20 years ago, next month, energy giant Enron – then the seventh largest company in the United States – collapsed, resulting in historic layoffs and devastating retirement savings accounts.

The scandal led to the indictment of several company executives and the downfall of his accounting firm, Arthur Andersen. Enron’s demise also spurred the Sarbanes-Oxley Act, which tightened audit and financial regulations for businesses. But two decades and many corporate scandals later – from many associated with the 2008 financial crisis to, more recently, the collapse of blood testing company Theranos – some fear the harsh crackdown on white-collar crime not be a relic of the past.

“You would like to believe that when something went wrong people who did bad things would pay the price, but I don’t think that’s how it works,” said Bethany McLean, a financial journalist who has covered Enron. for Fortune and co-author with Peter Elkind of “The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron”.

“I think the line between what happened at Enron and what happened during the global financial crisis is much blurrier than you might think. Both were examples of many people fiddling with the rules and figuring out how to make money for themselves with something that was pretty much destined to crumble and leave economic disaster for many in their midst. wake, ”McLean said in an interview with Marketplace. David Brancaccio.

McLean spoke with Brancaccio about the legacy of the Enron scandal and why she began reviewing the company’s finances long before the fraud became public knowledge. The following is an edited transcript of their conversation.

Bethany McLean: I had already started to get a little cynical about the Wall Street promotion machine – how so many people can make so much money even with a business that ends up failing. So it started for me when a hedge fund manager I had known, Jim Chanos, said to me, “Have you looked at Enron? Because we can’t figure out how it makes money. And before I came to Fortune, I had worked as an analyst at Goldman Sachs, so I figured out how to go through a company’s financials – and there were just a lot of weird things. But I didn’t write in that original article about Enron’s off-balance sheet partnerships because, while I was cynical in some ways, I thought, “These were signed by the board, by the accountants, by the lawyers. And that sounds strange to me, but I guess I just can’t be sophisticated enough on these things. So Enron woke me up to how compromised all parts of the system could be.

What made Enron

David Brancaccio: This is probably one of the central lessons in the history of Enron. There was a whole ecosystem it worked in that allowed this kind of shenanigans to continue.

McLean: There really was. It took the cooperation of all parts of the system – from Enron’s accounting firm, Arthur Andersen, to his lawyers, to all the Wall Street banks that provided the money that funded these off-balance sheet partnerships. So many people knew there was something going on, but they were making too much money to talk about it or stop it.

Brancaccio: It was a plan that was executed with great skill. But really, when you think about it, Enron’s plan was also that his stock would never be in bad luck. And that’s not a good plan.

McLean: You are absolutely right. But Enron had figured out how to manipulate the system using these accounting tricks to always meet or exceed analysts’ expectations for its profits. And that was, essentially, a recipe for their stock prices to always rise – because, as long as they were making money, and as long as they seemed to be making more money than analysts expected. whatever they do, everyone said, “Check it off, all good.” So basically Enron thought he had found a way to prevent his stock price from ever going down. And that, of course, is a form of arrogance that can work for a while, but usually hits a wall at some point.

The Sarbanes-Oxley Act

Brancaccio: You had the Sarbanes-Oxley law – the law that became law after Enron and changed Wall Street, at least for a time. But you’ve thought about it a lot. Those overly intelligent “smartest people in the room” – I mean, they [aren’t] at Enron plus, but they’re at other companies – they’re getting paid to find ways around the new rules.

McLean: Basically it is. Sarbanes-Oxley was signed by President Bush, and the speech he gave when he signed the legislation in 2002 in the Rose Garden is remarkably similar to the language President Obama used to sign Dodd Frank into law – that this legislation will protect small investors. , you don’t have to worry about Wall Street scamming you anymore, we’ve made it impossible. And when you compare the text of the two speeches, it’s really quite overwhelming, because it just shows that where there is a will, there is a way, and where there is money to be made, the people will find ways to manipulate the existing rules. One of the main lessons from Enron is that much of what the company did was not in fact illegal. It was a very difficult chase for that reason. What Enron was really good at was using existing rules and regulations as a roadmap for the possible. And I described it as “legal fraud”, because a lot of what they did was actually legal, even though it created this edifice where financial statements had no bearing on reality. economic. And you see it repeating itself over and over again. This was evident during the 2008 financial crisis, and corporate scandals have not been lacking since then.

Modern parallels: Theranos

Brancaccio: Do you see any possible parallels with the Theranos blood testing company? The allegations are that Theranos was also bogus until you do it, and maybe bogus until you do it works for a lot of companies. But we don’t get these scandals unless things go wrong.

McLean: The interesting thing, to me, is what you found: what is the line between a visionary and a fraudster? Sometimes I think the only real difference is that the visionary is able to win through these times of pretending. And they are able to continue to get money from investors so that they can move on to the “realization” stage. And then no one ever investigates to say, “Yeah, yeah, but during that time, they were faking it.” When you come back to Enron, Enron had a division called Enron Broadband, and it was really Netflix, ahead of its time. And sometimes I think: if Enron could have kept getting money from the markets, could Enron have been Netflix? And you look at the story of Theranos: Without the Wall Street Journal reporting, could Elizabeth Holmes possibly have created a device that worked, and no one would have investigated that period of time she was pretending? I do not know. This is an interesting question.

Why did no one go to jail during the 2008 financial crisis?

Brancaccio: [Enron’s] CFO Andrew Fastow went to jail. Former Enron CEO Jeffrey Skilling has gone to jail. Former CEO and Chairman of the Board, Ken Lay, was awaiting sentencing upon his death. We didn’t get to see similar scenes unfold, people going to jail, after the mortgage crisis that came about seven years after Enron. Are these apples and oranges, two different types of disaster?

McLean: No, I actually think it’s apples and apples. I think the line between what happened at Enron and what happened during the global financial crisis is much blurrier than you might think. Both were examples of many people manipulating the rules and figuring out how to make money for themselves with something that was pretty much destined to crumble and leave an economic wreck for many others in their own right. wake. And both were, arguably, completely legal. There was just a different appetite for the Enron sequel. I think part of that is what happened after Enron actively scared the Justice Department of prosecution because they successfully sued Arthur Andersen, the big accounting firm. He went bankrupt ; it destroyed tons of jobs. And people said, “Oh wait, if we sue these big companies, then a lot of innocent people in these companies will lose their jobs. “

Brancaccio: So maybe Enron was the last of a race where people go to jail if the company is big enough?

McLean: I’m afraid this is the case. I think justice is not equal. Much depends on the time and place and the appetite to go after things. You would like to believe that when something went wrong people who did bad things would pay the price, but I don’t think so.