First, the movement of the assets to Enron partnership at inflated valuations. The entry for this, correct me if I'm wrong, would be a credit to the asset for it's currently depreciated rate on the books. There would then be a debit on Enron's books as a receivable, am I right? The difference in the sale price and the asset value on Enron's books would be booked as "income" on Enron's books, as a "gain on sale"-correct?
I understand this perfectly. By over-valuing the assets transferred to Enron's alleged "partnership" entities, Enron has a huge income on their books that totally did not exist. As you've stated, but I would like you to re-affirm for me, Arthur Andersen violated every accounting rule in the books by letting this pass. The only thing I can think is that there was out and out bribery by Enron executives to Arthur Andersen's partners because this is so not how it's done.
I've been audited and worked for all of the big six accounting firms, at that time the big eight and once upon a time, the big ten. These auditors normally don't let anything slip by. Something like these entries should have been caught immediately. There's absolutely no excuse for it and if anyone bites a big one on this I see it as Arthur Andersen major league.
A minor correction to your missive would be your comment that Enron employees' ability to move their Enron stock was tied up for several months might be incorrect. I say "might" be because I'm basing it on a press release by Enron itself, posted on this very forum. Enron says their employee assets were frozen for only a period of time from October 29 through November 12. That's hardly a couple of months though the freezing of this 401K movement was ominous and I agree with you that it was no accident that those employees had no access to their 401K plan at the WORST possible time to have their ability to move their Enron stock blocked. Still, Enron claims it was only for this two week period.
And how were the executives allowed to move THEIR stock so readily? Perhaps their stock was not tied up with the 401K plan, but stock they received as part of their normal compensation? It's an important point. If the executives simply moved their stock NOT tied up in the 401k administrator transition, then it's not illegal but would add fuel to the timing of the 401k administrator change as being suspicious. And very mean I might add. To tie up their employees' stock while selling their very souls...every damn one of them should spend time in the hoosegow. IF they did anything illegal and as of now I'm wondering if beyond being a bit unethical, they broke any laws at all.
My conclusion so far is that Arthur Andersen should be taking a bigger beating on this than anyone. The executives can claim ignorance of all things accounting and it's a legitimate argument that they paid Arthur Andersen big bucks to cook, er, I mean, audit, their books.
Those big 6 accounting firms make me ill at any rate. Any experience I've had with them, they're hip deep in with company management and tend to forget the little guy investors they're supposed to protect.
The political fallout from all of this is a subject of another discourse.
Finally, what's the solution to this? How can such terrible actions and behavior be avoided in the future? What laws could congress make to keep this from happening? I'm reading of thoughts of making employee 401K plans restrictive...ie only 1/3 in stock, 1/3 in money market, etc. Which is how most people of normal intelligence should be spreading their investments but I've read of quite a few Enron employees who put ALL of their retirement money in Enron stock. Should we pass laws to protect people from themselves? Should we require executives selling off large amounts of company stock to be held to some sort of reporting standard? Should we make it illegal for companies to NEVER block movements of 401K monies no matter how many new administrators are being planned?