Enron Scandal

Enron Corporation was born from the merging of Houston Natural Gas and InterNorth, a pipeline company in Nebraska. In 1985, the two companies came together under the new CEO Kenneth Lay. Lay moved corporation headquarters to Houston, Texas, where it was located until bankruptcy. Resulting from the merger, Lay incurred massive debt. In order to keep the company afloat, Enron had to devise a new business strategy that will create profits and bring the company out of debt. To accomplish this feat, Lay brought in a young Jeffery Skilling, who brought with him the strategy Lay was looking for. Enron will now buy gas from suppliers and sell it to customers. Skilling also brought with him mark-to-market accounting, which allowed Enron to price their assets and liabilities based on the current market price. However, Enron used this method unethically to count projected earnings from long-term energy contracts as current income. Those contracts represented money that might not be collected for many years or even turn into losses. Enron was overstating their revenues and hiding losses to make their books look more appealing to investors.

In fifteen short years Enron became the nation's seventh largest company, even earning Fortune Magazine's "America's Most Innovative Company" title for six straight years (1996 to 2001). Enron's stock hit its peak in August of 2000 at $90 per share. It was at this time that the top executives began selling their stock. Executives, secretly selling their own stock, instructed investors to keep buying the stock because it will rebound in the near future. Ken Lay retired in February of 2001, naming Skilling as the new President and CEO of Enron. At this time stock was valued at ~$80. However, Enron's risky investments and contracts have begun to catch up with them. Noticing that the end was near for Enron, Skilling sold $33 million in stock and resigned on August 14, 2001 for "personal reasons." The stock price then fell below $40 a share and steadily decreased. A day after Skilling's resignation, Sherron Watkins, vice president for corporate development, sent an anonymous letter to Ken Lay, who returned as CEO, warning him about the company's accounting practices. In the letter she writes that she is "incredibly nervous that we will implode in a wave of accounting scandals." Lay, his executives, and auditing firm Arthur Andersen investigated the accounting. On October 16 Enron announced that it was worth $1.2 billion less than thought. The very next day, Enron froze employee's pension plans, and over 20,000 people lost their jobs in the wake of the collapse and found out their retirement savings were gone. On November 30 the stock closed at an astounding $.26 per share. Enron filed for bankruptcy on December 3, 2001.

Jeff Skilling, CEO (February 2001- August 2001) and previously chief operating officer and president, is currently serving