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Circular Guarantees: How the Raptors Were Designed to Fail
Audio is available on Spreaker — see link below.
Enron's Raptor entities were capitalized with Enron's own stock — meaning the hedges collapsed the moment Enron needed them most. This chapter exposes the circular logic, Andy Fastow's staggering conflicts of interest, and how Arthur Andersen kept signing off anyway.
Audio is available on Spreaker — see link below.
The Raptors weren't just a fraud. They were a confession.
Let's establish the foundation, because without it the Raptors don't make sense. Mark-to-market accounting, in its legitimate form, exists to reflect the real current value of a financial asset.
Andrew Fastow was Enron's chief financial officer. He was also the architect of the special-purpose entities, or SPEs, that Enron used to hide liabilities and manufacture earnings.
The Raptor entities, named internally after the velociraptors from Jurassic Park, were created starting in two thousand and one. Their specific purpose was to absorb the mark-to-market losses piling up in Enron's investment portfolio.
The Raptors weren't the first time Enron had used the SPE framework to mislead investors. Chewco came earlier, and it illustrates how the pattern was established.
In August two thousand and one, Enron vice president Sherron Watkins wrote a memo to Ken Lay. She was direct.
Enron's financial engineering wasn't confined to its own balance sheet. The same appetite for exploiting loopholes extended outward, into California's electricity market.
On October sixteen, two thousand and one, Enron announced its third-quarter earnings. Included in that announcement was a charge of one point zero one billion dollars described as nonrecurring.
Twenty-nine thousand employees lost their jobs. Many of them had retirement accounts heavily concentrated in Enron stock.
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