Enron - The Smartest Guys in the Room (23 of 51)

Enron - The Smartest Guys in the Room

Enron was just recently chosen, again, for the sixth year in a row in the most-admired-company survey by Fortune magazine as the most innovative company in America.
Well deserved.
Well deserved.
The sales pitch still sounded good.
But one investor saw something in Enron's numbers that the stock analysts had missed.
By and large, the analysts admitted to us, in person, 'it's a black box.
You have to take it on faith.
'Who knows where the earnings come from? They just pop out.
And all we know is, they're always good.' And I kept pointing out, well, yeah, isn't that the whole point of...

if the black box is there to fool you, the numbers are always going to be good, until they're not.
I'm not a beat reporter, so I would have had no reason to look at Enron.
But Jim Chanos mentioned to me that I should take a closer look at Enron's financial statements.
And it wasn't clear from Enron's financial statements that there was fraud here.
But what was clear is that something didn't add up.
In March 2001, Bethany Mclean, a reporter with Fortune magazine, first raised questions about Enron's financial condition.
She asked a simple question in the article that no one could seem to answer, 'how exactly does Enron make its money? '
You got very upset with her, didn't you?
I very specifically remember the telephone conversation that I had with...
the Fortune reporter.
She called up and started asking some very, very specific questions about accounting treatment on things.
I am not an accountant.
And I could not answer them.
He became really, really agitated.
He said that people who raise questions like this were just trying to throw rocks at the company.
And that I was not ethical because I hadn't done enough homework.
And if I had done enough homework, I would understand how off-base my questions were.