Enron
Enron Corporation is an energy trading and communications company based in Houston, Texas employing around 21,000 people (mid-2001). Careful accounting allowed it to be listed as the seventh largest company in America, and it was expected to dominate the trading it had virtually invented in communications, power and weather securities. Instead it became the biggest corporate failure in history.
After a series of scandals involving irregular accounting procedures bordering on fraud involving it and its accounting firm Arthur Andersen, Enron stood at the verge of undergoing the largest bankruptcy in history by mid November 2001. A white knight rescue attempt by a much smaller energy company, Dynegy, was not viable.
The fall of the value of investors' equity per share in Enron during 2001 was from $85 to 30 cents. As Enron was considered a blue chip stock, this is an unprecedented and disasterous event in the financial world. Enron's plunge in value occurred after it was revealed that many of its profits and revenue were the result of deals with limited partnerships which it controlled. The result of this is that many of the losses which Enron encountered were not reported in its financial statements.
The firm's European operations filed for bankruptcy on November 30, 2001 and sought Chapter 11 protection in the US. The long term implications of Enron's collapse are unclear, but there is considerable political fall-out both in the US and in Britain relating to the monies Enron gave to political figures (around $6m since 1990).
Enron was formed in 1985 with the merger of Houston Natural Gas and InterNorth, engineered by Houston Natural Gas CEO Kenneth Lay. It 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 etc worldwide.
Enron grew wealthy by 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 1996-2000. It was on Fortune's "100 Best Companies to Work for in America" list of 2000, and was legendary even amongst the elite workers of the financial world for the opulence of its offices.
Its global reputation was undermined however by persistent rumours of bribery and political pressure to secure contracts in Central and Southern america, Africa and the Phillipines. Especially controversial was the $30bn contract with the Indian MSEB (Maharashtra State Electricity Board).
External links:
- The Enron homepage: