Enron - 2001 Accounting Scandal

2001 Accounting Scandal

During 2001, after a series of revelations involving irregular accounting procedures bordering on fraud perpetrated throughout the 1990s involving Enron and its accounting company Arthur Andersen, Enron suffered the largest Chapter 11 bankruptcy in history (since surpassed by those of Worldcom during 2002 and Lehman Brothers during 2008).

As the scandal progressed, Enron share prices decreased from more than US $90.00 during the summer of 2000 to just pennies. Enron had been considered a blue chip stock investment, so this was an unprecedented event in the financial world. Enron's demise occurred after the revelation that much of its profits and revenue were the result of deals with special purpose entities (limited partnerships which it controlled). This meant that many of Enron's debts and the losses that it suffered were not reported in its financial statements.

A rescue attempt by a similar, smaller energy company, Dynegy, failed during late November due to concerns about an unexpected restatement of earnings. Enron filed for bankruptcy on December 2, 2001. In addition, the scandal caused the dissolution of Arthur Andersen, which at the time was one of the world's main accounting companies. The company was found guilty of obstruction of justice during 2002 for destroying documents related to the Enron audit. Since the SEC is not allowed to accept audits from convicted felons, Andersen was forced to stop auditing public companies. Although the conviction was dismissed during 2005 by the Supreme Court, the damage to the Andersen name has prevented it from reviving as a viable business even on a limited scale.

Enron also withdrew a naming-rights deal with the Houston Astros Major League Baseball company to have its name associated with their new stadium, which was known formerly as Enron Field (now Minute Maid Park).