Perhaps it’s fitting that, on this day, we’re talking about the greed and malpractice of wealthy elites. Or, perhaps, it’s a mere coincidence.
Either way, it was December 2nd, 2001, that energy giant Enron filed for Chapter 11 Bankruptcy. This announcement would uncover, what I would argue, is the largest corporate scandal in U.S. history.
Based in Houston, Texas, Enron was formed in 1985 as the result of a merger between two gas companies — Houston Natural Gas and Internorth.
Under the direction of Chairman and CEO, Kenneth Lay, Enron rose to as high as the number 7 spot on Fortune Magazine’s top-500 U.S. Companies list. By the year 2000, Enron employed more than 21,000 people and posted revenue in excess of $111 billion dollars.
However, over the course of the next year, Enron’s stock began slipping rather dramatically. In August of 2000, Enron’s share price was $90.75. By the closing bell on November 30th, it had hit $0.26.
As prices began to dwindle, Lay sold off massive shares of his Enron stock while, at the same time, encouraged his employees to buy more. Lay sought to convince his employees that Enron was on the rebound.
But, as the story goes, his assertion was beyond false.
Enron employees saw their retirement accounts cleaned out and their jobs hanging in the balance.
The last probable measure of hope Enron had was a buy-out. A competing energy company, known as Dynegy, had planned to purchase Enron for $8.4 billion dollars in late November. That plan was soon cancelled.
The collapse of the energy giant would cost investors billions of dollars, result in the loss of 5,600 jobs, and force the liquidation of nearly $2.1 billion in pension plans.
The name Enron soon became synonymous with corporate fraud and corruption at the highest level. This, of course, was brought on by the findings of an investigation by the Securities and Exchange Commission.
Their report found that Enron had been inflating its earnings by hiding its debts and losses in subsidiary partnerships — with businesses that actually didn’t exist.
Consequently, Kenneth Lay and Jeffery K. Skilling (who served as Enron’s CEO from February to August of 2001) were charged with conspiring to cover up the company’s shortfalls from investors. The investigation also brought down the once well regarded accounting giant Arthur Anderson. The auditors at Arthur Anderson had deliberately destroyed documents that were incriminating to Enron.
In July of 2004, a Houston court indicted Skilling on 35 counts including fraud, conspiracy, and insider trading. Lay was charged with 11 similar crimes.
Beginning on January 30, 2006, the trial called a number of former Enron employees. Most notably, Andrew Fastow, Enron’s former CFO. Fastow would plead guilty to two counts of conspiracy and enter testimony against his former bosses.
Furthermore, it was found that Skilling had unloaded nearly $60 million dollars worth of stock leading up to the collapse. However, standing defiant, he refused to admit that he knew about Enron’s impending doom.
In May of 2006, Skilling was charged on 19 of 35 counts, while Lay was found guilty on 10 counts, including fraud and conspiracy.
Two months later, Lay died of heart disease. The judge vacated the counts against him. In October of that year, Skilling was sentenced to 24 years in prison.
Thanks for the read