So aside from them being a really big company that lots of people lost LOTS of money on, what really happened here? I gather that they were big in the energy business, but what went wrong. Did someone just open the petty cash drawer one day and realize that they were broke? I take it this was a top 10 or 20 company, or something like that. So where's the scandal? Can you guys fill in some of the details with out getting too technical?
I can't say much about the whole story, but the scandal comes in two parts:
1) Enron was broke. They knew they were broke. So what did they do? The top execs took all the money that was left, and then declared bankruptcy. All the workers, and all the stockholders were screwed.
2) Enron contributed lots and lots of money to both the Democratic (I think) and Republican (I know) parties, and to individual campaigns like John Ashcroft and GW Bush. People want to know if a lot of the current screwy energy policies were an attempt to pay back Enron and bali them out of their debt.
I haven't heard any real progress into the investigation about any wrongdoing by the politicians, but I'm not a news buff, so I don't follow these things.
Enron had assets and debts. They used an accounting trick to make some of the debts secret - so that it appeared that their ratio of asset:debt was higher than it really was. This put the stock at a value above where it should have been.
The stock was ACTUALLY worth X. Let's assume it was valued at 2x. Enron went bankrupt because the people that got stuck with the stock at value 2X were really worried when it dropped down to a realistic value of X and sold their shares to try to regain some value. This fueled a panic, and - like a run on a bank - the stock value plummeted more.
So. They cheated... kind of. They were caught. The stock was TOO overvalued and it caused a panic and then the bottom fell out because people freaked and sold at a loss and there was no market for the stock.
Enron probably still has a value. No one liquidated the company secretly and let the bottom fall out. They simply propped up the price too high and when it dropped the bottom fell out.
What I think is funny is that Enron execs were in the buisness of buying out "Star Wars" themed companies. Among their holdings: ChewCo, Joint Energy Development Investments (JEDI), Kenobe, and OBI-1 Holdings.
There never was an energy trading market or bandwith trading market to begin with. Enron controlled over 90% of the business in these markets and when that happens you buy and sell between each other most of the time. Because you are on both sides of the same trade you are artifically setting the market. It works for awhile but eventually will collapse upon itself like a house of cards.
In terms of the partnerships, Enron set up partnerships to shift debt and assets off their books to the enrichment of top management and others like Merrill Lynch, Goldman Sachs, and others. They used a little know rule that allowed the transactions if there was a single partner owning 3% of the partnership. Calpers actually turned down a lot of later deals stating a conflict of interest with the CFO who was a managing partner for some of the partnerships while maintaining his role as CFO.
If you are careful you can notice this behaviour going on a lot with US companies. The airlines use these partnerships to transfer aircraft leases off the balance sheet and Williams Co. just transferred some debt and assets to a 'related entity.'
No they did take the money but not directly from Enron. They benefited as shareholders of the limited partnerships which had assets and debt transferred to them. I am not sure how they cashed out unless there were tangible assets in the portfolios which earned real revenues.
I am reading anything related to Enron now because I find what they did fascinating.
Here in Columbia, MO, we're having lots of signs from both sides getting stolen. I also got a drink thrown in my face during a peace demonstration, so see, there are idiots from both sides. Plus, it was disgusting blue Gatorade.