This website is now archived. While it is fully functioning, I no longer maintain it and comments are turned off on most posts. Please visit the updated

The Enron Scandal in Under 500 Words

Enron: The Brief Explanation

It all started in the late 1980s when two Enron internal auditors discovered millions of dollars being transferred from Enron into the personal accounts of two workers. These two workers (Borget and Masteroeni) were friends with Middle-Eastern rulers, and through them gained inside information on the OPEC organisation (holders of 60% of the world’s oil) – leading them to make millions in trading oil commodities. The then CEO (Kenneth Lay) told the auditors to investigate and ensure the money was returned to Enron. Soon after, the President (Mick Seidl) and Chief Financial Officer (Keith Kern) of Enron told the auditors to drop the investigation as these two employees were bringing in tens of millions in profits for Enron – annual profits were more important than legal practice.

In the 1990s Enron created offshore entities as a method of tax avoidance to raise profits. This also allowed free movement of funds between countries and the possibility to hide losses. Over many years, financial deception took place to give investors and the public the illusion of billions of profit whilst millions were being lost. This continued to the beginning of the 21st Century.

It was at this point that the executives and financial officers at Enron (who knew about the dire financial situation) sold hundreds of millions of shares (at their highest point valued at $90 each) whilst telling investors to buy, promising that it would rise to a minimum of $130. The financial situation at Enron was now reaching a critical-mass, and could not continue. The investors and public did buy – they bought the shares being secretly sold by the executives.

The share price began to drop and the executives continued to sell – all the while continuing to reassure investors that the stock price would rise again and to buy and hold on to existing stock. By November 2001 the shares were worth $15. Executives continued to persuade investors to buy whilst Lay (the CEO) went to the media to get the public to buy stock whilst it was cheap – assuring everyone that it would rise.

By late November, Lay sold over $90m worth of stock and kept hold of almost none. His wife sold her 500,000 shares in Enron between 10:00 – 10:20 on November 28th… 10 minutes before the company went public on the million dollar debts, despite claiming billions in profits for years. Minutes later, the share price dropped to below $1 – thousands of investors lost life savings – hundreds of millions of dollars were lost. Thousands of Enron staff were suddenly without jobs and pensions. Essentially, everyone financially related to Enron had their life ruined in minutes… apart from the executives, their family and friends.

Lay and Jeffrey Skilling (both CEOs) went on trial for the financial crimes (bank, securities and wire fraud, money laundering and insider trading to name a few). Lay was convicted on all six counts (45 years in prison) and Skilling on 19 of 28 counts (185 years in prison).

The bankruptcy of Enron was the biggest in history.

Enron: The Brief Explanation