The Next Enron: What Exactly Did Andy Fastow Say About Apple This Week?

Earlier this week, hedge fund manager Whitney Tilson attended an event, during which Andrew Fastow spoke.

Fastow was the CFO of Enron Corporation until right before the company filed bankruptcy. Fastow was criminally charged with conspiracy, wire fraud, money laundering, securities fraud, false statements and insider trading.

Fastow served a reduced sentence of six years in prison after pleading guilty, agreeing to a 10-year term and becoming an informant in cooperation with federal authorities.

At the Young President's Organization, World President's Organization event, Fastow shared his opinions regarding other big-name businesses that could find themselves in a similar situation to Enron's collapse.

Tilson On Fastow

Tilson shared his impressions from Fastow's two-hour speaking engagement, focusing on Fastow's acute and intimate knowledge of misleading commercial behaviors and how that background positions him as a voice of authority on the subject, able to recognize the behaviors in other companies.

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"He acknowledged that he was the primary cause of Enron's demise and apologized for all the harm this caused. He said he knowingly engaged in numerous transactions that were designed to mislead investors by hiding debt in special purpose entities […] most alarmingly, (he) gave numerous examples of many major companies today are doing similar things, just not (for most companies anyway) to the same degree," Tilson explained in an open letter.

Most notably, Tilson agreed with Fastow's warning regarding one very prominent, household name. Apple Inc. AAPL was called out as engaging in similar, if not illegal certainly dodgy, behaviors.

Tilson included the images below of a business front, which is in fact the global headquarters of Apple in Ireland.

"His point – an entirely correct one – is that the world's largest company today is engaged in tax dodging behavior that, while perhaps technically legal, is clearly designed to increase profits and inflate the stock by misleading and confusing regulators (and perhaps investors) via a massively complex web of entitles – exactly what he (Fastow) did at Enron!" Tilson said.

"And this is 100 percent routine, common behavior among most large U.S. companies. In summary, he argued, what sunk Enron wasn't any one deal – it was that he (and Skilling and Lay) used techniques that others were also using, taking advantage of gray areas in accounting rules to pretty things up for investors, but took it to such an extreme degree that they blew up the company," Tilson continued.

Why It Happens

Tilson concluded his assessment by postulating why these practices are so common place and still happen, despite the fact that people continuously get caught.

"So why does this crap keep happening? (And it does – just look at Sunedison Inc SUNE and Valeant Pharmaceuticals Intl Inc VRX.)"

Tilson iterated what Fastow had shared, that it all boils down to a series of rationalizations, from "helping the company and shareholders" to a desire to be rewarded and recognized.