Enron's Problems Go Way Beyond Its CFO

This article originally appeared on Oct. 24, 2001.

Enron's (ENE Quote) problems won't go out the door with Andrew Fastow.

The finance chief, who was replaced Wednesday, came under scrutiny as the executive who orchestrated and profited from a hedging deal that went sour, saddling Enron with a $1.2 billion charge to equity. As details of this deal and others have emerged over the past two weeks, Enron stock has collapsed, falling 54% in just seven days.

Wednesday, the stock fell a further 17% on enormous volume, signifying that once-faithful mutual fund holders were bailing. Also Wednesday, a raft of once-friendly analysts downgraded the stock. Faced with betrayal on that scale, Enron management at last felt compelled to act; a press release says Fastow is taking a leave of absence. He's been replaced by Jeffrey McMahon, formerly CEO of Enron's industrial markets group.

How might the Enron bulls spin this? Likely, they will point to McMahon's alleged opposition to Fastow's role in the big hedging deal, called LJM2, to show that the "Fastow era" is over. The Wall Street Journal, citing anonymous sources, reported Tuesday that as treasurer at Enron McMahon complained about Fastow's possible conflict of interest. Probably, the fear was that Fastow couldn't serve Enron and LJM2 equally, especially as he was allegedly making a lot of money from LJM2. ...