did Enron go bankrupt?
How did a company, with nearly 21,000 employees in over 30 countries
and stated revenues of more than $100 billion, run out of cash?
While government investigators are still exploring the precise reasons
why the global energy giant suddenly declared bankruptcy on Dec. 2,
2001, there are key events that led to the company's dissolution.
In early July, Enron surprised its investors by saying it would post
a large loss in its quarterly statement. The company blamed losses on
the California energy crisis, poor results from its investments in India
and South America, and a moribund broadband Internet market.
Then, in August, CEO Jeffrey Skilling unexpectedly resigned after a
brief six-month tenure in the top spot. Skilling claimed the move was
for "personal reasons," but investors were left stunned and
anxious about the stability of Enron.
Sometime between July and October, the Securities and Exchange Commission
began an inquiry into Enron's troubling losses.
In October, Enron said it would reduce shareholder value by $1.2 billion.
The company blamed the losses on its broadband division, international
subsidiaries, and its partnerships, like LMJ and Chewco. Less than two
weeks later, the energy giant fired Andrew Fastow, the chief financial
officer, for allegedly arranging deceptive and failing partnerships
what were being used to hide millions of dollars in Enron losses.
During this time, the SEC publicly upgraded its inquiry into a formal
investigation of Enron's suspected fraudulent financial statements.
In early November, Enron conceded it had overstated its profits by nearly
16 percent, or $600 million, since 1997. Enron's auditors, Arthur Andersen,
also alerted shareholders that they should not trust any financial reports
issued before June 30, 2001. Enron's market value plunged, as shareholders
and investors sold their shares as fast as they could.
Enron's credit rating was reduced, which meant the company had to pay
back a part of its debt immediately and, consequently, its deal with
Dynegy fell through.
Faced with paying back millions of dollars in debt, Enron's executives
and company board agreed to seek Chapter 11 bankruptcy protection in
early December of 2001.
The breathtaking speed of the energy giant's collapse is now the subject
of multiple investigations, including a criminal investigation into
the company's allegedly fraudulent accounting methods.
By Liz Harper, Online NewsHour (June 2002)