The film begins with a profile of Kenneth Lay, who founded Enron in 1985. In 1987, the company becomes embroiled in scandal after two traders begin betting on the oil markets, resulting in suspiciously consistent profits. One of the traders, Louis Borget, is also discovered to be diverting company money to offshore accounts. Auditors uncover their schemes, but Lay encourages them to "keep making us millions". However, the traders are fired when it is revealed they gambled away Enron's reserves; the company is narrowly saved from bankruptcy by the timely intervention of executive Mike Muckleroy, who managed to bluff the market long enough to recover Borget's trading losses and prevent a margin call. Lay later denies having knowledge of any wrongdoing.
Lay hires Jeffrey Skilling, a visionary who joins Enron on the condition that they use mark-to-market accounting, allowing the company to record potential profits on certain projects immediately after contracts were signed, regardless of the actual profits that the deal would generate. This gives Enron the ability to subjectively give the appearance of being a profitable company, even when it was not. With the vision of transforming Enron from an energy supplier to an energy trader, Skilling imposes his version of a Darwinian worldview on Enron by establishing a review committee that grades employees and annually fires the bottom fifteen percent, a process nicknamed within the company as "rank and yank". This creates a highly competitive and brutal working environment. Skilling hires lieutenants who enforce his directives inside Enron, known as the "guys with spikes." They include J. Clifford Baxter, an intelligent but manic-depressive executive, and Lou Pai, the CEO of Enron Energy Services, notorious for his nightly habit of visiting strip clubs. Pai abruptly resigns from EES, having already sold $250 million of stock as a result of divorce proceedings.
With its success in the bull market brought on by the dot-com bubble, Enron seeks to beguile stock market analysts by meeting their projections. Executives push up their stock prices and then cash in their multimillion-dollar options, a process known as "pump and dump". Enron also mounts a PR campaign to portray itself as a profitable, prosperous, and innovative company, even though its worldwide operations are performing poorly. Elsewhere, Enron begins ambitious initiatives, such as attempts to use broadband technology to deliver movies on demand and to "trade weather" like a commodity; both initiatives fail, but, using mark-to-market accounting, Enron is able to record non-existent profits for these ventures. CFOAndrew Fastow creates a network of shell companies designed solely to do business with Enron, for the ostensible dual purposes of sending Enron money and hiding its increasing debt. Fastow also takes advantage of the greed of Wall Streetinvestment banks, pressuring them into investing in these shell entities. However, Fastow has a vested financial stake in these ventures and uses them to defraud Enron of tens of millions of dollars in business deals that he effectively conducts with himself. All of this is done with the permission of Enron's accounting firm Arthur Andersen and Enron's corporate board. Most of these deals were leveraged with Enron stock, meaning that a significant decline in their stock price could cause Fastow's network of shell companies to fall apart. During this time, Enron's executives encourage employees to invest their savings and retirement funds into Enron stock while they are selling off their shares for millions.
Enron's successes continue as it becomes one of the few internet-related companies to survive the burst of the dot-com bubble in 2000 relatively unscathed, and it is named the "most admired" corporation by Fortune magazine for the sixth year running. However, Jim Chanos, an Enron investor, and Bethany McLean, a Fortune reporter, question irregularities about the company's financial statements and stock value. Skilling responds by calling McLean "unethical", though he does send three Enron executives to meet with McLean and her Fortune editor to explain the company's finances. When McLean's critical article is published, Skilling accuses Fortune of just trying to counteract a recent positive piece about Enron in BusinessWeek, Fortune's competitor.
Public perception of Enron begins to change due to its role in the 2000–01 California electricity crisis. Given the company's purchase of Portland General Electric in 1997, Enron traders are able to exploit California's newly deregulated energy market by recurrently shutting down power plants and sending power out of the state to create artificial shortages that raise the cost of electricity, and then bringing the exported energy back in to California, making the company $2 billion. The film includes tape-recorded conversations between Enron traders who seem to derive enjoyment from this and then cites the Milgram experiment to explain their behavior. It also explores the strong political connections Ken Lay and Enron had, particularly to the administrations of PresidentGeorge H. W. Bush and his son, President (and earlier Governor of Texas), George W. Bush, and suggests that the Bush administration's lack of response during the California energy crisis could have been intended as a means of sabotaging then-Governor of CaliforniaGray Davis, who was speculated to be a strong potential challenger to the younger Bush in the 2004 Presidential election. Indeed, the crisis was a contributing factor to Davis being recalled in 2003, which ended his political career. Skilling, who succeeded Lay as Enron's CEO on February 12, 2001, blames California's energy laws for the crisis and denies that Enron is acting inappropriately, infamously stating in a 2001 episode of Frontline that "We are the good guys. We are on the side of angels." Eventually, the Democratic-controlled United States Senate ends the crisis by imposing price controls. Bush's connections to Ken Lay come under scrutiny in the press, which intensifies after Enron's collapse.
Meanwhile, throughout 2001, much more scrutiny is brought upon Enron's balance sheet, which agitates Skilling, who is on the verge of a nervous breakdown as the situation starts to unravel. He engages in odd and irrational behavior, such as calling an investor an "asshole" during a conference call when asked why Enron is not as transparent about its finances as its competitors, which culminates in his abrupt resignation as CEO in August 2001, after which Ken Lay retakes the position. Skilling's odd behavior serves as a red flag to investors, who begin to question how financially healthy the company really is and start selling their shares, causing Enron's stock price to decline. Soon after Skilling's departure, whistleblowerSherron Watkins discovers the fraud in Enron's books and alerts Lay, telling him the company is headed to certain collapse unless he acts immediately. Like in 1987, Lay largely ignores the warnings and assures that Skilling left for personal reasons and the company is financially solid. The board fires CFO Fastow after discovering he had embezzled more than $30 million from the company through his shell companies. With Fastow gone, Enron's accountants issue restatements that erase a majority of the company's profits from 1997 through 2000, add nearly $1 billion of debt to the company's balance sheet, and remove over $1 billion of shareholder equity as a means of writing down the losses from Fastow's shell companies. Despite Lay's continued assurances that Enron is in good shape and will pull through, the company's stock price tanks as its investors and customers lose all confidence, forcing Enron to file for Chapter 11 bankruptcy protection in November 2001.
As a result of Enron's bankruptcy, many of its employees lose their pensions and life savings, while investors lose over $11 billion in shareholder value. Skilling testifies at the ensuing congressional hearings, but Ken Lay and Andrew Fastow plead the fifth. Fastow eventually pleads guilty and agrees to testify against his former coworkers in exchange for a reduced sentence, while Lay and Skilling plead innocent and spend tens of millions of dollars on defense attorneys, with their trials scheduled to take place in 2006.
Enron: The Smartest Guys in the Room received positive reviews. It has a rating of 97% on Rotten Tomatoes, based on 119 reviews, with an average rating of 8.09/10; the site's consensus states: "A concise, entertaining documentary about the spectacular failure of Enron."[9] On Metacritic, the film has a rating of 82%, based on 37 reviews.[10]
Film critic Roger Ebert, writing in the Chicago Sun-Times, gave the film three-and-a-half out of four, commenting that: "This is not a political documentary. It is a crime story. No matter what your politics, Enron: The Smartest Guys in the Room will make you mad".[11] Ebert's co-host on the television program Ebert & Roeper, Chicago Tribune critic Richard Roeper, said the film is "a brilliantly executed, brutally entertaining dissection of what one observer called the greatest corporate fraud in American history". A. O. Scott of The New York Times wrote that: "This sober, informative chronicle of the biggest business scandal of the decade is almost indecently entertaining." Owen Gleiberman called the film: "A nimble investigative workout that leaves you with the exhilarated sensation of understanding the defining financial scandal of the virtual era."[12]
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional companies. Before its bankruptcy on December 2, 2001, Enron employed approximately 20,600 staff and was a major electricity, natural gas, communications, and pulp and paper company, with claimed revenues of nearly $101 billion during 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years.
Andrew Stuart Fastow is an American convicted felon and former financier who was the chief financial officer of Enron Corporation, an energy trading company based in Houston, Texas, until he was fired shortly before the company declared bankruptcy. Fastow was one of the key figures behind the complex web of off-balance-sheet special purpose entities used to conceal Enron's massive losses in their quarterly balance sheets. By unlawfully maintaining personal stakes in these ostensibly independent ghost-entities, he was able to defraud Enron out of tens of millions of dollars.
Chewco Investments L. P. was a limited partnership associated with the Enron scandal, which resulted in the bankruptcy of Enron. It was named after the Star Wars character Chewbacca, because it was created to hide losses from the Joint Energy Development Investment Limited, known by its acronym "JEDI". Like Chewbacca, the Jedi Knights were prominent characters in Star Wars.
John Clifford "Cliff" Baxter was an Enron Corporation executive who resigned in May 2001 before committing suicide the following year. Prior to his death he had agreed to testify before Congress in the Enron scandal.
The 2000–2001 California electricity crisis, also known as the Western U.S. energy crisis of 2000 and 2001, was a situation in which the U.S. state of California had a shortage of electricity supply caused by market manipulations and capped retail electricity prices. The state suffered from multiple large-scale blackouts, one of the state's largest energy companies collapsed, and the economic fall-out greatly harmed Governor Gray Davis's standing.
Jeffrey Keith Skilling is an American businessman who in 2006 was convicted of federal felony charges relating the Enron scandal. Skilling, who was CEO of Enron during the company's collapse, was eventually sentenced to 24 years in prison, of which he served 12 after multiple appeals.
Sherron Watkins is an American former Vice President of Corporate Development at the Enron Corporation. Watkins was called to testify before committees of the U.S. House of Representatives and Senate at the beginning of 2002, primarily about her warnings to Enron's then-CEO Kenneth Lay about accounting irregularities in the financial statements.
Todd S. Wagner is an American entrepreneur, co-founder of Broadcast.com and founder and CEO of a company called Charity Network which organizes regular fund raisings. He also co-owns 2929 Entertainment with Mark Cuban, along with other entertainment companies.
Conspiracy of Fools is a 2005 book by Kurt Eichenwald detailing the Enron scandal.
Bethany Lee McLean is an American journalist and contributing editor for Vanity Fair magazine. She is known for her writing on the Enron scandal and the 2008 financial crisis. Previous assignments include editor-at-large, columnist for Fortune, and a contributor to Slate.
Vincent Julian Kaminski was born in Poland and worked as the Managing Director for Research at the failed energy trading corporation Enron until 2002. In this capacity he led a team of approximately fifty analysts who developed quantitative models to support energy trading. In the months preceding Enron’s bankruptcy Kaminski repeatedly raised strong objections to the financial practices of Enron’s Chief Financial Officer, Andrew Fastow, designed to fraudulently conceal the company’s burgeoning debt.
The trial of Kenneth Lay, former chairman and CEO of Enron, and Jeffrey Skilling, former CEO and COO, was presided over by federal district court Judge Sim Lake in 2006 in response to the Enron scandal.
Jordan H. Mintz was the former Managing Director for Corporate Tax at Enron and a whistleblower during the Enron scandal.
Lou Lung Pai is a Chinese-American businessman and former Enron executive. He was CEO of Enron subsidiaries Enron Energy Services and Enron Xcelerator, a venture capital division. He left Enron with over $250 million. Pai was the second-largest land owner in Colorado after he purchased the 77,500-acre (314 km2) Taylor Ranch for $23 million in 1999, though he sold the property in June 2004 for $60 million.
Timothy Norris Belden is the former head of trading in Enron Energy Services. He is considered the mastermind of Enron's scheme to drive up California's energy prices, by developing many of the trading strategies that resulted in the California electricity crisis. Belden pleaded guilty to one count of conspiracy to commit wire fraud as part of a plea bargain, along with his cooperation with authorities to help convict many top Enron executives.
Rebecca P. Mark-Jusbasche, known during her international business career as Rebecca Mark, is the former head of Enron International, a subsidiary of Enron. She was also CEO of Azurix Corp., a publicly traded water services company originally developed by Enron International. Mark was promoted to Vice Chairman of Enron in 1998 and was a member of its board of directors. She resigned from Enron in August 2000.
LJM, which stands for Lea, Jeffrey, Matthew, the names of Andrew Fastow's wife and children, was a company created in 1999 by Enron Corporation's CFO, Andrew Fastow, to buy Enron's poorly performing assets and bolster Enron's financial statements by hiding its debts.
The Crooked E: The Unshredded Truth About Enron is an American television movie aired by CBS in January 2003, which was based on the book Anatomy of Greed by Brian Cruver. The film, which stars Brian Dennehy, Christian Kane and Mike Farrell, and was directed by Penelope Spheeris, was a ratings hit for the network.
The Enron scandal was an accounting scandal involving Enron Corporation, an American energy company based in Houston, Texas. When news of widespread fraud within the company became public in October 2001, the company declared bankruptcy and its accounting firm, Arthur Andersen – then one of the five largest audit and accountancy partnerships in the world – was effectively dissolved. In addition to being the largest bankruptcy reorganization in U.S. history at that time, Enron was cited as the biggest audit failure.
The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron is a book by Bethany McLean and Peter Elkind, first published in 2003 by Portfolio Trade. In 2005, it was adapted into a documentary film, Enron: The Smartest Guys in the Room.
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