|Man Without Qualities|
Friday, February 15, 2002
Especially in a complex matter such as Enron, it is worth reviewing the bids. The Man Without Qualities continues to believe that it is unlikely that Enron's financial statements were deliberately, intentionally or obviously fraudulent. Of course, that is far from equivalent to asserting that those financial statements (in any form or as of any date) fairly reflect Enron's financial condition. But financial statements may fail to fairly reflect a company's financial condition out of mere negligence or inadvertent error or even good faith disagreement brought on by later experience and re-evaluation.
Nor does a company's restatement of its prior financial statements even begin to address whether those statements were deliberately, intentionally or obviously fraudulent. Standards and beliefs also change. To choose but a single example, AOL-Time Warner will be erasing much of its total shareholders equity with an expected $60 Billion charge. That charge would not have been required under prior accounting standards, but those standards and the beliefs supporting them have changed. So with one change of the accounting profession's opinions, there will be $60 Billion "less" of AOL-Time Warner than was reported in the quarter immediately preceeding the charge. Does the $60 Billion reduction in a single calendar quarter indicate fraud at AOL-Time Warner? Of course not - nothing will "really" change about that company despite the eye-popping number. While such a change of industry-wide standards and opinions did not compel the Enron earnings restatements, a change in Arthur Andersen's opinion related to the then-ongoing rapid decline in Enron's stock price is reportedly exactly what caused Arthur Andersen to demand that Enron put its restatements into effect, and it is by no means necessary to impute fraud or deliberate deceit to account for them.
It is sometimes said that a foolish consistency is the hobgoblin of little minds. That is true. And the ready imputation of fraud or conspiracy is perhaps the most foolish consistency of all. The Man Without Qualities believes that the world is just not that small.
Astonishingly, there are Americans who would read a great deal into the assertion of Fifth Amendment rights by various Enron and Arthur Andersen operatives. Wiser minds, including those that penned the Fifth Amendment itself, understand that culpability is simply not supported by assertions of such fundamental Rights. Indeed, given the hostile posturing of many members of the Congressional committees, it is amazing that ANY Enron or Arthur Andersen operative provided testimony. Courts refuse to admit assertions of Fifth Amendment rights as evidence of culpability in either criminal or civil trials for many reasons - one of the most significant reasons being that such "evidence" offers little probative value but stimulates much bias. There is no force that requires an individual to accept the evidentiary policies of the courts, but one must seriously question the intelligence or agenda of anyone who insists on reading much into an assertion of Fifth Amendment rights.
Nor should anyone consider Enron's termination of Arthur Andersen following Enron's bankruptcy to be significant evidence of malfeasance by either Enron or Arthur Andersen. It is neither sinister nor at all unusual for a bankrupt company to terminate its pre-bankruptcy accountants, if only to assure creditors and investors that a new boom has been brought in.
That Arthur Andersen and Enron engaged in document destruction has some probative value - and certainly warranted Arthur Andersen's discharge of its partner who oversaw that effort. But little can be made of these activities until more is known of the nature of the documents destroyed. Many of these documents were e-mails and other electronic documents "deleted" from the Arthur Andersen computer system. "Deleting" a document does not destroy it, but rather decouples it from the computer operating system. Data recovery techniques exist to reclaim most such "deletions." So the Arthur Andersen and Enron operatives who engaged in this "deletion" process were either very ignorant of computers (not very common these days) or were simply not intending anything very sinister.
There was also some physical document "shredding," which might be more serious. But, again, until the nature of the documents is known, this doesn't amount to much. I also have rather serious reservations about easily reading too much meaning into such post hoc actions, such as the shredding itself, as evidence of earlier states of mind. I prefer to give rather more weight to earlier, contemporaneous actions of unrelated bankers, accountants and attorneys to determine whether Enron and Arthur Andersen were objectively acting outside custom, practice and legal and ethical expectations.
As discussed in a prior post, Sherron S. Watkins, previously celebrated as a brave, stout-hearted whistleblower by Enron's most rock-ribbed critics, appeared before Congress yesterday and all but exonerated the long-demonized Ken Lay as a mere "dupe". Odd what a little actual evidence can do. One wonders what those who have foamed at the mouth these past weeks with assertions of his obvious guilt thought about that. But these matters are far from settled one way or the other.
Those other than I may choose to consider the culpability of Enron and its accountants to be settled. But such others will, I hope, forgive me as I view their decisions to be premature, a bad case of the "Execution now, trial later!" logic of the looking glass world. One must admit that their approach has the accidents of a simple consistency - although I, personally, do not take Alice's mad queen as a role model. Others dissent.
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