By DAVID MOON, Moon Capital Management
Former Enron employees now reveal that the company maintained a phony trading
floor, much like a Hollywood movie set. The faux trading floor was filled
with employees only when Wall Street analysts visited the company to evaluate
Enron's operations. Employees would sit at usually empty desks, talking on
the phone to each other, giving the impression of activity. The
actor/employees brought family photos and clutter from their real desks to
complete the illusion. Former employee Carol Elkin said the intent was 'to
impress them [the analysts] and make our stock go up ' [we would] sit and
pretend we lived and worked there.'
The analysts bought the charade, then wrote glowing reports on Enron.
Investors, greedy and eager to believe anything that would make them a profit,
believed the reports, driving up the share price, just like the plan.
Everyone lied to someone, even if only themselves. David Copperfield would
have been proud of their illusion.
Who can we trust any more?
Several times a week it seems, another company is under investigation for
faulty or fraudulent accounting records. Enron accountant, Arthur
Andersen, audited the books of several companies and at least one non-profit
organization that are under investigation for faulty audits. Only a year
ago, most people considered an audit from Andersen as one of the 'gold
standards' in auditing.
A stockbroker for Lehman Brothers has been accused of stealing more than $200
million in client funds. As his office's top producing broker, he was
exempted from his firm's own internal controls and, in fact, was actually the
boss of his own compliance officer. He mailed phony statements to his
clients, depicting millions in illusionary gains, while generating millions in
The federal budget surplus is now gone, even though it actually never
Can we trust anyone?
Many mutual funds that promised to provide safety and security were actually
invested in profitless dot.coms. Three years worth of gains and untold
opportunities vanished in 20 months. So much for trusting your mutual
Schoolteachers arrested for child pornography. More priests are
discovered molesting the children of their flock. Hundreds of human
corpses piling up outside a Georgia (non) crematorium.
And when an innocent journalist is gruesomely beheaded, leaving behind a
young widow and unborn child, any thinking person has to wonder about trusting
the core fairness of life. How do faith systems explain that?
Society vacillates between too trusting and too skeptical. Consider the
financial markets. During much of the late 1990s, investors were willing
to believe almost anything; they were afraid not to. They believed
Amazon.com was more valuable than a bushel full of established traditional,
profitable retailers. They believed earnings were irrelevant. They
believed it was their God-given right to expect to make five percent every few
weeks in the stock market. Those investors certainly don't trust the
NASDAQ any longer.
Ronald Reagan used to describe his approach toward the USSR's promise of
reducing certain parts of its nuclear arsenal as 'trust, but verify.' That
advice works in a lot of life's areas. There are very few things in life a
person should accept solely on faith. The proper treatment of your money
certainly isn't one of them. When investor profits are seemingly too easy,
the vultures appear, willing to accept your eager trust. But after a rash
of noteworthy violations of trust, it is tempting to stop trusting
anything. Neither extreme is healthy.
Remember who is ultimately responsible for both your well being and your
money: you. When dealing with both of them, trust, but
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).