A primer for Freepers on three issues of the Enron fraud and investigation

There are two distinct aspects to the Enron mess; the political mudslinging, and the criminal fraud aspects of the case as pertains to the company and its auditors, Arthur Anderson. Oddly, in all the verbiage that has been written to date, very little has been written that begins to explain the TRUE nature of the financial fraud at Enron. More oddly, it is not that difficult to understand. For those who would like some insight, I will attempt to clarify, in lay terms, three points which, I believe, will ultimately be crucial as the investigations commence. So, if you'd like to learn, and understand a few things, read on.....

And there is another set of auditors that seemed to have missed this - the bank internal audit group, and the auditors tied to the regulatory agencies (Fed, Treasury, OCC, etc.) who rely on bank internal auditors to provide oversight on the details.

You're right. All they probably wanted was a certified financial statement, which AA provided.

I've worked for government contractors and EVEN the government only wants that certified financial statement. It would seem the bank internal audit group finally got wise and dug a bit deeper because Enron's credit was eventually completely destroyed.

Through this all, it's AA I'm looking at long and hard. Such as "audited" financial statements might well be a laugh in the future.

"This was fantastic! You did an absolute super job in explaining everything! Agree totally with your analysis and this should be mandatory reading for the folks at CNN"

I absolutely and totally agree! For the first time, I understand what is going on with Enron. Wow! What a mess. I am shocked about Arthur Anderson through - they have always had such an outstanding reputation; I wonder what kind of under the table payments they were gettting to keep this quiet all these years?

And ... I totally agree with your hypothisis about using the changing of 401k admin as a ploy to keep the bottom from falling out earlier.

And ... I totally agree your synopsis should be read by everyone. I think this needs to be sent to every news outlet - including Rush. Maybe they won't print it or even comment on it, but at least they can never say they didn't have the correct information.

What I don't understand is how this connects to the Bush Admin. except by campaign contributions? If that's the only connection, how can Bush or his people be at fault? Logic would tell you there is no connection; OH, I forgot, the dems/liberals don't THINK using logic.

freeze in the plan was several months.....the few days you referenced refer only to making ongoing contributions.....not to switching assets withinin the plan

Enron would decide to reconfigure the plan at just that time

well, this kind of stuff is easy to verify, and they have enough problems without fibbing about stuff like this, so there's no compelling reason for enron to lie about it in their 401k press release, which says, in part -

In February of 2001, in order to improve its 401K plan, Enron requested proposals from third-party benefits firms to take over administration of its plan.

After selecting a new 401K administrator, Enron notified all affected employees in a mailing to their homes on October 4, stating that a transition period would begin on October 29. Between the first notification and the first day of the transition period, the company sent several reminders to employees over the internal e-mail system.

The transition period during which employees were unable to change investments in their 401K accounts lasted just 10 total trading days, beginning on October 29 and ending on November 12, 2001. The transition applied to all plan participants, including senior executives.

From October 29, the first day of the temporary shutdown, through November 13, the first day participants could transfer funds, the Enron share price went from $13.81 to $9.98, a drop of $3.83. On five of those trading days, Enron’s share price closed below $9.98.

Outside of the brief transition period, Enron employees have always been able to transfer their own contributions in the 401K, at any time. They have 20 investment options to choose from, Enron stock being one of them.

the statements are clear (unlike their 10k) that the inability to sell enron shares or any other investment held in the plan was brief and preceeded by multiple notices, and that the brief period did not pertain only to contributions with some longer period applicable to selling existing holdings

it is also clear they didn't come up with the idea in the middle of the meltdown, and perhaps they will get the outfit that took over the admin (or any of the many other firms contacted) to verify the feb 2001 request for proposals

the factor might be 20x the number of shares you suggest

i could be off by a factor of more than 20 and the specialist would have absorbed it easily (enron has almost 700 mill shares out, peak value was about 67 billion), but that isn't really the point

we both know how people react to losses, and these employees were demonstrated dig-in-their-heels-and-hold-it-to-the-bitter-end-because-it'll-come-back practitioners of self-deception who had already demonstrated their willingness to lose 80+% by holding it from 90 to 15 during the previous 12 months

if anything, they were probably mad that they couldn't buy more because of the freeze, as 10 bucks probably looked "cheap" to them at the time, and one can imagine the rally-'round-the-corporate-flag mentality that probably prevailed

the entire idea that there was of some sort of conspiracy to avoid employee selling (that wouldn't have happened anyway) is pretty obviously false, if anything, lay and the rest of the execs are probably kicking themselves for fiddling with the admin, it makes them look conspiratorial when they were just legitimately trying to save a buck

anything to puff up those earnings......

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