''Conspiracy of Fools'' is a 2005 book by
Kurt Eichenwald
Kurt Alexander Eichenwald (born June 28, 1961) is an American journalist and a ''New York Times'' bestselling author of five books, one of which, '' The Informant'' (2000), was made into a motion picture in 2009. Formerly he was a senior writer ...
detailing the
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional companies. ...
scandal.
Synopsis
''Conspiracy of Fools'' tells the story of the 2001 collapse of
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional companies. ...
. Enron's Chief Financial Officer (CFO)
Andrew Fastow
Andrew Stuart "Andy" Fastow (born December 22, 1961) is a convicted felon and former financier who was the chief financial officer of Enron Corporation, an energy trading company based in Houston, Texas, until he was fired shortly before the com ...
is depicted as voraciously greedy, using front
corporations
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and re ...
and
partnerships
A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments o ...
, paying himself "management" and "consultant" fees as if he were an outsider, all while cooking Enron's books to show fictitious profits. In the 1980s there were questionable activities at the company, but the bulk of the events depicted in the book occur from 1997 onward and led to Enron's collapse.
In addition to Fastow, there are stories of the complicity of Enron's auditors (at
Arthur Andersen
Arthur Andersen was an American accounting firm based in Chicago that provided auditing, tax advising, consulting and other professional services to large corporations. By 2001, it had become one of the world's largest multinational corpor ...
), their lawyers (internal and external), the senior management (
Kenneth Lay
Kenneth Lee Lay (April 15, 1942 – July 5, 2006) was an American businessman who was the founder, chief executive officer and chairman of Enron. He was heavily involved in the eponymous accounting scandal that unraveled in 2001 into the large ...
and
Jeffrey Skilling
Jeffrey Keith Skilling (born November 25, 1953) is an American businessman who is best known as the CEO of Enron Corporation during the Enron scandal. In 2006, he was convicted of federal felony charges relating to Enron's collapse and eventuall ...
), Fastow's partner in many of his deals, Michael Kopper, and Enron's board of directors.
The picture that emerges of Enron is that of an out-of-control corporate culture that ignored the basic principles of business, allowing it to be manipulated by greedy incompetents for their own personal gain. The focus on reporting profits — rather than actually making money — created a situation that both encouraged and enabled a small group of insider criminals to game the system. Enron's business losses were masked by accounting tricks, while the insiders raked off huge "profits" and bonuses for themselves.
The game was eventually undone by huge losses, bad investments and the structure of the outside partnerships themselves, the solvency of which depended on ever-rising Enron stock prices. When Enron's stock began to fall, the financial structures imploded, leaving Enron with billions of dollars in losses and few assets.
Eichenwald also reminds readers that Enron fell not just because of the greed of the company people, but also because of the greed of thousands of investors who fell for this
Ponzi scheme
A Ponzi scheme (, ) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Named after Italian businessman Charles Ponzi, the scheme leads victims to believe that profits are comi ...
.
See also
*
Accounting scandals
Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "language ...
References
{{Dot-com Bubble
Books about the Enron scandal