The Lion, The Witch, And The Sale-Leaseback
With the convictions of former Enron Corp. executives Kenneth L. Lay and Jeffrey K. Skilling on May 24, the government closed the books on one of the biggest financial scandals in U.S. history. But compared with the Teapot Dome scandal of 1922, which was a straightforward case of bribery, or the Hunt brothers' attempt to corner the silver market in 1980, Enron's schemes were so convoluted that it's a challenge to describe them in simple language a child could understand. How would you explain Lay's and Skilling's crimes to your child? BusinessWeek asked two commentators to try. Here are their stories:
JEFFREY A. SONNENFELD
Senior Associate Dean for Executive Programs at the Yale School of Management
Once upon a time in the land of Enron, there was a king named Ken -- well, actually, he wasn't a king, but he thought he was. He had a friend, at least we think he was a friend, who was a prince named Jeff. King Ken and Prince Jeff ruled over the land of Enron. In this land they made...well, they made money for themselves. What else did they make? Not much else.
However, this isn't what they told the people of the land of Enron. They told the people that they were making lots of electricity and other invisible stuff. We don't know how to make electricity and other invisible stuff, and neither did they.
For a long time, everybody was very happy. King Ken and Prince Jeff got very, very rich from other people's money. The people wanted to get rich, too, so they gave the gold they saved from their allowances to King Ken and Prince Jeff. All of it. King Ken and Prince Jeff promised they could turn little piles of gold into gigantic piles of gold by selling invisible stuff to faraway islands.
Actually, shhhh: You know what they were really doing with the gold? King Ken and Prince Jeff really used the gold to buy lots and lots of toys -- just for themselves! In fact, no one bought invisible stuff in those faraway islands. Those faraway islands were really still part of the land of Enron where no one lived. They told some of their friends the secret. Then the friends also pretended to sell invisible stuff for more gold. Some of the friends were famous people who told other people to give their allowances to King Ken and Prince Jeff.
But then one day, Count Andrew, one of the friends, who was not really a friend at all, told the secret to all the people. The people were very sad. They wanted their gold allowances back, but it was too late. It was all gone. The people cried and cried. The emperor asked what happened. When the people told the emperor, he said King Ken is not really a king and Prince Jeff is not really a prince. The emperor made Ken and Jeff stand in his court, and in front of all the people he told them they were very naughty. He sent them to the dungeon for a long, long time.
And that is the story of the land of Enron. The lesson is that you should not trust someone who pretends to be a king and promises he can invisibly turn little piles of gold into gigantic piles of gold using hocus-pocus, imaginary islands, and famous friends.
Humorist, The New Yorker
Well, kids, amazingly enough, Enron worked just like the pie-baking bee for the local charity bazaar. Jill bakes four pies, while another Jill, who doesn't actually exist, bakes 24 pies.
Once the first Jill's four pies are delivered to the bazaar (minus the two she "lost" on the way), the nonexistent Jill's "mom" records 24 pies as delivered, buys them all back using a check drawn on a fictitious account, then demands 24 full cash refunds because they "taste funny." Flustered, the nice bazaar ladies cough it up. With each pie priced at $5, that's $120 net, or a clear profit of $100.
The real Jill and her "mom" use the $100 to hire a hooligan to "accidentally" knock Jill down with his car at a crosswalk on the way home from the bazaar. They split the $15,000 insurance settlement three ways and head for Vegas.
Your dad may have been that hooligan in the car, but I can't remember. So you see, the "mystery" about Enron is really no mystery at all!
P.S. If anybody comes snooping around, I know you'll know how to handle it.