In 2006, Jeffrey Skilling was sentenced to 24 years in federal prison for his role in the historic 2001 collapse of energy giant, Enron. In 2013, the United States Department of Justice reduced Skilling’s sentence by a full ten years, and he is now eligible for release from Montgomery, Alabama Federal Prison Camp in 2017. The following article details Enron’s mercurial rise and stunning collapse, as well as Mr. Skilling’s role in the fraud. By analyzing the deceptive accounting methods employed by Skilling, Lay and Fastow – as well as their societal impact and corresponding legislative response – we can better understand how to identify and avoid similar financial crises through more robust regulatory mechanisms.
Background: The Birth of Enron
Although the name “Enron” did not officially enter the public lexicon until 1986, this multi-faceted corporate energy behemoth was, quite ironically, birthed out of the stock market collapse of 1929. Founded as the Northern Natural Gas Company in the early months of 1930, the company’s apparent theme of growth and profit amidst the financial woes of others is one that Enron would repeat throughout its superlative 71-year lifespan. In a period of just a few years, Enron would go from being ranked number seven on the Fortune 500 to the biggest bankruptcy in American history.
Before its 2001 bankruptcy filing, Enron was one of the world’s largest electricity and natural gas companies – marketing natural gas liquids and transmission systems on a global scale, and producing electricity for both industrial and emerging markets. Enron was also among the biggest independent oil and gas exploration companies and managed the world’s largest portfolio of gas-related risk contracts. In addition to being a major global supplier of solar and wind-based renewable energy, Enron spearheaded the re-conception of the global energies markets by developing new and highly-profitable futures trading products in natural gas, and even weather. The scale of Enron’s massive growth in the late-80s and 90s is trumped only by the weight of its 2001 collapse and the extreme, almost unimaginable lengths taken to hide this failure from its shareholders.
In the wake of widespread deregulation of the energy and natural gas markets – a cause championed by none other than future Enron CEO Ken Lay – the company then known as “InterNorth” began its true rise to power in the unsupervised playground of the 1980’s energy markets. By acquiring the Ken Lay-chaired Houston Natural Gas Company for $2.26 billion in 1985, HNG/InterNorth created the largest gas pipeline system in the U.S. When the ink dried on the HNG/InterNorth merger in 1986, Ken Lay emerged as chairman of the combined company that would now forever be known as Enron Corp.