No Isolated Case

From the March-April 2002 Trumpet Print Edition

Though it has received unprecedented publicity, the Enron story is nothing new. As reported in Fortune magazine on January 7, “Lynn Turner, former chief accountant of the Securities and Exchange Commission, estimates that investors have lost more than $100 billion because of financial fraud and the accompanying earnings restatements [in this case, downward corrections of lied-about revenue] since 1995.”

Adam Lashinsky of cnn/Money wrote on February 4, “Silicon Valley firms have been playing the off-balance-sheet game for years. Long before Enron and off-balance-sheet accounting became part of the financial lexicon of average American investors, creative accounting was an accepted way of doing business in Silicon Valley. [T]echnology companies have long been willing to use accounting tactics to tell the stories they want told.”

The February 11 U.S.News & World Report asked, “Are there other huge enterprises out there that could collapse overnight? Many think so. Klaus Schwab, founder of the phenomenally successful World Economic Forum, told U.S.News that, based on his soundings of the business elite, there may be as many as 10 major corporations that could fall without warning.

“[O]thers could implode like Enron, companies that have lied to investors and then, when the bubble burst, allowed top executives to walk away with millions while leaving employees and investors holding the bag.

“Our problem is that we can’t tell one company from the other because our system of safeguards has broken down. We no longer have reliable fraud protectors to spot the liars in advance. Enron, after all, didn’t slip under the radar screen because it went off course once or twice. It hid debt in hundreds if not thousands of sketchy partnerships undisclosed to shareholders and dodged taxes by creating nearly 900 overseas subsidiaries—692 in the Cayman Islands alone. And, it turns out, Enron wasn’t alone in hiding its losses behind accounting gimmicks. In the gilded ’90s, a good many other companies did the same thing, and their books still aren’t straight. …

“[C]ompanies like Enron are dangerous, too: They rob our financial system of public trust, which has always been an essential part of its magic. …

“Like it or not, the government is the best instrument we have for protecting the public interest, and it is to government that we should turn now. Clearly the place to start is in stopping the sewage of campaign money in politics. … [T]he record is plain that by flooding Washington with cash, Enron was able to create a ‘regulatory black hole’ so that regulators couldn’t see what it was doing. … Most politicians aren’t bought, but until we get campaign finance reform, they will remain on long-term lease.”