Buy, Lie, and Sell High: How Investors Lost Out on Enron and the Internet Bubble

Mass Hysteria or Fraud

How did it happen that so much paper of little value was sold to so many investors for such high prices? The banks found themselves trapped, to some extent, by the push from the companies and their backers. So high was the demand from investors that entrepreneurs and their backers—angels and venture firms—were pressing the banks to take them public quickly.

Usually, investment banks are on the look-out for new companies and like to establish a relationship with a potential client as soon as possible. So when entrepreneurs or their backers came to visit the bank to promote their company, it was usually welcomed by the bank. However, during the bubble, potential clients began demanding that the bank underwrite a public offering ...