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Enron scandal
at-a-glance
BBC
News, August 22, 2002
In
just 15 years, Enron grew from nowhere to be America's seventh largest
company, employing 21,000 staff in more than 40 countries. But
the firm's success turned out to have involved an elaborate scam. Enron
lied about its profits and stands accused of a range of shady dealings,
including concealing debts so they didn't show up in the company's accounts.
As
the depth of the deception unfolded, investors and creditors retreated,
forcing the firm into Chapter 11 bankruptcy in December. More
than six months after a criminal inquiry was announced, the guilty parties
have still not been brought to justice. The
investigators A
chorus of outraged investors, employees, pensionholders and politicians are
demanding to know why Enron's failings were not spotted earlier. And
the US Justice Department is thought to be trying to charge several
executives for fraud and money laundering. Prosecutors
have come to a deal with one insider, Michael Kopper, who will plead guilty
and spill the beans about Enron's murky finances. There
is no date for a trial yet. There
has already been a far-reaching investigation into the scandal by a number
of congressional committees. Three
key players appeared involuntarily and then refused to speak in order to
avoid incriminating themselves: ·
Andrew Fastow: Former chief financial officer, sacked as the
scandal unfolded, and alleged author of the deceptive accounting practices. ·
Kenneth Lay: Enron's former chief executive and chairman since
1986 refused to testify at the last moment after saying he had been
pre-judged. ·
David Duncan: Enron's chief auditor at Andersen who shredded
key documents relating to the case. It was his job to check Enron's
accounts. Three
senior executives did testify: ·
Joseph Berardino: Andersen's chief executive, vigorously
defended his firm's role in the affair. ·
Jeffrey Skilling: Enron's chief executive in the first half of
2001 denied knowing that anything was wrong at the firm ·
Sherron Watkins: Enron employee and "whistleblower"
of the scandal. She claimed that Ken Lay was 'duped' and placed the blame on
Jeffrey Skilling and Andrew Fastow. In
line for a sell-off While
investigations continue, Enron has sought to salvage its business by
spinning off various assets. It
has filed for Chapter 11 bankruptcy, allowing it to reorganise while
protected from creditors. Former
chief executive and chairman Kenneth Lay has resigned, and restructuring
expert Stephen Cooper has been brought in as interim chief executive. ·
Enron's core business, the energy trading arm, has been tied up in a
complex deal with UBS Warburg. The bank has not paid for the trading unit,
but will share some of the profits with Enron. ·
Centrica, part of the former British Gas, has bought Enron's European
retail arm for £96.4m. ·
Dynegy, a smaller rival, has won a key pipeline in the US after
merger talks fell through. The pipeline was then resold to Warren Buffet. ·
The power project in India's Maharashtra state - the biggest foreign
investment project in India - is still for sale. In
line for reform That
Enron's false accounting was not spotted sooner has prompted the accounting
industry to take a hard look at itself. Hundreds
of US firms which used so-called aggressive accounting methods to keep debts
or one-off charges away from the headline figures have been affected. And
Andersen, the former auditing giant, has collapsed after being found guilty
of deliberately destroying evidence of its relationship with Enron. President
George W Bush has passed a tough new bill aimed at cracking down on
corporate fraud. And
he has also ordered a review of US pension regulations, after Enron
employees lost billions of dollars because their pensions scheme was heavily
invested in Enron's own stock. Other
issues earmarked for attention by reformers include: ·
The role of business funds in political campaigning. ·
The extent of energy companies' influence on national energy policy. ·
Potential conflicts of interest between consultancy and auditing
work. ·
The need for tighter regulation on financial derivatives trading. Political
implications
The
scandal has also entered the political realm, because of Enron's close links
with the White House. Enron
provided millions of dollars to finance Mr Bush's 2000 election campaign. Mr
Bush was a personal friend of Mr Lay, but has been quick to distance himself
from any involvement with the firm. It
has also emerged that Mr Lay called two US cabinet officers before the
company filed for bankruptcy late last year. And
the US Treasury Department has said one of its officials felt he was asked
to help Enron last year by company president Lawrence Whalley. Enron
executives also met Vice President Dick Cheney and his energy task force
several times to discuss the administration's energy plan. Despite
much mud slinging, there is no implication of guilt as yet. UK
fallout
The
British political repercussions of the Enron collapse centre around whether
Labour's sponsorship from the company led to a change in government energy
policy. Downing
Street has dismissed allegations that the UK government is "enveloped
in sleaze" over its links with Enron. The
Conservatives and Liberal Democrats are demanding an independent inquiry
into what they say could be an affair about cash-for-access. Labour's
relationship with Enron's accountants, Andersen, has also raised questions,
especially as the firm was taken off the unofficial blacklist for government
work, where it had been placed after the De Lorean car scandal in the early
1980s. The
peer, a former Conservative energy minister, joined Enron as a non-executive
director in 1994 and sat on the corporation's audit committee.
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