The Hindu Business Line : The Enron iceberg

I LOVE the Enron scandal that is now flooding America. It is like the Monica Lewinsky scandal that began low key and slowly rose to engulf the Clinton White House. It also makes our own Harshad Mehta scam look like peanuts.

Here is a story of blatant manipulation of every rule and regulation in the SEC book. Not that there were any rules or regulations for Enron. The American administration waived them for Enron, as it was such a special case. Enron had invented a new market — energy trading in electricity, water, the weather (the weather?) — and as the groundbreaker in this new frontier of commerce, it was given the freedom to do what it wanted.

And why not? Enron had given millions to both the Democrats and the Republicans (more to the Republican Party). The US President, Mr George W. Bush has leapt for cover. He claims that when Enron asked for a bailout last year, he had bravely refused to help. I thought that a betrayal, as his administration helped them set up shop in the first place. You should stick together when you are taking ordinary shareholders and employees for a ride.

The Enron story has all the ingredients of a Hollywood blockbuster, starring Julia Roberts as Sherron Watkins. Now Sherron is an ambitious middle-aged woman who began her career behind the cash register of her family grocery store, picked up a couple of accounting degrees and found a job with Arthur Andersen. Now Arthur Andersen, the giant accounting firm, is in the same sinking boat as Enron. The firm not only audited Enron's highly dubious accounts but it turns out it was also on the board of directors.

Do you not like that? What better way to fiddle the accounts than have a prestigious company agree to your fiddling? Sherron moved on from AA to Enron and being the US, the land of the free, became vice-president of corporate development in eight years. I gather Sherron saw the light last year. Enron was playing a shell game with its shares. It set up companies such as Condor and Raptor (the Star War films) and gave them the cash (Enron shares) with which they could then buy Enron shares. So, these purchases were shown as profits, not losses.

Our Sherron was a gutsy lady when she figured out what was happening. But not that gutsy to put her neck on the block for Kenneth Lay, the CEO of Enron, to chop it off. She wrote him an anonymous letter pointing out that he was being a very naughty man by such illegal accounting methods. Simply put, `the numbers did not add up'. The letter itself was blunt: "I am incredibly nervous that we will implode in a wave of accounting scandals."

Mr Lay, played by a good character actor like Billy Bob Thorton, has a meeting of his staff and like our good old Indian politicos and bureaucrats `promises to look into it' and then promptly shelves it. When Americans decide to be ruthless, boy can they be ruthless. Even while Mr Lay knew that Enron was going down faster than the Titanic, he bought his own shares at $21 and sold them at the market value of $36. He made a cool $1.5 million.

What I love about Lay was that at the same time he was urging his employees to buy more shares in Enron. "Our financial liquidity has never been stronger," Lay told them. So being loyal Enron guys and girls, they spent their hard earned money on Enron stock. Then when Enron stock prices went into a free fall, the employees were told they could not sell their stock and switch their dwindling savings into other shares. Something shady called 401(K) plan that, I admit, I do not have any inkling about.

Meanwhile Arthur Anderson, aware of the double, triple, quadruple accounting, first denied all knowledge of it, and then sacked the poor guy heading the Houston office. Unfortunately, e-mails and conference calls undid them. In fact, knowing of all these dubious deals, the AA guys were planning to double their auditing and `consulting' fees from $50 million annually to $100 million. Guess who is left holding the empty bag? The shareholders of Enron, once one of the largest companies in the universe.

Naturally, the US government appoints 11 committees to investigate the debacle. This is more impressive than the Indian practice of appointing one committee to investigate our frauds. I guess the Americans have more to cover up. And then AA promptly shreds thousands of top-secret documents, despite being ordered not to touch anything. The ex-President of Enron adds to the drama by committing suicide. He appears to be the only man of honour in the whole Enron sleaze scam. All this makes me wonder who made a lot of money out of the Dabhol project here. Enron's reputation for generosity must have found favour in this wonderfully corrupt country of ours.

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