The definition says it’s when an investor has a controlling interest in a company, despite not having majority ownership.
This definition makes sense, however when I read the explanation and examples in more detail I get completely lost. So what would be an example?
In: Economics
I know VIE’s are what Enron utilized to defraud ~~investors~~ pretty much everyone:
Whenever Enron wasn’t going to meet earnings expectations, they utilized a VIE to move liabilities onto the VIE’s books from Enron, temporarily. Enron controlled the entity but **did not have a majority ownership** so the VIE’s assets and liabilities were not consolidated into Enrons combined financials. This would artificially boost Enrons earnings for the period and how the they would produce such consistent performance.
Enron created this VIE giving themselves permanent controlling interest. They then solicited a few banks/investment firms would would put up all of the cash funding the VIE so the banks had the majority, if not 100% of the financial interest. They explained to these investors that this VIE would make interest by giving short term corporate loans to Enron for new product development or something. But in reality it was just to shuffling cash around to misstate financial performance.
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