Enron: The Smartest Guys in the Room Essay

The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy conjunction based in Houston, Texas, and the de facto disintegration of Arthur Andersen, which was angiotensin converting enzyme of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was attri anded as the biggest audit failure. Enron was defecateed in 1985 by Kenneth specify after merging Houston Natural Gas and InterNorth. Several years posterior, when Jeffrey Skilling was hired, he developed a cater of executives that, by the use of write up loopholes, special purpose entities, and poor financial reporting, were adequate to felled seam one million million millions of dollars in debt from failed deals and projects. Chief Financial Officer Andre Fastow and both(prenominal) other executives not only misled Enrons board of directors and audit committee on high-risk accounting practices, but to a fault pressured Andersen to ignore the issues.Enron sh areholders filed a $40 one thousand million font after the clubs monetary fundtaking price, which achieved a high of US$90.75 per share in mid-2000, plummeted to less than $1 by the land up of November 2001. The U.S. Securities and switch over relegation (SEC) began an investigation, and rival Houston competitor Dynegy offered to purchase the connection at a very low price. The deal failed, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the fall in States Bankruptcy Code. Enrons $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until WorldComs bankruptcy the next year. Many executives at Enron were indicted for a variety of even outs and were later sentenced to prison. Enrons auditor, Arthur Andersen, was found guilty in a United States District Court, but by the time the ruling was overturned at the U.S . Supreme Court, the guild had lost the majority of its customers and had closed. Employees and shareholders accepted limited returns in lawsuits, despite losing billions in pensions and stock prices.As a consequence of the scandal, new regulations and statute were enacted to expand the accuracy of financial reporting for public companies. One piece of legislation, the Sarbanes-Oxley Act, increased penalties for destroying, altering, or fabricating records in federal investigations or for attempting to defraud shareholders. The act also increased the account cogency of auditing firms to remain unbiased and indep canent of their clients.Rise ofEnronIn 1985, Kenneth Lay merged the natural gas pipeline companies of Houston Natural Gas and InterNorth to form Enron. In the archeozoic 1990s, he helped to initiate the exchange of electricity at market prices and, soon after, the United States Congress approved legislation deregulating the change of natural gas. The coreing markets made it possible for principals much(prenominal) as Enron to sell energy at higher prices, in that locationby significantly increasing its revenue. After producers and local governments decried the effect price volatility and asked for increased regulation, strong lobbying on the part of Enron and others allowed for the proliferation of crony capitalism. As Enron became the largest seller of natural gas in North America by 1992, its gas contracts employment earned recompense before interest and taxes of $122 million, the second largest contributor to the communitys net income. The November 1999 creation of the EnronOnline trading website allowed the caller to go manage its contracts trading patronage. In an attempt to achieve further growth, Enron pursued a diversification strategy.The conjunction owned and operated a variety of assets including gas pipelines, electricity plants, pulp and paper plants, water plants, and broadband work across the globe. The corporation a lso gained additional revenue by trading contracts for the same array of products and services with which it was involved. Enrons stock increased from the start of the 1990s until year-end 1998 by 311% percent, only basely higher than the average rate of growth in the metre & Poor 500 index. However, the stock increased by 56% in 1999 and a further 87% in 2000, compared to a 20% increase and a 10% decrease for the index during the same years. By December 31, 2000, Enrons stock was priced at $83.13 and its market capitalization exceeded $60 billion, 70 times requital and sestet times book rank, an indication of the stock markets high expectations near its future prospects. In addition, Enron was rated the most innovative large company in America in Fortunes Most Admired Companies survey.Causes of downfallEnrons colonial financial statements were conf development to shareholders and analysts. In addition, its complex business model and unethical practices required that the com pany use accounting limitations to misrepresentearnings and modify the balance sheet to indicate favorable performance. The combination of these issues later resulted in the bankruptcy of the company, and the majority of them were perpetuated by the indirect knowledge or direct actions of Lay,Jeffrey Skilling, Andrew Fastow, and other executives. Lay served as the chairman of the company in its culture few years, and approved of the actions of Skilling and Fastow although he did not always inquire about the details. Skilling constantly foc apply on tucking Wall Street expectations, advocated the use of mark-to-market accounting (accounting based on market esteem, which was then inflated) and pressured Enron executives to find new ways to hide its debt. Fastow and other executives created off-balance-sheet vehicles, complex financing structures, and deals so bewildering that few people could sureize them.Revenue recognitionMain article Revenue recognitionEnron and other energy suppliers earned bring ins by providing services such as in large quantities trading and risk vigilance in addition to building and maintaining electric power plants, natural gas pipelines, storage, and processing facilities. When accepting the risk of buying and sell products, merchants are allowed to report the selling price as revenues and the products costs as cost of goods sold. In contrast, an agent provides a service to the customer, but does not contract the same risks as merchants for buying and selling. Service providers, when classified as agents, are able to report trading and brokerage honorariums as revenue, although not for the full value of the transaction. Although trading companies such as Goldman Sachs and Merrill Lynch used the conventional agent model for reporting revenue (where only the trading or brokerage fee would be reported as revenue), Enron instead elected to report the entire value of each of its trades as revenue.This merchant model was consider ed much more battleful in the accounting interpretation than the agent model. Enrons method of reporting inflated trading revenue was later adopted by other companies in the energy trading industry in an attempt to stay competitive with the companys large increase in revenue. Other energy companies such as Duke Energy, Reliant Energy, and Dynegy joined Enron in the wealthiest 50 of the Fortune 500 mainly due to their adoption of the same trading revenueaccounting as Enron. Between 1996 and 2000, Enrons revenues increased by more than 750%, rising from $13.3 billion in 1996 to $100.8 billion in 2000. This extensive expansion of 65% per year was unexampled in any industry, including the energy industry which typically considered growth of 23% per year to be respectable. For just the first nine months of 2001, Enron reported $138.7 billion in revenues, which placed the company at the sixth position on the Fortune Global 500. Mark-to-market accountingMain article Mark-to-market accoun tingIn Enrons natural gas business, the accounting had been fairly straightforward in each time period, the company listed actual costs of supplying the gas and actual revenues received from selling it. However, when Skilling joined the company, he demanded that the trading business adopt mark-to-market accounting, citing that it would represent dependable economic value. Enron became the first non-financial company to use the method to account for its complex long-term contracts. The mark-to-market method requires estimations of future incomes when a long-term contract is signed. These estimations are based on the future net value of the cash flow, costs link to the contract were practically hard to predict. Often, the viability of these contracts and their related costs were difficult to estimate. Due to the large discrepancies of attempting to match profits and cash, investors were typically given false or jerry-built reports. While using the method, income from projects cou ld be recorded, although they might not put one over ever received the money, and in turn increasing financial earnings on the books.However, in future years, the profits could not be included, so new and additional income had to be included from more projects to develop additional growth to appease investors. As one Enron competitor stated, If you accelerate your income, then you have to keep doing more and more deals to show the same or rising income. Despite potential pitfalls, the U.S. Securities and Exchange Commission (SEC) approved the accounting method for Enron in its trading of natural gas futures contracts on January 30, 1992. However, Enron later expanded its use to other areas in the company to help it meet Wall Street projections. For one contract, in July 2000, Enron and smash hit Video signed a 20-year agreement to introduce on-demand entertainment to various U.S. cities by year-end. After severalpilot projects, Enron recognized estimated profits of more than $110 million from the deal, even though analysts skepticismed the technical viability and market demand of the service. When the ne twainrk failed to work, Blockbuster withdrew from the contract. Enron continued to recognize future profits, even though the deal resulted in a loss. Special purpose entitiesMain article Special purpose entityEnron used special purpose entitieslimited partnerships or companies created to fulfill a temporary or specific purposeto fund or manage risks associated with specific assets. The company elected to disclose minimal details on its use of special purpose entities. These shell firms were created by a sponsor, but funded by independent legality investors and debt financing. For financial reporting purposes, a series of rules dictates whether a special purpose entity is a separate entity from the sponsor. In total, by 2001, Enron had used hundreds of special purpose entities to hide its debt. Enron used a number of special purpose entities, such as partne rships in its Thomas and Condor tax shelters, financial asset securitization investment trusts (FASITs) in the Apache deal, real estate mortgage investment conduits (REMICs) in the Steele deal, and REMICs and real estate investment trusts (REITs) in the Cochise deal. The special purpose entities were used for more than just circumventing accounting conventions. As a result of one violation, Enrons balance sheet understated its liabilities and overstated its equity, and its earnings were overstated. Enron disclosed to its shareholders that it had hedged downside risk in its own illiquid investments using special purpose entities.However, the investors were oblivious to the fact that the special purpose entities were actually using the companys own stock and financial guarantees to finance these hedges. This prevented Enron from being protected from the downside risk. Notable examples of special purpose entities that Enron employed were JEDI, Chewco, Whitewing, and LJM.Executive compe nsationAlthough Enrons compensation and performance heed system was designed to retain and bribe its most valuable employees, the system contributed to a dysfunctional corporate culture that became obsessed with short-termearnings to maximize bonuses. Employees constantly tried to start deals, often disregarding the quality of cash flow or profits, in order to get a better rating for their performance review. Additionally, accounting results were recorded as soon as possible to keep up with the companys stock price. This practice helped ensure deal-makers and executives received large cash bonuses and stock options. The companys main focus was its stock price. Management was compensated extensively using stock options, similar to other U.S. companies. This policy of stock option awards caused management to create expectations of intense growth in efforts to give the appearance of reported earnings to meet Wall Streets expectations. The stock ticker was set all throughout the comp any buildings, including the lobbies, elevators, and computers.At budget meetings, Skilling would develop target earnings by asking What earnings do you need to keep our stock price up? and that number would be used, even if it was not feasible. At December 31, 2000, Enron had 96 million shares outstanding as stock option plans(approximately 13% of common shares outstanding). Enrons proxy statement stated that, deep down three years, these awards were expected to be exercised. Using Enrons January 2001 stock price of $83.13 and the directors beneficial monomania reported in the 2001 proxy, the value of director stock ownership was $659 million for Lay, and $174 million for Skilling. Skilling believed that if employees were constantly worried about cost, it would hinder original thinking. As a result, extravagant spending was rampant throughout the company, especially among the executives. Employees had large expense accounts and many executives were paid or sotimes twice as much as competitors. In 1998, the top 200 highest-paid employees received $193 million from salaries, bonuses, and stock. Two years later, the figure jumped to $1.4 billion.Timeline of downfallAt the beginning of 2001, the Enron Corporation, the worlds dominant energy trader, appeared unstoppable. The companys decade-long effort to persuade lawmakers to deregulate electricity markets had succeeded from California to New York. Its ties to the Bush administration assured that its views would be heard in Washington. Its sales, profits and stock were soaring. A. Berenson and R. A. Oppel, Jr. The New York Times, Oct 28, 2001. In February 2001, Chief Accounting Officer Rick Causey told budget managers From anaccounting standpoint, this will be our easiest year ever. Weve got 2001 in the bag. On touch 5, Bethany McLeansFortune article Is Enron Overpriced? questioned how Enron could maintain its high stock value, which was trading at 55 times its earnings. She argued that analysts and investors did not know exactly how Enron was earning its income. McLean was first drawn to the companys situation after an analyst suggested she view the companys 10-K report, where she found strange transactions, erratic cash flow, and huge debt. She telephoned Skilling to converse her findings prior to publishing the article, but he called her unethical for not properly researching the company.Fastow cited both Fortune reporters that Enron could not reveal earnings details as the company had more than 1,200 trading books for assorted commodities and did not want anyone to know whats on those books. We dont want to tell anyone where were making money. In a conference call on April 17, 2001, then-Chief Executive Officer (CEO) Skilling verbally attacked Wall Street analyst Richard Grubman, who questioned Enrons unusual accounting practice during a recorded conference call. When Grubman complained that Enron was the only company that could not release a balance sheet along with its earnings statements, Skilling replied Well, thank you very much, we appreciate that asshole. This became an indoors joke among many Enron employees, mocking Grubman for his perceived meddling rather than Skillings offensiveness, with slogans such as Ask Why, Asshole, a variation on Enrons official slogan Ask why.However, Skillings comment was met with dismay and astonishment by press and public, as he had previously disdained criticism of Enron nervelessly or humorously. By the late 1990s Enrons stock was trading for $8090 per share, and few seemed to concern themselves with the opacity of the companys financial disclosures. In mid-July 2001, Enron reported revenues of $50.1 billion, almost triple year-to-date, and beating analysts estimates by 3 cents a share. Despite this, Enrons profit margin had stayed at a modest average of about 2.1%, and its share price had decreased by more than 30% since the same quarter of 2000. As time passed, a number of in force(p) concerns confronted the c ompany. Enron had recently faced several serious operational challenges, namely logistical difficulties in operating a new broadband communications trading unit, and the losses from constructing the Dabhol Power project, a large power plant in India.Therewas also increasing criticism of the company for the role that its subsidiary Enron Energy operate had in the California electricity crisis of 2000-2001. There are no accounting issues, no trading issues, no reserve issues, no previously unknown difficulty issues. I think I can honestly say that the company is probably in the strongest and best shape that it has probably ever been in. (Kenneth Lay answering an analysts question on August 14, 2001.) On August 14, Skilling announced he was resigning his position as CEO after only six months. Skilling had long served as president and COO before being promoted to CEO. Skilling cited personal reasons for leaving the company. Observers noted that in the months before his exit, Skillin g had sold at minimum 450,000 shares of Enron at a value of around $33 million (though he salve owned over a million shares at the date of his departure). Nevertheless, Lay, who was serving as chairman at Enron, assured surprised market watchers that there would be no change in the performance or outlook of the company spill forward from Skillings departure. Lay announced he himself would re-assume the position of chief executive officer.Investors confidence declinesSomething is rotten with the state of Enron.The New York Times, Sept 9, 2001.By the end of August 2001, his companys stock value still falling, Lay named Greg Whalley, president and COO of Enron Wholesale Services and Mark Frevert, to positions in the chairmans office. Some observers suggested that Enrons investors were in significant need of reassurance, not only because the companys business was difficult to understand (even indecipherable) but also because it was difficult to properly describe the company in finan cial statements. One analyst stated its really hard for analysts to determine where Enron are making money in a given quarter and where they are losing money. Lay accepted that Enrons business was very complex, but asserted that analysts would never get all the information they want to satisfy their curiosity. He also explained that the complexity of the business was due more often than not to tax strategies and position-hedging. Lays efforts seemed to meet with limited success by September 9, one prominent hedge fund manager noted that Enron stock is trading under a cloud.The fast departure of Skilling combined withthe opacity of Enrons accounting books made proper assessment difficult for Wall Street. In addition, the company admitted to repeatedly using related-party transactions, which round feared could be too-easily used to transfer losses that might otherwise appear on Enrons own balance sheet. A particularly troubling fit of this technique was that several of the related -party entities had been or were being controlled by CFO Fastow. After the September 11, 2001 attacks, media attention shifted away from the company and its troubles a little less than a month later Enron announced its intention to begin the process of selling its lower-margin assets in favor of its core businesses of gas and electricity trading. This policy included selling Portland General Electric to another Oregon utility, Northwest Natural Gas, for about $1.9 billion in cash and stock, and possibly selling its 65% stake in the Dabhol project in India. Restructuring losses and SEC investigationOn October 16, 2001, Enron announced that restatements to its financial statements for years 1997 to 2000 were necessary to correct accounting violations. The restatements for the period reduced earnings by $613 million (or 23% of reported profits during the period), increased liabilities at the end of 2000 by $628 million (6% of reported liabilities and 5.5% of reported equity), and reduc ed equity at the end of 2000 by $1.2 billion (10% of reported equity). Additionally, in January Jeff Skilling had asserted that the broadband unit alone was worth $35 billion, a claim also mistrusted. An analyst at Standard & Poors said I dont think anyone knows what the broadband operation is worth. Enrons management team claimed the losses were mostly due to investment losses, along with charges such as about $180 million in money spent restructuring the companys strike broadband trading unit.In a statement, Lay revealed, After a thorough review of our businesses, we have decided to take these charges to clear away issues that have clouded the performance and earnings potential of our core energy businesses. Some analysts were unnerved. David Fleischer at Goldman Sachs, an analyst termed previously one of the companys strongest supporters asserted that the Enron management lost credibility and have to reprove themselves. They need to convince investors these earnings are real, t hat the company is for real and that growth will be realized. Fastow disclosedto Enrons board of directors on October 22 that he earned $30 million from compensation arrangements when managing the LJM limited partnerships.That solar day, the share price of Enron decreased to $20.65, down $5.40 in one day, after the announcement by the SEC that it was investigating the various suspicious activities of Enron, characterizing them as about of the most opaque transactions with insiders ever seen Attempting to explain the billion-dollar charge and calm investors, Enrons disclosures spoke of share settled costless collar arrangements, derivative instruments which eliminated the contingent nature of existing restricted forward contracts, and strategies that served to hedge authentic merchant investments and other assets. Such puzzling phraseology left many analysts feeling ignorant about just how Enron managed its business. Regarding the SEC investigation, chairman and CEO Lay said, We w ill cooperate fully with the S.E.C. and look forward to the opportunity to put any concern about these transactions to rest. Two days later, on October 25, despite his reassurances days earlier, Lay dismissed Fastow from his position, citing In my continued discussions with the financial community, it became clear to me that restoring investor confidence would require us to replace Andy as CFO.However, with Skilling and Fastow now both departed, somewhat analysts feared that revealing the companys practices would be made all the more difficult. Enrons stock was now trading at $16.41, having lost half its value in a little more than a week. On October 27 the company began buying back all its commercial paper, valued at around $3.3 billion, in an effort to calm investor fears about Enrons supply of cash. Enron financed the re-purchase by depleting its lines of credit at several banks. While the companys debt rating was still considered investment-grade, its bonds were trading at leve ls slightly less, making future sales problematic. As the month came to a close, serious concerns were being raised by some observers regarding Enrons possible manipulation of accepted accounting rules however, analysis was claimed to be impossible based on the incomplete information provided by Enron. Industry analysts feared that Enron was the new long-term Capital Management, the hedge fund whose bankruptcy in 1998 threatened systemic failure of the international financial markets. Enrons tremendous presence worried some about the consequences of the companys possible bankruptcy. Enron executives accepted questions in written form only.Proposed buyout by DynegySources claimed that Enron was preparation to explain its business practices more fully within the coming days, as a confidence-building gesture. Enrons stock was now trading at around $7, as investors worried that the company would not be able to find a buyer. After it received a wide spectrum of rejections, Enron managem ent apparently found a buyer when the board of Dynegy, another energy trader based in Houston, voted late at night on November 7 to acquire Enron at a very low price of about $8 billion in stock. Chevron Texaco, which at the time owned about a quarter of Dynegy, agreed to provide Enron with $2.5 billion in cash, specifically $1 billion at first and the rest when the deal was completed. Dynegy would also be required to assume nearly $13 billion of debt, plus any other debt hitherto occluded by the Enron managements secretive business practices, possibly as much as $10 billion in underground debt. Dynegy and Enron confirmed their deal on November 8, 2001. Commentators remarked on the different corporate cultures between Dynegy and Enron, and on the straight-talking personality of the CEO of Dynegy, Charles Watson.Some wondered if Enrons troubles had not simply been the result of innocent accounting errors. By November, Enron was asserting that the billion-plus one-time charges disclo sed in October should in reality have been $200 million, with the rest of the amount simply corrections of static accounting mistakes. Many feared other mistakes and restatements might yet be revealed. Another major correction of Enrons earnings was announced on November 9, with a decrease of $591 million of the stated revenue of years 19972000. The charges were said to come largely from two special purpose partnerships (JEDI and Chewco). The corrections resulted in the virtual elimination of profit for fiscal year 1997, with significant reductions for the other years. Despite this disclosure, Dynegy declared it still intended to purchase Enron. Both companies were said to be anxious to receive an official assessment of the proposed sale from Moodys and S&P presumably to understand the effect the completion of any buyout transaction would have on Dynegy and Enrons credit rating. In addition, concerns were raised regarding antitrust regulatory restrictions resulting in possible div estiture, along with what to some observers were the radically different corporate cultures of Enron and Dynegy.Both companiespromoted the deal aggressively, and some observers were hopeful Watson was praised for attempting to create the largest company on the energy market. At the time, Watson said We feel Enron is a very solid company with plenty of capacity to live on whatever happens the next few months. One analyst called the deal a whopper a very good deal financially, certainly should be a good deal strategically, and provides some immediate balance-sheet backstop for Enron. Credit issues were becoming more critical, however. Around the time the buyout was made public, Moodys and S&P both reduced Enrons rating to just one notch above toss status. Were the companys rating to fall below investment-grade, its ability to trade would be severely limited if there was a reduction or elimination of its credit lines with competitors. In a conference call, S&P affirmed that, were En ron not to be bought, S&P would reduce its rating to low BB or high B, ratings noted as being within junk status. Additionally, many traders had limited their involvement with Enron, or stopped doing business altogether, fearing more bad news. Watson again attempted to re-assure, attesting at a presentation to investors that there was zero point wrong with Enrons business.He also acknowledged that remunerative steps (in the form of more stock options) would have to be taken to compensate the animosity of many Enron employees for management after it was revealed that Lay and other officials had sold hundreds of millions of dollars worth of stock during the months prior to the crisis. The situation was not helped by the disclosure that Lay, his temper in tatters, stood to receive a payment of $60 million as a change-of-control fee subsequent to the Dynegy acquisition, while many Enron employees had seen their retirement accounts, which were based largely on Enron stock, decimated a s the price decreased 90% in a year. An official at a company owned by Enron stated We had some married couples who both worked who lost as much as $800,000 or $900,000. It pretty much wiped out every employees savings plan. Watson assured investors that the true nature of Enrons business had been made apparent to him We have comfort there is not another shoe to drop. If there is no shoe, this is a phenomenally good transaction. Watson further asserted that Enrons energy trading part alone was worth the price Dynegy was paying for the whole company.By mid-November, Enron announced it was planning to sell about $8 billion worth of underperforming assets, along with a general plan to reduceits scale for the sake of financial stability. On November 19 Enron disclosed to the public further evidence of its critical state of affairs. Most pressingly that the company had debt repayment obligations in the range of $9 billion by the end of 2002. Such debts were vastly in excess of its availa ble cash. Also, the success of measures to preserve its solvency were not guaranteed, specifically as regarded asset sales and debt refinancing. In a statement, Enron revealed An adverse outcome with respect to any of these matters would likely have a material adverse impact on Enrons ability to continue as a going concern. Two days later, on November 21, Wall Street expressed serious doubts that Dynegy would proceed with its deal at all, or would seek to radically renegotiate.Furthermore Enron revealed in a 10-Q filing that almost all the money it had recently borrowed for purposes including buying its commercial paper, or about $5 billion, had been exhausted in just 50 days. Analysts were unnerved at the revelation, especially since Dynegy was reported to have also been unaware of Enrons rate of cash use. In order to end the proposed buyout, Dynegy would need to legally demonstrate a material change in the circumstances of the transaction as late as November 22, sources close to D ynegy were skeptical that the a la mode(p) revelations constituted sufficient grounds. The SEC announced it had filed civil fraud complaints against Andersen. A few days later, sources claimed Enron and Dynegy were renegotiating the terms of their arrangement. Dynegy now demanded Enron agree to be bought for $4 billion rather than the previous $8 billion. Observers were reporting difficulties in ascertaining which of Enrons operations, if any, were profitable. Reports described an en masse shift of business to Enrons competitors for the sake of risk impression reduction.BankruptcyEnrons stock price (former NYSE ticker symbol ENE) from August 23, 2000 ($90) to January 11, 2002 ($0.12). As a result of the decrease of the stock price, shareholders lost nearly $11 billion. On November 28, 2001, Enrons two worst-possible outcomes came true Dynegy Inc. unilaterally disengaged from the proposed acquisition of the company, and Enrons credit rating was reduced to junk status. Watson later s aid At the end, you couldnt give it Enron to me. The company had very little cash with which to operate, let alone satisfy enormous debts. Its stock price fell to $0.61 at the end ofthe days trading. One editorial observer wrote that Enron is now shorthand for the perfect financial storm. Systemic consequences were felt, as Enrons creditors and other energy trading companies suffered the loss of several percentage points. Some analysts felt Enrons failure indicated the risks of the postSeptember 11 economy, and encouraged traders to lock in profits where they could.The question now became how to determine the total exposure of the markets and other traders to Enrons failure. Early calculations estimated $18.7 billion. One adviser stated, We dont really know who is out there exposed to Enrons credit. Im telling my clients to prepare for the worst. Enron was estimated to have about $23 billion in liabilities from both debt outstanding and guaranteed loans. Citigroup and JP Morgan Chas e in particular appeared to have significant amounts to lose with Enrons bankruptcy. Additionally, many of Enrons major assets were pledged to lenders in order to secure loans, causing doubt about what if anything unsecured creditors and eventually stockholders might receive in bankruptcy proceedings.Enrons European operations filed for bankruptcy on November 30, 2001, and it sought Chapter 11 protection two days later on December 2. It was the largest bankruptcy in U.S. history (before being surpassed by WorldComs bankruptcy the next year), and resulted in 4,000 lost jobs. The day that Enron filed for bankruptcy, the employees were told to pack their belongings and were given 30 minutes to vacate the building. Nearly 62% of 15,000 employees savings plans relied on Enron stock that was purchased at $83 in early 2001 and was now practically worthless.In its accounting work for Enron, Andersen had been sloppy and weak. But thats how Enron had always wanted it. In truth, even as they a ngrily pointed fingers, the two deserved each other. Bethany McLean and Peter Elkind in The Smartest Guys in the Room. On January 17, 2002 Enron dismissed Arthur Andersen as its auditor, citing its accounting advice and the destruction of documents. Andersen countered that it had already ended its relationship with the company when Enron became bankrupt.