Enron was a successful energy conglomerate in the 1990s, but investigations in 2001 revealed that its success was based on posing as shareholders, regulatory agencies, and the public. Enron executives engaged in creative accounting, fraud, and information control to generate fake profits. The company filed for bankruptcy in 2001, and many people lost their jobs and investments. Executives, including Kenneth Lay, were convicted of crimes related to the scandal.
Enron was an American energy conglomerate headquartered in Houston, Texas. During the 1990s, it was regarded as one of the most successful and powerful companies in the world. In 2001, however, investigations revealed that Enron’s successful image had been created by posing as shareholders, regulatory agencies, employees, and the general public. Enron has created an enduring legacy as a widely recognized symbol for corporate greed and corruption.
Enron was created in 1985 from the merger of two natural gas companies at the behest of Houston executive Kenneth Lay. Laici remained the CEO of Enron throughout its existence. Government deregulation of utilities allowed Enron and similar companies to rack up huge profits in the 1990s. He was soon involved in a wide variety of industries, including power generation, petroleum by-products, shipping, the Internet, and paper manufacturing. Numerous entities, including Fortune magazine, have cited Enron as a model company due to its high profitability and far-reaching successes.
Few people realized that these profits and successes were all fake, 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 began a campaign to hide trading losses from shareholders and the general public. Stock prices are based on public perceptions of a company, not actual assets, so these practices have allowed executives to make huge personal profits while their company has lost millions. In 2000, an Enron subsidiary created an artificial energy crisis in California that challenged the company’s practices.
In 2001, financial analysts and journalists began to focus attention on Enron; when they were unable to independently confirm the company’s reported assets, its stock prices began to decline. The US Securities Exchange Commission has launched an investigation. Skilling and Fastow were both removed from their positions, and Lay publicly admitted that he did not understand his own company’s policies. As investors and shareholders jumped ship, Enron was forced to rely on its assets to survive, but those assets didn’t exist. The company filed for bankruptcy in December 2001, just a few months after being one of the most publicly traded companies on Wall Street.
Lay, Skill, Fastow and more than a dozen other people were convicted of crimes related to the Enron scandal. Arthur Andersen LLP, a major accounting firm, also closed due to its connections to Enron. Between the two companies, nearly 90,000 people lost their jobs. Enron employees have lost more than $2 billion in U.S. dollars (USD) to corporate-backed pensions and savings plans; shareholders lost another $70 billion. Kenneth Lay died of a heart attack in 2006, before he could be convicted; Skilling and Fastow were still in prison as of 2010.
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