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- Jeffrey Skilling
- Business Executive
- February, 2004
- Securities and Accounting Fraud
The arrests of Kenneth Lay and Jeffrey Skilling:
ddThese are the guys who are blamed for the failure of what was, at the time, the seventh biggest company in the United States.
Kenneth Lay founded the Enron Corporation in 1985 and in 1990 Jeffrey Skilling was hired as his chief executive officer. Skilling developed a staff of executives that used an accounting loophole called "special-purpose entities" for financial reporting, enabling them to hide billions of dollars in debt from failed deals and projects.
Skilling unexpectedly resigned in August 1991 and started selling his stock.
And as Enron's stock price melted in September and October 2001, Lay dumped more than 300-million dollars' worth of Enron shares – mainly stock options -while encouraging employees to buy more, saying a rebound was in the wings.
As the scandal grew, Lay said he wanted to explain his part of the story but instead took his Fifth Amendment rights against self-incrimination in an appearance before Congress.
Shareholders filed a 40 million dollar lawsuit after the company stock price plunged to less than a dollar from $75 a share. Then the Securities and Exchange Commission began an investigation after rival Houston energy company, Dynegy, offered to purchase Enron at a very low price.
Enron went belly up in December, 2001. Thousands of people lost their jobs and faced financial ruin.
Several Enron executives were indicted on a variety of charges and more later sentenced to prison, including Lay and Skilling.
The scandal at Enron also led to the dissolution of Arthur Anderson, which at the time was one of the five largest audit and accountancy partnerships in the world
Kenneth Lay faced 20 to 30 years in prison. However, he died of a heart attack while vacationing in Snowmass, Colorado on July 5, 2006, about three and a half months before his scheduled October sentencing.
Many were unsympathetic.
The federal court judge who presided over the case vacated Lay's conviction, which the law says is the equivalent of his never being indicted, tried or convicted.
… was reduced by ten years in a deal with federal prosecutors and he is currently serving 14 years of an original 24 year prison sentence at the Federal prison in Littleton Colorado. He's eligible for release in 2017.
The Enron scandal was a factor in the creation of the Sarbanes-Oxley Act of 2002, which set new or enhanced standards for public companies.