Two decades ago, in the last month of 2001, one of the biggest in history took place: the bankruptcy of the American giant Enron. The company, which was born in 1985 as a result of the merger of two companies dedicated to the gas and energy business, had become, just 15 years later, one of the biggest Wall Street giants.
A colossus that had expanded its business and invoiced on paper more than 100,000 million dollars a year, figures that, according to the investigations that were carried out later, were shown to be inflated by the company itself, and endorsed by an auditor that he took his client’s bankruptcy ahead. it has some takeaways that can help today’s investors, and entrepreneurs as well.
The importance of corporate responsibility, today so present throughout the world, is one of them, if you want to preserve the value of an investment. The importance of proper regulation is another of those messages, at a time when there is a certain fever for investing in unregulated assets, as is the case with cryptocurrencies.
Enron’s story is that of a company with executives at the helm who were guilty of excessive greed and were able to deceive their shareholders for a time. And all with the approval of one of the largest auditing firms in the world, Arthur Andersen, which cost its life for having participated in the scandal, despite the fact that, after being convicted in 2002 for its participation in the scandal , was acquitted of all charges in 2005 by the United States Supreme Court. The damage had already been done, and the company had practically dissolved.
Covering up the scandal
Enron was a gas company that ended up expanding its activity in other markets, such as finance and insurance. The rise of the company was vertiginous, becoming, a few years after its foundation, the seventh most capitalized company in the US market. However, with the entry of the year 2001, problems began for the company, and the efforts of the main executives of the company to cover up the scandal that was appearing.
It all started with rumors that Enron paid bribes and used influence peddling in some countries to get their contracts. In addition, in 2001, the ‘runrun’ began to spread that the company’s accounts were inflated, due to profits that came from business with the same company’s own subsidiaries, hiding millionaire losses from the firm’s shareholders that should have appeared on paper.
This year, with these rumors circulating in the markets, the , a debacle that continued during the following months, as new information emerged about the hole that the company had to face, and ended up generating, on November 28, 2001 , the biggest drop to date for the Nasdaq in the United States.
The exit from Wall Street
In January 2002, on the 9th, the US Department of Justice opened a criminal investigation of the company. A day later, the storm began: the White House confirmed that the CEO of the company, Kenneth Lay, was lobbying in Washington a few days before the collapse of the firm, at the same time that Arthur Andersen acknowledged that some of his employees had destroyed documents. of Enron. The scandal was served, and Senator John Ashcroft was even excluded from the investigation of the company, since it became known that he had received funds from Enron for his election campaign ahead of the election for the Senate.
On January 16, 2002, Enron’s shares were withdrawn from the US market, and on the 23rd of that same month, Kenneth Lay resigned from his position.
Convicted of conspiracy, fraud, lying to auditors and inside information
Lay was formally charged in 2004 by the American justice for having created a company, and for having profited by selling more than 90 million dollars in shares of the company, which published false results. He was sentenced in May 2006 and died a few months later, in July, of a heart attack, while waiting to hear the prison sentence that would be imposed on him.
Not only Lay was convicted. Jeffrey Skilling, who was also the company’s president and chief operating officer, was sentenced to 24 years in prison in 2006 on charges of conspiracy, market fraud, lying to auditors and insider trading. . Andrew Fastow, Enron’s chief financial officer, was also sentenced to 6 years in prison.
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