Enron and on and on ...

In 1987, two years after it was formed, CEO Ken Lay was confronted with the Valhalla trading group disaster "" basically, the crude oil traders were creating false trades, with customer names that showed they were having fun doing it (a 'client' called M.Yass, the auditors surmised, stood for My Ass!).

Ironically, a year earlier, Enron's famous whistleblower Sherron Watkins (a co-author of this book) was then with Arthur Andersen, and asked to audit these very accounts, at that time belonging to a firm called Internorth which later became Enron.

Watkins flew into New York, was feted at a chic Japanese restaurant, and after a few martinis (sake martinis, since it was a Jap lunch), she scarcely combed through the spreadsheets, flew home to Houston, wrote up a short report, and billed the client $10,000 plus expenses for not finding anything!

While writing Enron books is clearly the flavour of the month (I've read two already, and a third is in my bookshelf), this one has a major plus "" it's been co-authored by an insider who clearly understood what was happening.

And while Watkins is known as the Enron whistleblower, the book isn't very kind to her either, and portrays her as someone content to look the other way as long as she got promoted "" it was only when things got really bad, that she wrote her famous note to Ken Lay, detailing the accounting deceit.

In 1996, when Enron decided to do a bit of accounting skulduggery to show earnings of $190 mn in a portfolio she was in charge of, Watkins went along with it, confident the Andersen auditors wouldn't approve it. When they did, her only response was to ask two former Andersen colleagues when they were 'gonna grow some balls' and stop Enron from getting away with fraud.

Much, of course, has been written about Enron's off-book debts and Andersen's role in this (for those looking to refresh their memory, this book has all the details), but what's less well known is the role of regulatory authorities in allowing/sanctifying the fudge.

In 1991, for instance, the Securities and Exchange Commission (SEC) allowed Enron to use 'mark-to-marketing accounting' for its trading profits.

This allowed Enron to, for instance, buy gas at $ 2 a unit for the next ten years, and sell the same gas to another unit at, say $ 3 a unit "" the entire profit for the decade could be treated as profit for one year. Enron leaders, like Rebecca Mark, then used this to hype future profits of deals, and even got their bonuses based on the assumed future profits of deals they signed, not deals they'd implemented.

According to Brian Cruver, another Enron insider who's written a book, the profit numbers were 'pulled from someone's ass ... (and) the reason the prices were pulled from this place is because there was nowhere else to get them!'.

Similarly, while Andy Fastow did create various entities like LJM1 and LJM2 (after the initials of his wife and kids) to hide Enron's debt, the fact is that the Financial Accounting Standards Board rules allowed entities that had 3 per cent outside equity to qualify for off-balance sheet treatment "" Fastow, of course, structured the deals in such a way that the entities were really run by him.

And it was Wendy Gramm, chairman of the Commodity Futures Trading Commission, that removed energy derivatives and swaps from government oversight, completely freeing Enron to do what it wanted "" Lay, incidentally, chaired Gramm's husband Phil's senatorial re-election campaign, and five weeks after she delivered what Enron wanted, she joined the company's board, earning $ 50,000 a year, with stock options and other benefits.

The authors' description of the testosterone-surcharged atmosphere at Enron also makes for delightful reading. Apart from running remote-controlled cars up the legs of female employees (Andy Fastow did this), others (like Lou Pai, the trading head at Enron Capital and Trade) visited 'gentlemen's clubs' which featured 'lap dancing' "" Pai, in fact, eventually found going to the clubs very strenuous and was often seen bringing dancers into the office. Enron, by the way, picked the tab for this, which according to the authors, easily ran into five figures with large groups.

Perhaps Lay should have stuck with Enteron, the original name the New York consulting firm came up with when he was looking for a fancy name for his company "" the 'en' was supposed to evoke energy while the 'on' was supposed to link the company to other powerhouses like Exxon and Chevron. Enteron, however, wasn't quite suitable, since it was a medical term for the small intestine! In hindsight, it captured Enron's endless twists and turns, as well as all the crap inside.

POWER FAILURE

The Inside Story of the Collapse of Enron

Mimi Swartz with Sherron Watkins

Doubleday

Pages: 386

Price: Rs 1,012