Enron Corporation
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Enron Corporation was an energy trading, natural gas, and electric utilities company based in Houston, Texas that employed around 21,000 people by mid-2001, before it went bankrupt.
Questionable 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] (http://rogerebert.suntimes.com/apps/pbcs.dll/article?AID=/20050428/REVIEWS/50413004)
Its European operations filed for bankruptcy on November 30, 2001, and it sought Chapter 11 protection in the U.S. on December 2.
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Growth
Enron was founded in 1930 as Northern Natural Gas Company, a consortium of Northern American Power and Light Company, Lone Star Gas Company, and United Lights and Railways Corporation. The consortium ownership was gradually dissolved between 1941 and 1947 through a public stock offering. In 1979, Northern Natural Gas was restructured under the ownership of a new holding company, InterNorth Inc., which replaced Northern Natural Gas on the New York Stock Exchange.
In 1985, InterNorth acquired competitor Houston Natural Gas Company in a transaction engineered by HNG CEO Kenneth Lay. Although InterNorth was the purchaser, Lay emerged as CEO and promptly renamed InterNorth as Enron Corporation, with headquarters in Houston rather than InterNorth/Northern Natural Gas's base in Omaha. Initially, the company was to be named Enteron, chosen for the positive connotations of "enter" and "on," but when it was pointed out that the term meant "intestine" — which had other connotations for a natural gas company — it was quickly shortened.
Enron 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 the 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 Clinton and Bush administrations 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 similar, 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 much 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 suffered were not reported in its financial statements.
Fallout
The long-term implications of Enron's collapse are somewhat 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.
The status of the pension plans that were promised to Enron's employees has been in question since the collapse of Enron. The Pension Benefit Guaranty Corporation is attempting to cover some and possibly all of the promised benefits.
Restructuring
Following the 2001 bankruptcy filing, Enron has been attempting to restructure in order to compensate as many creditors as possible. Enron's innovative core energy trading business was sold early in the bankruptcy proceedings to Merrill Lynch and Company. A last-ditch survival attempt was made in 2002 through a planned merger with arch-rival Dynegy Corporation. Dynegy backed out during merger talks, acquiring control of Enron's original, predecessor company- Northern Natural Gas- in the process. Enron is currently pursuing legal action against Dynegy over the takeover of Northern Natural Gas, which has since been sold by Dynegy to MidAmerican Energy Holdings Company.
Enron's final bankruptcy plan provides for the creation of three new businesses to be spun off from Enron as independent, debt-free companies. The reorganization process commenced in 2003, with the formation of two new Enron subsidiaries, CrossCountry Energy L.L.C., and Prisma Energy International Inc.
CrossCountry Energy, formed from Enron's domestic gas pipeline assets, was immediately placed on the market for creditor compensation. On September 1, 2004, Enron announced an agreement to sell CrossCountry Energy to CCE Holdings L.L.C. (a joint venture between Southern Union Company and a unit of General Electric) for $2.45 billion. The money will be used for debt repayment, and represents a substantial increase over the previous offer made by NuCoastal L.L.C. earlier in 2004.
Prisma Energy International, formed out of Enron's remaining overseas assets, will emerge from bankruptcy as a main-line descendent of Enron through a stock offering to Enron creditors. Currently, many of Prisma's assets remain under direct Enron ownership with Prisma operating in a management capacity.
The third company, Portland General Electric (PGE), was founded in 1889, and ranks as Oregon's largest utility. PGE was acquired by Enron during the 1990's, and will emerge from bankruptcy as an independent company through a private stock offering to Enron creditors.
All remaining assets not related to CrossCountry, Prisma, or Portland General will be liquidated. As of 2005, CrossCountry is now under CCE Holdings ownership, while the Portland General and Prisma deals remain to be consummated.
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] (http://www.alternet.org/movies/21840/)
See also
- Timeline of the Enron scandal
- Pension fund losses with Enron
- California electricity crisis
- Conspiracy of Fools
- Enronomics
- 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 (http://www.enron.com)
- [3] (http://www.prismaenergy.com) - homepage of Prisma Energy International Inc.
- [4] (http://www.crosscountryenergy.com)- homepage of CrossCountry Energy L.L.C.
- [5] (http://www.portlandgeneral.com)- homepage of Portland General Electric Company
- [6] (http://www.northernnaturalgas.com)- homepage of Northern Natural Gas Company
Accounting
- CPA Journal - Enron and the Raptors (http://www.nysscpa.org/cpajournal/2003/0403/features/f042403.htm)
- Enron Debacle (http://www.riskglossary.com/link/enron.htm) is an informative account of events leading up to the fall of Enron.
- Moody's KMV Default Case Studies (http://www.moodyskmv.com/research/UAL.html)
General
- Guardian Unlimited Special Report: Enron (http://www.guardian.co.uk/enron/)
- BBC News In Depth: Enron (http://news.bbc.co.uk/1/hi/in_depth/business/2002/enron/default.stm)
- Enron News, News Sources, News Searches, and Business Research: (http://www.HavenWorks.com/business/research/enron)
- Stunning Depths of Government Collaboration with Enron Revealed (http://www.democracynow.org/article.pl?sid=03/04/07/0254256&mode=thread&tid=29) - (Democracy Now!)
- Enron's Pawns: How Public Institutions Bankrolled Enron's Globalization Game (http://www.seen.org/pages/press_releases/enronrelease0302.shtml) - Press release of report by the Institute for Policy Studies.
- Feds order a quarter-billion refund to Enron (http://cbs5.com/news/local/2004/06/16/Federal_Officials_Want_California_to_Pay_Enron.html)
- At Enron, ignorance was bliss (http://www.forbes.com/2002/01/14/0114topnews.html)
Tapes
- The Enron Tapes (http://www.enrontapes.com/files.html) - Public/Redacted Audio Files and Public/Redacted Transcripts
- Enron traders caught on tape (http://www.cbsnews.com/stories/2004/06/01/eveningnews/main620626.shtml) - Gloating about manipulating California's energy market. (CBS Evening News)
- More Enron Tapes (http://www.cbsnews.com/stories/2004/06/02/eveningnews/main620795.shtml) - gloating over screwing California
- Even More Enron tapes (http://www.cbsnews.com/stories/2004/06/16/eveningnews/main623569.shtml) - gloating over gouging Nevada
Other
- Yahoo! - Enron Corp. Company Profile (http://biz.yahoo.com/ic/10/10521.html)
- Document Repository for Enron Bankruptcy (http://www.elawforenron.com/)
- The Best Enron Books (http://www.riskbook.com/link_topic/history_best_enron_books.htm) reviews books on Enron.
- Suicide note of Enron employee J. Clifford Baxter (http://www.chron.com/content/news/photos/02/04/11/letter/popup2.htm) (Chron.com)
- NRun Wreckords: 'Corporate America' (http://www.nrunwrekords.com)
Directories
- Open Directory Project - Enron (http://dmoz.org/Society/Issues/Business/Allegedly_Unethical_Firms/Enron/) directory category
- LookSmart - Enron Case (http://search.looksmart.com/p/browse/us1/us317829/us317861/us65309/us282395/us10090036/us10104791/us10041501/) directory category
- Yahoo - Enron History (http://dir.yahoo.com/Business_and_Economy/Business_to_Business/Energy/Enron/History/) directory categoryde:Enron