CHICAGO, May 9 (UPI) -- A professor at Central Michigan University says his research indicates people with inside information posted messages warning of Enron's demise as long as four years before it actually happened.
James Felton, who teaches finance and law at the Mount Pleasant, Mich., school, and Jongchai Kim, an assistant professor of finance at Xavier University of Louisiana, examined thousands of anonymous posts on the Yahoo! Enron message board, which began operating in November 1997.
In an interview with United Press International, Felton said one message in particular smacked of insider knowledge. The message was posted April 12, 2001, four months before Enron executive Sherron Watkins issued her memo warning of trouble ahead.
The former energy trading giant filed for bankruptcy Dec. 2.
The posting read: "It will soon be revealed that Enron is nothing more than a house of cards that will implode before anyone realizes what happened. Enron has been cooking the books with smoke and mirrors. The Enron executives have been operating an elaborate con scheme that has fooled even the most sophisticated analysts. When the truth is uncovered, those analysts and ENE investors will feel like a raped school girl. The first sign of trouble will be an earnings shortfall followed by more warnings. Criminal charges will be brought against ENE executives for their misdeeds. Class action lawsuits will complete the demise of ENE."
It was signed by "enron is a scam."
What makes the message significant, Felton said, is that it was the only one sent by "enron is a scam" of the more than 200,000 messages posted through February.
"Most people when they bash a company, they do it repeatedly," he said.
As far back as June 17, 1998, "JanisJoplin298" wrote: "ENE the virtual company. Profits for 10 years forward being taken in current years. When you shake it down what do you have? The paper mache company."
In a subsequent posting, the writer said Enron was operating on the "domino theory," requiring management to come up with new projects "to replace the earnings they have sucked out of current projects."
In June 1999 "falcon325" noted: "Since the beginning of this year, 17 Enron insiders have sold 1,529,991 shares of the company's stock worth $104.2 million. ... Excuse me folks, but isn't all this insider trading a screaming vote of 'no confidence?'"
"Dig deep behind the Enron financials and you'll see a growing mountain of off-balance sheet debt which will eventually swallow this company," "arthur86plz" wrote on March 1, 2000. "There's a reason they layer so many subsidiaries and affiliates. Be careful."
"Meade121212" worried on Aug. 17, 2000: "The worst part about holding a stock like ENE is lying awake at night knowing the whole house of cards could collapse at any time -- personally knowing the management combined with the shaky ground upon which the entire power industry is built just add to these worries."
Then, a full year before Enron filed for bankruptcy and the stock price was at $73.06, "lng cryo man" stated: "Starting to fall. Only those who have worked there know for sure."
Felton said it's not often that one gets to go back through a message board and determine which items were accurate. He said his research was not an attempt to prove the messages were true but rather to open debate on the role of message boards in getting information to the public.
"Stock message boards are not held in high regard by investment professionals," Felton noted. "Investors are free to post anonymously and the accuracy of content is not verified."
Felton said he decided to look at the Enron messages because he has gotten some significant advice off other message boards.
"When Enron started blowing up, I started wondering what people had been saying in the past," he said.
Many of the early postings focused on former CEO Ken Lay and his management style.
Felton said perhaps it's time companies and regulators began taking a closer look at employee postings on message boards.
"There are very specific rules companies have to go by now," Felton said. "The can only release information to analysts that's being released to the public, official statements and press releases. What information is leaking out from employees? It would completely change dissemination of information."
Felton said some of the Enron postings contained very detailed criticism of management, complicated accounting practices and close ties with its former auditing firm, Arthur Andersen LLP.
"There are several implications of having insiders posting on message boards," Felton said. "For investors, it means that stock message boards contain better information than is widely believed. For companies and regulators, it means that existing securities laws and nondisclosure agreements need to be enforced more rigorously to stop employees from posting inside information on message boards."
The Enron message board received an average of nine posts a day in June 1999. That number grew to 2,200 by December of last year when the company collapsed in the largest corporate bankruptcy in U.S. history.
Felton's study, "Warnings from the Enron Message Board," is to be published in the fall issue of the Journal of Investing.
