ENRON: THE BIGGEST FINANCIAL SCANDAL IN HISTORY, AS BIG AS FORGOTTEN
The Great Recession , the crisis of the subprime mortgages that took Lehman Brothers ahead and was on the verge of liquidating the economic system, has made forget, or at least put in the background, previous episodes.
Going back to December 2, 2001, is to go back to one of the biggest scandals in economic history. That day, the energy company Enron declared bankruptcy. It was the first global energy distributor, and invoiced 100,000 million dollars per year .
The lie is born
How could something so huge get to that situation? Easy: it was all a deceit.
The company, founded in 1985 by Kenneth Lay , lived a before and after with the arrival of Jeffrey Skilling. One of the best graduates at Harvard in his MBA promotion, who landed at Enron in 1997. With him, the company discovered in all its expression what accounting engineering is . Liabilities that became assets, loans that were counted as income, make-up debt, inflated profits … In the eyes of accounting, everything touched perfection.
The best company in America
In fact, it was an example for others. The most innovative, the best handled. So it was until little by little the reality was coming to light. The board of directors lived cheated, with an action on the stock market that traded on the 90 dollars in the 2000.
Between the best and the worst
Enron was considered one of the best companies in the United States.
A review of the accounts by the accounting authorities revealed hidden debts and hidden items out of the balance sheet that gave the impression that the company was healthy. Little by little the Enron world was falling. Of the $ 90 per share in 2000, one year later it was barely a dollar, 99% less. More than 10,000 million in book value (value in the accountancy) that vanished. Thousands of savers that lost their investment.
Cornered, the firm was forced to present the bankruptcy. In its day it was the biggest one in history. Accumulated assets of 64,000 million and debts of 30,000 million . A milestone of the time, later surpassed by WorldCom (in 2003) and Lehman Brothers and Washington Mutual (both in 2008 after the last crash ). 20,000 employees lost their jobs, the logical consequence of the disaster.
Less expected was the fall of its auditor . Enron was ahead Arthur Andersen, one of the five most important audit firms in the world at that time. It was a participant in the deception. In theory, under the pressure of the top managers, who asked to turn a blind eye to keep the accounting rinse alive. Disgraced and condemned, ended up exploded and its business in the hands of the other great. Nearly one hundred years of history dilapidated by Enron.
Jeffrey Skilling, the mind behind accounting, his last move went wrong. Before the bankruptcy he saw all that were coming, so resigned his position alleging family reasons and sold the actions that he had in the company. Four months later the bankruptcy arrived. Supposedly, he did not know anything about the critical situation of the company . It didn´t sneak.
In 2004 he was charged with about thirty charges, among them operating with confidential information, selling about 60 million dollars in Enron shares before bankruptcy and cheating the auditor or conspiracy.
Kenneth Lay, founder of Enron, pocketed 40 million dollars per year.
In October 2006 he was sentenced to 24 years in prison and fined 45 million dollars. He states that after Enron’s ‘death’ he considered suicide, but that the sentence saved him. It made him reconsider. He became his greatest critical.
In the following years there were revisions and reductions of his sentence. In the end, he can go outside in February 2019, less than 18 years after the bankruptcy of Enron.
Kenneth Lay , the founder, was pocketing 40 million dollars per year. After the scandal and bankruptcy, he had to do with justice. He was charged with up to eleven charges related to fraud. The judgment began in January 2006. The jury found him guilty of six counts of conspiracy and fraud in May. The sentence was scheduled for September. He never arrived: Lay died in July, at age 64, of a heart attack.
Another ten charges were prosecuted. As often happens in the world of finance, the conviction of the guilties is usually less than the damage caused.
La Vanguardia. Economía 02/12/2016