Enron employees felt the devastating effects of the Enron Business Deal. As many as 22,000 Enron workers saw the complete depreciation of their savings as well as pension.
The Enron Success Story
Enron started in electricity and gas transmitting as well as a distributing company with the name Northern Natural Gas Company. During the 1990s it grew at a rapid pace and was chosen as “America’s Most Innovative Company” between 1996 and 2001.
Some of Enrons highly profitable business ventures were:
Online trade of several derivative products in petrochemicals, power, weather and more.
Wholesaling of electricity and natural gas
Transportation of energies such as natural gas through pipeline services
Enron Business Deals:
Faulty investment in Internet network business.
Foreign investment deals made in the energy projects went sour.
Fall in energy prices. It was the next setback for Enron that significantly affected its profit-earnings.
Business deals made with special purpose entities for isolating its financial risks from the mother company. This helped Enron to inflate its revenue as well as profit earnings and dupe its investors and workers.
Failed deal between Enron and Dynergy. Dynegy backed out from buying Enron after closely scrutinizing its balance sheet.
Enron – From Riches to Rags
Accounting fraudulency helped Enron to over-inflate its profit margin. This in turn pushed the stock prices above US 90 dollars. After revelation of the accounting scandal, Enrons price came down to below US 1 dollar.
Aftermath of Enron Debacle on Workers
In December 2001, just after its announcement of bankruptcy, 4000 workers (almost 20% of its total strength ) were laid off as a cost-curtailment measure.
On October 29, 2001, Enron’s management made their employees lock in their money with Enron stock for sixteen days, even when the stock price shed 1/3rd of its value.
The superannuation pension plan of the Enron workers, under 401(k), was subject to market risks and was not fixed with pension guarantees. Employees, who had also locked in their pension, savings and college funds of their children with Enron stock, saw a historic and massive depletion of their asset value along with the company’s downfall. These events left Enron workers high and dry after their blue-chip stock plummeted to a penny stock. The employees, through Enron’s retirement pension plan 401(k), lost a total of US 1.3 billion dollars.
After the failure of Enron, reorganization attempts were made through the infusion of funds from its lenders, Citibank group and JP Morgan Chase. After these attempts failed, the entire workforce of twenty-two thousand were eliminated.
Enron employees were the biggest losers in the Enron fallout because they lost their jobs and their savings that were attached to Enron stock. The winners were the top management of Enron who transferred their financial risk from themselves to the workers.