The Fall of Enron
Collapse Felt from Workers' Homes to Halls of Government

What Went Wrong at Enron? Part I

What Went Wrong at Enron? Part II

Throughout the late 1990s, Enron was almost universally considered one of the country's most innovative companies -- a new-economy maverick that forsook musty, old industries with their cumbersome hard assets in favor of the freewheeling world of e-commerce. The company continued to build power plants and operate gas lines, but it became better known for its unique trading businesses. Besides buying and selling gas and electricity futures, it created whole new markets for such oddball "commodities" as broadcast time for advertisers, weather futures, and Internet bandwidth.


Enron's fall is one of the worst business failures in American history.
Photo: Copyright 2001 Reuters Limited

The Enron story was perfect for the dotcom-driven stock market boom of the '90s. With its roots in the utility business, the company enjoyed a solid reputation for old-economy stability. But unlike other energy companies that didn't "get it," Enron thrust itself headlong onto the Internet. The business press ate it up; so did Wall Street, sending the stock into the stratosphere. At its peak, Enron was worth about $70 billion, its shares trading for about $90 each.

All that came crashing down starting last October, when the company admitted that it had misstated its income and that its equity value was a couple of billion dollars less than its balance sheet said.

The company, it was revealed, had made about a dozen "partnerships" with companies it had created, and it used those partnerships to hide huge debts and heavy losses on its trading businesses. At the same time, Arthur Andersen, the company that audited Enron's books, at best neglected to recognize the company's problems. At worst, investigators now say, the auditor was complicit in perpetrating one of the biggest frauds in corporate history.

On Dec. 2, 2001, Enron declared bankruptcy. Thousands of people were thrown out of work, and thousands of investors -- including most of the company's employees -- lost billions of dollars as Enron's shares shrank to penny-stock levels.

Throughout January, revelations poured forth from Enron: tales of shredded documents, stories of Enron execs seeking help from top administration officials, allegations that company officials willfully ignored internal warnings about the accounting irregularities even as they pocketed millions of dollars in stock-market gains. It quickly became clear that the sudden collapse of the country's seventh-largest company was going to have implications not only for business, but for politics and policy as well: Enron and its officers were among the biggest donors to U.S. political campaigns over the past decade.


William Lerach an attorney suing Enron, talks to reporters outside the Federal building in Downtown Houston on Jan. 22.
Photo: Copyright 2001 Reuters Limited

Critics say that deregulation of the energy business created the environment for Enron to fall. Chairman and CEO Kenneth Lay was apparently invited to take part in Vice President Dick Cheney's task force on energy policy, which met behind closed doors. To top it off, Enron executives, particularly Lay, are chummy with many in the administration, including President Bush himself, who refers to his friend Lay as "Kenny boy."

Now, two federal agencies and at least 10 congressional committees are investigating the Enron collapse. Some observers predict the case will result in jail terms. Others say that at the least, new regulations will have to be imposed both on the accounting business and on the energy industry.

Though all the details of company' s collapse may not be known for months -- and its full ramifications may not be clear for years -- observers predict the fall of Enron will be known for decades to come as one of America's greatest business debacles.

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