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Enron Corporation is an energy trading and communications company based in Houston, Texas employing around 21,000 people (mid-2001).
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. The firm's European operations filed for bankruptcy on November 30,
2001 and sought Chapter 11 protection in
the U.S. on that December 2.
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 much 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 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).
Enron was formed in 1985 with 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 pressure
the Indians. 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.
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.
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.
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, especially those of Global Crossing, Halliburton, Tyco, and Imclone. It thus set off the wave of accounting
scandals that continues to engulf company after company, exposing high-level corruption, accounting errors, and insider trading
even today.
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.
See also
Bibliography
- Lynn Brewer. House of Cards, Confessions of An Enron Executive. ISBN 1-58939-248-5
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