What really caused the stunning collapse of Enron Corp.? Rogue financing, says natural gas and power analyst John Olson of Sanders Morris Harris in Houston. An award-winning analyst who has been covering Enron and its predecessor companies since the1970s, Olson has known many of the principal executives for years. "The early deals at Enron were conventional," he told a sold-out regional meeting of the Independent Petroleum Association of America in Houston recently. Later, analyzing Enron's complex financial picture "was no picnic. This is a very, very unhappy situation. The truth is evolving; it's still murky. It took 16 years for Enron to grow into a $62-billion-asset company and six weeks for it to virtually disintegrate." Olson knows what happened. "Rogue financing took it down-that and a very stock-market-obsessed culture that was obsessed with massive stock options-fully 13% of its stock was in the hands of employees [about twice what other energy conglomerates report]." And as a stock price goes up incrementally, management egos go up exponentially, he says. "Water and broadband were major mistakes. To fix these, Enron found a magic device in off-balance-sheet financing and partnerships. It was like crack cocaine to them. But Enron began to mutate the deals and ended up not being able to disclose them." The pressure was on to continue to generate earnings. "It created earnings growth of 15% per year by phony deals and pushing debt and assets off the books." The greatest danger to Enron's creditworthiness came in the form of "naked puts." The puts were being used by top officers to further capitalize on their stock's growing price. When the price began to fall, however, "they were unnaturally short on their own stock...By the time it was trading at $11 per share, they owed $700 million-I don't want to think what they owed when it fell to 70 cents. That's one reason why they were so quiet in the last few days [before the collapse]-they were trying to unwind these puts." Enron's management "flew too close to the sun." As to how it ran the balance sheet, Olson says, "Is all of this legal? Probably so...Is it right or ethical? Not hardly." -Leslie Haines

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