Enron at a Glance
Enron began in 1985 as a traditional energy producer/seller.
By the early 1990s Enron wanted to branch off into trading energy futures and derivatives. This wish was granted by Wendy Gramm, who George H. Bush had appointed to head the Federal Energy Regulatory Commission. Her husband, Texas Senator Phil Gramm furthered Enron's wishes by removing virtually all regulatory oversight over Enron's trading.
With the right to trade these nearly metaphysical derivatives Enron decided it was easier to cheat than play by the rules. Rather than letting the free market decide energy future prices Enron set up nearly 3000 offshore companies, many of which they treated as partnerships.
These offshore companies provided Enron with the perfect ruse to manipulate energy prices and, at the same time, hide its own debts.
When states like California came to Enron to lock in energy contracts Enron would show them contracts it had signed with its "partnerships" offshore locking in contracts at increasingly astronomical prices. Faced with what appeared to be legitimate contracts with others, Enron's customers had no choice but to submit to Enron's extortive energy prices.
Now that it could circumvent the magic of the marketplace and set its own price for energy, Enron executives saw no end to the possibilities for its offshore entities. By transferring its obligations to some of the these shell companies they were able to show Wall Street profits when in fact the company was being looted into insolvency by its top managers.
When their Texas friend, George W. Bush, won the White House Enron's CEO, Kenneth Lay, saw the possibility of extending Enron's giant Ponzi scheme well into the future. Lay was appointed to the Bush transition team where he worked directly with Vice President Cheney to develop the administration's national energy policies.
No fewer than 52 former Enron executive, lobbyists, lawyers or significant shareholders ended up working for the Bush administration.
It was only when an uncontrollable meltdown of Enron's scheme began in December 2001 that the world learned that Enron's apparent success had been little more than a complex illusion.
Within days of Enron's bankruptcy California's energy prices returned to normal levels -convincing proof that Enron had successfully distorted national energy market prices. (It is now being learned that other energy companies, such as El Paso Natural Gas, may have participated in the scheme by actually withholding energy from the market.)
But, before Enron collapsed insiders, like Kenneth Lay, dumped over 16 million shares of Enron stock pocketing over $1 billion in profits.
When Enron failed its 15,000 employees learned they had lost $1 billion in pension funds.
12/2000
Enron announces that president and chief operating officer Jeffrey Skilling will take over as chief executive in February. Kenneth Lay remains as chairman. Shares hit 52-week high of $84.87 on Dec. 28.
4/17/2001
Ken Lay and Vice President Cheney meet to discuss energy policy.
8/14/2001
Skilling abruptly resigns after running the company for just six months; Lay becomes CEO again.
8/14 & 27/2001
In a pair of emails to his employees, Lay touts the company's stock and declares that Enron's growth "has never been more certain."
8/15/2001
Sherron Watkins, a vice president of corporate development, writes a memo to Ken Lay expressing concern that the company will "implode in a wave of accounting scandals."
9/17/2001
Skilling sells 500 shares. As of the end of July, Lay has sold shares worth $21 million in 2001 alone.
9/26/2001
Lay tells employees that Enron stock is an "incredible bargain" and will rise in value by 800 percent over the next 10 years.
10/16/2001
Enron reports a $638 million third?quarter loss and discloses a $1.2 billion reduction in shareholder equity, partly related to partnerships run by chief financial officer Andrew Fastow.
10/24/2001
Enron ousts Fastow.
10/28-29/2001
Lay talks to Treasury Secretary O'Neill and Commerce Secretary Evans about Enron's problems. The Cabinet members decide not to intervene.
10/31/2001
Enron announces the SEC formal investigation into a possible conflict of interest related to the company's dealings with the partnerships.
11/8/2001
Enron files documents with SEC revising its financial statements for past five years taking away $586 million in profits and adding another $2.5 billion in debt to its books.
11/28/2001
Dynegy backs out of proposed deal to buy Enron after Enron's credit rating is downgraded to junk bond status. Enron shares plunge below $1.
12/2/2001
Enron files for Chapter 11 bankruptcy protection, the biggest bankruptcy petition in U.S. history.
12/3/2001
Enron fires more than 4,000 of its US employees. That same week, it fires more than 1,000 European employees.
1/9-10/2002
Justice Department confirms it has begun a criminal investigation of Enron. The company's auditor, Arthur Andersen LLP, says it has destroyed some Enron documents. The White House discloses Lay sought the administration's help shortly before the company collapsed. Attorney General John Ashcroft, who received campaign funds from the company for his 2000 Senate race, recuses himself from the investigation.
1/19/2002
The White House acknowledges that Vice President Dick Cheney tried to help Enron secure payment last year on a $64 million?dollar debt owed to it by a large Indian energy project.
1/30/2002
The General Accounting Office, the investigative arm of Congress, vows to sue to obtain documents that may show Enron's influence on the Bush administration's energy policy, after the White House claims the papers are privileged.
2/2/2002
A special investigative committee set up by Enron's board of directors reports that an elaborate scheme involving multiple partnerships allowed top Enron executives to inflate earnings by nearly one billion dollars and pocket millions in the process.
2/4/2002
Lay resigns from Enron's board.
3/14/2002
Enron accounting firm Arthur Andersen is indicted by a federal grand jury for obstruction of justice charges for "knowingly, intentionally and corruptly" persuading employees to shred Enron?related documents last October.
3/15/2002
The U.S. government suspends new business dealings with Enron and its former accounting firm Andersen, citing evidence of misconduct by the former energy giant and the criminal indictment of the auditor.
Enron: General Overview
Enron is the story of the largest bankruptcy in U.S. history that has cost thousands of employees their jobs and their retirement. Enron, through a variety of accounting tricks relating to partnerships, inflated their profits and lowered their debt. They misled their employees investors and the general public about the company's financial condition. Once those off-the-book partnerships were exposed, the bottom dropped out, with Enron's stock plummeting from almost $80 to less than $1 a share. Enron executives reaped millions through these partnerships and by selling off stock before the demise, while Enron employees lost much of their retirement and investors lost millions.
While Enron was inflating its profit statements, Enron executives were pouring millions in campaign contributions into Republican campaigns. As President Bush's number #1 corporate patron, Enron's reach in the Bush administration appeared endless. The result of this unprecedented access was a GOP energy bill with 17 policies for Enron, a predominant role by Enron executives in selecting the nation's top energy regulator that would oversee Enron, and a GOP tax bill providing Enron a $254 million refund.
Enron began in 1985 when Houston Natural Gas merged with Omaha, Neb.?based InterNorth to create the company to create the first nationwide natural gas pipeline system. During the 1990s, Enron moved into a trading business, beginning with natural gas and moving into electricity. In fact, Enron became the largest trader of electricity. By 2001, the energy giant was number 7 in the Fortune 500.
From 1993 to 1999, the executives and directors of Enron created a series of off-the-books partnerships that they used to hide millions in debt. Often employing complex financial structures, these partnerships, limited-liability companies, and other affiliates - named after Stars Wars characters Chewco, and JEDI, as well as vacation homes South Hampton - are incredibly murky and quite difficult to explain.
But one thing is quite certain: The partnerships hid hundreds of millions of dollars of losses and debt from public view. If only 3% of the money invested in these partnerships came from outside of Enron, then they could be considered separate from Enron. This was especially convenient because any debt from these partnerships could be kept off the company's balance sheet, even though Enron and its directors effectively controlled the partnerships.
Not only did these partnership hide the financial problems at Enron, but they also allowed a number of Enron executives to profit while doing so. That is because a number of Enron executives headed and partly owned some of the partnerships. For example, former Enron chief financial officer, Andrew Fastow, made more than $30 million from two partnerships that he ran - including LJM2, named after his wife and 2 children. Other Enron employees also profited greatly. An ally of Fastow at Enron, Micheal J. Kopper, made more than $10 million on the Chewco partnership. These partnerships raised huge conflicts of interest for the Enron executives.
Remarkably, all of these partnerships were approved by Enron's board of directors, and reviewed by the companies outside auditors and lawyers - Arthur Andersen and Vinson & Elkins.
Enron's collapse into bankruptcy exposed not only its smoke and mirrors accounting methods, but also the full extent of Enron's influence in the federal government.
Over 50 high-level Bush administration officials have had meaningful ties to the now defunct energy company. For example, the Secretary of the Army Thomas E. White worked at Enron for nearly two decades, and he served as vice chairman of Enron Energy Services. The President's top economic advisor Lawrence B. Lindsey and Trade Representative Robert B. Zoellick served on Enron's advisory board. According to financial disclosure forms, at least 40 administration officials owned Enron stock. These officials include senior officials at the White House, the Departments of the Treasury, Commerce, and State, the U.S. Trade Representative's office and EPA. The President reportedly refers to Enron CEO Ken Lay by the affectionate nickname "Kenny Boy."
Enron's Political Ties: A Shadow Government?
Enron's collapse into bankruptcy exposed not only its smoke and mirrors accounting methods, but also the full extent of Enron's influence in the federal government.
Over 50 high-level Bush administration officials have had meaningful ties to the now defunct energy company. For example, the Secretary of the Army Thomas E. White worked at Enron for nearly two decades, and he served as vice chairman of Enron Energy Services. The President's top economic advisor Lawrence B. Lindsey and Trade Representative Robert B. Zoellick served on Enron's advisory board. According to financial disclosure forms, at least 40 administration officials owned Enron stock. These officials include senior officials at the White House, the Departments of the Treasury, Commerce, and State, the U.S. Trade Representative's office and EPA. The President reportedly refers to Enron CEO Ken Lay by the affectionate nickname "Kenny Boy."
For a fuller understanding of just how far Enron's reach into the Bush administration goes, see the table in the appendix.
Enron Campaign Contributions to Bush, DeLay and GOP
So how exactly did Ken Lay and Enron have so much influence on George W. Bush, his White House, and congressional Republicans? The answer is simple: money.
Enron Corporation is President Bush's number-one career patron, having given him more money throughout his political career than any other contributor. Enron Corporation PAC, and Enron executives, employees and their family members contributed a total of $736,800 to President Bush from 1993 to 2001. Enron also contributed $250,000 to the Republican National Convention for its 2000 convention.
Kenneth and Linda Lay gave $276,500 to George W. Bush from 1993 to 2000, including $100,000 to the President's inaugural fund, $10,000 to his election recount fund and $40,000 to his 1999 State Victory Fund Committee.
But it was not just the Bush campaign that raked in Enron contributions. From 1989-2001, Enron Corporation PAC, and Enron executives, employees and their family members gave a total of $5,951,570 in hard and soft money to federal candidates and parties. Of this amount, 74% ($4,404,162) went to Republicans and 26% ($1,547,408) to Democrats.
More specifically, one of the top House Republican leaders has been a big beneficiary of Enron contributions and is deeply tied to Enron. Majority Whip Tom DeLay and his political network have collected more than $200,000 from Enron and its executives over the last seven years.
From 1989-2000, Majority Whip Tom DeLay has raked in more than $28,000 from Enron's PAC and employees for his congressional campaign. His PAC, Americans for a Republican Majority (ARMPAC) got $50,000 in soft money from Enron in 2001. Enron gave $10,000 in soft money to ARMPAC in 2000, and between 1995-2000 Enron and its employees gave $47,250 in hard money. Kenneth Lay gave $50,000 to Republican Majority Issues Committee in 2000 - another one of DeLay's fundraising operations. (Roll Call, 2/25/02)
Not only has Tom DeLay raised a lot of money from Enron, but his top staff have raked in Enron consulting fees. Ed Buckham, Karl Gallant and John Hoy were awarded a $750,000 contract by Americans for Affordable Electricity, an Enron-funded coalition, after DeLay recommended to Enron that they hire the team. (Roll Call, 2/25/02) His connections to Enron are so strong that "some call DeLay the 'congressman from Enron,'." (The National Journal June 3, 2000)
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