The Impact Crater: Employees & Investors Lose Big on Enron’s Collapse
There were several entities scarred by this massive corporate scandal. Perhaps the largest and most affected group of individuals from the Enron debacle were the Enron employees and investors. Due to stock-based employee compensation arrangements and the deceptive suggestion by Lay and Skilling that their employees invest further in the company during its initial decline, a massive contingent of the defrauded Enron investors were their very own company employees. At the time of the collapse, nearly 21,000 Enron employees lost their jobs and medical insurance, in addition to the massive financial losses derived from the huge drop in Enron’s stock price. This spectacular collapse caused financial and personal ruin to all Enron employees whom were punished for being loyal to the company and listening to the false promises from executive management that promised so much.
In addition to the massive lay-offs from Enron, these workers lost the better portion of 70-90% of their retirement funds; totaling roughly $1 billion in market value at the time of the bankruptcy filing. Sadly, over half of all Enron employees had invested 100% of their 401(k) funds into the once-bullish Enron stock. Months before Enron filed for bankruptcy its’ stock was valued at nearly $90 a share and in a matter of months it toppled to pennies. Among the most troubling actions taken by Enron during this time was a decision made in October 2001, when management decided to change the company’s benefit plan administrators and institute a sale freeze; which locked retirement plan participants into their current allocations. This decision came at a time when Enron executives were themselves cashing out millions of dollars worth of their own Enron shares while, concomitantly, employee shareholders lost 35% of their share value during the freeze. It was reported that CEO Ken Lay personally cashed out $23 million worth of his company’s stock during this time.