Enron

The man who founded Enron, Kenneth Lay, has died just weeks before his jail sentence was to be announced. Mark Tran and Stefanie Khaw look at one of America's biggest business scandals Thursday July 6, 2006Guardian Unlimited
What is the latest development with Enron?
Kenneth Lay, the Enron founder, died of a "massive" heart attack on July 5 at his holiday home in Aspen, the exclusive Colorado ski resort. He was 64. In May, Lay was found guilty of six counts of fraud and conspiracy and was due to be sentenced in September. He expected to spend the rest of his life in prison. Lay is the second top Enron executive to die since the company collapsed. In 2002, Clifford Baxter was found dead after shooting himself in a Houston suburb.

What took place at the trial?
The trial in January of Lay and Jeffrey Skilling, Enron's former chief executive, was one of the most eagerly anticipated in the corporate world. Both men denied 42 charges relating to their role in the accounting scandal. The former Enron finance director, Andy Fastow, testified against his former bosses in exchange for a maximum jail sentence of 10 years. The jury found Skilling and Lay guilty.
What happened to Enron?
The Texan energy company filed for bankruptcy in 2001 - at that time the biggest corporate collapse in US history. Named "America's most innovative company" by Fortune magazine for six years running, the firm unravelled after it was alleged that the concealment of huge debts had given investors a completely false image of the company. Enron went from being a company claiming assets worth almost £62bn to declaring bankruptcy within a period of three months. Share prices collapsed from about $95 to $1. Enron emerged from bankruptcy in 2004. Its current operations involve handling key assets and preparing the sale of its remaining businesses.
What kind of company was it?
Enron started life as a regional natural gas pipeline company, the result of a merger between Houston Natural Gas and InterNorth in 1985. Lay was credited with transforming Enron into the world's largest energy trading company and America's seventh-biggest corporation.
How did the corporation become so successful?
Enron was quick to exploit opportunities when deregulation in the late 1980s allowed users to buy gas or electricity from different producers. It specialised in contracts to deliver natural gas, electric power and other energy products to industries and utilities at future dates. It also sold financial instruments designed to protect customers against sharp swings in energy prices.
What was Wall Street's attitude towards Enron?
Enron soon became a darling on Wall Street as analysts lauded the company for bringing hi-tech and complex finance to the dull business of supplying energy. Enron also cashed in on dotcom mania with Enrononline, a web-based trading service.
When did the company start to unravel?
The rot began in August 2001 with the abrupt resignation of Skilling, who cited "entirely personal reasons". At the time, Lay denied there were any problems but Skilling's hasty exit set off alarm bells and Enron's shares started to drift downwards.
What precipitated its collapse?
The situation deteriorated dramatically in October 2001, when Enron had to set aside $35m (£24m) to reflect losses in two complex partnerships that had been set up in 1999 to conceal its large debt. Enron was also forced to knock $1.2bn off shareholder equity at the time, a move that sent its share price into freefall.
Why did the collapse make waves politically?
It emerged that Lay had conversations with Paul O'Neill, the treasury secretary, and Donald Evans, the commerce secretary, just weeks before the company filed for bankruptcy. Lay asked for help to stop a private credit rating agency downgrading Enron's debt. Officials deny any intervention but questions persist because of Enron's close connections with the Bush administration.
How close was Enron to the Bush administration?
Lay was an old friend of the president and Enron executives contributed more than $500,000 to George Bush's various campaigns. More specifically, the White House faced questions about six meetings between Enron executives and the vice-president, Dick Cheney, or his staff that took place in 2001 when the Bush administration was formulating US energy policy.
Did the firm's collapse lead to any changes?
In July 2002, the president signed into law harsh penalties for anyone found guilty of corporate wrongdoing. Congress subsequently passed the Sarbanes-Oxley legislation, which tightened compliance for US companies. But that was small consolation for those who lost money through Enron. Investors lost their shirts and many of Enron's 19,000 employees lost their savings because they belonged to retirement plans based on Enron shares. Yet top executives were able to sell their Enron shares before they became worthless.
How did Enron's finances escape scrutiny?
Arthur Andersen, Enron's auditor, was convicted of obstructing justice by destroying a "significant" number of documents relating to the Enron case in June 2002. Once one of the "Big Five" accounting firms, the company voluntarily surrendered its licences to practise as a certified public accountant in the US in August 2002. Andersen closed down in the US and agreed to pay $60m (£32m) to settle legal claims over its role in Enron's collapse. In May 2005, the US supreme court overturned the conviction, saying jury instructions had been "flawed", but Andersen is unlikely to return to business.
Did Enron operate outside the US?
By 1999, Enron was involved in a quarter of all electricity and natural gas deals in the world and had major operations in Brazil and India. Enron was particularly disliked in the developing world after the company became embroiled in one of India's biggest corruption scandals, in which large sums were paid to politicians involved in the privatisation of electricity firms.
Did it have assets in the UK?
Four thousand people worked for Enron or companies it owned in the UK. Enron owned Wessex Water, which employs 1,400 workers, and power stations on Teeside. Wessex Water was sold to the Malaysian utility YTL Power in May. The Enron jinx struck Wessex Water when its boss, Colin Skellett, was accused of accepting a £1m bribe during the sale. He was cleared of the charges five months after being arrested by the police.
How was Lord Wakeham involved?
Lord Wakeham was the first British political victim of the Enron debacle. The former Conservative cabinet member stepped down as the chairman of the Press Complaints Commission "as a matter of honour" while his links to Enron were examined by US investigators.
How was he linked to Enron?
Lord Wakeham joined Enron as a non-executive director in 1994 after serving as energy minister under Lady Thatcher, when he approved Enron's purchase of a big gas power station in 1989. He also sat on Enron's audit and compliance committee, which was supposed to scrutinise the complex transactions between Enron and its controversial partnerships. The company paid him a reported £80,000 a year. Special reportsEnronUnited States of AmericaTimeline30.01.2006: Key events in the collapse of EnronInteractive guideEnron - web of intrigueUseful linksEnronSecurities and Exchange Commission House energy and commerce committeeUS justice departmentAndersenOfwat