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 August 2001: Crisis revealed
 Jeff Skilling quits and an insider gets suspicious

Sherron Watkins, an Enron vice-president, wrote an anonymous letter to Kenneth Lay setting out her fears of an impending scandal.

Simply put, Enron's accounts didn't add up - and Enron's brilliantly effective partnerships appeared to be the problem.

Enron was effectively using its own stock to bet against its own future value, an equation that theoretically works on paper but is mind-boggling to ordinary investors.

Ms Watkins believed that some of the separate partnerships and contracts known as "special purpose entities" were only separate in name. They were run by Enron and funded with Enron stock, instead of outside investors.

When they were contracted to pay up if Enron's volatile investments went sour, they were doing so with Enron's own assets. The risk remained with Enron, even though it removed debt from the accounts and replaced it with income from the partnerships.

If Enron's stock climbed, the value of the partnerships grew and they could cover any obligation to counter investment losses.

But as Enron's investments and stock turned bad, the partnerships couldn't pay up because their capital was disappearing at the same time.

A huge hole had opened in the accounts.

Click on the red dots on the graph for more detail.

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