Learn something new every day More Info... by email
Enron was an American energy conglomerate based in Houston, Texas. During the 1990s, it was considered one of the most powerful and successful corporations in the world. In 2001, however, investigations revealed that Enron’s successful image had been created by defrauding stockholders, regulation agencies, employees and the general public. Enron created a lasting legacy as a widely recognized symbol for corporate greed and corruption.
Enron was created in 1985 through the merger of two natural gas companies at the behest of Houston executive Kenneth Lay. Lay remained the chief executive of Enron throughout its existence. Government deregulation of power utilities allowed Enron and similar companies to amass huge profits during the 1990s. Soon it was involved in a wide variety of industries, including electric power production, oil by-products, shipping, the Internet, and paper production. Numerous entities, including Fortune magazine, cited Enron as a model company for its high profitability and wide-ranging successes.
Few people realized that these profits and successes were all false, generated by creative accounting, careful control of information, and outright fraud. Beginning in the late 1990s, Enron executives such as Jeffrey Skilling and Andrew Fastow initiated a campaign to hide business losses from company stockholders and the general public. Stock prices are based on public perception of a company, not actual assets, so these practices allowed executives to make huge personal profits while their company lost millions. In 2000, an Enron subsidiary created an artificial energy crisis in California that called the company’s practices into question.
In 2001, financial analysts and journalists began to focus attention on Enron; when they could not independently confirm the company’s claimed assets, its stock prices began to decline. The U.S. Securities Exchange Commission began an investigation. Skilling and Fastow were both removed from their positions, and Lay publicly admitted he didn’t understand his own company’s policies. As investors and stockholders abandoned ship, Enron was forced to rely on its own assets to survive, but those assets did not exist. The company declared bankruptcy in December 2001, only months after it was one of the highest-rated companies on Wall Street.
Lay, Skilling, Fastow and more than a dozen other people were found guilty of crimes related to the Enron scandal. Arthur Andersen LLP, a major accounting firm, also shut down because of its connections with Enron. Between the two companies, almost 90,000 people lost their jobs. Enron employees lost more than $2 billion U.S. Dollars (USD) from pensions and corporate-backed savings plans; stockholders lost another $70 billion USD. Kenneth Lay died of a heart attack in 2006, before he could be sentenced; Skilling and Fastow were still in prison as of 2010.