Scandals engulf Corporate America's biggest names
By Alan Maass | August 9, 2002 | Page 2
THE BUSH administration has been parading handcuffed felons from WorldCom, ImClone and Adelphia in front of the TV cameras. But it's getting harder by the day to sell the story that the collapse of corporate giants like Enron is just a matter of a few bad apples.
Now several newspapers looking into the Enron fiasco have shown that the energy giant got away with its dirty deals with a lot of help from some of the biggest names in Corporate America. Mega-banks Citigroup and Chase Manhattan set up elaborate financing arrangements that allowed Enron to report loans as income, thus keeping the company's financial statements looking pretty.
Citigroup, for example, sold specialized notes, sort of like corporate bonds, to investors, and shipped the proceeds to offshore corporations set up in tax havens. These in turn passed the money on to Enron. In effect, Enron was borrowing massive amounts of money, but the Citigroup scheme allowed the company's accountants to record the loans as income from selling investments.
"The result of this daisy chain was that Enron got almost $9 billion that may have overstated its cash flow by 50 percent," the Wall Street Journal reported. "The money also decreased Enron's debt by 40 percent, allowing it to avoid nasty credit downgrades. Meanwhile, ahem, the banks made hundreds of millions of dollars in fees and commissions."
What a fraud! But this kind of book-cooking was par for the course during the 1990s "miracle" economy. Corporations, banks, accounting firms, Wall Street brokers--all of them were happy to play along, as long as the money kept rolling in.
Despite the tough talk in Washington lately, the politicians aren't shutting down the corporate shell game. Even the most widespread and notorious con--allowing companies to hand over obscene amounts of cash to executives as stock options, but not list these as an expense--is still perfectly legal.
Why? Maybe because of the industries that pushed hardest for free stock options--securities trading, high tech and accounting.