The Event: Financial failure of Enron, one of the world’s largest energy distributors, as a result of fraud perpetrated by its managers
Date: Filed for bankruptcy on December 2, 2001
Place: New York City
Significance: The collapse of Enron, an energy conglomerate with reported revenues of $100 billion, is one of the largest bankruptcy and accounting fraud cases in U.S. history.
Enron Corporation began as a traditional natural gas supplier in 1985 in Houston, Texas. In less than two decades, it evolved into the seventh largest of the Fortune 500 companies in the United States. What had started as a simple natural gas operation grew into a e-commerce superpower, which traded in energy commodities (such as wind, water, and electricity) and eventually in Internet bandwidth for communication purposes.
Between 1998 and 2000, the stock price of Enron experienced unprecedented increases, making it one of the most profitable corporations on Wall Street. However, many of the deals Enron made were based solely on unrealistic projections regarding future supply and demand. By the beginning of 2001, the federal government began to become suspicious of Enron’s accounting practices, in large part because of a whistle-blower inside the company, who uncovered suspicious accounting practices.
Enron’s accounting practices were rife with fraud and misrepresentation. Many investigators have referred to Enron as a massive pump-and-dump scheme: Company officials used various misleading accounting practices to drive up (pump) stock prices, then insiders would quickly sell (dump) their own stocks at the top of the market, leaving many misinformed investors to suffer huge losses when the stock prices began to drop. Equally culpable was the prestigious accounting firm of Arthur Andersen, which was responsible for assisting Enron officials with the accounting scheme that netted extensive financial gains for certain company officials and their high-ranking government friends. In the end, millions of American investors, including longtime loyal Enron employees, lost billions in savings, investments, and retirement plans.
Enron filed Chapter 11 bankruptcy on December 2, 2001, with $6.8 billion in assets, making it the largest bankruptcy in U.S. history (this record would later be broken by WorldCom in 2002 and Lehman Brothers in 2008). The stock had fallen from almost $140 a share to pennies on the dollar. The crimes carried out by top Enron executives have been prosecuted in both criminal and civil courts.

Further Reading
Fox, Loren. Enron: The Rise and Fall. Hoboken, N.J.: Wiley, 2003.
Fusaro, Peter C., and Ross M. Miller. What Went Wrong at Enron: Everyone’s Guide to the Largest Bankruptcy in U.S. History. Hoboken, N.J.: J. Wiley, 2002.
Swartz, Mimi, and Sherron Watkins. Power Failure: The Inside Story of the Collapse of Enron. New York: Doubleday, 2003.
See also: Accounting industry; bankruptcy law; Business crimes; Chrysler bailout of 1979; Derivatives and hedge fund industry; Incorporation laws; Justice, U.S. Department of; WorldCom bankruptcy.