Visionary's Dream Led to Risky Business

On Oct. 16, 2001, Enron was forced to disclose $1 billion in losses, more than half from LJM deals gone bad. Thus began a chain of events that would drive Enron's stock price into the dirt and force the company into bankruptcy proceedings, wiping out thousands of jobs and tens of billions of dollars in savings.

Enron was the first of the recent business scandals that have devastated investor faith, contributed to a multi-trillion-dollar market downturn and made corporate reform a political imperative.

The Washington Post examined Enron's epic collapse, focusing on the final five months, drawing on dozens of interviews with former Enron executives and employees and thousands of pages of Enron documents, records from an internal investigation, and sworn testimony from court cases and congressional hearings.

The company's story provides a powerful parable. Policymakers, investors and executives must grapple with its lessons today; business students and historians will study them for decades.

Enron was a fundamentally self-destructive institution, a house of cards where human error and a culture of ambition, secrecy and greed made collapse inevitable.

While Skilling has previously attributed Enron's demise to innocent misfortune -- a "classic run on the bank" -- the Houston firm was a victim of its own making, a virtual company with vastly overstated profits.

Skilling and Enron founder and chairman Kenneth L. Lay said they believe Enron remained profitable until its sudden collapse late last year. Skilling and Fastow declined to be interviewed for this article. Skilling has testified that he was unaware of any improper accounting or falsified financial statements. A spokeswoman for Lay said in a statement yesterday that Lay believes Enron's profits "were not inflated in any way."

Lay, who had turned day-to-day control over to Skilling in the late 1990s, was obliged as chairman of a company with 25,000 employees in 30 countries to "rely on talented people whose trustworthiness he had no reason to doubt," according to his spokeswoman, Kelly Kimberly.

Skilling, Lay's personally chosen successor as chief executive, was directly involved in the overstatement of profit, according to interviews and investigators' reports. He sponsored and approved accounting and tax gimmicks with private partnerships and funds that contributed billions in improper or questionable earnings. Those deals helped elevate Enron's stock price during the market's boom in the 1990s. Enron executives and directors sold $1 billion worth of shares in the three years before the company collapsed.

Enron hailed 2000 as a breakout year with $101 billion in revenue, more than double that of the year before, putting it at No. 7 on the list of largest U.S. corporations. Skilling, Lay, and 17 other officers and directors signed the 2000 financial statements, declaring them to be a true picture on which investors could rely.

The numbers were shams and the portrait was a fake, the record shows.

In 2001, Enron spent money faster than it was coming in. Most of its huge revenue gains came from power sales on its highly touted Internet energy-trading site. But revenue was padded in various ways. Traders swapped power with each other, internal memos state. Billions in loans were counted as cash from operations. And Enron's accounting inflated revenue from long-term contracts, former executives say.