The Fall of Enron
Throughout the late 1990s, Enron was almost universally considered one of the country's most innovative companies -- a new-economy maverick that forsook musty, old industries with their cumbersome hard assets in favor of the freewheeling world of e-commerce. The company continued to build power plants and operate gas lines, but it became better known for its unique trading businesses. Besides buying and selling gas and electricity futures, it created whole new markets for such oddball "commodities" as broadcast time for advertisers, weather futures, and Internet bandwidth.
The Enron story was perfect for the dotcom-driven stock market boom of the '90s. With its roots in the utility business, the company enjoyed a solid reputation for old-economy stability. But unlike other energy companies that didn't "get it," Enron thrust itself headlong onto the Internet. The business press ate it up; so did Wall Street, sending the stock into the stratosphere. At its peak, Enron was worth about $70 billion, its shares trading for about $90 each.
All that came crashing down starting last October, when the company admitted that it had misstated its income and that its equity value was a couple of billion dollars less than its balance sheet said.
The company, it was revealed, had made about a dozen "partnerships" with companies it had created, and it used those partnerships to hide huge debts and heavy losses on its trading businesses. At the same time, Arthur Andersen, the company that audited Enron's books, at best neglected to recognize the company's problems. At worst, investigators now say, the auditor was complicit in perpetrating one of the biggest frauds in corporate history.
On Dec. 2, 2001, Enron declared bankruptcy. Thousands of people were thrown out of work, and thousands of investors -- including most of the company's employees -- lost billions of dollars as Enron's shares shrank to penny-stock levels.