Monday, October 31, 2011

This day in history - October 31, 2002: Enron's CFO is indicted in Houston, Texas

On this day in 2002, Andrew Fastow, former Enron Corp. chief financial officer, is indicted by a federal grand jury in Houston on 78 counts of wire fraud, money laundering, conspiracy, and obstruction of justice related to the collapse of his former employer.

As the Wikipedia entry states:

Enron's nontransparent financial statements did not clearly depict its operations and finances with shareholders and analysts. In addition, its complex business model and unethical practices required that the company use accounting limitations to misrepresent and modify the balance sheets and portray a favourable depiciton of its performace. According to McLean and Elkid in the book The Smartest Guys in the Room, "The Enron scandal grew out of a steady accumulation of habits and values and actions that began years before and finally spiraled out of control."

Enron was the largest bankruptcy reorganization in American history. At the end of the day, shareholders lost nearly $11 billion.

How is it that we did not see the subprime mortgage crisis coming?

(Cross-posted at Lippmann's Ghost.)

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