The Fall of Enron

This week we’re delving into the shadowy world of white-collar crime with lawyer Jennifer Taub, so we thought it was only fitting to take a quick retrospective on the “most complex” white-collar crime case in FBI history: The Enron Scandal.

Enron was born of two Texas energy companies in 1985. After hiring Jeffrey Skilling, Enron changed its business model from providing electricity and natural gas through pipelines and power plants, to trading in commodities. They matched buyers and sellers of natural gas and electricity. Their specialty was energy derivatives, which helped insulate energy companies from the risk of fluctuating energy prices.

Enron helped create energy derivatives as well as the marketplace that facilitated these trades. Enron soon became wildly successful, and Fortune magazine named it “America’s Most Innovative Company” every year between 1996 and 2001. Soon, Enron branched out into other commodities trading, opening Enron Online in 1999. Enron Online was a digital commodity trading platform where Enron was on the other end of every deal, totaling more than $350 billion by mid-2000.

In addition to changing Enron’s business model, Skilling also changed its accounting model. In 1992, Enron began using an accounting system called ‘mark-to-market’ (MTM) accounting. This accounting idea lets businesses assess the value of their assets by their current market value, not the value the company paid for them. MTM accounting can give fairer valuations but is easier to manipulate, especially in volatile markets, such as energy. In effect, MTM accounting allowed Enron to log estimated profits as actual profits, and it estimated massive profits.

When it turned out Enron’s actual profits fell well below its estimates, Enron got tricky. It created a series of subsidiary companies called Special Purpose Entities (SPEs), made entirely from Enron stock shares. Enron sent the SPEs stock in exchange for cash. The SPEs then used that stock to hedge Enron’s faltering assets — which worked as long as Enron’s stock price increased. The result was massive (made-up) profits and hidden losses, making the company look immensely successful and driving the stock price up. Enron relied heavily on the accounting firm Arthur Andersen for this accounting fraud.

Enron and Arthur Andersen’s accounting fraud might have continued a lot longer if the dot-com crash hadn’t ended the party. Enron’s stock price began to fall, forcing them to guarantee the SPEs full of toxic assets, which caused the stock price to fall further. On August 23, 2000, Enron shares traded at $90. By December 3, 2001, the stock was worth $.30 a share. Rather than own up to fraud, Arthur Andersen shredded the evidence.

The SEC quickly got involved, and people started going to prison, which rarely happens in white-collar crime. Arthur Andersen, America’s oldest accounting firm, was disgraced and fell to nothingness by 2014. Enron founder Kenneth Lay was sentenced to six counts of fraud and conspiracy and four counts of bank fraud. He died before his sentencing. Enron CFO Andrew Fastow pleaded guilty to two fraud charges and served more than five years behind bars. Jeffrey Skilling pleaded guilty to fraud, conspiracy, and insider trading. Initially sentenced to 17.5 years, he agreed to pay out $42 million in damages to his victims and was released in 2019.

The Enron case represents a rare moment in American history: white-collar criminals were held accountable for their actions. The federal government put the necessary resources behind bringing significant charges against high-level officials, seeking substantial prison time, and won. Enron was the most high-profile of these cases, but many others were targeted and prosecuted. The epidemic of accounting fraud in the early 2000s led to many arrests and convictions of high-ranking officials. The SEC, DOJ, and other regulatory agencies put the business world on notice, convicted many of the worst offenders, and solved the problem.

Unfortunately, the government has gotten soft on white-collar crime since the 2008 financial meltdown. Today, most white-collar criminals walk free, negotiate lenient plea deals and sentences, or never even get charged. The fact that income inequality has never been worse is not a coincidence.

We have the tools to stop white-collar crime, and the Enron case is a perfect example of using our laws to put these criminals behind bars. If we want to create a better, more just economy, we need to go after the crooks who are rigging the game for themselves. We already know how to do it; we just need the motivation.


Bragg, Steven. “Special Purpose Entity Definition.” AccountingTools, AccountingTools, 7 Apr. 2021,

By. “Arthur Andersen: The Fall of America’s Oldest Accounting Behemoth!” Qrius, 23 June 2016,

Diana. “Market That Deals in Risks Faces a Novel One.” The New York Times, The New York Times, 29 Nov. 2001,

Downey, Lucas. “Hedge.” Investopedia, Investopedia, 10 June 2021,

“Enron.” FBI, FBI, 18 May 2016,

“Enron’s Ken Lay Dies At 64.” CBS News, CBS Interactive, 16 July 2007,

“Former Enron Chief Financial Officer Andrew Fastow Pleads Guilty to Conspiracy to Commit Securities and Wire Fraud, Agrees to Cooperate with Enron Investigation.” FBI, FBI, 14 Jan. 2004,

Juris, Stephen M. “Accounting Fraud Cases Are Dead. Long Live Accounting Fraud Cases.” Forbes, Forbes Magazine, 14 Nov. 2012,

Nickolas, Steven. “Mark-To-Market Accounting vs. Historical Cost Accounting: What’s the Difference?” Investopedia, Investopedia, 31 May 2021,

Rehnquist. “ARTHUR ANDERSEN LLP V. UNITED STATES.” Legal Information Institute, Legal Information Institute, 31 May 2005,

Reuters. “Disgraced Enron Chief Jeffrey Skilling Released from Federal Custody.”, NBCUniversal News Group, 22 Feb. 2019,

Segal, Troy. “Enron Scandal: The Fall of a Wall Street Darling.” Investopedia, Investopedia, 1 June 2021,



Future Hindsight is a weekly podcast that aims to spark civic engagement through in-depth conversations with citizen changemakers.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Future Hindsight

Future Hindsight is a weekly podcast that aims to spark civic engagement through in-depth conversations with citizen changemakers.