The executives at Enron committed a financial statement fraud in which they used a series of SPE (special purpose entities) to lower their debt and increase their net income. These transactions were complex and they involved many pass through entities. Due to the complexity of these partnerships, it took the SEC many weeks of investigation to determine how these partnerships were structured and the legality of these transactions.
Considering that it took the SEC months to determine the Enron Fraud, it is doubtful whether the SEC can stop deceptive financial engineering. Elizabeth Warren, a Harvard Law Professor has said, "These guys can create fancy paper faster than Congress can change the laws, or the SEC can change the rules." Now, the question is, how can investors protect themselves against this type of manipulation.
One, investors who have a through understanding of the business and a skeptical eye towards hype will most likely be able to avoid these situations. Two, investors can use the True Cash Earnings Metric developed by True Value Services Inc. The True Cash Earnings metric adjusts earnings for operating gains and losses that are non-cash items. This metric eliminates the financial engineering and irregular items such as large write-offs that cloud an investors ability to see the business's real earnings power.
Enron's True Cash Earnings were a fraction of what its reported earnings were. By using the True Cash Earnings metric, an investor can be warned of potential fraud and financial manipulation.
(Due to Enron being an inactive stock, it's financial data is no longer available in the True Stock Value Determinator)