Enron Way: Anything but ‘Simple, Straightforward’

The laws and rules that govern the securities industry in the United States derive from a simple and a straightforward concept: All investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it.

I’ve been backgrounding myself in preparation for the juicy investigations of Enron. The words, “simple and straightforward,” caught my eye. They are contained in the Securities and Exchange Commission’s mission statement.

Few things in life get so complicated so fast as federal governance once the flacks and fixers weigh in.

But I’ve found that if you dig a little, there is usually something simple and straightforward about the way Americans mean to govern themselves. For my own sake, I wanted to make sure I didn’t lose sight of this salient fact in the donnybrook that’s now started.

How did the Enron collapse happen?

Simple. Enron did not live up to the intent of the law.

Straightforward. Enron is a public company and the laws that direct public companies are unmistakable in their objective. They begin with the Securities Act of 1933, which established the SEC to be the nation’s first line of defense against shady dealing by companies that sell shares to the public.

The law says this:

It shall be unlawful for any person ... to obtain money or property by means of any untrue statement of a material fact ... to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.

Hint: I think Congress meant that $586 million of overstated earnings would be a “material fact.”

The other primary statute guiding the SEC is the Securities Exchange Act of 1934. It says investors must be given “reasonable detail” about all of the company’s business activities. And “reasonable assurances” that accounting is supervised by management.

The terms “reasonable assurances” and “reasonable detail” mean such level of detail and degrees of assurance as would satisfy prudent officials in the conduct of their own affairs.

Seems pretty straightforward to me. Congress meant for officers in public companies to conduct themselves forthrightly and with common sense.

But I could be wrong.

Unlike the CEO of Enron, I do not have a PhD in economics and stacks of clippings telling me what a genius I am.

I don’t have a platoon of lawyers to tell me that the purpose of the securities laws is something else entirely. The president is not beholden to me, the vice president does not slap me on the back and welcome me into his office and I don’t have cohorts scattered through the executive branch or a national GOP chairman who is on retainer as my strategic advisor.

I don’t have lapdogs in Congress to do my bidding. National energy policy is not built on my say-so, to my specifications and with my handpicked candidate at the controls.

The attorney general hasn’t cashed my checks, the secretaries of the Treasury and Commerce departments do not take my calls.

Maybe if I had all those things, I would see matters differently. Who knows, I might even alter the conduct of my “own affairs” to conform to the Enron model.

Maybe I would summon the family. Our finances are not nearly as good as they might be, I could say.

So, henceforth, Liisa and I will keep our bank account, our 401(k) plans and our paychecks. As for the mortgage debt, the credit card bills and the car payment? Those we move off the books into a limited partnership of Nick and Nora, our two deadbeat cats.

Then with my fancy new balance sheet, I would float loans all over town. And I’d grant myself a fat bonus at every turn.

If the scheme collapsed and people around me were left holding the empty bag, I’d have my flunkies shred all the records and I’d hire the slickest lawyers I could afford.

As for the law? Hey, haven’t you heard, this is the age of deregulation. Never mind the law. I’ve got millions in the bank.