Do you remember the sudden and infamous collapse of ENRON in 2001?

Kenneth Lay and Jeffrey Skilling fooled investors, analysts, regulators - and even many employees - by using a network of shell companies and phony transactions to hide billions of dollars of liabilities. And then the jig was up.

Protesters hold up an effigy of Enron's Kenneth Lay during a march against the World Economic Forum

While the scheme was certainly complex, the underlying strategy was quite simple.

By hiding its liabilities, Enron made it appear as though its billions of dollars in assets were owed to shareholders instead of creditors, massively overvaluing the equity on its balance sheet.

Ironically, the firm aired a 60-second television commercial during the 2000 U.S. presidential election which showed a nervous executive explaining to a group of analysts the reasons behind his firm's recent disappointing fiscal quarter.

And running throughout the soundtrack is a computerized voice repeatedly asking "Why? Why? Why?"

Why indeed, Peter

"Why?" - Enron Corporation TV commercial aired during 2000 Presidential Election

At the time of his death in 2009, Michael Jackson's reputation was estimated by his estate to be $2,105 - virtually worthless.

Child abuse allegations, years of strange behavior - including dangling his baby out a hotel window - and bad relations with promoters and record companies had badly tarnished his name.

In valuing Jackson’s assets the authorities counted music and physical property, and then sought to put a separate value on his name and image. But what are they worth?  

The answer is influenced by many things, including evolving technology. Holographic images of the performer provide new revenue opportunities.  

The U.S. Internal Revenue Service had a much bigger figure in mind than the $2,105. $161,000,000 in fact.

And that meant that not enough tax was paid previously, so hundreds of millions of back taxes and penalties are due.

That's quite a tax bill!

Accounting for the agreed value of an asset is easy. Arriving at the valuation in the first place, not so much.

Ah, The Price of Fame, Peter

In some quarters, a "Bop" is a type of dance. And assets are considered "Toxic" when they don't actually contain the value they are said to represent on a company's balance sheet.

So it is that Lehman Brothers engaged in a $50 billion Toxic Asset Bop during the financial crisis of 2008.

Lehman had purchased and/or bundled billions of dollars of residential mortgage securities, primarily involving borrowers who should never have been approved for their loans.

Despite the fact that most of these loans would never be repaid in full - and many were already in collections - Lehman used those "Assets" as collateral for $50,000,000,000 in loans to "shore up their balance sheet with some cash."

The rest, as they say, is history.

On September 15, 2008 Lehman Brothers filed for Chapter 11 Bankruptcy protection, ending the firm's 158-year reign.

Among the lessons we can all learn from this story is that numbers on a financial statement are not inherently true. The story behind them must stack up.

Warm Regards, Peter