When It All Went Enrong
Here’s how “America’s Most Innovative Company” in 1995 turned into America’s most colossal bankruptcy in 2001. This one’s a scandal for the ages, so sit back and enjoy!
Enron used to be an energy company on the S&P 500, and a very, very big one at that. As North America’s largest seller of natural gas, Enron was the 7th largest company on the index in the year 2000. The numbers it posted were other-worldly! Revenue doubled annually, each worker was worth $5.2 million in sales, and one of Enron’s head honchos was energy advisor to the president!
Endorsements abound, the ever-expanding pie of Enron was worth a pretty penny on the stock market. It was the heart and soul of a great many retirement plans, but the keyword in all of this? ‘Was.’
You see, underneath, Enron wasn’t doing quite as well as its numbers suggested. By taking advantage of lax accounting rules, the company’s “innovative” celebrity execs sure showed off their creative talents! They found ways to paper-over their underperformance, pull the wool over investors’ eyes, and siphon off millions for themselves in the process.
If Enron made a $10 million investment with hopes of making $20 million in profit, they would immediately report $20 million in profit. If they suffered losses or took out debt, they would saddle a new start-up with it all through complex deals. Embezzlement, insider trading, conspiracy, you name it, Enron did it!
In reality, leading execs Jeff Skilling and Ken Lay couldn’t sell electricity to save their lives, and that truth eventually caught up with them when the real value of Enron was figured out. A federal investigation revealed all, the media went crazy, and public outcry took hold. Enron’s stock price dropped like a ton of bricks from $91 to $0.21 in a single year and was kicked off the S&P 500 to be replaced by Nvidia.
The moral of the story? Ask lots of questions. The sentiment of the herd made Enron impenetrable, but now as a fallen star, the US government has ramped up accounting law with the Sarbanes-Oxley Act. As for the Justice System? Well, Lay died of a heart attack before his trial, and Skilling was released from prison last year. He has plans to make a comeback in the energy biz. Uh-oh, we’ll keep an eye on him for you!