Why did the Securities and Exchange Commission investigate Enron’s dealings with Andrew Fastow’s partnerships?

The Securities and Exchange Commission (SEC) launched an investigation into the transactions between Enron and Andrew Fastow’s special purpose entities (SPEs) following the company's October 2001 announcement that it would post a $638 million loss for the third quarter and take a $1.2 billion reduction in shareholder equity.1

This financial disclosure was linked to the partnerships managed by Fastow, which Enron had used as "dump sites" for its troubled assets. By transferring these assets to the SPEs, Enron kept them off its books, effectively hiding the severity of its financial losses and creating the illusion of higher profits. The investigation was prompted by the growing realization of these accounting irregularities, which had been previously flagged in an internal memo by Enron vice president Sherron Watkins. The subsequent scrutiny revealed a broader pattern of accounting fraud intended to deceive investors and regulators regarding the company's true financial performance.12