Talk:Enron scandal/GA1

GA Review

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Hi, Nehrams. I'm going to review this article for GA. I can see at first glance over sources that you've done an admirable job at finding what there was to find about this issue. Primarily, I think I'll be concentrating here on prose and comprehension, as economic writing is very often filled with jargon and I noticed some parts where inherent insider understanding is necessary to get the concepts in the article. I'll be leaving my comments here over the next day or so. --Moni3 (talk) 14:39, 10 September 2009 (UTC)

Okeydoke. I apologize for not being able to get to this right away. I have found my time so interrupted that I hope you don't mind that I take this article in fits and starts, just to be able to do something. I tried to start it several times but got so sidetracked that I could not complete it in one sitting.

Lead: Repetition

The Enron scandal was a corporate scandal involving the American energy Enron Corporation based in Houston, Texas and the accounting, auditing, and consultancy firm Arthur Andersen, that was revealed in October 2001. The scandal eventually led to the bankruptcy of Enron, at that point, the largest in American history. Arthur Andersen, which at the time was one of the five largest accounting firms in the world, was dissolved.

What you're saying here is that a notable scandal was a scandal. While this is inherently true, it is not good writing. Can you work with it to variate the vocabulary to flow?

• The Enron scandal involved the American energy Enron Corporation based in Houston, Texas... (two repetitions, actually, but I can understand the double reference to Enron)
• If you want to say The Enron scandal was a something, would "an episode of corporate deviance" be accurate?
• The second sentence can use a pronoun for its beginning. In the first three lines "scandal" is used three times. I'll be honest that I'm so squeamish about making the facts inaccurate that I am not copy editing the article myself where I normally would in the sofixit mindset. Try this:

The Enron scandal, revealed in October 2001, involved the Houston, Texas-based energy corporation Enron, and accounting, auditing, and consultancy firm Arthur Andersen. It eventually led to the bankruptcy of Enron, which was at the time the largest (energy company? corporation?) in American history, and the dissolution of Arthur Andersen, which was one of the five largest accounting firms in the world.

I followed the majority of the changes you suggested, please take a look and let me know if the differences don't work well. --Happy editing! Nehrams2020 (talk • contrib) 05:02, 17 September 2009 (UTC)

Several years later, when Jeffrey Skilling was hired, he instituted mark-to-market accounting and developed a staff of executives that would later bring the downfall of the company. Along with Chief Financial Officer Andrew Fastow and other executives, the company used accounting loopholes, special purpose entities, and poor financial reporting to hide billions in debt from failed deals and projects.

• From the get-go you're going to have to explain clearly and immediately some of these issues. I see it is done, but some other details are getting in the way.
• "Along with" is one of those things people say every day that when you read Tony1's grammar guide you realize that it really is colloquial and redundant. Try this:

Several years later, when Jeffrey Skilling was hired, he instituted mark-to-market accounting that used accounting bookkeeping? loopholes, special purpose entities, and poor financial reporting to hide billions in debt from failed deals and projects. These practices were assisted/approved/condoned by a staff of executives that would later bring the downfall of the company, including Chief Financial Officer Andrew Fastow.

I've rearranged the paragraph and added/removed information. Let me know what you think. --Happy editing! Nehrams2020 (talk • contrib) 05:02, 17 September 2009 (UTC)

The rise of Enron

• Explain please how the deregulation of natural gas allowed Enron to flourish. Were they able to set their prices far below smaller companies?

I've tried to clarify further by adjusting the paragraph. Pleas let me know if it still isn't clear. --Happy editing! Nehrams2020 (talk • contrib) 05:02, 17 September 2009 (UTC)

• Is this Ken Lay's mugshot? The caption should say so if it is.

Clarified. --Happy editing! Nehrams2020 (talk • contrib) 05:02, 17 September 2009 (UTC)

• How is a 311% growth moderate? That seems extraordinary, particularly when the next to years were much lower, yet still (to me, at least) significant gains.

Reworded. --Happy editing! Nehrams2020 (talk • contrib) 05:02, 17 September 2009 (UTC)

• Can you give a start price, so to speak, of Enron's stock as a fledgling company?

I don't know if that's really relevant for its initial issue, especially since the stock split at least once in the late 90s. In addition, I think that readers can look to the bottom graph to see how it was near the end of the company's downfall. --Happy editing! Nehrams2020 (talk • contrib) 05:02, 17 September 2009 (UTC)

Causes of downfall

• How can nontransparent financial statements reveal something? Explain nontransparent vs how these details were eventually uncovered.

I reworded the statement. --Happy editing! Nehrams2020 (talk • contrib) 05:02, 17 September 2009 (UTC)

• Three sentences in a row start with Enron. Watch for diversification of sentence starts.

I merged two of the sentences together and expanded on it. --Happy editing! Nehrams2020 (talk • contrib) 05:02, 17 September 2009 (UTC)

• It appears in this section that the mark-to-market accounting and special purposes entities are the crux of the problematic accounting. They're bulleted, but then they have subsections. What is the reason for the repetition?

I just removed the bullets, as each limitation is discussed in detail in the subsections. --Happy editing! Nehrams2020 (talk • contrib) 05:32, 17 September 2009 (UTC)

• when Skilling joined the company, he demanded that the trading business adopt mark-to-market accounting, citing that it would reflect "... true economic value." what he thought was/considered to be "... true economic value"? Punctuation outside quotes.

In this case, the "true economic value" are the last few words of a quoted sentence, so does the punctuation need to be moved? If it had been in the middle of a quoted sentence (ex. "he thought true economic value was important"), then punctuation would be outside of the quotation marks. --Happy editing! Nehrams2020 (talk • contrib) 05:32, 17 September 2009 (UTC)

• so there were often large discrepancies reported to investors Were the discrepancies reported, or were there discrepancies between what the company actually incurred and what was reported?

Reworded to clarify. --Happy editing! Nehrams2020 (talk • contrib) 05:32, 17 September 2009 (UTC)

• income from projects could be recorded, giving the company growth does this mean inaccurately showing the company's growth?

No, it still shows growth initially, but as time goes on, without the same level of income (or more), the earnings would fall. The issue was that Enron couldn't meet the steady level of income (and definitely not more), so it had to falsify the amounts to create the illusion that it was still improving each year. --Happy editing! Nehrams2020 (talk • contrib) 05:32, 17 September 2009 (UTC)

• However, in future years, the profits could not be included, Why? Because future estimated profits were absorbed by the company?

Yes, because it was already included in the first year. If it had been spread out over each year, they would have had more balanced, legitimate profits, but probably not enough to impress Wall Street. --Happy editing! Nehrams2020 (talk • contrib) 00:47, 20 September 2009 (UTC)

• used for more than just circumvent accounting conventions. to circumvent or circumventing

Fixed. --Happy editing! Nehrams2020 (talk • contrib) 00:47, 20 September 2009 (UTC)

• Can you give examples of some of the shell companies Enron employed? Oops didn't see them below...Maybe mention the names of the companies at the end of the section to lead readers into the next, and to get rid of beginning a section with "For example".

• • Interruption. Will return later. --Moni3 (talk) 23:18, 15 September 2009 (UTC)

Excellent review so far (I look forward to the rest of it). I appreciate you taking the time to review such a long article, and take your time for any remaining issues. Some of the above issues I definitely should have caught. It's good to have another person take a look at the article to see what does/doesn't make sense to the average reader. I'll try to get to these later today or over the next few days. --Happy editing! Nehrams2020 (talk • contrib) 23:28, 15 September 2009 (UTC)

JEDI and Chewco

• Gosh, this section just makes me feel hopelessly stupid. I've read it six times and I still don't understand it. Enron joins with CalPERS to invest in energy options, and then invests with them with something else, but CalPERS says only if Enron backs out of JEDI? I'm sorry, but I don't understand the issue with Chewco either. Just that I think it's odd that they named stuff after Star Wars. Maybe if you kind of...dumbed it down for me a bit here, it might give us both some ideas about how to present this info.

What, this is the simplest thing ever! No, I still don't get it completely either (especially if you look at the complicated consolidation rules that aren't mentioned in this article). However, I've reworded it a bit more, so let me know if it makes more sense. --Happy editing! Nehrams2020 (talk • contrib) 00:47, 20 September 2009 (UTC)

Whitewing

• What was the arrangement changed from? How was it controlled before? This one is easier to get than JEDI and Chewco.

I couldn't find any additional information on this, but I tried to reword it to prevent that confusion. --Happy editing! Nehrams2020 (talk • contrib) 00:47, 20 September 2009 (UTC)

LJM and Raptor

• Can you confirm the verb tense in this sentence is accurate? Enron capitalized the Raptors, and, in a similar matter to when a company issues stock at a public offering, then booked the notes payable issued as assets on its balance sheet and increased its shareholders' equity for the same amount. It seems wrong to me and therefore confusing. I read it out loud to my partner changing the tenses of the verbs and neither of us could get it.

Try taking the "in a similar matter to when a company issues stock at a public offering" clause out and all of the verb tense agrees. However, would you prefer the sentence read as "In a matter similar to when a company issues stock at a public offering, Enron capitalized the Raptors and then booked the notes payable issued as assets on its balance sheet as it increased its shareholders' equity for the same amount."? It seems to me that the current setup flows better. --Happy editing! Nehrams2020 (talk • contrib) 00:47, 20 September 2009 (UTC)

• Hovering over the LJM link actually gives me a clearer idea in the first sentence what these partnerships were used for. If the first sentence in the LJM article is accurate, can you simplify working into the issues in this section?

Added the clarification to hopefully help the section make more sense. --Happy editing! Nehrams2020 (talk • contrib) 00:47, 20 September 2009 (UTC)

• So Fastow goes before the board and says, hey I'm going to do what? Create some limited partnerships to buy up Enron's sinking stocks? What does the board say about this? Does anyone bat an eyelash? Isn't this evident that it's a house of cards? (It kind of reminds me of the accusation of the Church of Scientology buying Dianetics in bulk from local bookstores and selling it right back to them to be able to get on Bestseller lists.)

From the books/articles I read, it looks like he didn't mention every detail (the board probably didn't care anyway if we went into excessive detail, as long as money was being made). He definitely didn't mention the over $30 million he personally made from the entities. This is what you get when there is no accountability and people get caught up with all of the constant good news and millions in bonuses. --Happy editing! Nehrams2020 (talk • contrib) 00:47, 20 September 2009 (UTC)

• Where does the Raptor I-IV name come in? Were LJM 1 and LJM 2 called Raptor? Why?

They were named for the dinosaur, I have now mentioned that in the article. The Raptors were separate SPEs than the LJMs, and I clarified to hopefully avoid that confusion. --Happy editing! Nehrams2020 (talk • contrib) 00:47, 20 September 2009 (UTC)

• And I'm just sitting here thinking the balls! it takes to do this! Were they just congratulating themselves?

After reading Conspiracy of Fools and The Smartest Guys in the Room, for the most part, I'd say yes, they were. The attitudes quickly changed after the company started to fall. This is one reason that I wanted to improve this article, to hopefully educate the people on the consequences that would occur from acting unethically. --Happy editing! Nehrams2020 (talk • contrib) 00:47, 20 September 2009 (UTC)

Corporate governance

• On paper, Enron had a model board of directors comprised of predominantly outsiders with significant ownership stakes and a talented audit committee. What was it in reality? I'm afraid to know.

The board and committee actually was made up of these members, but the people just didn't live up to the "model" and "talented" part. --Happy editing! Nehrams2020 (talk • contrib) 00:47, 20 September 2009 (UTC)

• Just FYI, I'm going to read over these sections several times, so more questions and requests for clarifications may arise whenever I get over the balls! it took for this to happen.

I've had to do that many times myself. --Happy editing! Nehrams2020 (talk • contrib) 00:47, 20 September 2009 (UTC)

Executive compensation

• Let me know your thoughts on this: Should any background or explanation be given to non-Americans about the understanding that CFOs and CEOs get paid the big bucks because they have to report to their investors? Actually, I am American and I don't quite get why this is (particularly when it translates into other fields such as public education).

I'm thinking that this article is already too long/focused on the topic, that it isn't really necessary to go into that detail. I've provided links to the executive titles so if readers are interested, they can learn more about what the position entails. As for me, I too will never understand it either, similar to sports players and actors. --Happy editing! Nehrams2020 (talk • contrib) 00:47, 20 September 2009 (UTC)

• Skilling believed that if Enron's employees were constantly cost-centered, it would hinder original thinking. And (seriously) he thinks this is bad? Don't most companies want their employees to "think outside the box"? Wasn't creating all this accounting skullduggery original thinking in the first place?

Maybe he didn't want them to question what was going on at the top, so if he allowed them to have nice cozy jobs with great expense accounts and large bonuses, there would be no reason to question where it was coming from. He already had enough people to come up with quite some amazing original ideas to hide debt and create profits. --Happy editing! Nehrams2020 (talk • contrib) 00:47, 20 September 2009 (UTC)

Risk management

• The first sentence made me laugh out loud. Who's lauding them? Where is the journalistic oversight?

This was from journalists and analysts that weren't really investigating the company. They saw large increases in profit each quarter, and then said, "hey, let's put them on our covers and give them these awards". Except there was no focus on what they did to get there (you'd think competitors and other industries would be studying the company like crazy to see where everything was coming from to duplicate it. --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

• Could the board not see the future? I'm just gobsmacked that they thought this would last and they could not see the inevitable failure of these issues.

As long as nobody investigated the entities and people didn't leave the company, it probably could have went on for several more years. Maybe people thought that they would collect some nice bonsues before the hammer dropped and somebody else would deal with it. --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

Financial audit

• Make it clear again that Arther Andersen is a firm, not a single dude who got away with this.

Yeah, and that's a shame since the actual Arthur Anderson was actually an ethical guy when he created the company. --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

• $27 million in consulting...what was Arther Andersen consulted for? Is that not an inherent conflict of interest, or was their consultation for something that is connected to auditing?

Before it became illegal, auditor firms would act as consultants to advise companies in a variety of financial areas. Audit fees would be a small portion of their total collected fees, so the audit was almost like an afterthought. When the auditor is only focused on the larger fees, then you lose that accountability and due diligence. --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

• • End second review. Will pick up in this section again. --Moni3 (talk) 00:11, 17 September 2009 (UTC)

Picking up in Financial audit

• Explain what a write-down is.

I reworded and clarified. --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

• What sort of obligation does an independent auditor have when they uncover or suspect wrongdoing? Are they expected to report illegal activities?

If there is an issue that the company can resolve, then they give them adequate time to address it. If the company still does not want to fix the auditor's raised issues, then the auditor can remove itself from the audit and not sign off on the company having a clean record. Other auditors will then likely not take the company on as an audit, which makes the company a major risk for investors and a target for government investigations. If there is fraud, I believe that the auditor can report it, especially when the company makes no effort to fire the responsible employees/stop the fraudulent activity. --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

Audit committee

• No problems or questions this time.

Other accounting issues and stock price focus

• We tried to aggressively use the literature [GAAP] to our advantage. All the rules create all these opportunities. We got to where we did because we exploited that weakness. At what point in the investigation/scandal did the executive say this?

This was just one of the accountants working for the company, not an executive. In the quote he could either be referring to the actions he was a part of, or what Enron did in general. I don't think the book clarifies at what point this is revealed. --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

• Enron made a habit of booking costs of cancelled projects as assets I don't understand how a project active or cancelled could be considered an asset.

If it's an active project, it is something that the company has the ability to possibly get future earnings, so it would be recorded as an asset. However, if it's cancelled, it has no chance of ever earning a profit, so it should be written off, and definitely not be labeled as an asset. These guys were looking for anything that could be used to improve the balance sheet in any way they could. --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

Timeline of downfall

• "... not want anyone to know what's on those books. We don't want to tell anyone where we're making money." Who's Fastow saying this to?

Clarified. --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

• Second half of the second paragraph about the asshole jokes needs to be cited.

Added sources. --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

• The cite in the New York Times blockquote from 8/22/01 should appear at the end of the blockquote, but within it...if that's clear.

I've always added it to the introductory statement, is there some guideline that goes against this? --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

• What is the cause of Skilling's turnaround from the apparent arrogance of calling Grubman an asshole to somehow developing a conscience or concern about the company?

Probably from the backlash, and to put himself in a better light when the investigations started. From what I can tell, he did care about the company, he just was stressed from the position, and didn't obviously make the best of choices or surround himself with the greatest people. He was really obsessed with the stock price and wanted to make sure that everything and anything could be done to keep it up. --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

Investors' confidence declines

• "not least" is confusing

Reworded. --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

• Lay accepted that Enron's business was very complex, but asserted that analysts would "never get all the information they want" to satisfy their curiosity. Who is Lay saying this to? A private board meeting? Investigators from the SEC?

The article says an interview, not sure if it's with NYT staff or with an investigator. --Happy editing! Nehrams2020 (talk • contrib) 01:34, 20 September 2009 (UTC)

Restructuring losses and SEC investigation

• No problems or questions this time.

Liquidity concerns

• No problems or questions this time.

Credit rating downgrade

• No problems or questions this time.

• • Interrupted. Will pick up soon. --Moni3 (talk) 17:22, 18 September 2009 (UTC)

Proposed buyout by Dynegy

• Both companies were said to be anxious to receive an official assessment of the proposed sale from Moody's and S&P (considered by some a "do or die"[90] deal for Enron) "By some" is weaselish. Pin it down: considered by so and so in The New York Times...

I looked and this wasn't in the source, so I removed it. --Happy editing! Nehrams2020 (talk • contrib) 03:07, 24 September 2009 (UTC)

Bankruptcy

• No problems or questions this time.

Trials

• before the scandal became public, he was always under the radar. This is somewhat informal an not encyclopedic.

Reworded. --Happy editing! Nehrams2020 (talk • contrib) 03:07, 24 September 2009 (UTC)

Aftermath

• Perhaps a disturbing element about this is that there is no section on how this changed economic reporting in US journalism. Is it possible to create one? I get the impression that this has not really improved, particularly in light of the more recent global financial problems and how they rather crept up on investors (per this article as an example).

I didn't see any reliable articles after an initial search. If this article does go to FAC at some point, I'll look further into adding it. And yes, the field had some improvement, but it looks like it gradually decreased over the years. --Happy editing! Nehrams2020 (talk • contrib) 03:07, 24 September 2009 (UTC)

I've read through some of your changes and comments. I'm going to read through the article again, directing specific attention on the issues I highlighted above.

Other thoughts: Should you contemplate taking this to FAC, I suggest going through it or asking Tony1 to do the same, to look for language that is too burdensome or that could be simplified. I commend you for taking on this article. I do not recall ever giving such a detailed review for GA, but there is a lot of technical information that should be easily accessible. It's quite impressive that you have been able to construct it as well as you have. I'll be in contact again soon. --Moni3 (talk) 14:42, 21 September 2009 (UTC)

I've not been the only one who has worked on the article, Gavin.collins did a great job expanding the article. I only started at this point. This review has been very helpful, and I don't mind addressing each issue if the article continues to improve because of it. In addition, this will help whenever the article goes to FAC at some point. --Happy editing! Nehrams2020 (talk • contrib) 03:07, 24 September 2009 (UTC)

Nehrams, I'm reading through the article again and have some suggestions that are easier for me to rearrange in a sandbox than explain in a GA review. They are primarily concerned with the logical flow of the presentation of facts, how one section joins to another, and basically the facilitation of information. I'd like to see the JEDI and Chewco section rewritten, as I know you worked on it but I just do not understand what it is trying to say. Let me know your thoughts. --Moni3 (talk) 17:46, 23 September 2009 (UTC)

I changed the article per your suggestions (I didn't see the green prose, so maybe bold font can be used for any future suggestions). Let me know what further ideas you have for the JEDI/Chewco section. --Happy editing! Nehrams2020 (talk • contrib) 03:07, 24 September 2009 (UTC)

Eehhhhh I forgot I removed the green. Urgh. Ok. I read over the article again. I think it qualifies as GA and I commend you and the other editors again on constructing this. It's quite well written. If you are planning to take it to FAC, ask for a peer review. Get as many folks to read it as possible. I'm glad I took this article on, thought it was a bit of a slog in prose and in review to get through. --Moni3 (talk) 13:53, 24 September 2009 (UTC)

Excellent, that is a great result. Congratulations to Nehrams. --Gavin Collins (talk|contribs) 14:15, 24 September 2009 (UTC)

Thanks for taking the time to complete such an in-depth review, I figured this would sit at GAN for months. This article does have the potential to go to FAC, but it's going to have to be at least a few months before I start anything. Good job Gavin in bringing the article up to what it was, you found a lot of sources I most likely would have missed. If you're interested in going to FAC at some point let me know, and we can start the PR. --Happy editing! Nehrams2020 (talk • contrib) 23:13, 24 September 2009 (UTC)

Nehram I'd like to suggest a modification to the trials subsection for Arthur Andersen. The last line mentions how the name is too damaged to continue as a business. However, Andersen Tax has recently re-emerged as a rising force in the accounting field. Much of the tax practice at AA initially joined Accenture. However, Andersen Tax's parent company originally purchased a portion of AA's tax practice and is named after Andersen, so Andersen certainly has Arthur Andersen roots. I knew this information from my own experience as an accountant student and professional, as well as viewing the Andersen Tax wiki page. Hope this information helps with future edits! — Preceding unsigned comment added by Rsavary1 (talk • contribs) 16:11, 6 February 2019 (UTC)