Caroline MacNeill

Associate Editor

Loyola University Chicago School of Law, JD 2028

Big Tech is bringing back the accounting technique that hid Enron’s debt, leading a growing number of critics to caution that Big Tech could experience a similar collapse. Big Tech companies, including Alphabet, Meta, and Microsoft, have been using off-balance-sheet accounting—the accounting strategy that allowed Enron to deceive its investors before it collapsed—to  structure and record their data center deals. This practice is taking place at a time when the SEC has slowed its enforcement actions and narrowed its enforcement priorities.  However, the SEC has also created a Financial Reporting and Accounting Unit intended to root out any potential accounting misconduct. So, while Big Tech’s concealed debt obligations create a significant risk to investors, the SEC’s new Financial Reporting and Accounting Unit is well-positioned to police any misconduct that may arise.

Big Tech’s $3 trillion bet

Tech giants Alphabet, Amazon, Meta, Microsoft, and Nvidia are expected to collectively spend up to $3 trillion on constructing and equipping data centers over the next two years. These tech companies have already amassed $1.65 trillion in debt to finance data center construction and have been using Enron’s off-balance-sheet accounting strategy to record these obligations.

To understand the significance of this risk environment, it’s important to recount the failure of energy conglomerate Enron. Before its collapse, Enron transferred its debts and underperforming assets to special purpose vehicles (SPVs), which allowed it to keep certain debts and assets off their financial statements. At the time, accounting rules required three percent of the SPV’s assets to be owned by independent third-party investors before it could be moved off a company’s balance sheet. However, Enron’s third-party investors were not independent, but instead friends and family members of the company’s executives or the executives themselves, each of whom took cuts of the SPVs’ transaction proceeds. In addition, Enron disclosed the existence of the SPVs but oversimplified their complex nature. These factors led Enron’s investors to rely on the company’s compromised judgment, and together, they resulted in one of the largest U.S. bankruptcies ever.

Today, tech companies are following similar practices, using SPVs to move their data center debts off their balance sheets. When a tech company looks to construct a data center, it creates an SPV to borrow the money needed to finance the construction. The SPV owns the data center and then leases it to the tech company. Only the SPV records the debt on its balance sheet. Like in Enron, the disclosures exist but an investor must look beyond the face of a company’s balance sheet to identify a company’s consequential debt obligations.

While Big Tech’s practices resemble the hazardous environment of Enron, off-balance-sheet accounting serves a legitimate business purpose and doesn’t violate today’s more rigorous accounting rules. Under the accounting method, companies are required to provide on their financial statements connected SPVs and their related exposure, but doing so in the footnotes is sufficient, a practice used by most Big Tech companies. Unlike Enron, data center SPVs have true independent investors. Furthermore, the legal SPV structure allows the tech companies to access the enormous capital needed to build and equip data centers while spreading risk out over time.

The SEC’s “quality-over-quantity” approach

As Big Tech has revived the use of SPVs, the SEC has narrowed its enforcement activity, taking a quality-over-quantity enforcement approach. In 2025, there was a 30% drop in total SEC enforcement actions. In the first half of 2026, the SEC brought only 67 total enforcement actions, compared with 201 actions brought during the same period in 2025. Of those 67 actions, only 9 were reporting, audit, and accounting actions. SEC leadership has attributed the decline to a refined enforcement priority that returns the agency to Congress’s original intent: enforcing fraud and manipulation, investor harm, accounting misconduct, and auditor violations.

Critics argue that by narrowing their priorities, the SEC will cause an enforcement gap, allowing harmful accounting and auditing practices that fall short of the serious violations to go unenforced. But with a narrower scope, the SEC argues that it can redirect resources towards investigating and enforcing serious misconduct that would cause the greatest harm to investors and the market. To this end, the SEC created the Financial Reporting and Accounting Unit (FRAU), which deploys expert attorneys and accountants to pursue financial reporting fraud and accounting and auditor misconduct. The specialized unit is expected to increase scrutiny, investigation, and enforcement of accounting fraud.

FRAU’s eyes should turn to big tech

Like Enron’s investors, Big Tech’s investors must rely on the companies’ judgment as they use of off-balance-sheet SPVs to structure their data center financing. To protect Big Tech’s investors from the tragedy that befell Enron’s investors, the SEC must prevent the conflicts of interest that compromised the SPVs and blurred the company’s judgment on how it disclosed its debt obligations.

If Big Tech companies fail on their data center debt obligations and hide the failures from investors, the fallout would be catastrophic. The amount of money at stake is unprecedented, and not only would Wall Street be impacted, but individual investors, mutual funds, and even state pension plans that have invested in the data center financing would be harmed as well.

Before the SEC established FRAU, Big Tech’s data center accounting strategies were already on the SEC’s radar. In a webinar, the SEC’s chief accountant assured listeners that “SEC staff are watching closely to ensure companies describe their relationships with other entities and the accounting they apply.” Now that the SEC has centralized expertise and resources through FRAU, it should use them to increase scrutiny and ensure the quality and accountability of Big Tech’s financial reporting.

Specifically, FRAU should employ its expertise to focus on the tech giants’ difficult judgment calls about how to structure and record debts. Investors rely on companies’ accounting and disclosure judgments. By scrutinizing the tech companies’ judgment, documentation, and governance, especially the independence of their investors, the SEC and FRAU can protect investors, expose critical accounting information before it becomes a surprise balance sheet obligation, and ensure that investor protection does not rest on the hope that the tech companies’ accounting decisions will prove correct. If the SEC employs the Enron’s lessons on judgment, disclosure, and conflicts of interest to make oversight of Big Tech’s hidden debt risk a priority, they can prevent the risk from materializing and harming investors.