How Enron let down its employees

In my first two blogs I wrote about how and why Enron collapsed. In this blog I will talk about a consequence that is often forgotten but had an enormous impact on many lifes: thousands of people lost their job and had worthless Enron stocks.

All the former employees are telling the same story: Enron was a wonderful company to work for. You could earn lots of money, and you could enjoy luxury for free, provided by the company. Enron arranged theatre tickets, taxis if you had to work late, there were fridges full of drinks etc.

In the US, Enron matched the pension contributions with Enron stock. In the UK they matched around 10% of the salaries with shares.

When Enron collapsed, all these stocks lost all their value. During the downfall of stock prices, Enron forced their employees not to sell. This was disastrous for all those employees who had a lot of their money in stocks. Many people lost a lot of their pension savings and of their saving money. This is another dark side of the Enron story.

http://news.bbc.co.uk/2/hi/business/1767733.stm

The Cult of Personality

The writer of this article says the Enron executives, all members of a certain cult, didn't mean to practically bankrupt the state of California, but that they just didn't care about the impact of their shareholder value-driven competition on their surroundings.

In this kind of cult you can only find the exceptionally smart with financial success as their primary focus, whose membership can only be garanteed by continuous performance. Enron executives thought they were smarter than the other players on the market and made them believe in their continuous growth fairy tale, making a lot of money in the process, realising that somebody else would have to clean up their mess later on.

And when they succeeded in bringing in millions of dollars for their company, they convinced themselves not to be another ordinary criminal, but rather a hard-working businessman who doesn't mind the tough competition because competition eventually pays off for all of us, doesn't it?

Source: http://everything2.com/title/Enron+and+the+Cult+of+Personality

What caused Enron to collapse?

Enron collapsed because of their creative accounting practices. It didn’t collapse because it was so big, but because people thought Enron was much bigger than it actually was.

Enron had many subsidiary companies around the world which made it possible for them to hide big losses. The transactions between Enron and the subsidiaries masked Enron’s real financial state. Losses were hidden, assets were stated.

This way, Enron could borrow much money from other Wall Street firms without any problems. When the fraud was finally found, accounting firm Arthur Anderson lost their liability to the public and was forced out of the market. Enron’s stocks lost all their value.

Of course this wasn’t an accident. The focus was the appearance of the value to rise stock prices, the focus was not creating real value. This was part of Enron’s management culture. It’s a good example of the dark side of American capitalism.

http://www.ehow.com/how-does_4911332_what-caused-enron-collapse.html

Skilling Decision: No Get Out Of Jail Free Card

In this blog, I will continue on my previous subject of the appeal by Jeffrey Skilling. On June 24^th Ruth Bader Ginsberg, a Supreme Court justice, didn’t deviate from the Supreme Court doctrine, which says: Don’t overrule Congress if you can avoid it. Therefore he examined the essence of the statute and came to the conclusion that the legal concept of honest services can only be used if there is a bribe.

This is important for future defendants in white-collar criminal cases but it won’t help Skilling to get out of jail. Skilling was convicted of 19 felony counts, of which only one on the basis of the statute of honest services.

Fortunately the Court didn’t overturn the convictions against Skilling but they instructed the lower courts to hold a new trial. That new trial started November 1^st and it will take a few months. It is Skillings last chance at freedom. 

http://blogs.forbes.com/docket/2010/06/24/skilling-decision-no-get-out-of-jail-free-card/

“The rich get richer, the poor get poorer”

The city of Houston, and its people, suffered a lot from the Enron scandal. The story of the Enron collapse and its consequences is a story about two different groups, causing two different reactions.

On the one hand, there’s a massive group of -relatively- poor, hard-working employees, who lost a lot of money, pension and savings. They do have plenty of negative feelings, such as anger and frustration, about the Enron scandal and are mostly in a struggle to survive financially.

On the other hand, there are certain former Enron executives, who caught some midnight bonuses just after Enron got bankrupt. Ken Lay for instance, former Enron chief, stayed
-relatively- wealthy in the years after the bankruptcy, and still believes he’s innocent.

Homo homini lupus. A man is a wolf to his fellow man. The story of Enron is one of greed and moral decline. The idea of corporate governance is a modest step forward, although I do believe that there will always be people in charge with too much ambition and greed inside them. Therefore, I think this could happen again... but not on such a gigantic scale anymore.

Based on http://news.bbc.co.uk/2/hi/americas/4652322.stm

Inside the Enron Scandal

Until late 2001, Enron was the world’s biggest energy trading company. It posted one billion dollar profit in 2001.

Now it’s clear these profits were false and those figures were wildly inflated by the aggressive accounting techniques. This made it possible for the Enron executives to make millions by selling Enron shares.

I keep on wondering how it’s possible such a big fraud can happen but apparently it’s possible. The Enron board ‘failed’ to spot the wrong figures. So did accountants Arthur Andersen.

Many big Wall Street firms invested also in Enron’s obscure subsidiary companies, although they knew it was to improve Enron’s balance sheet. Enron spent $250 million on fees to these firms in 2001…

If there were analysts that wrote bad reports about Enron, their investment houses came under big pressure as they could be cut out of the lucrative Enron business.

All this kept going until 28 November 2001, when Enron imploded.

Based on http://news.bbc.co.uk/2/hi/programmes/the_money_programme/1909153.stm

Supreme court to hear appeal by Enron's Skilling

In 2006 Jeffrey Skilling, former Enron Chief Executive, was convicted of 19 felony counts and has been sentenced to 24 years prison because one of the biggest fraud cases of the last decade. 
In October 2009 Skilling and his lawyer applied to review his case on the grounds that a legal concept known as the “honest services” wasn’t used in the right way. “Honest services” is the duty to be honest that business leaders or politicians have towards shareholders or the public. The problem is that this law is poorly defined. 
Peter Henning, an expert in white collar crime, said: "The lower courts have diverged on their interpretation of honest services." He is going to use this case and put parameters on it to give the courts some help how they can deal with this legal concept. He also said that it’s unlikely that the Supreme Court, which will deal with Skilling’s appeal, will drop all convictions. But there’s a chance that there will be a fresh trial if the judges can redefine the honest services concept. 

http://www.guardian.co.uk/business/2009/oct/13/jeffrey-skilling-enron-supreme-court-appeal