Is the U.S. Fracking Boom Based on Fraud?
In a 2016 interview with Fraud Magazine, former Enron CFO Andrew Fastow explained what he thought made him so successful while at the former energy corporation that’s now infamous for financial scandal.
“I think my ability to do structured financing, to finance things off-balance sheet and to find ways to manipulate financial statements — there’s no nice way to say it. Like I said at the conference, I was good at finding loopholes.”
As Fastow explained, in finance, the difference between a loophole and fraud isn’t always easy to identify. And that may be something the U.S. fracking industry is working to its advantage.
Fastow, the convicted fraudster, does admit that what they did at Enron misled investors. “We created something that was monstrously misleading, but any one of those deals alone wasn’t necessarily considered fraudulent,” he said.
Fast-forward to today and a different part of the energy industry: The U.S. shale oil and gas industry has lost more than a quarter trillion dollars since 2007, while being sold to investors as an economic boom, even at oil prices much lower than those of recent years. Does that financial mismatch seem misleading? Or perhaps, familiar?
In an unexpected twist, Fastow now gives talks to the energy industry on ethical leadership.
Sounding the Alarm
Bethany McLean was the first reporter to question whether Enron was a financially sound company in a 2001 article for Fortune magazine. McLean went on to co-author the book The Smartest Guys in the Room, which documented the fall of Enron due to its fraudulent practices, including the ones Fastow engineered.
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