{"id":7056,"date":"2026-11-03T23:48:47","date_gmt":"2026-11-03T23:48:47","guid":{"rendered":"https:\/\/blogs.luc.edu\/compliance\/?p=7056"},"modified":"2026-11-03T23:48:47","modified_gmt":"2026-11-03T23:48:47","slug":"will-data-center-debt-make-big-tech-the-next-enron-the-secs-big-tech-test","status":"publish","type":"post","link":"https:\/\/blogs.luc.edu\/compliance\/?p=7056","title":{"rendered":"Will Data Center Debt Make Big Tech the Next Enron? The SEC\u2019s Big Tech Test"},"content":{"rendered":"

Caroline MacNeill<\/em><\/p>\n

Associate Editor<\/em><\/p>\n

Loyola University Chicago School of Law, JD 2028<\/em><\/p>\n

Big Tech is bringing back the accounting technique that hid Enron\u2019s debt, leading a growing number of critics to caution that Big Tech could experience a similar collapse<\/a>. Big Tech companies, including Alphabet, Meta, and Microsoft, have been using off-balance-sheet accounting<\/a>\u2014the accounting strategy that allowed Enron to deceive its investors before it collapsed\u2014to \u00a0structure 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<\/a> priorities. \u00a0However, the SEC has also created<\/a> a Financial Reporting and Accounting Unit intended to root out any potential accounting misconduct. So, while Big Tech\u2019s concealed debt obligations create a significant risk to investors, the SEC\u2019s new Financial Reporting and Accounting Unit is well-positioned to police any misconduct that may arise.<\/p>\n

<\/p>\n

Big Tech\u2019s $3 trillion bet<\/strong><\/p>\n

Tech giants Alphabet, Amazon, Meta, Microsoft, and Nvidia are expected to collectively spend up to $3 trillion<\/a> on constructing and equipping data centers over the next two years. These tech companies have already amassed $1.65 trillion<\/a> in debt to finance data center construction and have been using Enron\u2019s off-balance-sheet accounting strategy to record these obligations.<\/p>\n

To understand the significance of this risk environment, it\u2019s important to recount the failure of energy conglomerate Enron. Before its collapse, Enron transferred its debts and underperforming assets to special purpose vehicles<\/a> (SPVs), which allowed it to keep certain debts and assets off their financial statements. At the time, accounting rules<\/a> required three percent of the SPV\u2019s assets to be owned by independent third-party investors before it could be moved off a company\u2019s balance sheet. However, Enron\u2019s third-party investors<\/a> were not independent, but instead friends and family members of the company\u2019s executives or the executives themselves, each of whom took cuts of the SPVs\u2019 transaction proceeds. In addition, Enron disclosed the existence of the SPVs but oversimplified<\/a> their complex nature. These factors led Enron\u2019s investors<\/a> to rely on the company\u2019s compromised judgment, and together, they resulted in one of the largest U.S. bankruptcies ever.<\/p>\n

Today, tech companies<\/a> 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<\/a> to finance the construction. The SPV owns the data center and then leases it to the tech<\/a> company. Only the SPV records the debt<\/a> on its balance sheet. Like in Enron, the disclosures exist but an investor must look beyond the face of a company\u2019s balance sheet to identify a company\u2019s consequential debt obligations.<\/p>\n

While Big Tech\u2019s practices resemble the hazardous environment of Enron, off-balance-sheet accounting serves a legitimate business purpose and doesn\u2019t violate today\u2019s more rigorous accounting rules<\/a>. 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>, a practice used by most Big Tech companies. Unlike Enron, data center SPVs have true independent investors<\/a>. Furthermore, the legal SPV structure allows the tech companies to access<\/a> the enormous capital needed to build and equip data centers while spreading<\/a> risk out over time.<\/p>\n

The SEC\u2019s \u201cquality-over-quantity\u201d approach<\/strong><\/p>\n

As Big Tech has revived the use of SPVs, the SEC has narrowed its enforcement activity, taking a quality-over-quantity<\/a> enforcement approach. In 2025, there was a 30%<\/a> drop in total SEC enforcement actions. In the first half of 2026, the SEC brought<\/a> only 67 total enforcement actions, compared with 201 actions brought during the same period in 2025. Of those 67 actions, only 9<\/a> were reporting, audit, and accounting actions. SEC leadership has attributed the decline to a refined enforcement priority that returns the agency to Congress\u2019s original intent<\/a>: enforcing fraud and manipulation<\/a>, investor harm<\/a>, accounting misconduct, and auditor violations<\/a>.<\/p>\n

Critics argue that by narrowing their priorities, the SEC will cause an enforcement gap<\/a>, allowing harmful accounting and auditing practices that fall short of the serious violations to go unenforced. But with a narrower scope, the SEC argues<\/a> 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<\/a> (FRAU), which deploys expert attorneys and accountants to pursue financial reporting fraud and accounting and auditor misconduct. The specialized unit is expected<\/a> to increase scrutiny, investigation, and enforcement of accounting fraud.<\/p>\n

FRAU\u2019s eyes should turn to big tech<\/strong><\/p>\n

Like Enron\u2019s investors, Big Tech\u2019s investors must rely on the companies\u2019 judgment as they use of off-balance-sheet SPVs to structure their data center financing. To protect Big Tech\u2019s investors from the tragedy that befell Enron\u2019s investors, the SEC must prevent the conflicts of interest that compromised the SPVs and blurred the company\u2019s judgment on how it disclosed its debt obligations.<\/p>\n

If Big Tech companies fail on their data center debt obligations and hide the failures from investors, the fallout would be catastrophic<\/a>. 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.<\/p>\n

Before the SEC established FRAU, Big Tech\u2019s data center accounting strategies were already on the SEC\u2019s radar. In a webinar, the SEC\u2019s chief accountant assured listeners that<\/a> \u201cSEC staff are watching closely to ensure companies describe their relationships with other entities and the accounting they apply.\u201d 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\u2019s financial reporting.<\/p>\n

Specifically, FRAU should employ its expertise to focus on the tech giants\u2019 difficult judgment calls<\/a> about how to structure and record debts. Investors rely<\/a> on companies\u2019 accounting and disclosure judgments. By scrutinizing the tech companies\u2019 judgment, documentation, and governance<\/a>, 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\u2019 accounting decisions will prove correct. If the SEC employs the Enron\u2019s lessons on judgment, disclosure, and conflicts of interest to make oversight of Big Tech\u2019s hidden debt risk a priority, they can prevent the risk from materializing and harming investors.<\/p>\n","protected":false},"excerpt":{"rendered":"

Big Tech is bringing back the accounting technique that hid Enron\u2019s 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\u2014the accounting strategy that allowed Enron to deceive its investors before it collapsed\u2014to \u00a0structure 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. \u00a0However, the SEC has also created a Financial Reporting and Accounting Unit intended to root out any potential accounting misconduct. So, while Big Tech\u2019s concealed debt obligations create a significant risk to investors, the SEC\u2019s new Financial Reporting and Accounting Unit is well-positioned to police any misconduct that may arise.<\/p>\n","protected":false},"author":198,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[47],"tags":[119,212,2475,1788],"class_list":["post-7056","post","type-post","status-publish","format-standard","hentry","category-sec","tag-accounting","tag-artificial-intelligence","tag-financial-reporting","tag-sec"],"_links":{"self":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/7056","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/users\/198"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=7056"}],"version-history":[{"count":1,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/7056\/revisions"}],"predecessor-version":[{"id":7057,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/7056\/revisions\/7057"}],"wp:attachment":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=7056"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=7056"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=7056"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}