being back in front of the Senate hearing.
Terri and the lawyer went back and forth on acceptable accounting and un-acceptable accounting practices. The angles and nuances of the law to gain the advantage. Who was the one to blame who would take the fall, fingers were pointing everywhere. I was surprised though to find out accountants do take an oath. Someone should have reminded Arthur Anderson of that.
The law is a quirky medium, there to protect the innocent and ensure justice. This lawyer truly believes that the executives did nothing out of the ordinary, business as usual built on a house of cards. Generally accepted accounting rules were the standard of the industry for decades with an understanding these are the rules and formats under which an audit is done, generally. Many companies have and to a degree practice the Enron type accounting but now the CEO has to sign off on them and assure there accuracy. The Sarbanes-Oxley Act of 2002 sets standards and deadlines along with accepted accounting practices in the wake of this scandal. The goal of the act is to provide the transparency that the markets need when investing in a company. The SEC ensures that US companies have the most accurate and available data so investors can make decisions based on facts and not fathom herds.
In the end the Enron scandal marks the biggest corporation down fall, taking both Enron and Arthur Andersen. All due to an accounting scandal on a scale unprecedented in human, yes human history. The lawyer will make thousands off the defense of Enron securing his money up front. How many families lost college education funds, retirements, how many sleepless nights where there? The stress of not knowing what will happen, jobs careers, how many marriages on the edge were push over due to this. Does he ever think of that? I don’t know, I believe he is convinced of his client’s innocence and will work hard to free them.
What happen to cause all of this, was it greed, was it reaching out to far that bought down Enron. Who’s to blame for all of this, do the employees share any of the blame, it was a public company. As stocks rose at meteoric rates did they turn a blind eye to the green in their 401K. As fast as it comes, is as fast as it goes, to many people let greed and wealth cripple them beyond their ability to reason. With reason gone then the fall.
The Bev Nap Diaries 