Enron Corporation

Enron Corporation is an energy trading and communications company based in Houston, Texas that employed around 21,000 people by mid-2001, before it went bankrupt.

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.

A reviewer of Enron: The Smartest Guys in the Room (see below) describes the fraud:

Enron cynically and knowingly created the phony California electricity crisis. There was never a shortage of power in California. Using tape recordings of Enron traders on the phone with California power plants, the film chillingly overhears them asking plant managers to "get a little creative" in shutting down plants for "repairs." Between 30 percent and 50 percent of California's energy industry was shut down by Enron a great deal of the time, and up to 76 percent at one point, as the company drove the price of electricity higher by nine times. [1]

Its European operations filed for bankruptcy on November 30, 2001, and it sought Chapter 11 protection in the U.S. on December 2.

Growth

Enron was formed in 1985 by the merger of Houston Natural Gas and InterNorth, engineered by HNG 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, and other infrastructure 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 in 2000, and was legendary even among the elite workers of the financial world for the opulence of its offices.

see also: Wendy Lee Gramm

Fall

Enron's 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 its $30 billion contract with the Maharashtra State Electricity Board in India, 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 Enron and its accounting firm Arthur Andersen, it 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.

During 2001, Enron shares fell from from US$85 to US$0.30. As Enron was considered a blue chip stock, this was an unprecedented and disastrous event in the financial world. Enron's plunge occurred after it was revealed that many of its profits and revenue were the result of deals with special purpose entities (limited partnerships which it controlled). The result of this was that many of the losses that Enron encountered were not reported in its financial statements.

Fallout

The long-term implications of Enron's collapse are unclear, but there is considerable political fallout both in the US and in the UK relating to the money Enron gave to political figures (around US$6 million since 1990). The fallout from the scandal quickly extended beyond Enron and all those formerly associated with it. The trial of Arthur Andersen on charges of obstruction of justice 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 by the collapse of WorldCom.

Former Enron CFO Andrew Fastow, the 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 US$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, a 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 was 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.

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.

Enron's collapse also lead to the creation of the Sarbanes-Oxley Act, signed into law on July 30, 2002. It is considered the most significant change to federal securities laws since FDR's New Deal in the 1930s.

Various

The baseball stadium Enron Field in Houston, Texas, 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, based on the 2003 bestseller of the same name by Bethany McLean and Peter Elkind, documents the Enron story. [2]

See also

• Timeline of the Enron scandal
• Pension fund losses with Enron
• California electricity crisis
• Conspiracy of Fools
• Enronomics
• Vicefield
• Corporate abuse

Bibliography

• 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

External Links

• The Enron homepage

Accounting

• CPA Journal – Enron and the Raptors
• Enron Debacle is an informative account of events leading up to the fall of Enron.
• Moody's KMV Default Case Studies

General

• Guardian Unlimited Special Report: Enron
• BBC News In Depth: Enron
• Enron News, News Sources, News Searches, and Business Research:
• Stunning Depths of Government Collaboration with Enron Revealed – (Democracy Now!)
• Enron's Pawns: How Public Institutions Bankrolled Enron's Globalization Game – Press release of report by the Institute for Policy Studies.
• Feds order a quarter-billion refund to Enron

Tapes

• The Enron Tapes – Public/Redacted Audio Files and Public/Redacted Transcripts
• Enron traders caught on tape – Gloating about manipulating California's energy market. (CBS Evening News)
• More Enron Tapes – gloating over screwing California
• Even More Enron tapes – gloating over gouging Nevada

Other

• Yahoo! – Enron Corp. Company Profile
• Document Repository for Enron Bankruptcy
• The Best Enron Books reviews books on Enron.
• Suicide note of Enron employee J. Clifford Baxter (Chron.com)
• NRun Wreckords: 'Corporate America'

Directories

• Open Directory Project – Enron directory category
• LookSmart – Enron Case directory category
• Yahoo – Enron History directory category