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Dennis Cook/AP
Former Enron CEO Jeffrey Skilling

On This Day: Enron Files the Largest Corporate Bankruptcy in US History

December 02, 2010 06:00 AM
by findingDulcinea Staff
On Dec. 2, 2001, Enron filed for Chapter 11 protection, prompting a government investigation whose findings would have far-reaching implications for all of corporate America.

Enron Files for Bankruptcy

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During the 16 years from its creation in 1985 to its demise in 2001, Houston energy company Enron achieved astonishing levels of success. It became the largest energy-trading company in the world, employed over 20,000 people and claimed $111 billion in revenues in 2000.

But that success came to a bitter end beginning in early July 2001, when it announced that it would post a large quarterly loss. Over the next five months, as the Securities and Exchange Commission investigated the company, details of corporate accounting fraud leaked out and sent Enron’s stock into a freefall.

On Nov. 8, 2001, Enron admitted that it had overstated its earnings over the previous four years by nearly $600 million.

The company appeared to be given a lifeline when Dynegy, a smaller Houston rival, agreed to acquire it. However, Dynegy backed out of the deal after discovering that Enron had grossly underreported the amount of debt it held. Enron filed for Chapter 11 protection in the Southern District of New York Court soon after.
“Enron's bankruptcy filing … ends the company's downfall,” reported The New York Times. “Its stock, worth $90 at its peak last year, is now nearly worthless, and other traders quit doing business with it last week for fear they would not be paid.”

Just over a month after Enron filed for bankruptcy, the Justice Department began a criminal investigation. By the time it was through, three of the company's top executives had been convicted on charges of conspiracy and fraud, its directors had paid dearly for their negligence, its investment advisors and lenders had entered into large settlements, and all of corporate America found itself dealing with a new and harsh regulatory scheme enacted in response to Enron’s transgressions.

Reactions: SarbOx, Lawsuits and the Collapse of Arthur Andersen

In 2002, in response to the scandals at Enron, WorldCom, Tyco and other companies, Congress passed the Sarbanes-Oxley Act, also known as the Public Company Accounting Reform and Investor Protection Act. The legislation was intended to improve the transparency and accountability of corporate finance.

Enron shareholders sued the company for losses they suffered due to fraudulent accounting and, in January 2005, 18 of Enron’s former directors agreed to pay $168 million to settle the lawsuit. The deal stipulated that 10 of those directors contribute $13 million of their own money to the settlement.

In 2002, Enron’s accounting firm, Arthur Andersen LLP, was convicted of obstructing justice after it destroyed sensitive documents relating to Enron before the company collapsed. The former “Big Five” accounting firm was largely dismantled, and its approximately 30,000 employees lost their jobs as a result of the conviction. A 2005 Supreme Court ruling overturned the Andersen conviction, but the company remains tarnished.

Key Players: Enron Executives

PBS NewsHour offers short biographies of all of Enron’s biggest players, including former Chief Executive Officers Kenneth Lay and Jeffrey Skilling, and former Chief Financial Officer Andrew Fastow.

Related Topic: Enron and the California Blackouts

In one of the most controversial revelations to come out of the Enron scandal, leaked audiotapes detailed how company traders manufactured electricity shortages in California during the state’s early 2001 energy troubles.

Composed of conversations between traders and energy officials, the tapes demonstrate how Enron employees regularly manipulated the energy market by shutting down power plants and thus hiking up utility prices. At the time the tapes were recorded, power plants in the greater West Coast grid were under federal emergency order to keep their plants running.
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