IS ENRON OVERPRICED PDF

A paramount virtue in journalism is being the first to reveal startling facts. Editors notice. Colleagues notice. Competitors notice. Ten months ago, Bethany McLean of Fortune magazine became the first journalist to highlight hard questions about Enron's balance sheet. The most startling fact she revealed was the absence of crucial information in the company's financial reports.

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A paramount virtue in journalism is being the first to reveal startling facts. Editors notice. Colleagues notice. Competitors notice. Ten months ago, Bethany McLean of Fortune magazine became the first journalist to highlight hard questions about Enron's balance sheet. The most startling fact she revealed was the absence of crucial information in the company's financial reports. Her questions were so pointed that Enron's chief executive, Jeffrey K.

Skilling, called her unethical for failing to do more research. Three Enron executives flew to New York in an unsuccessful effort to convince her editors that she was wrongheaded.

Enron's chairman, Kenneth L. Lay, called Fortune's managing editor, Rik Kirkland, to complain that Fortune was relying on a source who stood to profit if the share price fell. The lobbying by Enron had no effect on what Fortune published, highlighted on its cover with the headline, ''Is Enron Overpriced?

Only TheStreet. Even Ms. McLean left leads that were not pursued. She knew, she said, that Enron's chief financial officer, Andrew S. Fastow, was a principal in two partnerships alluded to in the financial statements.

But she left it out of her article. If the accountants, Arthur Andersen, and Enron's board had not questioned it, she reasoned, why should she? As Mr. Kirkland said, Ms. McLean's report ''was prescient, but it kind of went out and sank. Kirkland said. Only last fall, when Enron began to collapse, did more reporters pay attention to the article and to its author. McLean herself has returned to reporting on Enron. McLean, who is 31, is now the financial reporter everyone loves to lionize.

NBC, Fortune executives said, has offered her a consulting contract. The arc of Ms. McLean's experience with Enron illustrates the dynamics of financial journalism, which tends to be sucked into the gravitational pull of the stock markets. Companies with highflying stocks tend to get positive coverage; those whose stocks slide tend to provoke critical assessments. Other magazines like Business Week and even Fortune had written glowing accounts of Enron's transformative effect on energy markets, and the trajectory of its stock price, which rose about 50 percent in and about 90 percent in As Ms.

McLean was working on her article, in the midst of the California power crisis, Business Week published a cover article entitled: ''Enron, the nation's largest energy merchant, won't let California stand in its way.

But as the share price rose, Enron's financial reports stayed opaque. One would almost have to have written them to understand them. And few financial reporters have written corporate financial reports. McLean is part of that small group. For three years after she graduated from Williams College with a double major in math and English, she worked for investment banking division of Goldman, Sachs.

She would review the books of companies being offered for sale and write memorandums describing their virtues and faults. She also had an epiphany about accounting and its potential for abuse. There is no fundamental truth underlying it. It's just based on rules. McLean had never practiced journalism. She had no takers. There, she joined its corps of fact-checkers, soon becoming famous for giving no quarter. The fame stemmed from her tug of war with Andrew S.

Grove, then the chief executive of Intel. He had written an article about how he had decided among possible treatments for his prostate cancer. McLean, then 25, challenged him on his data. And she was right. Both agree on this, though neither remembers the exact details. Grove wrote in an e-mail message last week. The incident brought her to the attention of John Huey, then the magazine's managing editor. McLean was promoted and slowly mastered the writing side of the business paying her editors back for their labors by regularly beating them at pool.

Five years later, she was tackling Enron, nervously. She had felt indirectly rebuked when her earlier critical financial analysis of I. Remembering how her judgment had not been validated, she was afraid Mr.

Skilling, the Enron chief executive, was right when he implied she had failed to do the work required to understand Enron's financials. But events proved him to be wrong. He was not wrong, however, when he told her that similar questions were being asked ''by people who want to throw rocks at the company. McLean to the odd financial statements had been someone who had bet against Enron stock.

Almost all the reporting on the company at that point was favorable. As James S. Chanos, a short seller who is president of Kynikos Associates, a hedge fund in New York, said in a recent interview, ''The stock price conveys legitimacy.

Short sellers like Mr. Chanos, who pointed Ms. McLean toward Enron, are among the few skeptics in a business where most interest groups -- analysts, investment bankers, shareholders and executives -- profit from a bull market. McLean went on to report about soy milk and Prozac, not Enron. But Peter Eavis of TheStreet. Last summer, he reported investor uncertainty about ''how much Enron's earnings have been aided by deals'' by entities like ''LJM Capital Management, whose general partner is Enron's chief finance officer, Andrew Fastow.

Fastow's dual loyalties provoked little attention. Certainly, after the Sept. But, in the following weeks, investors were not. As Enron's stock price kept declining, they asked more questions like Ms. McLean's, and they did not like the answers.

Roberts said, ''was a crisis of confidence. McLean is unsure what lessons journalists will learn from covering Enron. View on timesmachine. TimesMachine is an exclusive benefit for home delivery and digital subscribers. Except when they do not. Home Page World U.

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Bethany McLean Has a New Podcast for Media Junkies

She is known for her writing on the Enron scandal and the financial crisis. Previous assignments include editor-at-large, columnist for Fortune and a contributor to Slate. McLean was born in Hibbing, Minnesota on December 12, In McLean received a B. McLean started her career as an investment banking analyst for Goldman Sachs [1] and joined Vanity Fair as a contributing editor in She co-authored a book on the financial crisis titled All the Devils Are Here. Mortgage Giants which examines the governance and financial situation of Fannie Mae and Freddie Mac seven years after the financial crisis.

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Bethany McLean

A documentary based on the book was nominated for an Academy Award in McLean could have retired and dined out on her many prizes, but instead, she joined Vanity Fair as a contributing editor, and went on to write books on the financial crisis, the mortgage giants, and fracking. I caught up with her to chat about the process. Let us know if you can. Especially at that time — I started in journalism in — I had a really odd background for a journalist.

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