The reason why history is taught in schools is so it may never repeat itself. The Enron share certificate is the embodiment of such statement. Enron, a company that worked in the energy sector, focused predominantly on the extraction of natural gas, and later trading extensively in the energy derivatives market, caused millions of dollars in losses, which were kept hidden from auditors until it imploded, leading to the biggest fraud case in the history of the financial market. Kenneth Lay, the founder of Enron and George W Bush’ personal friend, was presented with his first red flag—Two oil traders working for Enron were trading large amounts of money on the company’s behalf, shifting money to fake accounts, and manipulating earnings to gamble trades that were far beyond their capacity—Instead of firing said employees, Mr. Lay encouraged it, sending them a letter asking them to continue to make the company millions. Later when this information was put forth before the SEC, both analysts were detained. This came to be known as the Valhalla Scandal. Kenneth Lay’s money makers were gone, he needed a replacement. That is when Jefferey Skilling walk into the scene—Enron’s new CEO. Skilling had a different direction for Enron, he wanted to turn the company from a gas supplier into a stock market for natural gas. He also introduced the company to mark-to-market accounting (allows the company to write down profits in their book on the day the deal was assigned), giving Enron leeway to operate in the most fraudulent of ways. This meant that the company was worth more on paper than what it was actually worth.

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          Enron’s plan started to crumble after a journalist by the name of Bethany McClean, a reporter at fortune, wrote a piece on Enron. She had a phone call with the CEO Mr. Skilling, asking him simple questions like “where does Enron make its money?” The answer came short of what was expected from a CEO since he claims he does not know accounting (and yet he proposed the mark-to-market accounting concept for Enron), and Ms. McClean was Redirected to speak with the CFO two analysts, the CFO being Mr. Andy Fastow—a man with little to no moral compass—a true market psychopath. Mr. Fastow spent three hours showing the journalist all its financial information, only to say “I don’t care what you write about the company, just don’t make us look bad.” The CFO, to keep Enron’s books clean, moved Enron’s losing desks to show companies so that on paper Enron was profitable. He later opened his own fraudulent firm, LJM, to buy Enron assets—he made $46 million by having ninety-six bankers to invest in the scam to help the CFO cook his books. They were later all arrested.

 

          Enron’s next big move was to dominate California. They merged with Pacific Gas and Electric, giving them access to the Californian grid. Once this was achieved, power outages became common, and nobody understood why, the state had double the capacity there was demand, so why was this happening? It turns out Enron was manipulating the market by outsourcing the energy to raise the price, then once the price was raised Enron would bring them back to California. This scam would cause California over $30 billion, and there was nothing the States officials could do—it was a federal problem and Bush was president. Their friendship allowed for this to happen saying “intervention would not solve anything.” The Federal Energy Regulation Commission (FERC) also did not step in until the Senate forced them to (The chairman of the commission was personally recommended by Kenneth Lay).

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          One sunny day in 2001, Jeffrey Skilling suddenly resigns from Enron. Perhaps he thought he would be exonerated from all charges if he pleaded that the company was fine before he left. This left Kenneth Lay to become the CEO of the company once more, to then receive a detailed letter from Andy Fastow’s secretary detailing the staggering amount of fraud and corruption she would find within the company. The Wall Steet Journal would write a piece about Fastow’s dealings, leading to an informal inquiry by the SEC, leaving investors nervous. Kenneth lay tried to bring calm and reassurance to investors and employees. While he was delivering a speech to said employees, several blocks away the firm’s accounting department was busy shredding company documents, shredding a total of one ton of paper on October 23rd, 2001. And over the course of the next month, the company went from being a fortune 500 to submitting a chapter 7 bankruptcy to the SEC.

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          It is understandable why one would invest in Enron; At the time they were growing at rate never seen before in the energy market. In 2001 they reported the first quarter profits to be $536 million, hired a new CEO, were part of the most innovative companies in the fortune 500. With this information available, it is hard to say you would not invest in it, especially during the time when anyone who had an extra penny in their account would invest in the stock market. Would you have invested given the information that was available? Or would you have been one of the select few to see behind the mark-to-market farse?