Like the year 1929, history will remember the year 2001 as one of failed companies, market disruption, and scandalous allegations. Enron Corp. (Enron) and WorldCom Inc. (WorldCom) exemplify the pattern of corporate greed that emerged. Enron and WorldCom rank among the largest American companies and sat atop the stock market until the discovery of massive accounting irregularities.
As Federal Reserve Chairman Alan Greenspan observed, in recent years, stock market players shifted focus from dividend yields to corporate earnings. While Enron and WorldCom reported impressive revenues, the reports also contained hidden clues to the true state of affairs. Enron boosted revenues to $101 billion by including revenue figures of partnership ventures and inflated estimates of contract values.7 The comparatively paltry profit figure of $6.3 billion reflects the exclusion of the partnerships’ liabilities from Enron’s balance sheet.8 At WorldCom, employees discovered a trail of phony transactions amounting to over $7 billion in improper revenue shifting. . . .