Like an oil spill, the Enron meltdown has oozed its way across the economic landscape, exposing cracks in accounting systems, reporting systems, retirement accounts and the public trust that keeps the stock market and political system afloat. It’s the second big uh-oh since the first big uh-oh in what is shaping up as the (’00) Uh-Oh Decade.

“Obviously people are nervous because there’s an implicit trust and that trust has been broken down as far as the accounting firms are concerned,” says John Weil, president of financial planners John B. Weil & Associates Inc. “More significantly, the market was just beginning to develop some sort of stability and this hurts. And you go from Enron to Tyco to AOL to General Electric and there’s still mistrust.”

And with good reason. One didn’t need to own Enron stock to get splashed by the Enron spillover. “A wide group of investors everywhere got hit,” explains Carolyn Taylor, president of Weatherly Asset Management. “They either owned the stock directly or owned a mutual that owned Enron, or even a money market fund.”

Rather than stuffing assets in a mattress, financial planners are recommending spreading the risk in enough places to avoid getting burned in the next great flameout. Even planning pros realize this can be like asking clients to take cold showers.

“We’ve always believed in asset allocation,” says Weil. “The best example was Qualcomm. When the stock was flying after the split and it was $180 and $190, we were calling our clients and pleading with them to diversify, get out of some of it, take some of the profit, it was crazy. And you were talking against motherhood.”

In fact, San Diegans might be more susceptible to Enron-type end runs, if only because their startup-happy, high-tech workforce is more likely to have company stock, options and other market-related incentives in compensation packages.

Examples include a “10 percent to 15 percent haircut on the stock price, or options that might vest,” says Taylor. Startups may have need to offer inducements to attract talent at all levels, whereas more traditional companies are likely to restrict inducements to higher paid employees.

Taylor is one of a chorus of advisers calling for conservatism and risk spreading. “Sell a certain portion of a large holding to lock in a lifestyle, a level of comfort and diversification,” she says. A balanced portfolio might include inflation-adjusted bonds, and equities in mid and large cap sectors. Investors should not only review what makes up their 401Ks, but “any place you have exposure.”

Given the often cult-like culture of corporations, how does one avoid holding a big chunk of the employer’s stock, or selling without feeling guilty? “Use company stock to make donations and gifts,” Taylor says. “You’re not getting rid of it, but you’re minimizing your self exposure. Sell as you go along.”

Referring to the dot-com bust, tech recession and Sept. 11 fallout, Taylor says, “People are reshuffling priorities in a good sense ... with all that’s going on. It’s nice to see that, but it’s like any learning experience; did we really have to go through it?”

Absolutely, says Evergreen Wealth Management LLC principal Alan Aiello, because Enron and its progeny are nothing new, denial is not a river in Egypt, and we love six-second trades with $16 price tags.

“Most of the people who lost a lot of money in the market are stuck in the disbelief stage,” Aiello explains. “You know, I used to have $4 million and now I have $2 million and how are you going to get my $2 million back?”

Aiello actually sees investors practicing the “taking on more risk, it’s late night in the casino” theory as gamblers make riskier bets to recoup losses. The reason is what Aiello calls “behavioral finance,” applying all-too-human tendencies to financial decisions.

“Most people are overconfident in their ability to do anything,” he explains. “Eighty percent of investors think they have above-average skills. The lesson from Enron is that things shouldn’t be any different because people have been losing money forever. You cannot accurately predict a situation like Enron. No one saw it coming. A year from now no one will know what Enron was. “Do the math or the math will do you. If you had 12 stocks and one of them was Enron, you lost 8.33 percent of your money. If you had 20, you lost 5 percent. If you had 100, you lost 1 percent. In any year, there will be a surprise.”

What’s more, instant business news and the Internet are here to stay, no matter what regulations Congress imposes on accountants. “There used to be a nice period of time between doing your research and getting the trade made where you could actually think about what you were doing,” Aiello says. “If the highly trained analysts, accountants, and attorneys can’t figure out what’s going on with these companies, I don’t think investors can. There’s a big difference between what the numbers are and what the numbers mean.”

‘Forthcoming And Candid’

Numbers and their meaning is the domain of accountants, the formerly staid green eyeshade types suddenly under the glare of an unwelcome spotlight.

Even though the local office of Arthur Andersen has not been accused of any wrongdoing, Richard C. Bigelow, San Diego managing partner, declined to be interviewed for this story. Instead, he released a statement saying “Our clients have been very supportive. In general, clients are very understanding and appreciative of the fact that we have been forthcoming and candid. We talk to our clients constantly and keep them up-to-date with developments. They are interested in their own business first and want reassurance that this matter is not distracting us from delivering the kind of service that made them hire us in the first place. The fact is, with the exception of a small team working on this matter, the vast majority of our 85,000 talented people around the world and here in San Diego are continuing to focus on serving our clients. We remain confident about our firm and its prospects for the future. We are determined to face these issues, address them appropriately, and emerge stronger as a result.”

Nor would the local office of PricewaterhouseCoopers make its local managers available. However, PwC says it plans to separate its management consulting business, PwC Consulting, through an initial public offering and says it will file a registration statement for the IPO this spring.

That’s because the accountant’s role of providing clean, accurate reflections of a company’s financial health has been transformed into providing advice on how to improve those numbers. Once accountants have a vested interest in their clients’ performance, they have a conflict of interest too. As Aiello says, “The role of accountants as consultants has grown astronomically, because that’s where the fees are.”

Hugh Friedman says he won’t render a guilty verdict while the jury is still out, but the University of San Diego law professor has a host of questions about the energy trader’s board, hired professionals and style of corporate governance.

Sophisticated Players

“The collapse was due to bad economic decisions, bad investments and debt transactions,” Friedman says. “The reason it was able to do what it did without detection was because whatever Enron started out to be as an energy business, it became a derivatives trading firm. Transactions were not subject to regulation. Enron engaged in activities I’m told with over 3,000 related special purpose entities. Because they didn’t own 50 percent of these entities, they didn’t have to be counted on the books,” which led Enron to overstate assets, falsify profits and hide losses. Friedman calls the lack of regulation over these trades and entities a “black hole.”

Into the hole fell shareholders, employees with pensions funded by Enron stock, and a host of financial professionals who should have known better.

“Where were the institutional market gatekeepers?” Friedman asks. “Banks, investment banking firms, these are very sophisticated players with the ability to get closer to what was actually going on. Bond rating agencies, where were they? Do they have some responsibility? Some amount, or any amount of due diligence? They all made huge fees, and pocketed their money. Do they have secondary responsibility?”

“Accountants have a consulting arm that charges huge fees to design these transactions and the accounting arm accounts for it,” Friedman notes.

The conflicts of interest spilled over into the board room. According to reports, Enron’s chief financial officer made in the neighborhood of $30 million from so-called “special entity” transactions. “The board was aware of it and the board apparently consented to it,” Freidman says. “How can the board say they didn’t know any of this?”

Black Hole Hits Home

Among Enron’s deals is Irvine-based FieldCentrix Inc., a portfolio company of Forrest, Binkley and Brown, a venture capital firm with offices in Solana Beach and Newport Beach.

FieldCentrix provides software that operates on PDAs for field service technicians in the heating, air conditioning and related industries. Last summer, FieldCentrix was sold into a partnership created by Enron in a cash and stock deal valued at $56 million.

“We’ve tasted what it feels like to have one of our startups get sucked up in the vortex of Enron,” says FBB partner Nick Binkley. Characterizing the current state of the FieldCentrix deal as “becoming unwound,” Binkley says FBB is “finding ourselves caught up in a situation where Enron owns 80 percent.”

FBB’s exposure is the $3 million it had invested in FieldCentrix. “It’s an off balance sheet deal. If it falls apart, we’ll lose it,” Binkley says.

As a venture capitalist, Binkley says he’s concerned about Enron’s potential to trigger a regulatory overreaction in Congress, since nearly all venture companies are linked to big brothers as partners, or in the distribution of product, or in an exit strategy, which in turn could limit prospects for venture-backed firms. Another uh-oh for San Diego.