Enron Corporation is an energy trading and communications company based in Houston, Texas that employed around 21,000 people in mid-2001 (before bankruptcy).
Fraudulent accounting techniques allowed it to be listed as the seventh largest company in the United States, and it was expected to dominate the trading it had virtually invented in communications, power and weather securities. Instead it became the largest corporate failure in history, and became emblematic of institutionalized and well-planned corporate fraud.
Its European operations filed for bankruptcy on November 30, 2001 and it sought Chapter 11 protection in the U.S. on December 2.
Enron was formed in 1985 by the merger of Houston Natural Gas and InterNorth, engineered by Houston Natural Gas CEO Kenneth Lay. It was originally involved in the transmission and distribution of electricity and gas throughout the United States and the development, construction and operation of power plants, pipelines, etc. worldwide.
Enron grew wealthy through its pioneering marketing and promotion of power and communications bandwidth commodities, and related risk management derivatives as tradable securities, including exotic items such as weather derivatives.
As a result Enron was named "America's Most Innovative Company" by Fortune magazine for five consecutive years, from 1996 to 2000. It was on Fortune's "100 Best Companies to Work for in America" list of 2000, and was legendary even amongst the elite workers of the financial world for the opulence of its offices.
Its global reputation was undermined, however, by persistent rumours of bribery and political pressure to secure contracts in Central and South America, in Africa and in the Philippines. Especially controversial was the $30 billion contract with the Indian MSEB (Maharashtra State Electricity Board), where it is alleged that Enron officials used political connections within the Bush administration to exert pressure on the board. On January 9, 2002 the United States Department of Justice announced it was going to pursue a criminal investigation of Enron and Congressional hearings began on January 24.
After a series of scandals involving irregular accounting procedures bordering on fraud involving it and its accounting firm Arthur Andersen, Enron stood at the verge of undergoing the largest bankruptcy in history by mid-November 2001. A white knight rescue attempt by a similiar, smaller energy company, Dynegy, was not viable.
The fall of the value of investors' equity per share in Enron during 2001 was from US$85 to 30 US cents. As Enron was considered a blue chip stock, this was an unprecedented and disastrous event in the financial world. Enron's plunge in value occurred after it was revealed that many of its profits and revenue were the result of deals with Special Purpose Entity (limited partnerships which it controlled). The result of this is that many of the losses that Enron encountered were not reported in its financial statements.
The long term implications of Enron's collapse are unclear, but there is considerable political fall-out both in the US and in the UK relating to the monies Enron gave to political figures (around US$6m since 1990). The fallout from the scandal quickly extended beyond Enron and all those formerly associated with it. The trial of Arthur Andersen on obstruction of justice charges related to Enron also helped to expose its accounting fraud at WorldCom. The subsequent bankruptcy of that telecommunications firm quickly set off a wave of other accounting scandals. This wave engulfed many companies, exposing high-level corruption, accounting errors, and insider trading. Though at the time of its collapse Enron was the largest bankruptcy in history, since then it has been eclipsed in terms of scale by the collapse of WorldCom.
Former Enron CFO Andy Fastow, alleged mastermind behind Enron's complex network of offshore partnerships and questionable accounting practices, was indicted on November 1, 2002 by a Federal grand jury in Houston on 78 counts including fraud, money laundering, and conspiracy. He and his wife Lea Fastow , former Assistant Treasurer, accepted a plea agreement on January 14, 2004. Andrew Fastow will serve a ten-year prison sentence and forfeit $23.8 million, while Lea Fastow will serve a five-month prison sentence and a year of supervised release, including five months of house arrest; in return, both will provide testimony against other Enron corporate officers.
John Formey , former energy trader who invented various strategies such as the "Death Star", was indicted in December, 2002 on 11 counts of conspiracy and wire fraud. His trial is scheduled for October 12, 2004. His supervisors, Timothy Belden and Jeffrey Richmond both have pleaded guilty to conspiring to commit wire fraud and currently are aiding prosecutors in investigating this scandal.
Jeff Skilling was arrested on February 11, 2004 by the Federal Bureau of Investigation in connection to the fraud charges against Enron.
On July 7, 2004, Kenneth Lay was indicted by a Federal Grand jury for his involvement in the scandal. He pled not guilty in court on July 9.
This event also lead to the creation of the Sarbanes-Oxley Act, signed into law on 30 July 2002, which is considered the most significant change to federal securities laws in the United States since the New Deal.
The baseball stadium Enron Field of Houston, Texas, which was named after the company, was renamed to "Astros Field" to avoid negative publicity. The park's name was later changed to Minute Maid Park. The Houston Astros had to pay Enron $5 million to get out of the deal.
David Tonsall , a former Enron employee, became a rapper under the name N Run , which is a play on the name "Enron" and also stands for "never run". He released his CD Corporate America on December 3, 2003.
The "Women of Enron" were the subject of a pictorial in the August 2002 issue of Playboy magazine.
A 2005 movie, "Enron: The Smartest Guys in the Room" covers the story of corporate crime and corruption.
- Mimi Swartz , Sherron Watkins, Power Failure: The Inside Story of the Collapse of Enron (Doubleday, 2003) ISBN 0385507879
- Bethany McLean , Peter Elkind , Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (Portfolio, 2003) ISBN 1591840082
- Robert Bryce , Pipe Dreams: Greed, Ego, and the Death of Enron (PublicAffairs, 2002) ISBN 158648138X
- Lynn Brewer , Matthew Scott Hansen , House of Cards, Confessions of An Enron Executive (Virtualbookworm.com Publishing, 2002) ISBN 1589392485 ISBN 1589392485