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one of the most shocking failures in United States corporate history. In just a little over 15 years, Enron

grew into one of the US?s largest companies. It embraced new technologies, established new methods

of trading in energy and seemed to be a shining example of successful corporate America. But the

company?s success was based on artificially inflated profits, dubious accounting practices, and--some

say--fraud.

1985: Founding years
Enron's dramatic expansion and rise to international prominence.

Enron was born in July 1985 when Houston Natural Gas merged with Omaha-based InterNorth.

Kenneth Lay, an energy economist who had held academic and government positions throughout his

career, became chairman and chief executive. His ambitions for the new company he had helped

form went beyond the business of piping gas.He wanted to see an energy trading revolution and

place Enron at the heart of it. By 2001 he appeared to be succeededing in his goal, having created a

multinational corporation employing thousands with a turnover of billions of dollars. But suddenly,

as if from nowhere, the company unravelled and collapsed. How could a company worth billions

In the 1980s, energy corporations lobbied Washington to deregulate the business. Companies

including Enron said the extra competition would benefit both companies and consumers.

Washington began to lift controls on who could produce energy and how it was sold. New

suppliers came to the market and competition increased. But the price of energy became more

volatile in the free market. Enron saw its chance to make money out of these fluctuations. It decided

to act as middle man and guarantee stable prices - taking its own cut along the way.

Kenneth Lay had been anxious to expand the business right from the word go. Jeff Skilling, an

ambitious thinker from the world famous consultancy firm McKinsey, offered a way to do it.

Skilling believed that Enron could profit from trading futures in gas contracts between suppliers and

consumers - effectively betting against future movements in the price of gas-generated energy.

Buyers and sellers use futures markets to get what they hope will be a better deal on commodity

prices than they would do on the open market. Enron offered to do the same with gas by buying

and selling tomorrow's gas at a fixed price today. In the deregulated energy world, it appeared to

make sense to many suppliers and industry consumers who took up the offer. The new Enron was

In a few short years, Enron became a massive player in the US energy market, controlling at its

height a quarter of all gas business. Buoyed by the success, the company went on to create markets

in myriad energy-related products. Enron began to offer companies the chance to hedge against the

risk of adverse price movements in a range of commodities including steel and coal. By the end of

the decade it had expanded its trading arm to include hedging against external factors such as

weather risk. Enron was not the only company in the game but through its Enrononline trading arm it

was becoming the biggest on what was dubbed Energy Alley - 90% of its income came from trades.

Jeff Skilling wanted to rid Enron of its last physical assets but the company was also

expanding internationally, moving into water in the UK and power generation in India.

One question that was already being asked before Enron crashed was this: how much influence

did it have on Capitol Hill? Enron certainly wasn't the only company lobbying for energy deregulation,

but deregulation helped Enron establish the trading markets that became its core business.

Directors built relationships with both Democrats and Republicans. Kenneth Lay himself had

strong personal ties to two Republican presidents, George Bush Snr and his son George W Bush.

As Enron expanded, there was little scrutiny of how it was managing the expansion. But when it

Early 2000: Dot.com boom
Enron invests in the dot.com boom but are its profits all they seem?

Enron began 2000 with a plan to move into broadband internet networks and trade bandwidth

capacity as the dot.com economy prospered. Enron's dynamic ideas, coupled with its stable

old-economy energy background, appealed to investors and the share price soared. It was one of

the first amongst energy companies to begin trading through the internet, offering a free service

that attracted a vast amount of custom. But while Enron boasted about the value of products

that it bought and sold online a mind-boggling $880bn (?618bn) in just two years the

company remained silent about whether these trading operations were actually making any money.

At about this time, it is believed that Enron began to use sophisticated accounting techniques to keep

its share price high, raise investment against it own assets and stock and maintain the impression

of a highly successful company. Enron could also legally remove losses from its books if it passed

these ?assets? to an independent partnership. Equally, investment money flowing into Enron from

new partnerships ended up on the books as profits, even though it was linked to specific ventures

that were not yet up and running. One of these partnership deals was to distribute Blockbuster

videos by broadband connections. The plan fell through, but Enron had already posted some

By the summer, Enron's shares had hit an all time high of more than $90. But there was also

controversy. California was suffering an energy crisis, blamed by many on its poor handling of

deregulation. Some claimed Enron had profiteered by buying futures in electricity supplies and

passing them on at higher costs. Enron dismissed the allegation saying it was merely the

market-maker. Enron's 2000 annual report reported global revenues of $100bn. Income had risen by

40% in three years. In reality, real revenue would have been far lower had it not been for the

special partnerships established by chief finance officer Andrew Fastow. Enron's growth was

increasingly dependent on these accounting tools. Enron made investments and then shifted the debt

off its books to theoretically independent partnerships, in return for potential income that provided a

buffer against future losses. Meanwhile, Enron kept up it political donations. Chief among the

Enron and Kenneth Lay each donated $100,000 to incoming President Bush's inaugural committee

fund, early in 2001. The incoming president invited Mr Lay to become and advisor to his transition team

A prime concern for Enron was the new president's planned energy policy review, headed by

Vice-President Dick Cheney. Mr Lay and other Enron directors met Mr Cheney and others three times

in the first half of the year, the last meeting a month before he published his conclusions on

17 May 2001. The review, as predicted, was favourable to the energy industry. It advocated more

power stations, more exploration and a national grid. While it did not meet all of Enron's wishes, it

On 14 August 2001, seemingly from nowhere, Jeff Skilling resigned as chief executive, citing

personal reasons. Kenneth Lay became chief executive once again. The development was a shock to

investors who suddently began to fear that all was not well in Houston. Investors sold millions of

shares, knocking some $4 off the price by the end of the week. As the price dropped below $40,

Mr Lay insisted that there were "no issues". But there was a very large issue - perhaps one that the

board was not fully aware of. In May of that year, Enron executive Clifford Baxter left the company,

apparently in uncontroversial circumstances. But there were rumours among executives that

Mr Baxter - soon to become a tragic figure in the affair when he tookk his own life - had clashed

with Jeff Skilling over the propriety of some of the partnership transactions. When Mr Skilling resigned,

one executive who knew of Mr Baxter's concerns decided to act, and warned Mr Lay that Enron was

12 October: Meanwhile, the depth of Enron?s problems were beginning to dawn on Andersen.

Because Enron had hedged against its own stock, it could never recover its losses while its share

price was falling. Andersen told Enron that it had no other choice but to change the way it was

accounting for its special partnerships. On 12 October, an Andersen lawyer contacted a senior

partner in Houston to remind him that company policy was not to retain documents that were no

longer needed. At some point after this, staff in Andersen?s Houston office began shredding

documents relating to Enron. Around the same time, Enron's internal legal examination of

Sherron Watkin's concerns concluded that the partnerships in question, Raptor and Condor, had

November 2001: The final days
Enron struggles to stay afloat and scrambles for a merger

1 - 9 November: Despite the air of impending doom, Kenneth Lay found two banks willing to

extend credit. But the worst of revelations was to come. On 8 November, the company took the

highly unusual move of restating its profits for the past four years. It effectively admitted that it had

inflated its profits by concealing debts in the complicated partnership arrangements. The following day

the humiliation of Enron appeared complete as it entered negotiations to be taken over by its

December 2001: Bankrupt
Kenneth Lay's empire falls, leaving investors and employees stranded

2 Dec: No longer able to cope with its debt, Enron filed for bankruptcy protection in a New York court

on 2 December 2001, simultaneously launching a legal action against Dynegy for pulling out of the

merger. In three months Enron had gone from being a company claiming assets worth almost ?62bn

to bankruptcy. Its share price collapsed from about $95 to below $1. "Uncertainty has severely

impacted the market's confidence in Enron and its trading operations," Kenneth Lay commented as

he saw his company implode. "We are taking the steps announced today to help preserve

capital, stabilise our business and enhance our confidence to pay our creditors."

January 2002: Investigation
America demands answers as a former executive takes his own life

9 - 10 Jan: While America reeled from the bankruptcy and Enron employees, past and present,

worked out what they had left, the Justice Dept announced a criminal investigation. Attorney

General John Ashcroft, who had received campaign funds from the company in 2000, excluded

himself from the investigation along with the 100 federal investigators in Houston.The following day,

Andersen, its role increasingly in the spotlight, admitted that employees had disposed of Enron

documents. The White House also confirmed speculation that Kenneth Lay had appealed to members

The shockwaves of a corporate crash are always keenly felt - but few failures have led to the kind of

investigations Enron and its managers now face. February opened with the publication of the

company's own internal investigation into the crash. William Powers, the academic who chaired the

report, didn't pull any punches when he pinned the blame firmly on executives who had

personally benefited from the partnerships to the tune of millions of dollars. "There was a

fundamental default of leadership and management," he said. "We found a systematic and

pervasive attempt by Enron's management to misrepresent the company's financial condition.

"Congress continued hearings began in December as America and investors around the world

demanded answers. Four of Enron's most senior executives pleaded Fifth Amendment

protection against self-incrimination and refused to testify: Andrew Fastow, chief risk officer

Richard Buy, finance executive Michael Kopper and Kenneth Lay himself. Jeff Skilling did testify but

insisted that he knew nothing of the complex web of intra-company deals that are almost impossible

for ordinary investors to unravel. On Valentine's Day, the woman who originally raised fears of an

"implosion", took the stand. Sherron Watkins said that Ken Lay and the board had been "duped" by

Mr Fastow and Mr Skilling. Mr Lay had never really understood the gravity of the situation, she said.