Enron Declares Bankruptcy

enron building
Enron Building

In the largest such case in US history the Enron Corporation declared bankruptcy on December 2. 2002. Enron had been the seventh largest corporation in the US. It had expanded rapidly from a pipeline company through a series of acquisitions. It financed its growth with off the books structured financing. By the time the company declared bankruptcy much of its actions seemed no different then an updated ponzi scheme. Its chief financial officer, his wife, other employees and the chairman of the board Ken Lay were all charged with crimes for their actions that they took at Enron.

Enron was founded as the merger of Houston Natural Gas and InterNorth in 1985. In 2001 shortly before its bankruptcy the company had over 29,000 employees and reported revenues of $101 billion. However a significant part of the income was not real, and the company had much higher debt that it was reporting.

The companies core problems were two-fold. First, much of its profits were in fact commissions on sales. However, the company was reporting the full value of the transaction as a sale for the company. The company which initially was an energy producer and an operator of gas and other pipelines slowly became more of an energy trader and hedge fund. It was financing much of its operations with off the book partnerships whose debts were often hidden from the public and financial analysts.

In 1999 the company added a new business division which sold high-speed internet bandwidth. The goal was to see the bandwidth like any other commodity. At the same time, Enron invested in many overseas energy projects, many of which did not work out either.

In 2001 it was discovered the Enron had together with its accounted firm Arthur Anderson been reporting fraudulent sales, hiding debts and losses. On December 2, 2001, Enron filed for bankruptcy in what was the most significant American bankruptcy to that date.

As a result of the collapse of Enron, a number of Enron employees including its President and his wife Kenneth Lay were charged with insiders trading. The firm of Arthur Anderson was forced to disband due to their liability in the Enron affair.