“There is an appearance that you are hiding something.”
Most people had never heard of a company called Enron until it filed for bankruptcy at the end of 2001. It had been one of the world’s leading utility companies, with 22,000 employees. Investors in the company had lost $60 billion. In the 1990s the financial press began writing stories, claiming that all might not be well with Enron and its accounting firm, Arthur Andersen.
On 14 August 2001 the company’s CEO Jeffrey Skilling resigned after just six months in the job, having sold 450,000 shares in the company. Chairman Kenneth Lay sought to reassure the markets that there was nothing amiss. However, the market was still not satisfied and began asking questions about Enron’s finances, particularly the offshore businesses that allowed Enron bosses to move money around without paying tax or declaring its provenance.
After 9/11 Enron began selling off some of its less profitable arms and one commentator said that the “stock is trading under a cloud”. On 17 October 2001 Enron announced third-quarter losses and five days later the share price fell $5.40 after the Securities and Exchange Commission announced it was investigating some suspicious deals. On 23 October Lay held a conference call to reassure investors but one said, “There is an appearance that you are hiding something.” Two days later Lay sacked Andy Fastow, the CFO. On 2 November 2001 Enron borrowed another $1 billion. It was then revealed that Lay and other top executives had been selling hundreds of millions of dollars of stock in the run-up to the crisis. Enron employees lower down the scale found their pensions, which were linked to the value of company stock, virtually worthless.
On 2 December 2001 Enron filed for Chapter 11 bankruptcy. The bankruptcy declaration also led to the dissolution of Arthur Andersen, which was found guilty in 2002 of obstruction for destroying Enron documents. The Supreme Court overturned the charge in 2005.
1990s-2 December 2001
Kenneth Lay and Jeffrey Skilling went on trial in January 2006 for their part in the scandal. Both men were found guilty on 25 May 2006. Lay died of a heart attack on 5 July 2006, three months before he was due to be sentenced. Skilling was sentenced to 24 years and four months in federal prison on 23 October 2006.