Guest Author - Mary Salzman

My last article discussed corporate goverance - a corporation's responsibility to self-regulate and practice full disclosure of financial statements information. At the end of that article I promised a look at some of the revenue, expense and liability misstatements that have occurred in the recent past.

Before I expand upon different account type misstatements I would like to recommend The Smartest Guys in the Room by Bethany McLean and Peter Elkind. This book is a few years old, yet it is the most understandable of all books written on the topic of Enron. It describes, in plain terms, what went down at Enron in the late 1990's and early 2000's until Enron's bankruptcy in December 2001.

McLean, a Fortune magazine senior writer, authored an article for Fortune in early 2001 that was pretty benign. It's basic premise was, "What is going on at Enron that it's stock merits such high prices?". At that time, I believe Enron was trading at over $100 per share, a 90% increase from the prior year.

The events that happened shortly thereafter at Enron lead to the publication of The Smartest Guys in the Room in September 2004.

If you want some plain talk about what happened to cause the downfall of Enron this is the definitive text. The explanation of the accounting misstatements, in particular mark to market accounting, is quite easy for the layman to understand. I also found of particular interest the sections of the book which detailed Enron's orchestrations of the rolling blackouts in California during the early 2000s.

At the end, all employees at Arthur Anderson and Enron lost their jobs and health insurance benefits. Many Enron employees and retirees lost their entire retirement savings, which was invested Enron shares valued at .40 per share.

What happened to the key players at Enron?

Kenneth Lay died at his vacation home in Colorado in July 2006 a few weeks after he was convicted of defrauding investors and employees.

Jeffrey Skilling, ex-CEO who cashed out and fled Enron 4 months prior to it's filing bankruptcy, was also convicted and sentenced to 24 years in prison.

Testifying for the presecution, Andrew Fastow (ex-CFO fired by Mr. Lay toward the end of the whole debacle in a transparent bid to shift responsibility), had previously received a 10 year sentence.