Enron Corp. - University of California | Office of The President

The employee adds that anyone who questioned suspect deals quickly
learned to accept assurances of outside lawyers and accountants. She says there
was little scrutiny of whether the earnings were real or how they were booked. The
more people pushed the envelope with aggressive accounting, she says, the harder
they would have to push the next year. "It's like being a heroin junkie," she said.
"How do you go cold turkey?"
Business Week, 2/25/02. In fact, in mid-8/01, an Enron executive (who was a former Andersen
accountant) wrote Lay, telling him the Company was "nothing but an elaborate accounting hoax,"
and, in referring to the SPE transactions, that nothing "will protect Enron if these transactions are
ever disclosed in the bright light of day" – warning that many employees believed "[W]e're such
a crooked company."
M. Late 00/Early 01 Prop-Up
52. In late 00/early 01, Enron's financial results began to come under scrutiny from a few
accounting sleuths and short-sellers, who began to question the quality of Enron's reported financial
results. While Enron, its top insiders and its bankers assured investors of the correctness of Enron's
accounting and the high quality of Enron's reported earnings, the success and strength of its business
and its solid prospects for continued strong profit growth, in part because of this increasing
controversy, Enron stock began to decline. As this price decline accelerated, it put pressure on
Enron's top executives to do something – anything – to halt the decline in the price of the stock as
they knew that if that price decline continued and the stock fell to lower levels, more and more of
the Enron stock "triggers" contained in agreements for deals with entities controlled by Chewco,
LJM1 and LJM2 would be triggered, which would require Enron to issue over 100 million shares
of its common stock to those partnerships, causing a huge reduction in Enron's shareholders'
equity.
53. In late 3/01, inside Enron it appeared that Enron would be required to take a pre-
tax charge against earnings of more than $500 million to reflect a shortfall in credit capacity of
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