The scandals at Enron and WorldCom

Enron, the seventh largest corporation in the United States, filed bankruptcy on December 2, 2001. At the time it was the world's biggest business failure – Enron had employed over 20,000 people and claimed annual income of over $100 billion. In May 2006, Ken Lay and Jeffrey Skilling, former CEOs of Enron, were found guilty of criminal fraud, conspiracy, and insider trading, among other charges, while many other executives agreed to plead guilty in return for lighter sentences.

Enron started off as a regional power company formed from a merger in 1985. After the merger the new company was saddled with massive debt that it serviced by raiding employee pension funds. In 1988 it faced a scandal when two of its most successful moneymakers, Louis Borget and Thomas Mastroeni, were discovered by auditors to have engaged in insider trading and skimming company money into their personal accounts. The CEO, Lay, took no action, allegedly saying, “I've decided we're not going to discharge the people involved in this, because the company needs those earnings.” In the late eighties the United States eased regulations on business, at the same time as a number of so-called “dot com” companies prospered through investor speculation rather than actual production. Enron increasingly moved into diversified areas and became a popular choice of Wall Street analysts because of its consistently high returns.