Enron Corporation


Also found in: Financial.

Enron Corporation,

U.S. company that in 2001 became the largest bankruptcy and stock collapse in U.S. history up to that time. The company was formed in 1985 when InterNorth purchased Houston Natural Gas to create the country's longest natural-gas pipeline network. Renamed Enron in 1986, the company transformed itself in the 1990s from a gas-pipeline business into a natural-gas and electricity trading giant. By 2000 it was the seventh largest U.S. corporation.

Enron employed shoddy and deceptive accounting practices to hide its financial losses (and occasionally its gains). The techniques of structured finance—complex financial transactions designed to hedge the risks involved in business activities—were used to enrich some of Enron's corporate officers and hide the firm's financial losses. Independent partnerships to which Enron sold assets were created, enabling Enron to convert loans and assets burdened with debt obligations into income, but the contracts with the partnerships contained guarantees and risky buy-back conditions that had potentially disastrous consequences for Enron. Enron also booked projected long-term income from trading contracts when those contracts were signed, but the income projections were often overly optimistic and inflated. In 2001, when one partnership deal was properly accounted for by Enron's outside auditor, Arthur Andersen, large quarterly losses resulted. Those losses and subsequent profit and debt restatements caused Enron's stock price to drop, triggering the unraveling of the partnership and resulting in a sudden and dramatic financial collapse that led to bankruptcy in Dec., 2001. The pensions of some 20,000 Enron employees were devastated in varying degrees as well; 62% of the company pension plan was in now worthless Enron stock.

Enron was also accused of manipulating the electricity markets during the California energy crisis of 2000–2001. There is evidence that its subsidiaries engaged in sham trading among themselves to drive up the price of electricity, and Enron traders arranged power supply deals with California that gave the appearance of creating power congestion, generating fraudulent fees when Enron then appeared to take steps relieve the nonexistent congestion. The large profits made during the crisis were partially hidden by manipulating Enron's financial reserves.

More than 30 people were charged with various crimes arising from Enron's business practices. More than 20 people, including its chairman, president, and chief financial officer, were ultimately convicted of or pleaded guilty to fraud, conspiracy, and other crimes, although the chairman, Kenneth L. Lay, had his conviction extinguished when he died in 2006 before being sentenced. The collapse also destroyed Arthur Andersen, Enron's accounting firm, which found itself accused of obstructing justice when it destroyed documents relating to the case in late 2001 after the Securities and Exchange Commission had begun investigating Enron. Arthur Andersen, which had been one of the top five accounting firms, quickly lost clients and partners when it came under SEC investigation for its role in Enron's collapse, and its federal criminal conviction for obstruction of justice in 2001 sealed the firm's fate. (The conviction was overturned in 2005 by the U.S. Supreme Court because of faulty instructions given by the judge to the jury.)

A number of financial institutions, including Citigroup and J. P. Morgan, paid hundreds of millions in fines and penalties for the roles they played in financing and setting up the independent partnerships that contributed to Enron's collapse. The firms also paid more than $7 billion to be used to repay creditors and investors, but Enron's creditors were owed more than $70 billion when the company collapsed.

Bibliography

See study by B. McLeon and P. Elkind (2003).

References in periodicals archive ?
B: Enron Corporation is not listed as a defendant in this case are they?
Enron: The Smartest Guys in the Room The film that lost to March of the Penguins in the race for best documentary at the 2006 Oscars explores the fall of the Enron Corporation, arguably the most shocking example of modern corporate corruption.
Corporate scandals involving these areas, such as financial reporting frauds at Enron Corporation, Tyco International, Ltd., Refco, Inc., and WorldCom, Inc., undermined investor confidence, resulted in significant losses for investors, as well as the loss of many jobs for employees.
In that case, the court refused to relocate a trial for former Enron Corporation executive Jeff Skilling.
But what else should we expect from the former executives of Enron Corporation (Mr.
The Court began its decision by highlighting the purpose behind Congress' enactment of the Sarbanes-Oxley Act of 2002--namely, "[t]o safeguard investors in public companies and restore trust in the financial markets following the collapse of Enron Corporation." The Court noted that of particular concern to Congress was "abundant" evidence that Enron had succeeded in perpetuating its massive shareholder fraud in large measure due to a "corporate code of silence."
Previously, Gadd has worked in various executive positions with Constellation Energy and the Enron Corporation .
"My caution is related to the credit-driven model," Chanos, who correctly bet in 2001 on the collapse of Enron Corporation, said on Tuesday on a panel moderated by Tom Keene at the Bloomberg Markets 50 Summit in New York.
Kurtzman cites as extreme negative examples the FBI just prior to the attacks of September 11 and the Enron Corporation. In the first example he demonstrates the danger of not empowering people at lower levels to act when they become aware of information, and in the second he shows what can happen when people are empowered to act but get carried away with short-term goals without considering the effect over the long term.
In the 1990s, The Enron Corporation was one of America's most powerful energy companies, employing 22,000 people and claiming revenues in excess of $100 billion (in 2000).
1.704-3(a)(10) be strengthened with respect to "partnership allocations for property contributed to a partnership, especially in the case of partners that are members of the same consolidated group, to ensure that the allocation rules are not used to obtain unwarranted tax benefits" (Joint Committee on Taxation, Report of Investigation of Enron Corporation and Related Entities Regarding Federal Tax and Compensation Issues, and Policy Recommendations (JCS-3-03) (February 2003), p.