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Saturday, August 06, 2005


A small vignette from the fall of Enron.

Late in the evening on August 20th, 2001, a broker at the Houston branch office of the financial services giant UBS Paine Webber sent out an email to seventy-three of his clients. His name was Chung Wu. Wu, a native of Hong Kong, had arrived in Texas as a student in the early 1970's. Staying, he worked in accountancy and finance for a variety of different businesses in the Houston area before, in 1982, starting his own Houston-area chain of Chinese restaurants. In 1998 he sold off his restaurants and went to work for Paine Webber as a broker.

Three years later, working late into the night, he sent out this fateful email to his clients, all current or former employees of the energy services giant Enron, advising them to sell their shares in the firm. Only three days earlier Ron Barone, the chief Enron analyst at UBS Warburg, had rated Enron stock as a 'strong buy', saying that the value of Enron shares was "likely heading higher than lower from here on out." Chung, however, said in his email that, "(the) financial situation is deteriorating in Enron and price drops another $7.00 from last P/E report while most of the others (in the energy business) stay the same or improve...I would advise you to take some money off the table even at this point...Time is value and waiting and waiting to make a decision would cost you a fortune. For a capital asset investment we always should know the price we would sell at."

The next day the email began to be circulated within Enron, enraging many within the firm, and by that afternoon Wu found himself unceremoniously fired, prompting Enron's Andrew Brown, in an internal email, to describe Wu as "way out in left field" who "won't be bothering any more of out employees." Wu's boss, Patrick Mendenhall, apologized profusely for Wu's actions, pointing out that his views ran contrary to Barone's official forecasts, and firing Wu for sending out an unauthorized email that ran contrary to the firms official forecasts.

Of course, Wu was right, and it only took a couple of months for it to become obvious just how right he was, as Enron collapsed in breath-takingly spectacular style.

|| RPH || 10:40 PM || |