Enron stock chart

Continue Home - Yahoo! - Help[ Stock Screener | Companies & Funds Index | Financial Glossary ] More Information: Quote | Graphic | News | Profile | Search | SEC | Msgs | Insider | Options | Finance | ReportsBusiness SummaryEnron Corp. provides products and services related to natural gas, electricity and communications to wholesale customers and retailers. Enron's operations are conducted through its subsidiaries and affiliates, which are primarily involved in: the transportation of natural gas through pipelines to markets throughout the United States; the generation, transmission and distribution of electricity to markets in the northwest United States; the marketing of natural gas, electricity and other commodities and related risk management and finance services around the world; the development, construction and operation of power plants, pipelines and other energy-related assets worldwide; the delivery and management of energy commodities and capabilities for end-use retail customers in the industrial and commercial business sectors; and the development of an intelligent network platform to provide bandwidth management services and the delivery of high-bandwidth communication applications. More from the Market Guide: Company's expanded financial summary SummaryENE provides physical commodities and financial and risk management services; develops and operates energy installations; produces electricity and natural gas; and offers broadband services. In the six months ended June 1, revenues rose from $30.03 billion to $100.19 billion. Earnings applicable to Common before the changes in the board went up 31% to $769 million. The results reflect the origination of long-term energy contracts, partially offset by employee-related costs and other operating expenses. More from the Market Guide: Significant DevelopmentsOfficers[Insider Trade Data]FY2000 CompensationPayExerKenneth Lay, 58Chairman, CEO$12.0M$123MGreg Whalley, 39Pres, COO-- -- Mark Frevert, 46Vice Chairman-- -- Andrew Fastow, 39CFO, Exec. VP-- -- Mark Frevert, 46Chairman and CEO, Enron Wholesale Services7.1M29MDollar the values are 31-Dec-2000 and the clearing amounts are for the fiscal year ending on that date; Salary is salary, bonuses, etc.; Exercise is the value of the options exceeded during the fiscal year. More from Market Guide on Officers & Directors:Expanded List, Bios, Compensation, Options Statistics at a Glance -- NYSE:ENEAs of 31-Aug-2001Price and Volume52-Week Lowon 31-Aug-2001$34.58 Recent Price$34.99 52-Week Highon 18-Sep-2000$90.375Beta0.77 Daily Volume (3-month avg)4.68MDaily Volume (10-day avg)5.01MStock Performancebig chart [1d | 5d | 3m | 6m | 1y | 2y | 5y | max]52-Week Change-59.0%52-Week Changerelative to S&P500-45.0%Share-Related ItemsMarket Outstanding749.9MFloat656.9MDividends & SplitsAnnual Dividend (indicated)$0.50 Dividend Yield1.43%Last Split: 2 for 1 1 16-Aug-1999 DataBook Value Per Share (mrq)$14.17 Earnings (ttm)$1.31 Profits (mrq)$0.45 Sales (ttm)$200.94 Cash (mrq)$1.13 Valuation RatiosPrice/Book (mrq)2.47 Price/Profit (ttm)26.79 Price/Sales (ttm)0.17 Income StatementsSales (ttm)$170.9BEBITDA (ttm)$3.42BIncome available for common (ttm)$1.08BProfitabilityProfit Margin (ttm)0.7%Operating Margin (ttm)1 5% Fiscal YearFiscal Year Ends 31December 31st most recent quarter30-June-June-2001 Management effectiveness Return on assets (ttm)1.97%Return on Equity (ttm)10.50% Current Financial Force Ratio (mrq)1.08 Debt/Equity (mrq) 1.08 Debt/Equity (mrq)1.09 Total Cash (mrq)$847.0MShort InterestAs of 8-Aug-2001Shares Short13.4MPercent of Float2.0%Shares Short (Previous Month)13.3MShort Ratio4.10 Daily Volume3.28MSee Profile Help for a description of each item above; K = thousands; M = millions; B = billions; mrq = most recent quarter; ttm = losing twelve months; (from June 30, 2001) The Market Guide offers more company research, stock and stock screening and hottest industries in more than 10,000 U.S. stocks. Copyright © 2001 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of ServicesCompany Copyright Marketing information. Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). The data and information are provided for informational purposes only, and are not intended for trading purposes. Neither Yahoo nor any of its data or content providers (such as Market Guide, CSI, etc.) will be liable for any errors or delays in the content, or for any actions taken in lieu thereof. Bankruptcy energy company and financial scandal Enron CorporationExter typePublicTraded asNYSE: ENEIndustryEnergyFateBankruptcyPredecessorNorthern Natural Gas CompanyHouston Natural GasSuccessorDynegyPrisma Energy InternationalFoundedOmaha, Nebraska, USA (1985 (1985))FounderKenneth LayDefunctDecember 2001 (2001-12)Headquarters1400 Smith StreetHouston, Texas, United States Key People Kenneth Lay, founder, president and CEO Jeffrey Skilling, former president, and COO Andrew Fastow, former CFO Rebecca Mark-Jusbasche, former vice president, president and CEO of Enron International Stephen F. Cooper, interim CEO and CRO DivisionsEnron Energy ServicesWebsiteenron.com The Enron scandal was an accounting scandal of Enron Corporation, an American energy company based in Houston, Texas. It was released in October 2001, and led to the bankruptcy of the company, and the de facto dissolution of Arthur Andersen, which was one of the five largest audit and accounting partnerships in the world. In addition to being the largest bankruptcy reorganization in U.S. history at the time, Enron was cited as the largest audit failure. [1]:61 Enron was formed in by Kenneth Lay after merging Houston Natural Gas and InterNorth. Several years later, when Jeffrey Skilling was hired, he developed a team of who – by the use of accounting loopholes, special purpose entities and bad financial reports – were able to hide billions of dollars in business debts and failed projects. Chief Financial Officer Andrew Fastow and other executives mislead Enron's board of directors and audit committee about high-risk accounting practices and pressured Arthur Andersen to ignore the issues. Enron shareholders filed a $40 billion lawsuit after the company's share price, which reached a high of $90.75 per share in mid-2000, fell to less than $1 at the end of November 2001. [2] The U.S. Securities and Exchange Commission (SEC) launched an investigation, and Houston's rival Dynegy offered to buy the company at a very low price. The agreement failed, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Enron's $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until the WorldCom scandal the following year. Many Enron executives were indicted on a variety of charges and some were later sentenced to prison. Arthur Andersen was found guilty of illegally destroying documents relevant to the SEC investigation, which annulled his license to audit public companies and effectively shut down the company. By the time the decision was overturned in the U.S. Supreme Court, Arthur Andersen had lost most of his clients and had ceased to operate. Enron employees and shareholders received limited returns in lawsuits despite losing billions in pensions and stock prices. As a result of the scandal, new regulations and legislation were enacted to increase the accuracy of financial reporting for public companies. [4] Part of the legislation, the Sarbanes-Oxley Act, increased penalties for destroying, altering or fabricating records in federal investigations or for attempting to defraud shareholders. [5] The law also increased the accountability of audit firms to remain impartial and independent of their clients. [4] Enron Kenneth Lay's rise in a July 2004 photo in 1985, Kenneth Lay merged the natural gas pipeline companies of Houston Natural Gas and InterNorth to form Enron. [6]:3 In the early 1990s, he helped start selling electricity at market prices, and soon after, Congress passed legislation that deregulates the sale of natural gas. The resulting markets allowed traders like Enron to sell energy at higher prices, significantly increasing their revenue. [7] After producers and local governments criticized the resulting price volatility and called for increased regulation, strong lobbying by Enron and others prevented this [8] As Enron became North America's largest natural gas seller in 1992, its gas contract negotiation yielded $122 million (before interest and taxes), the second largest contributor to the net income. The creation in November 1999 of the trading site EnronOnline allowed the company to better manage its contracts by negotiating deals. [6]:7 In an attempt to achieve greater growth, Enron followed a diversification strategy. The company owned and operated a variety of assets, including pipelines, power plants, pulp and paper mills, water plants and broadband services worldwide. The corporation also obtained additional revenue from trading agreements for the same range of products and services with which it was involved. [6]:5 This included the creation of power generation plants in developing countries and emerging markets, including the Philippines (Subic Bay), Indonesia, and India (Dabhol). [9] Enron shares rose from the early 1990s to the end of 1998 by 311%, only modestly above the average growth rate of the Standard & Poor 500 index. [6]:1 However, shares increased 56% in 1999 and over 87% in 2000, compared with a 20% increase and a 10% drop for the index in the same years. As of December 31, 2000, Enron's shares were priced at $83.13 and its market capitalization exceeded $60 billion, gains of 70 times and six times book value, an indication of the stock market's high expectations of its future prospects. In addition, Enron has been ranked as america's most innovative large company in fortune's Most Admired Companies survey. [6]:1 Causes of fall The subject of this accounting scandal had previously published an ethics manual, Enron's complex financial statements were confusing to shareholders and analysts. [1]:6[10] In addition, its complex business model and unethical practices required the company to use accounting limitations to misrepresent earnings and modify the balance sheet to indicate favorable performance. [6]:9 In addition, some speculative ventures proved disastrous. The combination of these issues later resulted in the bankruptcy of the company, and most of them were perpetuated by indirect knowledge or direct actions of Lay, Jeffrey Skilling, Andrew Fastow, and other executives such as Rebecca Mark. Lay served as president of the company in his later years, and approved the actions of Skilling and Fastow, although he did not always ask about the details. Skilling constantly focused on meeting Wall Street expectations, defended the use of mark-to-market accounting (market value-based accounting, which was then inflated) and pressured Enron executives to find new ways to hide their debt. Fastow and other executives created off-balance sheet vehicles, complex financing structures and businesses so disconcerting that few people could understand them. [11]:132-133 Revenue Recognition More information: Recognition revenue Enron and other energy suppliers made profits from the provision of services such as wholesale and risk management, as well as construction construction maintenance of power plants, natural gas pipelines, storage and processing facilities. [12] By accepting the risk of buying and selling products, traders can report the selling price as revenues and the costs of the products as the cost of the goods sold. In contrast, an agent provides customer service but does not assume the same risks as traders to buy and sell. Service providers, when classified as agents, can report trading and brokerage fees as revenue, although not for the total transaction amount. [13]:101-103 Although trading companies such as Goldman Sachs and Merrill Lynch used the conventional agent model to report revenue (where only the trading or brokerage fee would be reported as revenue), Enron chose to report the entire value of each of its trades as revenue. This merchant model was considered much more aggressive in accounting interpretation than the agent model. [13]:102 Enron's method of reporting inflated trading revenue was later adopted by other companies in the energy trading industry in an attempt to remain competitive with the company's large revenue increase. Other energy companies, such as Duke Energy, Reliant Energy and Dynegy, joined Enron in the fortune 500's largest revenue-based 500 due primarily to its adoption of the same commercial revenue accounting as Enron. [13]:105 Between 1996 and 2000, Enron's revenues increased more than 750%, from $13.3 billion in 1996 to $100.8 billion in 2000. This expansion of 65% per year was unprecedented in any industry, including the energy industry, which typically considered growth of 2 to 3% per year respectable. In the first nine months of 2001 in the first nine months of 2001, Enron reported $138.7 billion in revenue, placing the company sixth in the Fortune Global 500. [13]:97-100 Enron also used creative accounting tricks and purpose-classified loan transactions as close-to-quarterly reporting sales, similar to the Lehman Brothers Repo 105 scheme in the 2008 financial crisis, or the concealment of greek debt swap sums by Goldman Sachs. In enron's case, Merrill Lynch bought Nigerian barges with a repurchase guarantee from Enron shortly before the earnings deadline. Enron misreported the bridge loan as a real sale, and then bought back the barges a few months later. Merrill Lynch executives were later tried and convicted of assisting Enron in its fraudulent accounting activities. [14] Mark-to-market accounting More information: Mark-to-market accounting In Enron's natural gas business, accounting had been fairly simple: in each period of time, the company listed the actual costs of supplying gas and gas received from the sale. However, when Skilling joined the company, he demanded that the commercial business adopt brand accounting in the market, claiming that it would represent true true Value. [11]:39-42 Enron became the first non-financial company to use the method to account for its complex long-term contracts. [15] Mark-to-market accounting requires that once a long-term contract is signed, yield is estimated as the present value of net future cash flow. Often, the viability of these contracts and their related costs were difficult to estimate. [6]:10 Due to large discrepancies between reported profits and money, investors typically received false or misleading reports. Under this method, project income could be recorded, although the company had never received the money, with this income increasing financial gains on the books. However, as in the coming years profits could not be included, new and additional income had to be included from more projects to develop additional growth to appease investors. [11]:39-42 As an Enron competitor stated: If you accelerate your income, then you have to keep doing more and more business to show the same or income increase. [15] Despite possible pitfalls, the U.S. Securities and Exchange Commission (SEC) approved Enron's accounting method in its trading of natural gas futures contracts on January 30, 1992. [11]:39-42 However, Enron later expanded its use to other areas of the company to help it meet Wall Street projections. [11]:127 For a contract in July 2000, Enron and Blockbuster Video signed a 20-year agreement to introduce on-demand entertainment in several U.S. cities by the end of the year. After several pilot projects, Enron claimed estimated profits of more than $110 million from the deal, although analysts question the service's technical feasibility and market demand. [6]:10 When the network did not work, Blockbuster withdrew from the contract. Enron continued to claim future profits, even though the deal resulted in a loss. [16] Special purpose entities More information: Special purpose entity Enron used special purpose entities — limited companies or companies created to fulfill a temporary or specific purpose to finance or manage risks associated with specific assets. The company has chosen to disclose minimal details about the use of special purpose entities. [6]:11 These shell companies were created by a sponsor, but financed by independent investors and debt financing. For financial reporting purposes, a number of rules dictate whether a special purpose entity is a separate entity from the sponsor. In total, by 2001, Enron had used hundreds of special purpose entities to conceal its debt. [6]:10 Enron used a number of special purpose entities, such as in its tax shelters Thomas and Condor, investment funds in securitization of financial assets (FASITs) in the Apache business, real estate investment conduits (REMICs) in the Steele business, and REMICs and real estate investment funds (REITs) in the cochise business. [17] The special special entities were Tobashi schemas used for more than just circumventing accounting conventions. As a result of a breach, Enron's balance sheet underestimated its liabilities and overestimated its net worth, and its earnings were overestimated. [6]:11 Enron disclosed to its shareholders that it had covered the risk of disadvantage in its own unliquid investments using special purpose entities. However, investors were oblivious to the fact that special purpose entities were actually using the company's own shares and financial guarantees to finance these hedges. This prevented Enron from being protected from negative risk. [6]:11 JEDI and Chewco Main article: Chewco In 1993, Enron established a joint venture in energy investments with CalPERS, the California state pension fund called Joint Energy Development Investments (JEDI). [11]:67 In 1997, Skilling, serving as Chief Operating Officer (COO), asked CalPERS to join Enron on a separate investment. CalPERS was interested in the idea, but only if she could be terminated as a partner in JEDI. [1]:30 However, Enron did not want to show any debt to take CalPERS' stake in JEDI on its balance sheet. Chief Financial Officer (CFO) Fastow developed the special-purpose entity Chewco Investments limited partnership (L.P.), which raised the debt secured by Enron and was used to acquire calpers' joint venture for $383 million. [6]:11 Because of Chewco's Fastow organization, jedi losses were kept off Enron's balance sheet. In the fall of 2001, calpers and enron's arrangement was discovered, which required the discontinuation of Enron's previous accounting method for Chewco and JEDI. This disqualification revealed that enron's reported profits from 1997 to mid-2001 would need to be reduced by $405 million and that the company's debt would increase by $628 million. [1]:31 White Wings of White Wings was the name of a special-purpose entity used as a funding method by Enron. In December 1997, with funding of $579 million provided by Enron and $500 million by an outside investor, Whitewing Associates L.P. was formed. Two years later, the entity's arrangement was changed so that it would no longer consolidate with Enron and count on the company's balance sheet. The White Wings was used to buy Enron assets, including stakes in power plants, pipelines, stocks and other investments. [19] Between 1999 and 2001, White Wings purchased Enron assets worth $2 billion, using Enron shares as collateral. Although the transactions were approved by Enron's board, asset transfers were not true sales and should have been treated as loans. [20] LJM and Raptors Main article: LJM (Lea Jeffrey Matthew) In 1999, formulated two limited partnerships: LJM Cayman. L.P. (LJM1) and LJM2 Co-Investment L.P. (LJM2), for the purpose of buying shares and underperforming holdings of Enron to improve its financial statements. Financial. 1 and 2 were created exclusively to serve as the necessary foreign capital investor for the special purpose entities that were being used by Enron. [1]:31 Fastow had to go to the board of directors to receive an exemption from Enron's code of ethics (as he had the title of CFO) in order to manage the companies. [11]:193, 197 The two partnerships were funded with about $390 million provided by Wachovia, J.P. Morgan Chase, Credit Suisse First Boston, Citigroup and other investors. Merrill Lynch, which commercially owns equity, also contributed $22 million to finance the entities. [1]:31 Enron transferred to Raptor I-IV, four LJM-related special-purpose entities named after velociraptors in Jurassic Park, more than $1.2 billion in assets, including millions of Enron common shares and long-term rights to buy millions more shares, plus $150 million in Enron notes payable , as disclosed in the company's financial statement note. [21] [1]:33[22] Special purpose entities were used to pay for all of this using the entities' debt instruments. The footnotes also stated that the face value of the instruments totaled $1.5 billion, and the notorious entities of $2.1 billion were used to enter into derivative contracts with Enron. [1]:33 Enron capitalized on the Raptors and, similarly to the accounting employed when a company issues shares in a public offering, then reserved the payables issued as assets on its balance sheet, increasing equity by the same amount. [1]:38 This treatment later became a problem for Enron and its auditor Arthur Andersen, as removing it from the balance sheet resulted in a $1.2 billion reduction in shareholders' equity. [23] Eventually, derivative contracts worth $2.1 billion lost significant value. Swaps were established at the time the stock price peaked. Over the following year, the value of the portfolio under the swaps fell $1.1 billion as stock prices declined (the loss of value meant that special-purpose entities technically owed Enron $1.1 billion for contracts). Enron, which used a brand-to-market accounting method, claimed a $500 million gain in swap contracts in its 2000 annual report. The gain was responsible for offsetting the losses of its stock portfolio and was attributed to almost a third of Enron's earnings in 2000 (before being properly adjusted in 2001). [1]:39 Corporate governance More information: Corporate governance On paper, Enron had a model board of directors composed predominantly of outside people with significant holdings and a audit committee. In his 2000 review of the best corporate boards, the chief executive included Enron among his top five boards. [24] Even with its complex corporate governance and network of intermediaries, Enron was still able to attract large sums of capital to fund a questionable questionable model, hide its true performance through a series of accounting maneuvers and financing, and hype its stock to unsustainable levels. [6]:4 Executive compensation Although Enron's compensation and performance management system was designed to retain and reward its most valuable employees, the system contributed to a dysfunctional corporate culture that became obsessed with short-term gains to maximize bonuses. Employees constantly tried to start business, often disregarding the quality of cash flow or profits, in order to get a better rating for their performance review. In addition, the accounting results were recorded as soon as possible to track the company's stock price. This practice helped ensure that traders and executives received large cash bonuses and stock options. [13]:112 The company was constantly emphasizing its stock price. The administration was compensated extensively using stock options, similar to other U.S. companies. This stock option premium policy has caused management to create expectations of rapid growth in efforts to give the appearance of reported earnings to meet Wall Street expectations. [25] The stock ticker was located on the company's lobbies, elevators, and computers. [11]:187 At budget meetings, would Skilling develop target earnings by asking what gains do you need to keep our stock price up to time? and that number would be used, even if it wasn't feasible. [11]:127 As of December 31, 2000, Enron had 96 million shares in circulation as stock options plans (approximately 13% of outstanding common shares). Enron's proxy statement stated that within three years, these awards should be exercised. [6]:13 Using Enron's Stock Price in January 2001 of $83.13 and the beneficial ownership of directors reported in the 2001 proxy, the value of the director's stock property was $659 million for Lay, and $174 million for Skilling. [24] Skilling believed that if employees were constantly concerned about the cost, it would make original thinking difficult. [11]:119 As a result, extravagant spending was rampant across the company, especially among executives. Employees had large expense accounts and many executives were sometimes paid twice as many of their competitors. [11]:401 In 1998, the 200 highest-paid employees received $193 million in salaries, bonuses, and shares. Two years later, the figure jumped to $1.4 billion. [11]:241 Risk Management More information: Risk management Before its scandal, Enron was praised for its sophisticated financial risk management tools. [26] Risk management was crucial to Enron not only because of its regulatory environment, but also because of its business plan. Enron established long-term fixed commitments that needed to be protected to prepare for the invariable fluctuation of future energy prices. [27] Enron's bankruptcy fall was attributed to its reckless use of derivatives and special purpose entities. Por Por with special-purpose entities owned by Enron maintained the risks associated with the transactions. This agreement caused Enron to implement fences with themselves. [28] Enron's aggressive accounting practices were not concealed from the board of directors, as later learned by a Senate subcommittee. The board was informed of the logic for the use of white-au-section, LJM and Raptor transactions, and after adhering to them, received status updates on the operations of the entities. While not all of Enron's improper accounting practices were disclosed to the board, the practices depended on the board's decisions. [29] Although Enron relied heed ed widely on derivatives for its business, the Finance Committee and the company's board did not have enough experience with derivatives to understand what was being said. The Senate subcommittee argued that if there was a detailed understanding of how derivatives were organized, the council would have prevented their use. [30] Financial audit More information: Financial audit The enron company's auditor, Arthur Andersen, was accused of applying reckless standards to its audits due to a conflict of interest over the significant consulting fees generated by Enron. During 2000, Arthur Andersen earned $25 million in audit fees and $27 million in consulting fees (this amount represented about 27% of public client audit fees for Arthur Andersen's Houston office). The auditor's methods were questioned as being completed solely to receive their annual fees or for their lack of expertise in properly reviewing enron's revenue recognition, special entities, derivatives and other accounting practices. [6]:15 Enron has hired numerous Certified Public Accountants (CPAs), as well as accountants who worked on developing accounting rules with the Financial Accounting Standards Board (FASB). Accountants looked for new ways to save the company money, including capitalizing on loopholes found in Generally Accepted Accounting Principles (GAAP), accounting industry standards. An Enron accountant revealed we tried to aggressively use [GAAP] literature to our advantage. All rules create all these opportunities. We got where we did because we exploited that weakness. [11]:142 Andersen's auditors were pressured by Enron's management to postpone the recognition of special-purpose entities' collections as their credit risks became known. As the entities would never return the profit, the accounting guidelines required Enron to take a loss, where the entity's value was withdrawn from the balance sheet at a loss. To pressure Andersen to meet Enron's profit expectations, Enron would occasionally allow Ernst & Young or PricewaterhouseCoopers completed accounting tasks to create the illusion of hiring a new company to replace Andersen. [11]:148 [11]:148 Andersen was equipped with internal controls to protect against conflicting incentives from local partners, failed to avoid conflicts of interest. In one case, Andersen's Houston office, which conducted enron's audit, was able to quash any critical reviews of Enron's accounting decisions by Andersen's Chicago partner. In addition, after news of U.S. Securities and Exchange Commission (SEC) investigations into Enron was made public, Andersen would later destroy several tons of relevant documents and delete about 30,000 emails and computer files, causing accusations of a cover-up. [6]:15[31][11]:383 Revelations about Andersen's overall performance led to the company's breakup, and the following assessment by the Powers Committee (appointed by enron's board to review the company's accounting in October 2001): The evidence available to us suggests that Andersen failed to fulfill its professional responsibilities in relation to its audits of Enron's financial statements in October 2001) : The evidence available to us suggests that Andersen failed to fulfill its professional responsibilities in relation to its audits of Enron's financial statements in October 2001): The evidence available to us suggests that Andersen failed to fulfill its professional responsibilities in relation to its audits of Enron's financial statements in October 2001): The evidence available to us suggests that Andersen has failed to fulfill its professional responsibilities in relation to its audits of Enron's financial statements in October 2001): The evidence available to us suggests that Andersen has failed to fulfill its professional responsibilities in relation to its audits of Enron's financial statements in October 2001): The evidence available to us suggests that Andersen has failed to fulfill its professional responsibilities in relation to its audits of Enron's financial statements in October 2001): The evidence available to us suggests that Andersen has failed to fulfill its professional responsibilities in relation to its audits of Enron's financial statements in October 2001): The evidence available to us suggests that Andersen has failed to fulfill its professional responsibilities in relation to its audits of Enron's financial statements in October 2001): The evidence available to us suggests that Andersen has failed to fulfill its professional responsibilities in relation to its audits of Enron's financial statements in October 2001): The evidence available to us suggests that Andersen has In October 2001): The evidence available to us suggests that Andersen failed to fulfill its professional responsibilities in relation to its audits of Enron's financial statements in October 2001): The evidence available to us suggests that Andersen has failed to fulfill its professional responsibilities in relation to its audits of Enron's financial statements in October 200, or its obligation to draw the attention of the Enron Board (or the Audit and Compliance Committee) is concerned with Enron's internal contracts on related party transactions. [32] Audit Committee Audit Committees Corporate audit committees usually meet only a few times during the year, and their members typically have only modest experience with accounting and finance. Enron's audit committee had more experience than many others. It included:[33] Robert K. Jaedicke, professor of accounting at Stanford University and former dean of Stanford Business School John Mendelsohn, president of the University of Texas M.D. Anderson Cancer Center Paulo Pereira, former president and CEO of the Bank of the State of Rio de Janeiro in Brazil John former UK Secretary of State for Energy and Parliamentary Secretary to the Treasury Ronnie Chan, Chairman of the Hong Kong Hang Lung Group Wendy Gramm, former chairman of the audit committee of the US Commodity Futures Trade Commission Enron was later criticised for its brief meetings that would cover large amounts of material. At a meeting on February 12, 2001, the committee met for an hour and a half. Enron's audit committee did not have the technical knowledge to adequately question auditors about accounting issues related to the company's special purpose entities. The committee was also unable to question the company's management due to pressure st. on the committee. [6]:14 The Senate Committee on Government Affairs' Permanent Subcommittee on Investigations accused board members of allowing conflicts of interest to impede their functions as monitoring the company's accounting practices. When the Enron scandal became public, the audit committee's conflicts of interest were considered suspicious. [34] Ethical and political analyses Commentators attributed the mismanagement behind Enron's downfall to a variety of ethics and Causes. Ethical explanations focused on executive greed and arrogance, lack of corporate social responsibility, ethics of the situation and business pragmatism. [36] [37] [39] Political and economic explanations cited post-1970 deregulation, and inadequate staff and funding for regulatory oversight. [41] A more libertarian analysis held that Enron's collapse resulted from the company's dependence on political lobbying, income search, and the game of regulations. [42] Other accounting issues Enron had a habit of reserving costs for cancelled projects as assets, on the grounds that no official letter had stated that the project was cancelled. This method was known as the snowball, and although it was initially dictated that such practices were used only for projects worth less than $90 million, it was later increased to $200 million. [11]:77 In 1998, when analysts received a tour of the Enron Energy Services office, they were impressed with how employees were working so vigorously. In reality, Skilling had moved other employees to the office of other departments (instructing them to pretend to work hard) to create the appearance that the division was larger than it was. [11]:179-180 This ruse has been used several times to mislead analysts about the progress of different areas of Enron to help improve the stock price. [citation required] Speculative business ventures The Azurix division, scheduled for an IPO, initially planned to offer between $321 million and $353 million for the rights to operate water system services to areas around Buenos Aires. This was on top of what Enron's Risk Assessment and Control Group advised. But as the pressure to outperform everyone else and win the deal became more intense with the ipo approaching, Azurix executives decided to increase their offer. They eventually offered $438.6, which turned out to be about twice as much as the next highest sealed bid. But when Enron executives arrived at the Argentine facility, they found them in a mess, with all customer records destroyed. [43] In early 2001, Enron Corporation, the world's dominant energy trader, seemed unbeatable. The company's decade-long effort to persuade lawmakers to deregulate electricity markets had succeeded from California to New York. His ties to the Bush administration ensured that his views would be heard in Washington. Their sales, profits and shares were rising. — A. Berenson and R. A. Oppel Jr. The New York Times, October 28, 2001. On September 20, 2000, a reporter for the Wall Street Journal Dallas bureau wrote a story how mark-to-market accounting had become prevalent in the energy industry. He noted that outsiders did not have a real way of knowing the assumptions about which companies that use brand-to-market based their earnings. While it only appeared in the Texas Journal, the Texas Texas regional edition The Journal, salesman Jim Chanos went on to read it and decided to check enron's 10-K report for himself. He didn't think it made sense that Enron's broadband drive seemed to outperform a then-problematic broadband industry. He also noted that the company was spending much of its invested capital, and was alarmed by the large amounts of shares being sold by people inside. In November 2000, he decided to cut short Enron's shares. [11]:334-338 In February 2001, accounting director Rick Causey told budget managers: From an accounting standpoint, this will be the easiest year of all. We have 2001 in the bag. [11]:299 On March 5, is Bethany McLean's Fortune article overpriced? questioned how Enron could maintain its high stock value, which was trading at 55 times its earnings. She argued that analysts and investors did not know exactly how Enron made money. McLean was first drawn to the company's financial situation after Chanos suggested that she saw the company's 10-K for herself. [11]:338 In a postmortem interview with The Washington Post, McLean recalled finding strange transactions, erratic cash flow, and huge debt. Debt was the biggest red flag for McLean; she wondered how a supposedly profitable company could be adding debt at such a rapid rate. Later, in her book, The Smartest Guys in the Room, she recalled talking off the record with a number of people in the investment community who were getting skeptical about Enron. [11]:338 McLean called Skilling to discuss his findings before publishing the article, but he called it unethical for not properly researching the company. [47] Fastow quoted two Fortune reporters that Enron could not reveal profit details because the company had more than 1,200 trading books for various merchandise and made ... I don't want anyone to know what's in those books. We don't want to tell anyone where we're making money. In a conference call on April 17, 2001, then-CEO Skilling verbally attacked Wall Street analyst Richard Grubman,[48] who questioned Enron's unusual accounting practice during a taped conference call. When Grubman complained that Enron was the only company that could not disclose a balance sheet along with its profit statements, Skilling stuttered Well... Thank you very much, we appreciate... Idiot. [49] This became an internal joke among many Enron employees, mocking Grubman for his perceived meddling rather than Skilling's offering, with slogans such as Ask Why, idiot, a variation on Enron's official slogan Ask Why. [50] However, Skilling's comment was met with dismay and astonishment by the and public, since he had already disdained Enron's criticisms coldly or with humor. [citation required] In the late 1990s, Enron shares were trading at $80-90 per share, and few seemed to worry about the opacity of financial disclosures of the company. In mid-July 2001, Enron reported revenue of $50.1 billion, nearly triple the year so far, and surpassing analysts' estimates of 3 cents per share. [51] Despite this, Enron's profit margin remained at a modest average of about 2.1%, and its share price had declined by more than 30% since the same quarter of 2000. [51] Over time, a series of serious concerns confronted the company. Enron has recently faced several serious operational challenges, namely logistical difficulties in operating a new broadband communications trading unit, and losses from the construction of the Dabhol Power project, a large gas-powered power plant in India that was soured on controversies from the outset over its high prices and bribery at the highest level. [9] These were later confirmed in the 2002 Senate investigation. [52] There was also growing criticism of the company for its subsidiary Enron Energy Services's role in the California electricity crisis from 2000 to 2001. [citation required] There are no accounting problems, no trading problems, no booking problems, no previously unknown problems. I think I can honestly say that the company is probably in the strongest and best shape it's probably been in. — Kenneth Lay responding to a question from an analyst on August 14, 2001. [11]:347 On August 14, Skilling announced that he was resigning as CEO after only six months citing personal reasons[53] Observers noted that in the months prior to his departure, Skilling had sold at least 450,000 Enron shares at a value of about $33 million (although he still owned more than one million shares at the time of his departure). However, Lay, who was serving as president of Enron, assured market watchers that there would be no change in the company's performance or outlook going forward with Skilling's departure. Lay announced that he himself would reassum the position of executive director. [citation required] On August 15, Sherron Watkins, vice president of corporate development, sent an anonymous letter to Lay warning him about the company's accounting practices. A statement in the letter read: I am incredibly nervous that we will implode in a wave of accounting scandals. Watkins contacted a friend who worked for Arthur Andersen and he drafted a memo to give audit partners about the points she raised. On August 22, Watkins met individually with Lay and gave him a six-page letter further explaining Enron's accounting problems. Lay questioned her about whether she had told anyone outside the company and then promised that the company's law firm, Vinson & Elkins, would review the although she argued that the use of the law firm would present a conflict of interest. [11]:357[55] Lay consulted other executives, and although they wanted to fire Watkins (as Texas Texas law not protect the company's whistleblowers), they decided against it to avoid prosecution. [11]:358 On October 15, Vinson & Elkins announced that Enron had done nothing wrong in its accounting practices, as Andersen had approved each issue. [56] Investor confidence diminishes Something is rotten with Enron's condition. — The New York Times, September 9, 2001. In late August 2001, the value of his company's stock was still falling, Lay appointed Greg Whalley, president and COO of Enron Wholesale Services, to succeed Skilling as president and COO of the entire company. He also appointed Mark Frevert as vice president, and appointed Whalley and Frevert to positions in the president's cabinet. Some observers suggested that Enron investors were significantly in need of peace of mind, not only because the company's business was difficult to understand (even indecipherable)[57], but also because it was difficult to adequately describe the company in financial statements. [58] One analyst stated that it is really difficult for analysts to determine where [Enron] is making money in a given quarter and where they are losing money. Lay accepted that Enron's business was too complex, but stated that analysts would never get all the information they wanted to satisfy their curiosity. He also explained that the complexity of the business was largely due to fiscal strategies and position coverage. [58] Lay's efforts seemed to be with limited success; on September 9, a prominent hedge fund manager noted that [Enron shares] are trading under a cloud. [57] Skilling's sudden departure combined with the opacity of Enron's ledgers made it difficult for Wall Street to properly evaluate. In addition, the company has repeatedly admitted to using related share transactions, which some feared could easily be used to transfer losses that could otherwise appear on Enron's own balance sheet. A particularly worrying aspect of this technique was that several of the related party entities had been or were being controlled by CFO Fastow. [57] After the 9/11 attacks, media attention moved away from the company and its problems; a little less than a month later, Enron announced its intention to begin the process of selling its lower-margin assets in favor of its core gas and electricity trading businesses. This policy included selling Portland General Electric to another Oregon utility, Northwest Natural Gas, for about $1.9 billion in cash and stock, and possibly selling its 65% stake in the Dabhol project in India. [59] Sec Restructuring and Investigation Losses On October 16, 2001, Enron announced that the reformulations of its financial statements for the years 1997 to 2000 were necessary to correct accounting violations. The reformulations for the period reduced profits by US$ 613 million (or 23% of the profits reported during the period), increased liabilities at the end of 2000 by US$ 628 million (6% of the liabilities and 5.5% of reported shareholders' equity), and decrease in shareholders' equity at the end of 2000 by $1.2 billion (10% of reported shareholders' equity). [6]:11 Furthermore, in January, Jeff Skilling had claimed that the broadband unit alone was worth $35 billion, a claim also distrustful. [60] An analyst at Standard & Poor's said, I don't think anyone knows how much the broadband operation is worth. Enron's management team claimed that the losses were mainly due to investment losses, along with charges such as about $180 million in spent money restructuring the company's troubled broadband trading unit. In a statement, Lay said: Following a thorough review of our business, we have decided to drop these charges to clear up issues that have obscured the performance and earnings potential of our core energy businesses. [60] Some analysts were nervous. David Fleischer of Goldman Sachs, an analyst previously called one of the company's biggest supporters stated that enron's management ... have lost credibility and have to fail. They need to convince investors that these gains are real, that the company is real and that growth will be realized. [61] Fastow revealed to Enron's board of directors on October 22 that he won $30 million of compensation agreements while managing ljm limited partnerships. That day, Enron's stock price fell to $20.65, a $5.40 down one day, following the SEC's announcement that it was investigating several suspicious deals hit by Enron, characterizing them as some of the most opaque insider transactions ever seen. [62] Attempting to explain the billion- dollar charge and calm investors, Enron's disclosures spoke of cost-free collar agreements, derivative instruments that eliminated the contingent nature of existing restricted futures contracts, and strategies that served to cover certain merchant investments and other assets. Such intriguing phraseology left many analysts feeling ignorant about how Enron managed their business. [62] Regarding the SEC investigation, President and CEO Lay said: We will cooperate fully with the SEC and look forward to the opportunity to put any concern about these transactions to rest. Two days later, on October 25, Fastow was removed as CFO, despite Lay's assurances the day before that he and the board trusted him. In announcing Fastow's ouster, Lay said: In my ongoing discussions with the financial community, it became clear to me that restoring investor confidence would require that andy would replace him as CFO. [63] The move came after several banks refused to issue loans to Enron while Fastow remained CFO. [43] However, with Skilling Fastow have now both departed, some analysts feared that revealing the company's practices would be even more difficult. [63] Enron shares were trading at $16.41, having lost half value in just over a week. Jeff McMahon, head of industrial markets, succeeded Fastow as CFO. His first task was to deal with a cash crisis. A day earlier, Enron discovered that it was unable to spin its commercial role, effectively losing access to several billion dollars in funding. The company had actually had trouble selling its commercial paper for a week, but now it couldn't sell even night paper. On October 27, the company began buying back its entire commercial paper, valued at about $3.3 billion, in an effort to allay investor fears about Enron's cash offering. Enron financed the re-purchase by depleting its credit lines at several banks. Although the company's debt rating was still considered investment grade, its bonds were trading at slightly lower levels, making future sales problematic. It soon emerged that Fastow was so focused on creating off-balance sheet vehicles that he had ignored some of the more rudimentary aspects of corporate finance. McMahon and a SWAT finance team gathered to find a way out of the cash crisis found that Fastow never developed procedures to track the maturities of cash or debt. For all purposes, Enron was iliquid. [43] As the month came to an end, serious concerns were raised by some observers about the possible manipulation of the accounting rules accepted by Enron; however, the analysis was alleged to be impossible on the basis of incomplete information provided by Enron. [65] Industry analysts feared that Enron was the new Long-Term Capital Management Fund, the hedge fund whose bankruptcy in 1998 threatened the systemic failure of international financial markets. Enron's tremendous presence worried some about the consequences of the company's possible bankruptcy. [44] Enron executives accepted only written questions. [44] Credit rating downgrade The main short-term danger to Enron's survival at the end of October 2001 appeared to be its credit rating. It was reported at the time that Moody's and Fitch, two of the three largest credit rating agencies, had scheduled Enron for review for possible downgrade. [44] Such a downgrade would force Enron to issue millions of shares to cover loans it had secured, which would further diminish the value of existing shares. In addition, all types of companies began to review their existing contracts with Enron, especially in the long term, if Enron's rating was reduced below the investment grade, a possible obstacle to future transactions. [44] Analysts and observers continued their complaints about the difficulty or impossibility of assessing a company whose financial statements were so cryptic. Some feared that no one at Enron other than Skilling and Fastow could completely explain years of mysterious transactions. You're getting way above my head, lay said during during August 2001 in response to detailed questions about Enron's business, a reaction that worried analysts. [44] On October 29, responding to growing concerns that Enron might have insufficient money on hand, word spread that Enron was seeking another $1-2 billion in financing from banks. The next day, as feared, Moody's reduced Enron's credit rating from Baa1 to Baa2, two levels above junk status. Standard & Poor's affirmed Enron's rating of BBB+, the equivalent of Moody's Baa1. Moody's also warned that it would downgrade Enron's commercial paper rating, a consequence of which would likely prevent the company from finding the additional financing it was seeking to keep solvent. [67] November began with the disclosure that the SEC was now pursuing a formal investigation, motivated by issues related to Enron's relationships with related parties. Enron's board also announced that it would commission a special commission to investigate the transactions, headed by William C. Powers, the dean of the University of Texas School of Law. The next day, an editorial in The New York Times demanded an aggressive investigation into the matter. [69] Enron secured additional $1 billion in funding from rival Dynegy on November 2, but the news was not universally admired because the debt was secured by assets from the valuable Northern Natural Pipeline and Transwestern Pipeline. [70] Proposed purchase by Dynegy Sources claimed that Enron was planning to explain its business practices more fully in the coming days as a confidence-building gesture. [71] Enron shares were trading around $7, and at this point it was obvious that Enron could not remain independent. However, investors feared that the company would not be able to find a buyer. [citation required] After Enron received a broad spectrum of rejections, Enron management apparently found a buyer when the board of Dynegy, another Houston-based energy trader, voted late at night on November 7 to acquire Enron at a very low price of about $8 billion in stock. Chevron Texaco, which at the time owned about a quarter of Dynegy, agreed to provide Enron with $2.5 billion in cash, specifically $1 billion at the start and the rest when the deal was completed. Dynegy would also be required to take on nearly $13 billion in debt, in addition to any other debt so far occlusive by the secret business practices of Enron's management,[72] possibly up to $10 billion in hidden debt. Dynegy and Enron confirmed their agreement on November 8, 2001. [citation required] With Enron in a state of near collapse, the deal was largely under Dynegy. would be the surviving company, and Dynegy CEO Charles Watson and his management team would lead the merged company. Enron shareholders would receive a 40% stake in the enlarged Dynegy, and Enron would get three seats on the merged company's board. Blown. would not have any management role, although it was assumed that he would get one of Enron's seats on the board. Of Enron's top executives, only Whalley would join the company's C suite as executive vice president. Dynergy agreed to invest $1.5 billion in Enron to keep her alive until the deal closes. [11]:395 As a measure of how terrible Enron's financial framework had become, the company initially refused to pay its bills for November until credit agencies gave their blessing to the merger and allowed Enron to keep its investment-grade credit. At this point, the dynegy deal was pretty much the only thing that kept the company alive, and Enron employees wanted to keep so much money in the company's coffers in the event of bankruptcy. [43] If credit agencies had refused the agreement and reduced Enron to junk status, their trade capacity would be severely limited if there was a reduction or elimination of their credit lines with competitors. [43] Ultimately, after Enron and Dynegy reworked the agreement to make it more difficult for Dynegy to trigger the material adverse change clause and withdraw, Moody's and S&P agreed to abandon Enron for a notch above junk status, allowing Enron to pay its accounts one day late with interest. [43] Commentators commented on the different corporate cultures between Dynegy and Enron, and on Watson's direct speaking personality. [8] Some wondered if Enron's problems had not simply been the result of innocent accounting errors. In November, Enron was stating that the one-time fees disclosed in October should actually have been $200 million, with the rest of the amount simply corrections of accounting errors dormant. [76] Many feared that other mistakes and reaffirmations could still be revealed. [74] Another major correction of Enron's earnings was announced on November 9, with a $591 million reduction in declared revenue from the years 1997-2000. They say the charges come largely from two special-purpose partnerships (JEDI and Chewco). The corrections resulted in the virtual elimination of profit for the year 1997, with significant reductions for the other years. Despite this disclosure, Dynegy stated that he still intended to buy Enron. [76] Both companies said they were eager to receive an official assessment of the sale proposed by Moody's and S&P presumably to understand the effect that the completion of any purchase transaction would have on Dynegy and Enron's credit rating. In addition, concerns were raised about antitrust regulatory restrictions that resulted in possible divestment, along with what for some observers were radically corporate cultures Enron and Dynegy. [73] Both companies promoted the agreement aggressively, and some observers were hopeful; Watson was praised for trying to create the largest company in the energy market. [74] At the time, Watson said: We feel felt is a very solid company with a lot of ability to withstand what happens in the coming months. [74] One analyst called the business a whopper... a very good deal financially, certainly should be a good deal strategically, and provides some immediate balance sheet backstop for Enron. [77] Credit issues were becoming more critical, however. At the time the purchase was made public, Moody's and S&P publicly announced that they had reduced Enron to junk e-mail status. In a conference call, S&P stated that if Enron were not purchased, S&P would reduce its rating to low BB or High B, ratings pointed out as being within junk status. [78] In addition, many traders limited their involvement with Enron, or stopped doing business altogether, fearing more bad news. Watson again tried to re-secure, attesting in a presentation to investors that there was nothing wrong with Enron's business. He also acknowledged that remunerative measures (in the form of more stock options) would have to be taken to repair the animosity of many Enron employees toward management after it was revealed that Lay and other employees had sold hundreds of millions of dollars in stock during the months leading up to the crisis. [77] The situation was not helped by the disclosure that Lay, his reputation in tatters,[79] was to receive a $60 million payment as a change of control fee after the Dynegy acquisition, while many Enron employees had seen their retirement accounts, which were largely based on devastated Enron shares as the price declined 90% in a year. An employee of an Enron-owned company stated :We had some working couples who lost up to $800,000 or $900,000. It practically ended every employee's savings plan. Watson assured investors that the true nature of Enron's business had been apparent to him: We have comfort, there is no other shoe to fall off. If there's no shoe, this is a phenomenally good transaction. Watson also stated that Enron's energy trading portion alone was worth the price Dynegy paid for the entire company. In mid-November, Enron announced that it planned to sell about $8 billion in underperforming assets, along with a general plan to reduce its scale because of financial stability. [82] On November 19, Enron released to the public more evidence of its critical state of things. The most urgent is that the company had debt payment obligations in the range of $9 billion by the end of 2002. Such debts were too excessive of their available money. [83] Furthermore, the success of the measures to preserve their solvency was not specifically with regard to the sale of assets and debt refinancing. In a statement, Enron revealed that an adverse outcome in relation to any of these issues would likely have a material adverse impact on Enron's ability to continue as a one-way Two days later, on November 21, Wall Street expressed serious doubts that Dynegy would pursue his deal, or seek to renegotiate radically. In addition, Enron revealed in a 10 Q file that almost all of the money it had recently borrowed for purposes, including buying its commercial paper, or about $5 billion, had been exhausted in just 50 days. Analysts were nervous about the revelation, especially as Dynegy was also unaware of Enron's cash usage fee. [84] To end the proposed purchase, Dynegy would need to legally demonstrate a material change in the circumstances of the transaction; At the end of November 22, sources close to Dynegy were skeptical that the latest revelations were sufficient motives. [85] In fact, while Lay assumed that one of his sub-students had shared the 10-Q with Dynegy employees, no one at Dynegy saw it until it was released to the public. It later emerged that Enron's merchants had taken much of dynegy's money from the cash infusion and used it to secure payment to their trading partners when it came time to settle down. [43] The SEC announced that it had filed civil fraud complaints against Andersen. [86] A few days later, sources stated that Enron and Dynegy were renegotiating the terms of their agreement. Dynegy has now demanded that Enron agree to be bought for $4 billion instead of the previous $8 billion. Observers reported difficulties in determining which of Enron's operations, if any, were profitable. Reports described a massive business shift for Enron's competitors because of reduced risk exposure. [87] Bankruptcy Enron stock price (formerly nyse symbol: ENE) from August 23, 2000 ($90) to January 11, 2002 ($0.12). As a result of the stock price fall, shareholders suffered paper losses of nearly $11 billion. [3] On November 28, 2001, Enron's two worst possible outcomes came true. All credit rating agencies reduced Enron's credit rating to junk status, and Dynegy's board tore up the merger agreement on Watson's board. Watson later said: In the end, you couldn't give it [Enron] to me. [11]:403 Although they had apparently resolved a number of outstanding issues at a meeting in New York the previous weekend, Dynegy's concerns about Enron's liquidity and declining business proved insumable. [43] The company had very little money to operate, let alone meet huge debts. Its stock price fell to $0.61 at the end of the trading day. An editorial observer wrote that Enron is now short for the perfect financial storm. [88] The systemic consequences since the creditors of Enron and other energy trading companies suffered a loss of several percentage points. Some analysts felt that Enron's failure indicated the risks of the post-9/11 economy, and encouraged traders to block profits where they The question has now become how to determine the total exposure of markets and other traders to enron's failure. Initial calculations estimated $18.7 billion. One councillor said: We don't really know who is out there exposed to Enron's credit. I'm telling my clients to prepare for the worst. Within 24 hours, speculation arose that Enron would have no choice but to file for bankruptcy. Enron is estimated to have about $23 billion in outstanding and secured loan liabilities. Citigroup and JP Morgan Chase, in particular, appeared to have significant sums to lose from Enron's bankruptcy. In addition, many of Enron's core assets were promised to lenders in order to obtain loans, causing doubts about what, if anything, unsecured creditors and eventually shareholders could receive in bankruptcy proceedings. [91] As it turned out, new corporate treasurer Ray Bowen had known as early as the day Dynegy came out of the deal that Enron was going bankrupt. He spent most of the next two days struggling to find a bank that would take the remaining money from Enron after taking all the money from Citibank. He was forced to get along with a small Houston bench. [43] At the close of business on November 30, 2001, it was obvious that Enron was at the end of its rope. On that day, Enron Europe, the holding company of Enron's operations in continental Europe, filed for bankruptcy. [92] The rest of Enron followed suit the following night, December 1, when the council voted unanimously to submit the application for protection of Chapter 11. It became the largest bankruptcy in U.S. history, overcoming penn central's bankruptcy in 1970 (WorldCom's bankruptcy the following year overcame Enron's bankruptcy, so the title was short), and resulted in 4,000 jobs lost. [3] On the day Enron filed for bankruptcy, thousands of employees were instructed to pack their belongings and gave 30 minutes to vacate the building. Nearly 62% of the savings plans of 15,000 employees depended on Enron shares that were purchased at $83 in early 2001 and were now virtually useless. [95] In his accounting work for Enron, Andersen had been sloppy and weak. But that's the way Enron always wanted it. In fact, even with anger the fingers pointed, the two deserved each other. — Bethany McLean and Peter Elkind in The Smartest Guys in the Room. [11]:393 On January 17, 2002, Enron fired Arthur Andersen as its auditor, citing its accounting board and the destruction of documents. Andersen countered that he had already ended his relationship with the company when Enron went bankrupt. [96] Enron Trials Main article: Trial of Kenneth Lay and Jeffrey Skilling Fastow and his wife, Lea, both pleaded guilty to charges against them. Fastow was charged with 98 counts of fraud, money laundering, insider trading and conspiracy, among other crimes. [97] Fastow pleaded guilty to two and was sentenced to ten years without parole in a deal to testify against Lay, Skilling and Causey. Lea was indicted on six felony charges, but prosecutors later dismissed them in favor of a single misdemeanor charge. Lea was sentenced to a year for helping her husband hide her government income. Lay and Skilling went on trial for his part in the Enron scandal in January 2006. The 53-page, 65-page indictment covers a wide range of financial crimes, including bank fraud, making false statements to banks and auditors, securities fraud, bank fraud, money laundering, conspiracy and insider trading. U.S. District Judge Sim Lake had previously denied the defendants' motions to have separate trials and relocate the case out of Houston, where the defendants argued that negative publicity about Enron's death would make it impossible to obtain a fair trial. On May 25, 2006, the jury in the lay and skilling trial returned its verdicts. Skilling was convicted of 19 of 28 counts of securities fraud and wire fraud and acquitted in the remaining nine, including insider trading charges. He was sentenced to 24 years and 4 months in prison. In 2013, the United States Department of Justice reached an agreement with Skilling, which resulted in a ten-year cut of his sentence. Lay pleaded not guilty to the eleven criminal charges, and claimed he was deceived by those around him. He attributed the main cause for the company's death to Fastow. [102] Lay was convicted of all six counts of securities and wire fraud for which he had been tried, and he was subject to a maximum total sentence of 45 years in prison. [103] However, before the sentence was scheduled, Lay died on July 5, 2006. At the time of his death, the SEC was seeking more than $90 million from Lay, as well as civil fines. The case of Lay's wife, Linda, is difficult. It sold about 500,000 Shares of Enron ten minutes to thirty minutes before information that Enron was collapsing became public on November 28, 2001. Linda has never been charged with any of the enron-related events. Although Michael Kopper worked at Enron for more than seven years, Lay was unaware of Kopper even after the company's bankruptcy. Kopper was able to keep his name anonymous in any case. [11]:153 Kopper was the first Enron executive to plead guilty. [106] Accounting Director Rick Causey was indicted on six felony charges for disguising Enron's financial condition during his tenure. [107] After pleading not guilty, he later pleaded guilty and was sentenced to seven years in prison. In all, sixteen people pleaded guilty to crimes committed at the company, and five others, including four merrill lynch, were found guilty. Eight former Enron executives testified —the main witness is Lay and Skilling, your old bosses. Another was Kenneth Rice, former head of Enron Corp.'s high-speed internet unit who cooperated and whose testimony helped convict Skilling and Lay. In June 2007, he received a 27-month sentence. [109] Michael W. Krautz, a former Enron accountant, was among the defendants who were acquitted[110] of charges related to the scandal. Represented by Barry Pollack,[111][best source needed] Krautz was acquitted of federal criminal fraud charges after a month-long jury trial. [citation required] Arthur Andersen Main article: Arthur Andersen LLP v. United States Arthur Andersen was charged and found guilty of obstruction of justice for destroying the thousands of documents and deleting emails and company files linking the company to its enron audit. [112] Although only a small number of Arthur Andersen's employees were involved in the scandal, the company was effectively put out of business; the SEC is not authorized to accept audits of convicted criminals. The company surrendered its CPA license on August 31, 2002, and 85,000 employees lost their jobs. [114] The conviction was later overturned by the U.S. Supreme Court because the jury was not properly instructed on the charge against Andersen. [115] The Supreme Court's decision theoretically left Andersen free to resume operations. However, the damage to Andersen's name has been so great that it has not returned as a viable business, even on a limited scale. NatWest Three Main article: NatWest Three Giles Darby, David Bermingham, and Gary Mulgrew worked for Greenwich NatWest. The three Britons worked with Fastow on a special purpose entity he had started called Swap Sub. When Fastow was being investigated by the SEC, the three men met with the British Financial Services Authority (FSA) in November 2001 to discuss their interactions with Fastow. In June 2002, the U.S. issued arrest warrants for seven counts of wire fraud, and were then extradited. On July 12, a possible Witness for Enron scheduled to be extradited to the US, Neil Coulbeck, was found dead in a park in north- east London. [117] Coulbeck's death was eventually ruled a suicide. [citation required] The U.S. case alleged that Coulbeck and others conspired with Fastow. [118] In a settlement in November 2007, the trio pleaded guilty to one count of bank fraud while the other six charges were rejected. Darby, Bermingham and Mulgrew were sentenced to 37 months in prison. In August 2010, Bermingham and Mulgrew withdrew their confessions. [121] Aftermath Employees and Shareholders Enron's downtown Houston office was leased from a consortium of banks that had purchased the property for US 285 million in the 1990s. It sold for $55.5 million, shortly before Enron moved in 2004. [122] While some employees, such as John D. Arnold, received big bonuses in the Enron shareholders lost $74 billion in the four years prior to the company's bankruptcy ($40 to $45 billion was attributed to fraud). [124] As Enron had nearly $67 billion owed to creditors, employees and shareholders received limited assistance, if any, in addition to enron compensation. [125] To pay its creditors, Enron held auctions to sell assets including art, photographs, logo plates and their pipelines. [128] A class action lawsuit on behalf of about 20,000 Enron employees who alleged mismanagement of their 401(k) plans resulted in a July 2005 settlement of $356 million against Enron and 401(k) Northern Trust manager. A year later, the settlement was reduced to $37.5 million in a settlement by Federal Judge Melinda Harmon, with the Northern Trust not admitting or denying wrongdoing. In May 2004, more than 20,000 former Enron employees won an $85 million lawsuit for a $2 billion compensation that was lost on their pensions. Under the agreement, employees received about $3,100 each. The following year, investors received another multi-bank deal of $4.2 billion. In September 2008, a $7.2 billion settlement of a $40 billion lawsuit was reached on behalf of shareholders. The agreement was distributed among the main plaintiffs, the University of California (UC), and 1.5 million individuals and groups. UC Law Firm Coughlin Stoia Geller Rudman and Robbins received $688 million in fees, the largest in a U.S. securities fraud case. [132] In the distribution, UC announced in a press release We are extremely pleased to be returning these funds to class members. Getting here required a long and challenging effort, but the results for Enron investors are unprecedented. [133] Sarbanes-Oxley's Law On the Titanic, the captain fell with the ship. And Enron seems to me that the captain first gave himself and his friends a bonus, then dropped himself and the top of the lifeboat and then shouted, By the way, everything's going to be fine. — U.S. Senator Byron Dorgan. [134] Main article: Sarbanes-Oxley Act Between December 2001 and April 2002, the Senate Banking, Housing and Urban Affairs Committee and the House Financial Services Committee held several hearings on the Enron scandal and issues related to accounting and investor protection. These hearings and corporate scandals that followed Enron led to the passage of the Sarbanes-Oxley Act on July 30, 2002. [135] The Law is almost a mirror image of Enron: corporate governance failures perceived by the company are practically point-to-point in the main provisions of the Act. [136] The main provisions of the Sarbanes-Oxley Act included of the Accounting Supervision Board of the Public Company to develop standards for the preparation of audit reports; O O public accounting firms to provide any non-audit services in the audit; provisions for the independence of the members of the audit committee, executives being required to sign financial reports and waiver of bonuses of certain executives in case of financial reformulations; and expansion of the financial disclosure of the companies' relations with unconsolidated entities. [135] On February 13, 2002, due to cases of corporate misconduct and accounting violations, the SEC recommended changes to stock exchange regulations. In June 2002, the New York Stock Exchange announced a new governance proposal, which was approved by the SEC in November 2003. Key provisions of the NYSE's final proposal include:[135] All companies must have the majority of independent directors. Independent directors must comply with an elaborate definition of independent directors. The compensation committee, the nominating committee and the audit committee shall be composed of independent directors. All members of the audit committee must be financially literate. In addition, at least one member of the audit committee is required to have accounting or related financial management knowledge. In addition to regular sessions, the board should hold additional sessions without management. Criticism of the Bush administration Kenneth Lay was a longtime supporter of U.S. President George W. Bush and a donor to his various political campaigns, including his successful candidacy for president in 2000. As such, critics of Bush and his administration tried to link them to the scandal. A January 2002 article in The Economist alleged that Lay had been a close personal friend of Bush's family and had supported him financially since his failed congressional campaign in 1978. Reportedly, Lay was up rumors at one point to be in the running to serve as Energy Secretary for Bush. In an article the same month, Time magazine accused the Bush administration of making desperate attempts to distance itself from the scandal. According to author Frank Pellegrini, several of Bush's appointments have maintained connections with Enron, including White House Deputy Chief of Staff Karl Rove as a shareholder, Army Secretary Thomas E. White Jr. as a former executive, and SEC Chairman Harvey Pitt, a former employee of Arthur Andersen. Former Montana Governor Marc Racicot, who Bush considered to be interior secretary, briefly served as a lobbyist for the company after leaving office. After opening a criminal investigation into the scandal, Attorney General John Ashcroft withdrew and his chief of staff from the case when Democratic Congressman Henry Waxman accused Ashcroft of receiving $25,000 from Enron for his failed Senate reelection campaign in 2000. As Pellegrini wrote: democrats will have the company-he- keeps thing, blame by association in their and with all the... General smell of rich man cover-up over the whole affair, they'll have a class war card to play this spring. [138] See also texas portal The Crooked E: The Unshredded Truth About Enron – a television film about the rise and fall of Enron, based on Anatomy of Greed, a 2002 book by a former employee Enron: The Smartest Guys in the Room – a 2005 documentary based on the 2003 book of the same name about the Law & Order: Criminal Intent episode Tuxedo Hill – 2002 television episode inspired by enron scandal ENRON ENRON – 2009 play by British playwright Lucy Prebble on the United States scandal – conviction in the United States District Court subsequently overturned by U.S. Supreme Court Enron Corpus – a database of more than 600,000 emails between Enron executives, made public and used extensively in social media surveys Notes ^ a b c d e f g h h j Bratton , William W. 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The problem for Mr. Bush is that the ties between the company and its administration were especially intricate and close. Mr. Lay has been a supporter of Mr. Bush since the president's failed congressional campaign in 1978, and has been known a close personal friend of Mr. Bush and his family. At one point, Mr. Lay was discussed as a possible energy secretary under Mr. Bush. ^ Pellegrini, Frank (January 10, 2002). Bush's Enron problem. Time. Time Inc. Retrieved June 20, 2018. References References Bethany; Peter Elkind (2003). The smartest guys in the room. New York: Portfolio Trade. ISBN 978-1-59184-008-4. Dharan, G. Bullet; William R. Bufkins (2004). Enron: Corporate Fiascos and Their Implications (PDF). Foundation Press. ISBN 978-1-58778-578-8. Archived from the original (PDF) on October 18, 2010. More reading Bryce, Robert (December 17, 2008). Pipe Dreams: Greed, Ego, and the Death of Enron. Public Affairs. ISBN 978-1-58648-201-5. Collins, Denis (May 24, 2006). Misbehaving: Enron's Ethical Lessons. Dog Ear Publishing, LLC. ISBN 978-1-59858-160-7. Cruver, Brian (September 1, 2003). Anatomy of Greed: Telling the Untold Truth from Inside Enron. Basic Books. ISBN 978-0-7867-1205-2. Eichenwald, Kurt (December 27, 2005). Fool's Conspiracy: A True Story. Broadway Books. ISBN 978-0-7679-1179-5. Fox, Loren (December 22, 2003). Enron: The Rise and Fall. John Wiley & Sons. ISBN 978-0-471-47888-1. Fusaro, Peter C.; Ross M. Miller (June 21, 2002). What went wrong at Enron: Everyone's Guide to the biggest bankruptcy in U.S. history. John Wiley & Sons. ISBN 978-0-471-26574-0. Salter, Malcolm S. (June 30, 2008). Corrupted Innovation: The Origins and Legacy of Enron's Collapse. Harvard University press. ISBN 978-0-674-02825-8. Swartz, Mary; Sherron Watkins (March 9, 2004). Power failure: The Internal History of enron's collapse. Broadway Business. ISBN 978-0-7679-1368-3. Toffler; Jennifer Reingold (April 13, 2004). Final Accounting: Ambition, Greed and the Fall of Arthur Andersen. Broadway Business. ISBN 978-0-7679-1383-6. External Links The short film Enron Bankruptcy (February 7, 2002) is available for free download in the Internet Archive documentary series of Court TV (now TruTV) MUGSHOTS: Enron - Wall Street Scammers episode (2002) in filmrise recovered from

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