Enron - Enron Bankruptcy

Enron Corporation (former New York Stock Exchange ticker symbol ENE) was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 20,000 staff and was one of the world's major electricity, natural gas, communications, and pulp and paper companies, with claimed revenues of nearly $111 billion during 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years.

At the end of 2001, it was revealed that its reported financial condition was sustained substantially by an institutionalized, systematic, and creatively planned accounting fraud, known since as the Enron scandal. Enron has since become a well-known example of willful corporate fraud and corruption. The scandal also brought into question the accounting practices and activities of many corporations in the United States and was a factor in the creation of the Sarbanes-Oxley Act of 2002. The scandal also affected the greater business world by causing the dissolution of the Arthur Andersen accounting firm.

Enron filed for bankruptcy in the Southern District of New York during late 2001 and selected Weil, Gotshal & Manges as its bankruptcy counsel. It ended its bankruptcy during November 2004, pursuant to a court-approved plan of reorganization, after one of the most complex bankruptcy cases in U.S. history. A new board of directors changed the name of Enron to Enron Creditors Recovery Corp., and emphasized reorganizing and liquidating certain operations and assets of the pre-bankruptcy Enron. On September 7, 2006, Enron sold Prisma Energy International Inc., its last remaining business, to Ashmore Energy International Ltd. (now AEI).

Early history

Enron's predecessor was the Northern Natural Gas Company, which was formed in 1932, in Omaha, Nebraska. It was reorganized in 1979 as the main subsidiary of a holding company, InterNorth which was a diversified energy and energy related products company. InterNorth was a major business for natural gas production, transmission and marketing as well as for natural gas liquids and was an innovator in the plastics industry.

The company initially named itself "HNG/InterNorth Inc.", even though InterNorth was the nominal parent. It built a large and lavish headquarters complex with pink marble in Omaha (dubbed locally as the "Pink Palace"), that was later sold to Physicians Mutual corporation. However, the departure of ex-InterNorth and first CEO of Enron Corp Samuel Segnar six months after the merger allowed former HNG CEO Kenneth Lay to become the next CEO of the newly merged company. Lay soon relocated the company's headquarters to Houston (after promising to keep it in Omaha) and began to change the business. Lay and his secretary, Nancy McNeil, originally selected the name "Enteron" (possibly spelled in "upper camelcase" as "EnterOn"), but, when informed that the term approximated a Greek word referring to the intestines, the name was quickly abbreviated to Enron. The final name was decided upon only after business cards, stationery, and other items had been printed reading "Enteron". Enron's "crooked E" logo was designed during the mid-1990s by the American graphic designer Paul Rand. Rand's original design included one of the elements of the E in yellow which disappeared when copied or faxed. This was quickly replaced by a green element. Almost immediately after the relocation to Houston, Enron began selling major assets such as its chemicals division Northern PetroChemicals, accepted silent partners in Enron CoGeneration, Northern Border Pipeline and Transwestern Pipeline, and became a less diversified company. Early financial analysts said Enron was accumulating great debt and the sale of major operations would not solve the problem.

Misleading financial accounts

In 1990, Enron's Chief Operating Officer Jeffrey Skilling hired Andrew Fastow, who was well acquainted with the burgeoning deregulated energy market that Skilling wanted to exploit. In 1993, Fastow began establishing numerous limited liability special purpose entities (a common business practice in the energy sector); however, it also allowed Enron to transfer liability so that it would not appear in its accounts, allowing it to maintain a robust and generally increasing stock price and thus keeping its critical investment grade credit ratings.

Enron was originally involved in transmitting and distributing electricity and natural gas throughout the United States. The company developed, built, and operated power plants and pipelines while dealing with rules of law and other infrastructures worldwide. Enron owned a large network of natural gas pipelines, which stretched ocean to ocean and border to border including Northern Natural Gas, Florida Gas Transmission, Transwestern Pipeline company and a partnership in Northern Border Pipeline from Canada. The states of California, New Hampshire and Rhode Island had already passed power deregulation laws by July 1996, the time of Enron's proposal to acquire Portland General Electric corporation. During 1998, Enron began operations in the water sector, creating the Azurix Corporation, which it part-floated on the New York Stock Exchange during June 1999. Azurix failed to become successful in the water utility market, and one of its major concessions, in Buenos Aires, was a large-scale money-loser. After the relocation to Houston, many analysts criticized the Enron management as being greatly in debt. The Enron management pursued aggressive retribution against its critics, setting the pattern for dealing with accountants, lawyers, and the financial media.

Enron grew wealthy due largely to marketing, promoting power, and its high stock price. Enron was named "America's Most Innovative Company" by the magazine Fortune for six consecutive years, from 1996 to 2001. It was on the Fortune? 's "100 Best Companies to Work for in America" list during 2000, and had offices that were stunning in their opulence. Enron was hailed by many, including labor and the workforce, as an overall great company, praised for its large long-term pensions, benefits for its workers and extremely effective management until the exposure of its corporate fraud. The first analyst to question the company's success story was Daniel Scotto, an energy market expert at BNP Paribas, who issued a note in August 2001 entitled Enron: All stressed up and no place to go, which encouraged investors to sell Enron stocks, although he only changed his recommendation on the stock from "buy" to "neutral".

As was later discovered, many of Enron's recorded assets and profits were inflated or even wholly fraudulent and nonexistent. One example of fraudulent records was during 1999 when Enron promised to repay Merrill Lynch & Co.'s investment with interest in order to show profit on its books. Debts and losses were put into entities formed "offshore" that were not included in the company's financial statements, and other sophisticated and arcane financial transactions between Enron and related companies were used to eliminate unprofitable entities from the company's books.

Its most valuable asset and the largest source of honest income, the 1930s-era Northern Natural Gas company, was eventually purchased by a group of Omaha investors, who relocated its headquarters back to Omaha; it is now a unit of Warren Buffett's Berkshire Hathaway Energy. NNG was established as collateral for a $2.5 billion capital infusion by Dynegy Corporation when Dynegy was planning to buy Enron. When Dynegy examined Enron's financial records carefully, they repudiated the deal and dismissed their CEO, Chuck Watson. The new chairman and CEO, the late Daniel Dienstbier, had been president of NNG and an Enron executive at one time and was forced out of Enron by Ken Lay. Dienstbier was an acquaintance of Warren Buffett. NNG continues to be profitable now.

Former management and corporate governance

Products

Enron traded in more than 30 different products, including the following:

• Products traded on EnronOnline
  • Petrochemicals
  • Plastics
  • Power
  • Pulp and paper
  • Steel
  • Weather Risk Management

• Oil and LNG transportation
• Broadband
• Principal investments
• Risk management for commodities
• Shipping / freight
• Streaming media
• Water and wastewater

It was also an extensive futures trader, including sugar, coffee, grains, hogs, and other meat futures. At the time of its bankruptcy filing during December 2001, Enron was structured into seven distinct business units.

Online marketplace services

• EnronOnline (commodity trading platform).
• ClickPaper (transaction platform for pulp, paper, and wood products).
• EnronCredit (the first global online credit department to provide live credit prices and enable business-to-business customers to hedge credit exposure instantly via the Internet).
• ePowerOnline (customer interface for Enron Broadband Services).
• Enron Direct (sales of fixed-price contracts for gas and electricity; Europe only).
• EnergyDesk (energy-related derivatives trading; Europe only).
• NewPowerCompany (online energy trading, joint venture with IBM and AOL).
• Enron Weather (weather derivatives).
• DealBench (online business services).
• Water2Water (water storage, supply, and quality credits trading).
• HotTap (customer interface for Enron's U.S. gas pipeline businesses).
• Enromarkt (business to business pricing and information platform; Germany only).

Broadband services

• Enron Intelligent Network (broadband content delivery).
• Enron Media Services (risk management services for media content companies).
• Customizable Bandwidth Solutions (bandwidth and fiber products trading).
• Streaming Media Applications (live or on-demand Internet broadcasting applications).

Energy and commodities services

• Enron Power (electricity wholesaling).
• Enron Natural Gas (natural gas wholesaling).
• Enron Clean Fuels (biofuel wholesaling).
• Enron Pulp and Paper, Packaging, and Lumber (risk management derivatives for forest products industry).
• Enron Coal and Emissions (coal wholesaling and CO2 offsets trading).
• Enron Plastics and Petrochemicals (price risk management for polymers, olefins, methanol, aromatics, and natural gas liquids).
• Enron Weather Risk Management (Weather Derivatives).
• Enron Steel (financial swap contracts and spot pricing for the steel industry).
• Enron Crude Oil and Oil Products (petroleum hedging).
• Enron Wind Power Services (wind turbine manufacturing and wind farm operation).
• MG Plc. (U.K. metals merchant).
• Enron Energy Services (Selling services to industrial end users).
• Enron International (operation of all overseas assets).

Capital and risk management services

Commercial and industrial outsourcing services

• Commodity Management.
• Energy Asset Management.
• Energy Information Management.
• Facility Management.
• Capital Management.
• Azurix Inc. (water utilities and infrastructure).

Project development and management services

• Energy Infrastructure Development (developing, financing, and operation of power plants and related projects).
• Enron Global Exploration & Production Inc. (upstream oil and natural gas international development).
• Elektro Electricidade e Servicos SA (Brazilian electric utility).

• Northern Border Pipeline.
• Houston Pipeline.
• Transwestern Pipeline.
• Florida Gas Transmission.
• Northern Natural Gas Company.
• Natural Gas Storage.
• Compression Services.
• Gas Processing and Treatment.
• Engineering, Procurement, and Construction Services.
• EOTT Energy Inc. (oil transportation).

Enron manufactured gas valves, circuit breakers, thermostats, and electrical equipment in Venezuela by means of INSELA SA, a 50-50 joint venture with General Electric. Enron owned three paper and pulp products companies: Garden State Paper, a newsprint mill; as well as Papiers Stadacona and St. Aurelie Timberlands. Enron had a controlling stake in the Louisiana-based petroleum exploration and production company Mariner Energy.

Enron International

Enron International (EI) was Enron's wholesale asset development and asset management business. Its primary emphasis was developing and building natural gas power plants outside North America. Enron Engineering and Construction Company (EECC) was a wholly owned subsidiary of Enron International, and built almost all of Enron International's power plants. Unlike other business units of Enron, Enron International had a strong cash flow on bankruptcy filing. Enron International consisted of all of Enron's foreign power projects, including ones in Europe.

The company's Teesside plant was one of the largest gas-fired power stations in the world, built and operated by Enron from 1989, and produced 3 percent of the United Kingdom's energy needs. Enron owned half of the plant's equity, with the remaining 50 per cent split between four regional electricity companies.

Management

Rebecca Mark was the CEO of Enron International until she resigned to manage Enron's newly acquired water business, Azurix, during 1997. Mark had a major role in the development of the Dabhol project in India, Enron's largest international endeavor.

Projects

Enron International constructed power plants and pipelines across the globe. Some are presently still operating, including the massive Teesside plant in England. Others, like a barge-mounted plant off Puerto Plata in the Dominican Republic, cost Enron money by lawsuits and investment losses. Puerto Plata was a barge-mounted power plant next to the hotel Hotelero del Atlantico. When the plant was activated, winds blew soot from the plant onto the hotel guests' meals, blackening their food. The winds also blew garbage from nearby slums into the plant's water-intake system. For some time the only solution was to hire men who would row out and push the garbage away with their paddles. Through mid-2000 the company collected a paltry $3.5 million from a $95 million investment. Enron also had other investment projects in Europe, South America, Argentina, Brazil, Bolivia, Colombia, Mexico, Jamaica, Venezuela, and across the Caribbean.

India

Around 1992 Indian experts came to the United States to find energy investors to help with India's energy shortage problems. During December 1993, Enron finalized a 20-year power-purchase contract with the Maharashtra State Electricity Board. The contract allowed Enron to construct a massive 2,015 megawatt power plant on a remote volcanic bluff 100 miles south of Bombay. Construction would be completed in two phases, and Enron would form the Dabhol Power Company to help manage the plant. The power project was the first step in a $20 billion scheme to help rebuild and stabilize India's power grid. Enron, GE (which was selling turbines to the project), and Bechtel (which was actually constructing the plant), each contributed 10% equity.

During 1996, when India's Congress Party was no longer in power, the Indian government assessed the project as being excessively expensive and refused to pay for the plant and stopped construction. The Maharashtra State Electricity Board (MSEB), the local state-owned utility, was required by contract to continue to pay Enron plant maintenance charges, even if no power was purchased from the plant. The MSEB determined that it could not afford to purchase the power (at Rs. 8 per unit kWh) charged by Enron. The plant operator was unable to find alternate customers for Dabhol power due to the absence of a free market in the regulated structure of utilities in India. From 1996 until Enron's bankruptcy during 2001 the company tried to revive the project and revive interest in India's need for the power plant without success.

Project Summer

During the summer of 2001, Enron made an attempt to sell a number of Enron International's assets, many of which were not sold. The public and media believed it was unknown why Enron wanted to sell these assets, suspecting it was because Enron was in need of cash. Employees who worked with company assets were told in 2000 that Jeff Skilling believed that business assets were an outdated means of company worth, and instead he wanted to build a company based on "intellectual assets".

Enron Global Exploration & Production, Inc.

Enron Global Exploration & Production Inc. (EGEP) was an Enron subsidiary that was born from the split of domestic assets via EOG Resources (formerly Enron Oil and Gas EOG) and international assets via EGEP (formerly Enron Oil and Gas Int'l, Ltd EOGIL). Among the EGEP assets were the Panna-Mukta and the South Tapti fields, discovered by the Indian state-owned Oil and Natural Gas Corporation (ONGC), which operated the fields initially. December 1994, a joint venture began between ONGC (40%), Enron (30%) and Reliance (30%). Mid year of 2002, British Gas (BG) completed the acquisition of EGEP's 30% share of the Panna-Mukta and Tapti fields for $350 million, a few months before Enron filed bankruptcy.

EnronOnline

Enron opened EnronOnline, an electronic trading platform for energy commodities, on November 29, 1999. Conceptualized by the company's European Gas Trading team, it was the first web-based transaction system that allowed buyers and sellers to buy, sell, and trade commodity products globally. It allowed users to do business only with Enron. The site allowed Enron to transact with participants in the global energy markets. The main commodities offered on EnronOnline were natural gas and electricity, although there were 500 other products including credit derivatives, bankruptcy swaps, pulp, gas, plastics, paper, steel, metals, freight, and TV commercial time. At its maximum, more than $6 billion worth of commodities were transacted by means of EnronOnline every day.

After Enron's bankruptcy in late 2001, EnronOnline was sold to the Swiss financial giant UBS. Within a year, UBS abandoned its efforts to relaunch the division, and closed it in November 2002.

Principal assets

At the time of bankruptcy, Enron owned interests in the following major assets:

Power plants

Enron owned or operated 38 electric power plants worldwide:

• Teesside (United Kingdom)--at the time of commission in 1992, at 1750 MW, was the largest Natural Gas Co-Gen plant in the world. Its on-time and under-budget completion put Enron Power on the map as an international developer, owner and operator.
• Bahia Las Minas (Panama)--largest thermal power plant in Central America, 355 MW.
• Puerto Quetzal Power Project (Guatemala)--110 MW.
• PQP LLC (Guatemala)--holding company for 124 MW Power Barge named "Esperanza".
• Empresa Energetica Corinto (Nicaragua)--holding company for "Margarita II" 70.5 MW power barge, Enron had 35% share.
• EcoElectrica (Puerto Rico, USA)--507 MW natural gas cogeneration plant, with adjacent LNG import terminal- supplied 20% of island's electricity.
• Puerto Plata Power Project (Dominican Republic)--185 MW power barge named "Puerto Plata".
• Modesto Maranzana Power Plant (Argentina)--70 MW.
• Cuiaba Integrated Project (Brazil)--480 MW combined cycle power plant.
• Nowa Sarzyna Power Plant (Poland)--116 MW, first privately developed post-Communist electricity project in Poland.
• Sarlux Power Project (Italy)--551 MW combined cycle power plant, converted residue from Italy's largest oil refinery into synthetic gas for fuel.
• Trakya Power Project (Turkey)--478 MW.
• Chengdu Cogen Project (China)--284 MW, joint venture with Sichuan Electric Company.
• Northern Marianas Power Project (Guam, USA)--80 MW slow speed diesel oil plant.
• Batangas Power Project (Philippines)--110 MW.
• Subic Bay Power Project (Philippines)--116 MW.
• Dabhol Power Project (India)--2,184 MW combined cycle plant, generally considered one of Enron's most controversial and least successful projects.
• Storm Lake Wind Generation Project (Iowa, USA)--193 MW wind farm.
• Lake Benton II Wind Generation Facility (Minnesota, USA)--104 MW wind farm.
• Lake Benton I Wind Generation Facility (Minnesota, USA)--107 MW wind farm.
• Cabazon Wind Generation Facility (California, USA)--40 MW wind farm.
• Green Power I Wind Generation Facility (California, USA)--16.5 MW wind farm.
• Indian Mesa I Wind Generation Facility (Texas, USA)--25.5 MW wind farm.
• Clear Sky Wind Power Generation Facility (Texas, USA)--135 MW wind farm.
• Mill Run Wind Wind Power Generation Facility (Pennsylvania, USA)--15 MW wind farm.
• Trent Mesa Wind Generation Facility (Texas, USA)--150 MW wind farm.
• Montfort Wind Generation Facility (Wisconsin, USA)--30 MW wind farm.
• 8 hydroelectric plants in Oregon with a combined capacity of 509 MW, owned through Portland General Electric.
• 4 additional thermal plants in Oregon and Montana with a combined capacity of 1,464 MW, owned through Portland General Electric.

Development

Enron also developed the Gaza Power Plant which became active during 2002.

Pipelines

• Centragas (Colombia)--357 miles, natural gas.
• Promigas (Colombia).
• Transportadora de Gas del Sur (Argentina)--largest pipeline system in South America, 5,005 km
• CEG (Brazil)--1,368 miles, natural gas.
• CEGRio (Brazil).
• Transredes (Bolivia)--3,000 km natural gas pipeline and 2,500 km oil & liquids pipeline
• Bolivia-to-Brazil Pipeline (Bolivia/Brazil)--3,000 km, natural gas.
• Northern Natural Gas (Upper Midwestern USA)--16,500 miles, included share in Trailblazer Pipeline.
• Transwestern Pipeline (Texas, Arizona, New Mexico, Colorado)--2,554 miles.
• Florida Gas Transmission (Texas, Louisiana, Alabama, Mississippi, Florida)--4,800 miles.
• Northern Border Pipeline (Indiana, Illinois, Iowa, South Dakota, North Dakota, Montana)--1,249 miles.

Electric utilities/distributors

• Portland General Electric Company (USA)--serving 775,000 customers in Oregon.
• Elektro Electricidade e Servicos S.A. (Brazil)--1.5 million customers.
• Compania Anonima Luz y Fuerza Electricas de Puerto Cabello (Venezuela)--50,000 customers.

Natural gas-related businesses

• ProCaribe (Puerto Rico, USA)--LPG storage terminal, only fully refrigerated LPG storage facility in Caribbean.
• San Juan Gas Company (Puerto Rico, USA)--gas distribution, 400 industrial/commercial customers.
• Industrial Gases Ltd. (Jamaica)--8 filling plants, industrial gas manufacturing & LPG distribution, had 100% monopoly on Jamaican industrial gas business and 40% of LPG business.
• Gaspart (Brazil)--consortium of 7 gas distribution companies.
• Vengas (Venezuela)--LPG transportation and distribution.
• ACCRO III and IV Project(Venezuela) is the largest outsourcing contract offered by PDVSA. Enron's partners in the venture were Accro Barbados Ltd., a subsidiary of TransCanada Pipelines Ltd., and private Venezuelan company Tecnoconsult. The project included two extraction plants, each with 400 MM cubic feet per day capacity, a fractionation plant to remove the liquids and other related infrastructure.
• SK-Enron Company Ltd. (South Korea)--joint venture with SK Corporation; included 8 city gas utilities, an LPG distributor, and a steam and electricity cogeneration facility.

Pulp and paper

• Garden State Paper Company Inc. (New Jersey, USA)--paperboard and newsprint recycling mill.
• Papiers Stadacona Ltee. (Quebec, Canada)--wood pulp & paper mill.
• St. Aurelie Timberlands Company Ltd. (Quebec, and New Brunswick, Canada & Maine, USA)--timber company.

Other

• Mariner Energy Inc. (Houston, Texas, USA)--oil & gas exploration, development, and production with operations in the Gulf of Mexico.
• Interruptores Especializados Lara (Venezuela)--manufacturer of valves, thermostats, and electrical breakers for appliances.
• Enron Wind (formerly Zond) - manufacturer of wind power turbines and related systems, with factories in USA, Spain, Portugal, and Germany. Purchased by General Electric during 2002.

Enron Prize for Distinguished Public Service

During the mid-1990s, Enron established an endowment for the Enron Prize for Distinguished Public Service, awarded by Rice University's Baker Institute to "recognize outstanding individuals for their contributions to public service". Recipients were:

• 1995: Colin Powell.
• 1997: Mikhail Gorbachev.
• 1999 (early): Eduard Shevardnadze.
• 1999 (late): Nelson Mandela.
• 2001: Alan Greenspan.

Greenspan, because of his position as the Fed chairman, was not at liberty to accept the $10,000 honorarium, the $15,000 sculpture, nor the crystal trophy, but only accepted the "honor" of being named an Enron Prize recipient. The situation was further complicated because a few days earlier, Enron had filed paperwork admitting it had falsified financial statements for five years. Greenspan did not mention Enron a single time during his speech. At the ceremony, Ken Lay stated, "I'm looking forward to our first woman recipient." The next morning, it was reported in The Houston Chronicle that no decision had been made on whether the name of the prize would be changed. 19 days after the prize was awarded to Greenspan, Enron declared bankruptcy.

During early 2002, Enron was awarded Harvard's (in)famous Ig Nobel Prize for 'Most Creative Use of Imaginary Numbers.' The various former members of Enron management all refused to accept the award in person, although no reason was given at the time.

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2001 Accounting scandals

During 2001, after a series of revelations involving irregular accounting procedures bordering on fraud perpetrated throughout the 1990s involving Enron and its accounting company Arthur Andersen, Enron suffered the largest Chapter 11 bankruptcy in history (since surpassed by those of Worldcom during 2002 and Lehman Brothers during 2008).

As the scandal progressed, Enron share prices decreased from US $90.56 during the summer of 2000, to just pennies. Enron had been considered a blue chip stock investment, so this was an unprecedented event in the financial world. Enron's demise occurred after the revelation that much of its profits and revenue were the result of deals with special purpose entities (limited partnerships which it controlled). This meant that many of Enron's debts and the losses that it suffered were not reported in its financial statements.

A rescue attempt by a similar, smaller energy company, Dynegy, failed during late November due to concerns about an unexpected restatement of earnings. Enron filed for bankruptcy on December 2, 2001. In addition, the scandal caused the dissolution of Arthur Andersen, which at the time was one of the world's main accounting companies. The company was found guilty of obstruction of justice during 2002 for destroying documents related to the Enron audit. Since the SEC is not allowed to accept audits from convicted felons, Andersen was forced to stop auditing public companies. Although the conviction was dismissed during 2005 by the Supreme Court, the damage to the Andersen name has prevented it from reviving as a viable business even on a limited scale.

Enron also withdrew a naming-rights deal with the Houston Astros Major League Baseball club to have its name associated with their new stadium, which was known formerly as Enron Field (now Minute Maid Park).

Accounting practices

Enron used a variety of deceptive, bewildering, and fraudulent accounting practices and tactics to cover their fraud in reporting Enron's financial information. These entities made Enron seem more profitable than it actually was, and created a dangerous spiral in which, each quarter, corporate officers would have to perform more and more financial deception to create the illusion of billions of dollars in profit while the company was actually losing money. This practice increased their stock price to new levels, at which point the executives began to work on insider information and trade millions of dollars' worth of Enron stock. The executives and insiders at Enron knew about the offshore accounts that were hiding losses for the company; however, the investors knew nothing of this. Chief Financial Officer Andrew Fastow directed the team which created the off-books companies, and manipulated the deals to provide himself, his family, and his friends with hundreds of millions of dollars in guaranteed revenue, at the expense of the corporation for which he worked and its stockholders.

During 1999, Enron initiated EnronOnline, an Internet-based trading operation, which was used by virtually every energy company in the United States. Enron president and chief operating officer Jeffrey Skilling began advocating a novel idea: the company didn't really need any "assets". By promoting the company's aggressive investment strategy, he helped make Enron the biggest wholesaler of gas and electricity, trading over $27 billion per quarter. The corporation's financial claims, however, had to be accepted at face value. Under Skilling, Enron adopted mark to market accounting, in which anticipated future profits from any deal were tabulated as if currently real. Thus, Enron could record gains from what over time might turn out to be losses, as the company's fiscal health became secondary to manipulating its stock price on Wall Street during the so-called "Tech boom". But when a company's success is measured by undocumented financial statements, actual balance sheets are inconvenient. Indeed, Enron's unscrupulous actions were often gambles to keep the deception going and so increase the stock price. An advancing price meant a continued infusion of investor capital on which debt-ridden Enron in large part subsisted (much like a financial "pyramid" or "Ponzi scheme"). Attempting to maintain the illusion, Skilling verbally attacked Wall Street Analyst Richard Grubman, who questioned Enron's unusual accounting practice during a recorded conference telephone call. When Grubman complained that Enron was the only company that could not release a balance sheet along with its earnings statements, Skilling replied "Well, thank you very much, we appreciate that . . . asshole." Though the comment was met with dismay and astonishment by press and public, it became an inside joke among many Enron employees, mocking Grubman for his perceived meddling rather than Skilling's offensiveness. When asked during his trial, Skilling declared that industrial dominance and abuse was a global problem: "Oh yes, yes sure, it is."

Peak and decline of stock price

During August 2000, Enron's stock price attained its greatest value of $90.56 At this time Enron executives, who possessed inside information on the hidden losses, began to sell their stock. At the same time, the general public and Enron's investors were told to buy the stock. Executives told the investors that the stock would continue to increase until it attained possibly the $130 to $140 range, while secretly unloading their shares.

As executives sold their shares, the price began to decrease. Investors were told to continue buying stock or hold steady if they already owned Enron because the stock price would rebound during the near future. Kenneth Lay's strategy for responding to Enron's continuing problems was his demeanor. As he did many times, Lay would issue a statement or make an appearance to calm investors and assure them that Enron was doing well. In February 2001 an article by Bethany McLean appeared in Fortune magazine questioning whether Enron stock was overvalued.

By August 15, 2001, Enron's stock price had decreased to $42. Many of the investors still trusted Lay and believed that Enron would rule the market. They continued to buy or retain their stock as the equity value decreased. As October ended, the stock had decreased to $15. Many considered this a great opportunity to buy Enron stock because of what Lay had been telling them in the media.

Lay was accused of selling more than $70 million worth of stock at this time, which he used to repay cash advances on lines of credit. He sold another $20 million worth of stock in the open market. Also, Lay's wife, Linda, was accused of selling 500,000 shares of Enron stock totaling $1.2 million on November 28, 2001. The money earned from this sale did not go to the family but rather to charitable organizations, which had already received pledges of contributions from the foundation. Records show that Mrs. Lay made the sale order sometime between 10:00 and 10:20 am. News of Enron's problems, including the millions of dollars in losses they hid, became public about 10:30 that morning, and the stock price soon decreased to less than one dollar.

Former Enron executive Paula Rieker was charged with criminal insider trading. Rieker obtained 18,380 Enron shares for $15.51 a share. She sold that stock for $49.77 a share during July 2001, a week before the public was told what she already knew about the $102 million loss.

Post-bankruptcy

Enron initially planned to retain its three domestic pipeline companies as well as most of its overseas assets. However, before emerging from bankruptcy, Enron sold its domestic pipeline companies as CrossCountry Energy for $2.45 billion and later sold other assets to Vulcan Capital Management.

Enron sold its last business, Prisma Energy, during 2006, leaving Enron asset-less. During early 2007, its name was changed to Enron Creditors Recovery Corporation. Its goal is to repay the old Enron's remaining creditors and end Enron's affairs.

Azurix, the former water utility part of the company, remains under Enron ownership, although it is currently asset-less. It is involved in several litigations against the government of Argentina claiming compensation relating to the negligence and corruption of the local governance during its management of the Buenos Aires water concession during 1999, which resulted in substantial amounts of debt (approx. $620 million) and the eventual collapse of the branch.

Soon after emerging from bankruptcy during November 2004, Enron's new board of directors sued 11 financial institutions for helping Lay, Fastow, Skilling and others hide Enron's true financial condition. The proceedings were dubbed the "megaclaims litigation". Among the defendants were Royal Bank of Scotland, Deutsche Bank and Citigroup. As of 2008, Enron has settled with all of the institutions, ending with Citigroup. Enron was able to obtain nearly $20 billion to distribute to its creditors as a result of the megaclaims litigation. As of December 2009, some claim and process payments were still being distributed.

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California's deregulation and subsequent energy crisis

During October 2000, Daniel Scotto, the most renowned utility analyst on Wall Street, suspended his ratings on all energy companies conducting business in California because of the possibility that the companies would not receive full and adequate compensation for the deferred energy accounts used as the basis for the California Deregulation Plan enacted during the late 1990s. Five months later, Pacific Gas & Electric (PG&E) was forced into bankruptcy. Senator Phil Gramm, the second largest recipient of campaign contributions from Enron, succeeded in legislating California's energy commodity trading deregulation. Despite warnings from prominent consumer groups which stated that this law would give energy traders too much influence over energy commodity prices, the legislation was passed during December 2000.

As the periodical Public Citizen reported, "Because of Enron's new, unregulated power auction, the company's 'Wholesale Services' revenues quadrupled--- from $12 billion in the first quarter of 2000 to $48.4 billion in the first quarter of 2001."

Before passage of the deregulation law, there had been only one Stage 3 rolling blackout declared. After passage, California had a total of 38 blackouts defined as Stage 3 rolling blackouts, until federal regulators intervened during June 2001. These blackouts occurred mainly as a result of a poorly designed market system that was manipulated by traders and marketers. Enron traders were revealed as intentionally encouraging the removal of power from the market during California's energy crisis by encouraging suppliers to shut down plants to perform unnecessary maintenance, as documented in recordings made at the time. These acts contributed to the need for rolling blackouts, which adversely affected many businesses dependent upon a reliable supply of electricity, and inconvenienced a large number of retail consumers. This scattered supply increased the price exponentially, and Enron traders were thus able to sell power at premium prices, sometimes up to a factor of 20x its normal peak value.

See also

• Enron: The Smartest Guys in the Room, an award-winning 2005 documentary film which examines the collapse of the Enron Corporation
• The Crooked E: The Unshredded Truth About Enron, a television movie aired by CBS in January 2003 based on the book Anatomy of Greed by Brian Cruver
• Pipe Dreams: Greed, Ego, and the Death of Enron, a book by Robert Bryce
• ENRON, a 2009 play by British playwright Lucy Prebble
• Dot-com bubble

References

Bibliography

• Robert Bryce, Pipe Dreams: Greed, Ego, and the Death of Enron (PublicAffairs, 2002) ISBN 1-58648-138-X.
• Lynn Brewer, Matthew Scott Hansen, House of Cards, Confessions of An Enron Executive (Virtualbookworm.com Publishing, 2002) ISBN 1-58939-248-5 ISBN 1-58939-248-5.
• Kurt Eichenwald, Conspiracy of Fools: A True Story (Broadway Books, 2005) ISBN 0-7679-1178-4.
• Peter C. Fusaro, Ross M. Miller, What Went Wrong at Enron: Everyone's Guide to the Largest Bankruptcy in U.S. History (Wiley, 2002), ISBN 0-471-26574-8.
• Loren Fox, Enron: The Rise and Fall. (Hoboken, N.J.: Wiley, 2003).
• Judith Haney Enron's Bust: Was it the result of Over-Confidence or a Confidence Game? USNewsLink/ December 13, 2001.
• Marc Hodak, The Enron Scandal, Organizational Behavior Research Center Papers (SSRN), June 4, 2007.
• Bethany McLean, Peter Elkind, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (Portfolio, 2003) ISBN 1-59184-008-2.
• Mimi Swartz, Sherron Watkins, Power Failure: The Inside Story of the Collapse of Enron (Doubleday, 2003) ISBN 0-385-50787-9.
• Daniel Scotto "American Financial Analyst: The First Analyst to recommend the selling of Enron Stock".
• Calkins, Laurel Brubaker. "Enron Fraud Trial Ends in 5 Convictions." The Washington Post 4 Nov. 2004: n. pag. Google. Web. 6 Dec. 2011. <http://www.washingtonpost.com/wp-dyn//A23034-2004Nov3.html>.
• Peter C. Fusaro and Ross M. Miller What went wrong at Enron J. Wiley & Sons 2002

External links

• All Enron emails released into the public domain, archived and searchable.
• Portland General Electric Company.
• Northern Natural Gas Company.
• "Enron--Legal News Archives" Breaking Legal News.
• Enron and the Cult of Personality
• Enron's Code of Ethics.
• Enron board records at the Hagley Library.
• "The Fall of Enron" HBS Research paper
• Public Citizen Access to Justice, Financial Reform, and Government Accontability.
• The story of the Enron scandal

Data

• Yahoo!: Enron Corp. Company Profile.
• Hoovers: Enron Creditors Recovery Corp. Profile.
• Google Finance: Enron Creditors Recovery Corp. Profile.
• Enron Chronology.
• Enron Securities Litigation Web Site (Contains the ENRON historical stock quotes from 1997 to 2002.)

Interesting Informations

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