Book Summary Preview : Investing In a Post-Enron World

The Big Idea
The high-profile implosions of America’s top corporations like Enron, and the questionable accounting methods of Arthur Andersen, forces investors to become wary of a company’s ethical standards, and creates a need for clear warning signals and information to be able to protect oneself. Digging deep into the footnotes of annual reports, and searching for the true story of what really went on with those inflated numbers, this book educates the investor in the complicated game of deception played by the inner circle of this giant. The bigger they are, the harder they fall indeed.

Enron 101
The bottom line is this: Enron’s management had constructed far better protection for itself than for its rank and file workers. Enron employees saw their entire life/retirement savings vanish. The captain and his crew basically got off the sinking ship first in their luxury-style million-dollar lifeboats and left everyone else to drown.

A brief chronology of a giant’s fall from grace:

• In the 1990’s, there emerged a new market for broadband or high-speed Internet access through fiber-optic cables. Enron established Enron Broadband Services (EBS) to sell this bandwidth product as a commodity.
• Enron’s stock price soared from $44 to $90
• The broadband market collapses, Enron’s quarterly filing for the third quarter of 2001 to the Securities and Exchange Commission states “ Non-core businesses are businesses that do not provide value to Enron’s core businesses. “ This referred to the broadband segments. The plan was to exit the $8 billion broadband venture. This led to opening up of new businesses to cover the losses of the failed one.
• Enron was a fashion victim to the fads and gurus of the day. In 2000, CEO Jeff Skilling harped about their being “asset-light”, or intellectually driven capital. Arrogance combines with the willing accomplice accounting firm Arthur Andersen.
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