rut, roh...According to LJM2 partnership documents from 2000, the cast of characters involved in Enron's
off-balance-sheet activities is much bigger than previously thought. Limited partners included Chase
Capital, G.E. Capital, J.P. Morgan Capital, Merrill Lynch (NYSE:MER - news), Dresdner Bank,
AON, Credit Suisse First Boston, Morgan Stanley and First Union Investors, an all-star list of Wall
Street insiders. Given the porous walls separating equity research from investment-banking
operations, the suggestion that analysts at these firms knew nothing about the LJM partnerships
before they blew up simply isn't credible. On Oct. 22, the day Enron announced that the Securities
and Exchange Commission was inquiring about its third-party transactions, CSFB maintained its
Strong Buy rating. Were analysts trying to keep Enron's stock high enough to prevent other trigger
events?
Equally troubling, those documents revealed that LJM2's auditor was PricewaterhouseCoopers.
That means that at least two of the Big Five accounting firms had intimate knowledge of the goings
on inside Enron or its outside partnerships. (Arthur Andersen was Enron's auditor.) The implications
of all of this for the U.S. accounting system are staggering. Enron's off-balance-sheet activities
weren't the mystery they've been portrayed to be.
And that, unfortunately, leads me to wonder how many other Enron-like disasters are lurking in the
shadows of corporate America. What's striking is how long Enron was able to get away with these
transgressions without someone blowing the whistle. People at Wall Street's biggest firms had
intimate knowledge of these dealings, yet no one said a word. When Jeffrey Skilling, Enron's
then-CEO, resigned in early August once Enron's stock fell below the trigger level for at least two
LJM2 entities — Raptor and Osprey — no one said a word. When Enron wrote down shareholder
equity by $1.2 billion in October, no one said a word. Wall Street can keep a secret far better than
anyone could have imagined.
How many other secrets is it keeping?
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