The Enron Corporation filed for Chapter 11 bankruptcy protection in a New York court on this day in 2001. This became one of the biggest cooperate scandal in America history.
Enron Corp. was formed in 1985, following a merger between two gas companies, Huston Natural Gas Co. and InterNorth Inc. The energy supplier and trading company gained dramatic heights under the supervision of Kenneth Lay, CEO and chairman who rebranded the company. Quickly, the company was ranked seventh on Fortune magazine's list of the top 500 U.S. companies.
By the year 2000, the company had hired 21,000 workers and reported earnings of $111 billion. However, throughout the following year, Enron's stock cost started collapsing by dropping from $90.75 in August 2000 to $0.26 by the end of November 30, 2001.
Following the drop in stock price, Lay sold the largest part of his own Enron stock, while at the same time urging Enron workers to purchase more shares and promising them that the company will soon recover. However, things did not go as planned because Enron's stock value kept falling while workers watch as their retirement investment accounts is wiped out. After that, Enron was hit badly when Dynegy (another energy company), cancelled an arranged $8.4 billion buy-out in late November, which made the company filed for bankruptcy. Within few days investors had lost billions of dollars to Enron's crash, another 5,600 workers lost their jobs while $2.1 billion in pension plans was paid.
The bankruptcy made the name Enron synonymous with one of America's largest cooperate scandals. Afterwards, the SEC (Securities and Exchange Commission) and the Department of State Justice investigations exposed that the company had intentionally inflate its reported earnings while keeping debt and losses in another firm. This new development made government charge Lay and Jeffrey K. Skilling who were the company's CEO from February to August 2001 for concealing their company's financial debts and losses from investors. Further investigations shows that the chief accounting officer Arthur Anderson had ask the company's auditors to destroy documents s that may implicate Enron.
In July 2004, Skilling was arraigned before a Huston court on 35 counts charges, which includes fraud, conspiracy and insider trading. On the other hand, Lay was accused of 11 similar charges. On January 30, 2006, during the trial, former employees of the company appeared to testify including Enron's ex-CFO Andrew Fastow, who had earlier pleaded guilty on two counts charges of conspiracy and agreed to testify against his former bosses. Throughout the trial, Skilling who emptied some $60 million worth of Enron stock not long after his resignation from the company denied knowing about the company's impending doom. In addition, Skilling, 52, became the only one many people identified with the scandal. In May 2006, Skilling was found guilty of 19 of 35 charges and was sentenced to 24 years in prison, while Lay's was found guilty of 10 charges but a Huston judge dissolve the case because he died of heart disease two months later.