UPDATE: Malcolm Gladwell digs himself in deeper in his "semi-defense" of Jeff Skilling and the other fraudsters of ENROn. In response to a commenter on his website who points to the ENRON off-balance-sheet-entity accounting fraud, Gladwell says that the fraud wouldn't have been fraud if it hadn't had the fraudulent elements, Gladwell writes:
My understanding is that a) its not entirely clear how those outside partnerships ran afoul of SEC rules, except in the matter of [their failing to have] the 3 percent outside equity interest]...
To the contrary. It is entirely clear how those outside partnerships ran afoul of the SEC. And of course it isn't criminal fraud if you remove the fraudulent elements that had previously been criminalized!
Gladwell seems more than a bit thick here. He also misstates the requirements for an SPE to be taken off the balance sheet--he omits the requirement that third-party investments be genuinely at risk:
As the SEC wrote in its ENRON enforcement actions:
Complaint: SEC v. Michael J. Kopper : 11) Enron engaged in myriad SPE and other transactions that were structured to achieve off-balance-sheet treatment. Under applicable accounting rules, an SPE could receive off-balance-sheet treatment only if independent third-party investors contributed at least three percent of the SPE's capital, and the third party investment were genuinely at risk, among other things. If the third party were not truly independent, or its investment were not truly at risk, consolidation of the SPE onto Enron's balance sheet would be required.
12) Starting in at least early 1997, Kopper and others devised a scheme to defraud Enron's security holders by enriching themselves through the use of certain Enron SPEs. Some of these SPEs were not eligible for off-balance-sheet treatment because the supposedly independent third party investors were controlled by the CFO, Kopper, and others and because the third party "investment" was not at risk, since Enron, the CFO, Kopper, or others provided the funds to be invested or guaranteed the investment against risk of loss. Thus, these SPEs should have been consolidated onto Enron's balance sheet.
13) Enron nevertheless engaged in various transactions with these SPEs that were designed to improve its apparent financial results. Meanwhile, Kopper and others used their simultaneous influence over Enron's business operations and the SPEs as a means to secretly and unlawfully generate millions of dollars for themselves and others...
Gladwell goes on:
The point is that even that simple phrase is arguable and complex and not nearly as straightforward as it sounds...
But the point--Gladwell's clam that ENRON's SPEs weren't fraudulent--is only "arguable" because Gladwell misstates the case.
A simple answer to a not-innocent question by Malcolm Gladwell--the question, you see, is part of what Gladwell calls a "semi-defense" of Enron's Jeff Skilling:
Jeff Skilling and his co-conspirators breached their fiduciary duties and falsified the accounts of ENRON for 1998, 1999, 2000, and 2001 in order to persuade investors that Enron was a well-run, profitable company, and so boost its stock price.
What is Malcolm Gladwell's question? It is:
gladwell.com: Enron: I also have a minor challenge for aficionados of the Enron case. Years ago, when I was at the Washington Post, one of my colleagues on the science desk—-Bill Booth—-called up a dozen or so Nobel Laureates in physics and asked them to explain, in plain language, the nature and significance of the Higgs Boson atomic particle. None of them could....
Can anyone explain—-in plain language—-what it is Jeff Skilling and Co. did wrong?
I’m not asking for an explanation for what they did wrong as businessmen. That’s plain. They did a mountain of stupid and arrogant things. Nor is this about what Skilling and company did that was unethical or in bad faith. There’s a mountain of evidence on that too. The question is strictly a legal one: according to the way the accounting rules were written at the time, what specific transgressions were Skilling guilty of that merited twenty-four years in prison? For the sake of argument, let’s stipulate that summaries must be three sentences or less.
When I was reporting the piece, I tried to get someone to answer this question. But everything ended up very Higgs Bosonian.
There is an easy answer to Gladwell's Higgs-boson question too:
The standard model of subatomic physics builds up everything out of a few basic elementary particles: the electron, the muon, and the tau; the electron-neutrino, the muon-neutrino, and the tau-neutrino; the up and down quarks; the charm and strange quarks; the top and bottom quarks; all the antiparticles of these; the gluon bosons; the weak-electromagnetic bosons W, Z, and the photon; and the Higgs boson.
So far we have found, in our particle accelerators, direct evidence of the existence of everything but the Higgs boson. If we are going to extend the standard model, we need to see if the Higgs boson is in fact what we think it is and does in fact behave as we think it does.
If we remove the Higgs boson from the standard model, it looks then as if nothing has any mass and everything travels at the speed of light always: the Higgs boson is kinda important in making our universe look like it does.
The impression I get is that neither Bill Booth nor Malcolm Gladwell tried very hard to get their respective questions answered in a way they would judge satisfactory.