SPEs that Flourish in Loopholes

Many of Enron’s troubles can be traced to a number of special purposes entities (SPE), dubbed the Raptors, that Enron established to shield itself from mark-to-market losses in its growing equity investment business. When these investments went south, Enron’s attempts to shore the Raptors up with its own stock proved to be a temporary solution at best. The presence of Enron’s CFO on the board of directors of the SPE that funded the Raptors, LJM2, probably ensured that the entire house of cards would eventually come down. The authors detail the byzantine structures of these SPEs and demonstrate how existing GAAP requirements, though somewhat ambiguous, should have led to different treatment.