In a memo from Nvidia to analysts that caused a buzz this week after Barron’s reported on it, the chip giant asserted that despite discussions of the “circular” nature of some of its investments, it is not Enron.
“Enron,” of course, has become shorthand for a huge accounting scandal. And indeed, while there are growing concerns that the AI boom may turn out to be a bubble, Nvidia’s practice of investing in or lending money to its own customers is perfectly legal—unlike the massive accounting shenanigans that led to the demise of the energy company Enron in 2001 (practices that were first questioned in an article by Fortune’s Bethany McLean).
But the Nvidia note raises the question: What was the shorthand for gigantic company fraud before Enron? One leading contender was an incident from almost three decades earlier, 1973: The Equity Funding Corp. of America scandal, which involved phony insurance policies, caused investors to lose $300 million, and led to what was then the second-largest bankruptcy proceeding in U.S. history.
Fortune was also ahead of the pack journalistically on that scandal: Wyndham Robertson reported with wry humor on the “daring young con men of equity funding”—among them chairman and president Stanley Goldblum and executive vice president Fred Levin.
In his riveting chronicle, Robertson describes the tense atmosphere at the company’s board meeting after the fraud was first discovered: “The conference room quickly filled with smoke, and eventually with the aroma of half-eaten pastrami sandwiches brought in from a nearby delicatessen,” he wrote.
At first, one of the outside directors, Gale Livingston, could not quite believe that a graft of this scale had taken place, Robertson wrote, offering an excruciatingly well-observed anecdote: “Thinking that he could put an end to the meeting, he turned to Goldblum and asked, ‘Stanley, I want to know one thing. Did you put your fingers in the till? If you answer no, I’ll leave right now.’ Goldblum replied that he would not answer on the advice of counsel. At that point, Livingston says, he felt ‘as though the earth would open and swallow me.’”
It’s an elegantly told story of a swashbuckling case of financial fraud—and a fascinating read for a holiday weekend.