A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

partnerships were kept off Enron’s financial statements,
which had the effect of inflating earnings and obscuring losses
and indebtedness. The accounting firm of Arthur Andersen
certified the books as “fairly stating” Enron’s financial
condition. And Wall Street was delighted to collect lucrative
fees from the creative partnerships that were established.
Deception appeared to be a way of life at Enron. The 
Wall

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Street Journal
reported that Ken Lay and Jeff Skilling,
Enron’s top executives, were personally involved in
establishing a fake trading room to impress Wall Street
security analysts, in an episode employees referred to as
“The Sting.” The best equipment was purchased, employees
were given parts to play arranging fictitious deals, and even
the phone lines were painted black to make the operation
look particularly slick. The whole thing was an elaborate
charade. In 2006, Lay and Skilling were convicted of
conspiracy and fraud. A broken man, Ken Lay died later that
year.
One employee, who lost his job and his retirement savings
when Enron collapsed into bankruptcy, took to the Web,
where he sold T-shirts with the message “I got lay’d by
enron.”
But Enron was only one of a number of accounting frauds
that were perpetrated on unsuspecting investors. Various
telecom companies overstated revenues through swaps of
fiber-optic capacity at inflated prices. Tyco created “cookie
jar” reserves and accelerated pre-merger outlays to
“springload” earnings from acquisitions. WorldCom admitted
that it had overstated profits and cash flow by $7 billion, by

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classifying ordinary expenses, which should have been
charged against earnings, as capital investments, which were
not deducted from the bottom line. In far too many cases
corporate chief executive officers (CEOs) acted more like
chief embezzlement officers, and some chief financial officers
(CFOs) could more appropriately be called corporate fraud
officers. While analysts were praising stocks like Enron and
WorldCom to the skies, some corporate officers were
transforming the meaning of EBITDA from earnings before
interest, taxes, depreciation, and amortization to “earnings
before I tricked the dumb auditor.”