103-659: An Employee Stock Ownership Plan ( ESOP ) in the United States is a defined contribution plan, a form of retirement plan as defined by 4975(e)(7)of IRS codes, which became a qualified retirement plan in 1974. It is one of the methods of employee participation in corporate ownership. According to an analysis of data provided by the United States Department of Labor , there are approximately 6,237 companies in America with an ESOP. Notable U.S. employee-owned corporations include
206-417: A holding company , InterNorth, a diversified energy and energy-related products firm. Although most of the acquisitions conducted were successful, some ended poorly. InterNorth competed with Cooper Industries unsuccessfully over a hostile takeover of Crouse-Hinds Company , an electrical products manufacturer. Cooper and InterNorth feuded in numerous suits during the takeover that were eventually settled after
309-457: A $ 45 million penalty (later reduced). Fastow was sentenced to six years of jail time, and Lou Pai settled out of court for $ 31.5 million. In October 2000, Daniel Scotto , the most renowned utility analyst on Wall Street, suspended his ratings on all energy companies conducting business in California because of the possibility that the companies would not receive full and adequate compensation for
412-403: A 1,380 miles (2,220 km) fiber optic network between Portland and Las Vegas. In 1998, Enron constructed a building in a rundown area of Las Vegas near E Sahara, right over the "backbone" of fiber optic cables providing service to technology companies nationwide. The location had the ability to send "the entire Library of Congress anywhere in the world within minutes" and could stream "video to
515-678: A commodity. Enron adopted the idea and called it the "Gas Bank". The division's success prompted Skilling to join Enron as the head of the Gas Bank in 1991. Another major development inside Enron was a pivot to overseas operations with a $ 56 million loan in 1989 from the Overseas Private Investment Corporation (OPIC) for a power plant in Argentina. Throughout the 1990s, Enron made a few changes to its business plan that greatly improved
618-572: A common business practice in the energy industry. However, it also allowed Enron to transfer some of its liabilities off its books, allowing it to maintain a robust and generally increasing stock price and thus keep its critical investment-grade credit ratings. Enron was originally involved in transmitting and distributing electricity and natural gas throughout the US. The company developed, built, and operated power plants and pipelines while dealing with rules of law and other infrastructures worldwide. Enron owned
721-478: A contracting scandal. In March 2013, the department began commemorating its centennial. In July 2013, Tom Perez was confirmed as Secretary of Labor. According to remarks by Perez at his swearing-in ceremony, "Boiled down to its essence, the Department of Labor is the department of opportunity." In April 2017, Alexander Acosta was confirmed as the new Secretary of Labor. In July 2019, Acosta resigned due to
824-487: A court-approved plan of reorganization. A new board of directors changed its name to Enron Creditors Recovery Corp. , and emphasized reorganizing and liquidating certain operations and assets of the pre-bankruptcy Enron. On September 7, 2006, Enron sold its last remaining subsidiary, Prisma Energy International , to Ashmore Energy International Ltd. (now AEI). It is the largest bankruptcy due specifically to fraud in United States history. One of Enron's primary predecessors
927-445: A dangerous spiral in which, each quarter, corporate officers would have to perform more and more financial deception to create the illusion of billions of dollars in profit while the company was actually losing money. This practice increased their stock price to new levels, at which point the executives began to work on insider information and trade millions of dollars worth of Enron stock. The executives and insiders at Enron knew about
1030-465: A financial "pyramid" or " Ponzi scheme "). Attempting to maintain the illusion, Skilling verbally attacked Wall Street analyst Richard Grubman , who questioned Enron's unusual accounting practice during a recorded conference telephone call. When Grubman complained that Enron was the only company that could not release a balance sheet along with its earnings statements, Skilling replied, "Well, thank you very much, we appreciate that ... asshole." Though
1133-548: A large network of natural gas pipelines, which stretched coast to coast and border to border including Northern Natural Gas, Florida Gas Transmission , Transwestern Pipeline Company, and a partnership in Northern Border Pipeline from Canada. The states of California, New Hampshire, and Rhode Island had already passed power deregulation laws by July 1996, the time of Enron's proposal to acquire Portland General Electric corporation. During 1998, Enron began operations in
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#17328632285771236-670: A loan, called a "leveraged ESOP", can provide a tax-advantaged means for the company to raise capital. According to a pro-ESOP organization, at least 75% of ESOPs are, or were at some time, leveraged. According to citing ESOP Association statistics as cited in. In addition, ESOPs can be attractive instruments of corporate succession, allowing a retiring shareholder to diversify the company of stock while deferring capital gains taxes indefinitely. Company insiders face additional conflicts of interest in connection with an ESOP's purchase of company stock, which most often features company insiders as sellers and in connection with decisions about how to vote
1339-436: A plan specifically meant to be for retirement security. In contrast, they maintain that it may not be a serious problem for an ESOP or other options, which they say are meant as wealth-building tools, preferably to exist alongside other plans. Nonetheless, ESOPs are regulated as retirement plans, and they are presented to employees as retirement plans, just like 401(k) plans. ESOPs and 401(k)s are both retirement plans subject to
1442-422: A plunge following its earnings report, Mark resigned from Azurix and Enron. Azurix assets, including Wessex, were eventually sold by Enron. In 1990, Enron's chief operating officer Jeffrey Skilling hired Andrew Fastow, who was well acquainted with the burgeoning deregulated energy market that Skilling wanted to exploit. In 1993, Fastow began establishing numerous limited liability special-purpose entities ,
1545-413: A result of a poorly designed market system that was manipulated by traders and marketers, as well as from poor state management and regulatory oversight. Subsequently, Enron traders were revealed as intentionally encouraging the removal of power from the market during California's energy crisis by encouraging suppliers to shut down plants to perform unnecessary maintenance, as documented in recordings made at
1648-467: A result, were more likely to offer additional diversified retirement plans alongside their ESOPs. Opponents to ESOP have criticized these pro-ESOP claims and say many of the studies are conducted or sponsored by ESOP advocacy organizations and criticizing the methodologies used. Critics argue that pro-ESOP studies did not establish that ESOPs results in higher productivity and wages. ESOP advocates agree that an ESOP alone cannot produce such effects; instead,
1751-485: A scandal involving his role in the plea deal with Jeffrey Epstein . He was succeeded on September 30, 2019, by Eugene Scalia . Scalia served until the beginning of the Biden administration on January 20, 2021. Marty Walsh was confirmed as secretary on March 22, 2021. He resigned on March 11, 2023 and was succeeded by deputy secretary Julie Su who is currently serving in an acting position. Enron Enron Corporation
1854-404: A scene of an Enron-themed amusement park ride. The 2007 film Bee Movie also featured a joke reference to a parody company of Enron called "Honron" (a play on the words honey and Enron). The 2003 documentary The Corporation made frequent references to Enron post-bankruptcy, calling the company a "bad apple". In August 2000, Enron's stock price attained its greatest value, closing at $ 90 on
1957-570: A share. She sold that stock for $ 49.77 a share in July 2001, a week before the public was told what she already knew about the $ 102 million loss. In 2002, after the tumultuous fall of Enron's external auditor, and management consultant, Andersen LLP, former Andersen Director, John M. Cunningham coined the phrase, "We have all been Enroned." The fallout resulted in both Lay and Skilling being convicted of conspiracy, fraud, and insider trading. Lay died before sentencing, Skilling got 24 years and 4 months and
2060-610: A target of corporate takeovers, the most prominent originating with Irwin Jacobs. InterNorth CEO Sam Segnar sought a friendly merger with HNG. In May 1985, Internorth acquired HNG for $ 2.3 billion, 40% higher than the current market price, and on July 16, 1985, the two entities voted to merge. The combined assets of the two companies created the second largest gas pipeline system in the US at that time. Internorth's north–south pipelines that served Iowa and Minnesota complemented HNG's Florida and California east-west pipelines well. The company
2163-459: Is headed by the secretary of labor , who reports directly to the president of the United States and is a member of the president's Cabinet . The purpose of the Department of Labor is to foster, promote, and develop the well-being of the wage earners, job seekers, and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights. In carrying out this mission,
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#17328632285772266-728: Is housed in the Frances Perkins Building , named in honor of Frances Perkins , the Secretary of Labor from 1933 to 1945. In 1884, the U.S. Congress first established a Bureau of Labor Statistics with the Bureau of Labor Act, to collect information about labor and employment. This bureau was under the Department of the Interior . The Bureau started collecting economic data in 1884, and published their first report in 1886. Later, in 1888,
2369-681: Is involved in several litigations against the government of Argentina claiming compensation relating to the negligence and corruption of the local governance during its management of the Buenos Aires water concession in 1999, which resulted in substantial amounts of debt (approx. $ 620 million) and the eventual collapse of the branch. Soon after emerging from bankruptcy in November 2004, Enron's new board of directors sued 11 financial institutions for helping Lay, Fastow, Skilling, and others hide Enron's true financial condition. The proceedings were dubbed
2472-530: Is that investors should diversify their investments across many companies, industries, geographic locations, etc. Moreover, ESOPs concentrate workers' retirement savings in the stock of the same company on which they depend for their wages and current benefits, such as health insurance, worsening the non-diversification problem. High-profile examples illustrate the problem. Employees at companies such as Enron and WorldCom lost much of their retirement savings by overinvesting in company stock in their 401(k) plans, but
2575-604: The Employee Retirement Income Security Act (ERISA). While similar in some ways, the plans also have notable differences. These differences can form a strength: Businesses that offer both an ESOP and a 401(k), as 93.6 percent of The ESOP Association's members do, can offer the best of both plans to their employees. Because ESOPs are the only retirement plans allowed by law to borrow money, they can be attractive to company owners and managers as instruments of corporate finance and succession. An ESOP formed using
2678-677: The Federal Employees' Compensation Act introduced benefits to workers who are injured or contract illnesses in the workplace. The act established an agency responsible for federal workers' compensation, which was transferred to the Labor Department in the 1940s and has become known as the Office of Workers' Compensation Programs . Frances Perkins , the first female cabinet member, was appointed to be Secretary of Labor by President Roosevelt on March 4, 1933. Perkins served for 12 years, and became
2781-567: The Partnership for Public Service ranked the Department of Labor 23rd out of 31 large agencies in its annual "Best Places to Work in the Federal Government" list. In December 2010, Secretary of Labor Hilda Solis was named the chair of the U.S. Interagency Council on Homelessness , of which Labor has been a member since its beginnings in 1987. In July 2011, Ray Jefferson , Assistant Secretary for VETS resigned due to his involvement in
2884-844: The Supreme Court , the damage to the Andersen name has prevented it from recovering or reviving itself as a viable business even on a limited scale. Enron also withdrew a naming-rights deal with the Houston Astros Major League Baseball club for its new stadium, which was known formerly as Enron Field (now Minute Maid Park ). Enron used a variety of deceptive and fraudulent tactics and accounting practices to cover its fraud in reporting Enron's financial information. Special-purpose entities were created to mask significant liabilities from Enron's financial statements. These entities made Enron seem more profitable than it was, and created
2987-669: The water sector , creating the Azurix Corporation, which it part-floated on the New York Stock Exchange during June 1999. Azurix failed to become successful in the water utility market, and one of its major concessions, in Buenos Aires , was a large-scale money-loser. Enron grew wealthy due largely to marketing, promoting power, and having a high stock price. Enron was named "America's Most Innovative Company" by Fortune for six consecutive years, from 1996 to 2001. It
3090-693: The "megaclaims litigation". Among the defendants were Royal Bank of Scotland , Deutsche Bank and Citigroup. As of 2008 , Enron has settled with all of the institutions, ending with Citigroup. Enron was able to obtain nearly $ 7.2 billion to distribute to its creditors as a result of the megaclaims litigation. As of December 2009, some claim and process payments were still being distributed. Enron has been featured since its bankruptcy in popular culture, including in The Simpsons episodes That '90s Show (Homer buys Enron stock while Marge chooses to keep her own Microsoft shares) and Special Edna , which features
3193-522: The 1970s, following the civil rights movement , the Labor Department under Secretary George P. Shultz made a concerted effort to promote racial diversity in unions . In 1978, the Department of Labor created the Philip Arnow Award , intended to recognize outstanding career employees such as the eponymous Philip Arnow. In the same year, Carin Clauss became the department's first female solicitor of
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3296-409: The 23rd. At this time, Enron executives, who possessed inside information on the hidden losses, began to sell their stock. At the same time, the general public and Enron's investors were told to buy the stock. Executives told the investors that the stock would continue to increase until it attained possibly the $ 130 to $ 140 range, while secretly unloading their shares. As executives sold their shares,
3399-526: The 250,000 employee supermarket chain Publix Supermarkets , Hy-Vee , McCarthy Building Company, WinCo Foods , environmental consulting firm Citadel Environmental Services, Inc., and Harpoon Brewery . Today, most private U.S. companies that are operating as ESOPs are structured as S corporations ESOPs (S ESOPs). According to The ESOP Association , a national trade association based in Washington, DC,
3502-451: The Bureau of Labor became an independent Department of Labor, but lacked executive rank. In February 1903, it became a bureau again when the Department of Commerce and Labor was established. United States President William Howard Taft signed the March 4, 1913, bill (the last day of his presidency), establishing the Department of Labor as its own Cabinet -level department. William B. Wilson
3605-416: The Department of Labor administers and enforces more than 180 federal laws and thousands of federal regulations. These mandates and the regulations that implement them cover many workplace activities for about 10 million employers and 125 million workers. Julie Su is currently serving as acting secretary since March 11, 2023, following the resignation of Marty Walsh . The department's headquarters
3708-630: The ESOP must be combined with worker empowerment through participatory management and other techniques. Critics point out that no study has separated the effects of those techniques from the effects of an ESOP; that is, no study shows that innovative management cannot produce the same (claimed) effects without an ESOP. In some circumstances, ESOP plans were designed that disproportionately benefit employees who enrolled earlier by accruing more shares to early employees. Newer employees, even at stable and mature ESOP companies can have limited opportunity to participate in
3811-533: The Enron Finance Corp. and headed by Skilling. With the success of the Gas Bank trading natural gas, Skilling looked to expand the horizons of his division, Enron Capital & Trade. Skilling hired Andrew Fastow in 1990 to help. Starting in 1994 under the Energy Policy Act of 1992 , Congress allowed states to deregulate their electricity utilities, allowing them to be opened for competition. California
3914-467: The InterNorth identity five years prior, suggested "Enteron". During a meeting with employees on February 14, 1986, Lay announced his interest in this name change, which would be held to a stockholder vote on April 10. Less than a month from this meeting, on March 7, 1986, a spokesman for HNG/InterNorth rescinded the planned Enteron proposal, as since its announcement the name had come under scrutiny for being
4017-536: The Room: The Amazing Rise and Scandalous Fall of Enron . Additionally, British water regulators required Wessex to cut its rates by 12% starting in April 2000, and an upgrade was required of the utility's aging infrastructure, estimated at costing over a billion dollars. By the end of 2000 Azurix had an operating profit of less than $ 100 million and was $ 2 billion in debt. In August 2000, after Azurix stock took
4120-482: The United States: United States Department of Labor The United States Department of Labor ( DOL ) is one of the executive departments of the U.S. federal government . It is responsible for the administration of federal laws governing occupational safety and health , wage and hour standards, unemployment benefits , reemployment services, and occasionally, economic statistics. It
4223-601: The announcement "as they did with most things Internet-related at the time", with stock prices rising from $ 40 per share in January 2000 to $ 70 per share in March, peaking at $ 90 in the summer of 2000. Enron executives obtained windfall gains from the rising stock prices, with a total of $ 924 million of stocks sold by high-level Enron employees between 2000 and 2001. The head of Enron Broadband Services, Kenneth Rice, sold 1 million shares himself, earning about $ 70 million in returns. As prices of existing fiber optic cables plummeted due to
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4326-409: The bankruptcy of Enron, telecommunications holdings were sold for "pennies on the dollar". In 2002, Rob Roy of Switch Communications purchased Enron's Nevada facility in an auction attended only by Roy. Enron's "fiber plans were so secretive that few people even knew about the auction." The facility was sold for only $ 930,000. Following the sale, Switch expanded to control "the biggest data center in
4429-649: The comment was met with dismay and astonishment by press, Wall Street analysts and public, it became an inside joke among many Enron employees, mocking Grubman for his perceived meddling rather than Skilling's offensiveness. Enron initially planned to retain its three domestic pipeline companies as well as most of its overseas assets. However, before emerging from bankruptcy, Enron sold its domestic pipeline companies as CrossCountry Energy for $ 2.45 billion and later sold other assets to Vulcan Capital Management . Enron sold its last business, Prisma Energy , during 2006, leaving Enron asset-less. During early 2007, its name
4532-772: The company can choose to have the trust borrow money to buy stock (also known as a leveraged ESOP, with the company making contributions to the plan to enable it to repay the loan). Generally, almost every full-time employee with a year or more of service who worked at least 20 hours a week is in an ESOP. The United States ESOP model is tied to the unique US system encouraging private retirement savings plans and tax policies that reflect that goal. That makes it difficult to compare to other tax codes from other nations. Most private US companies operating as an ESOP are structured as S corporation ESOPs (S ESOPs). The United States Congress established S ESOPs in 1998, to encourage and expand retirement savings by giving millions more American workers
4635-455: The company ended its retail endeavor in 1999 as it was revealed it was costing upwards of $ 100 million a year. As fiber optic technology progressed in the 1990s, multiple companies, including Enron, attempted to make money by "keeping the continuing network costs low", which was done by owning their own network. In 1997, FTV Communications LLC, a limited liability company formed by Enron subsidiary FirstPoint Communications, Inc., constructed
4738-457: The company made money and questioning whether Enron stock was overvalued. By August 15, 2001, Enron's stock price had decreased to $ 42. Many of the investors still trusted Lay and believed that Enron would rule the market. They continued to buy or retain their stock as the equity value decreased. As October ended, the stock had decreased to $ 15. Many considered this a great opportunity to buy Enron stock because of what Lay had been telling them in
4841-475: The company's fiscal health became secondary to manipulating its stock price during the so-called Tech boom . But when a company's success is measured by undocumented financial statements, actual balance sheets are inconvenient. Indeed, Enron's unscrupulous actions were often gambles to keep the deception going and so increase the stock price. An advancing price meant a continued infusion of investor capital on which debt-ridden Enron in large part subsisted (much like
4944-490: The company's success story was Daniel Scotto , an energy market expert at BNP Paribas , who issued a note in August 2001 entitled Enron: All stressed up and no place to go which encouraged investors to sell Enron stocks, although he only changed his recommendation on the stock from "buy" to "neutral". As was later discovered, many of Enron's recorded assets and profits were inflated, wholly fraudulent, or nonexistent. One example
5047-488: The deal and dismissed their CEO, Chuck Watson. The new chairman and CEO, the late Daniel Dienstbier, had been president of NNG and an Enron executive at one time and was forced out by Ken Lay. Dienstbier was an acquaintance of Warren Buffett. NNG continues to be profitable now. In 2001, after a series of revelations involving irregular accounting procedures perpetrated throughout the 1990s involving Enron and its auditor Arthur Andersen that bordered on fraud, Enron filed for
5150-656: The deferred energy accounts used as the basis for the California Deregulation Plan enacted during the late 1990s. Five months later, Pacific Gas & Electric (PG&E) was forced into bankruptcy. Republican Senator Phil Gramm , husband of Enron Board member Wendy Gramm and also the second-largest recipient of campaign contributions from Enron, succeeded in legislating California's energy commodity trading deregulation. Despite warnings from prominent consumer groups which stated that this law would give energy traders too much influence over energy commodity prices,
5253-562: The department. In 2010, a local of the American Federation of Government Employees stated their unhappiness that a longstanding flextime program reduced under the George W. Bush administration had not been restored under the Obama administration . Department officials said the program was modern and fair and that it was part of ongoing contract negotiations with the local. In August 2010,
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#17328632285775356-453: The end of 2001, it was revealed that Enron's reported financial condition was sustained by an institutionalized, systematic, and creatively planned accounting fraud , known since as the Enron scandal . Enron has become synonymous with willful corporate fraud and corruption . The scandal also brought into question the accounting practices and activities of many corporations in the United States and
5459-418: The federal government. Also, the study found that total output was equivalent to 1.7 percent of 2010 U.S. GDP. $ 93 billion (or 0.6 percent of GDP) came directly from S ESOPs, while output in supported industries totaled $ 153 billion (or 1.1 percent of GDP). In a U.S. ESOP, just as in every other form of qualified pension plan, employees do not pay taxes on the contributions until they receive a distribution from
5562-450: The foundation. Records show that Mrs. Lay made the sale order sometime between 10:00 and 10:20 am. News of Enron's problems, including the millions of dollars in losses they hid, became public about 10:30 that morning, and the stock price soon decreased to less than one dollar. Former Enron executive Paula Rieker was charged with criminal insider trading and sentenced to two years probation. Rieker obtained 18,380 Enron shares for $ 15.51
5665-439: The internet." Enron sought to have all US internet service providers rely on their Nevada facility to supply bandwidth, which Enron would sell in a fashion similar to other commodities. In January 2000, Kenneth Lay and Jeffrey Skilling announced to analysts that they were going to open trading for their own "high-speed fiber-optic networks that form the backbone for Internet traffic". Investors quickly bought Enron stock following
5768-454: The key variable in securing these claimed benefits is to combine an ESOP with a high degree of worker involvement in work-level decisions (employee teams, for instance). Employee stock ownership can increase the employees' financial risk if the company does badly. ESOPs, by definition, concentrate workers' retirement savings in the stock of a single company. Such concentration is contrary to the central principle of modern investment theory, which
5871-461: The largest source of honest income, the 1930s-era Northern Natural Gas company, was eventually purchased by a group of Omaha investors who relocated its headquarters to their city; it is now a unit of Warren Buffett 's Berkshire Hathaway Energy . NNG was established as collateral for a $ 2.5 billion capital infusion by Dynegy Corporation when Dynegy was planning to buy Enron. When Dynegy examined Enron's financial records carefully, they repudiated
5974-594: The legislation was passed in December 2000. As the periodical Public Citizen reported: Because of Enron's new, unregulated power auction, the company's "Wholesale Services'' revenues quadrupled – from $ 12 billion in the first quarter of 2000 to $ 48.4 billion in the first quarter of 2001. After the passage of the deregulation law, California had a total of 38 Stage 3 rolling blackouts declared, until federal regulators intervened in June 2001. These blackouts occurred as
6077-547: The long-term future of Enron. Lay consolidated all the gas pipeline efforts under the Enron Gas Pipeline Operating Company. In addition, it ramped up its electric power and natural gas efforts. In 1988 and 1989, the company added power plants and cogeneration units to its portfolio. In 1989, Jeffrey Skilling , then a consultant at McKinsey & Company , came up with the idea to link natural gas to consumers in more ways, effectively turning natural gas into
6180-595: The longest-serving Secretary of Labor. The passage of the Taft–Hartley Act in 1947 led to the end of the U.S. Conciliation Service, which was reconstituted outside the department as a new independent agency, the Federal Mediation and Conciliation Service . During the John F. Kennedy Administration , planning was undertaken to consolidate most of the department's offices, then scattered around more than 20 locations. In
6283-764: The main form of employee ownership have considerably more in retirement assets than comparable employees in non-ESOP firms. The most comprehensive of the studies, a report on all ESOP firms in Washington state, found that the retirement assets were about three times as great, and the diversified portion of employee retirement plans was about the same as the total retirement assets of comparable employees in equivalent non-ESOP firms. The Washington study, however, showed that ESOP participants still had about 60% of their retirement savings invested in employer stock. Wages in ESOP firms were also 5-12% higher. National data from Joseph Blasi and Douglas Kruse at Rutgers shows that ESOP companies are more successful than comparable firms and, perhaps as
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#17328632285776386-493: The media. Lay was accused of selling more than $ 70 million worth of stock at this time, which he used to repay cash advances on lines of credit. He sold another $ 29 million worth of stock in the open market. Also, Lay's wife, Linda, was accused of selling 500,000 shares of Enron stock totaling $ 1.2 million on November 28, 2001. The money earned from this sale did not go to the family but rather to charitable organizations, which had already received pledges of contributions from
6489-442: The mid‑1960s, construction on the "New Labor Building" began and construction was finished in 1975. In 1980, it was named in honor of Frances Perkins. President Lyndon B. Johnson asked Congress to consider the idea of reuniting Commerce and Labor. He argued that the two departments had similar goals and that they would have more efficient channels of communication in a single department. However, Congress never acted on it. In
6592-551: The most common reason for establishing an ESOP is to buy stock from the owners of a closely held company. Many closely held companies have little or no succession plan in place. As a result, the day a founder or primary shareholder leaves the business often results in significant adverse consequences for the company, the employees, and the exiting owner. ESOPs offer transitional flexibility that can facilitate succession planning. Founders and main shareholders can sell to ESOPs all of their shares at one time, or percentages of their shares on
6695-484: The offshore accounts that were hiding losses for the company; the investors, however, did not. Chief Financial Officer Andrew Fastow directed the team that created the off-books companies and manipulated the deals to provide himself, his family, and his friends with hundreds of millions of dollars in guaranteed revenue, at the expense of the corporation for which he worked and its stockholders. In 1999, Enron initiated EnronOnline, an Internet-based trading operation, which
6798-591: The one who couldn't figure out how to f**king vote on the butterfly ballot ." (Laughing from both sides.) "Yeah, now she wants her f**king money back for all the power you've charged right up, jammed right up her a** for f**king $ 250 a megawatt-hour." The traders had been discussing the efforts of the Snohomish PUD in Northwestern Washington state to recover the massive overcharges that Enron had engineered. Morgan Stanley , which had taken Enron's place in
6901-494: The opportunity to have equity in the companies where they work. ESOP advocates credit S ESOPs with providing retirement security, job stability and worker retention, by the claimed culture, stability and productivity gains associated with employee-ownership. A study of a cross-section of Subchapter S firms with an Employee Stock Ownership Plan shows that S ESOP companies performed better in 2008 compared to non-S ESOP firms, paid their workers higher wages on average than other firms in
7004-535: The passing of the Natural Gas Policy Act of 1978 , the Texas market was less profitable and as a result, HNG's profits fell. After Herring died in 1981, M.D. Matthews briefly took over as CEO in a 3-year stint with initial success, but ultimately, a big dip in earnings led to his exit. In 1984, Kenneth Lay succeeded Matthews and inherited the troubled conglomerate. With its conservative success, InterNorth became
7107-405: The perceived profitability of the company. First, Enron invested heavily in overseas assets, specifically energy. Another major shift was the gradual transition of focus from a producer of energy to a company that acted more like an investment firm and sometimes a hedge fund , making profits off the margins of the products it traded. These products were traded through the Gas Bank concept, now called
7210-413: The plan when they leave the company. They can roll the amount over into an IRA, as can participants in any qualified plan. There is no requirement for a private sector employer to provide retirement savings plans for employees. Some studies conclude that employee ownership appears to increase production and profitability and improve employees' dedication and sense of ownership. ESOP advocates maintain that
7313-761: The presence of an ESOP itself causes any positive effects for companies or workers. One study estimates that the net US economic benefit from S ESOP savings, job stability and productivity totals $ 33 billion per year. A study released in July 2012 found that S corporations with private employee stock ownership plans added jobs over the last decade more quickly than the overall private sector. A 2013 study found that in 2010, 2,643 S ESOPs directly employed 470,000 workers and supported an additional 940,000 jobs, paid $ 29 billion in labor income to their own employees, with $ 48 billion in additional income for supported jobs, and tax revenue initiated by S ESOPs amounted to $ 11 billion for state and local governments and $ 16 billion for
7416-543: The price began to decrease. Investors were told to continue buying stock or hold steady if they already owned Enron because the stock price would rebound shortly. Kenneth Lay's strategy for responding to Enron's continuing problems was his demeanor. As he did many times, Lay would issue a statement or make an appearance to calm investors and assure them that Enron was doing well. In March 2001 an article by Bethany McLean appeared in Fortune magazine noting that no one understood how
7519-421: The program, as a large portion of the shares may have already been allocated to longstanding employees. ESOP advocates often maintain that employee ownership in 401(k) plans, as opposed to ESOPs, is problematic. About 17% of total 401(k) assets are invested in company stock, more in those companies that offer it as an option (although many do not). ESOP advocates concede that it may be an excessive concentration in
7622-415: The same as a medical term for the intestines . This same press release saw the introduction of the Enron name, which would be the new name voted on come April. Enron still had some lingering problems left over from its merger, however, the company had to pay Jacobs, who was still a threat, over $ 350 million and reorganize the company. Lay sold off any parts of the company that he believed didn't belong in
7725-555: The same industries, contributed more to their workers' retirement security, and hired workers when the overall U.S. economy was pitched downward and non-S ESOP employers were cutting jobs. Scholars estimate that annual contributions to employees of S ESOPs total around $ 14 billion. Critics say, however, that such studies fail to control for factors other than the existence of the ESOP, such as participatory management strategies, worker education, and pre-ESOP growth trends in individual companies. They maintain that no studies have shown that
7828-519: The scandal caused the dissolution of Arthur Andersen, which at the time was one of the Big Five of the world's accounting firms. The company was found guilty of obstruction of justice in 2002 for destroying documents related to the Enron audit. Since the SEC is not allowed to accept audits from convicted felons, Andersen was forced to stop auditing public companies. Although the conviction was dismissed in 2005 by
7931-458: The schedule of their choosing. The transition in leadership, therefore, can occur as quickly or slowly as the owner wishes. Like other tax-qualified deferred compensation plans, ESOPs must not discriminate in their operations in favor of highly compensated employees, officers, or owners. In an ESOP, a company sets up an employee benefit trust that is funded by contributing cash to buy company stock or contributing company shares directly. Alternately,
8034-440: The shares of stock held by the ESOP but not yet allocated to participants' accounts. In a leveraged ESOP, such unallocated shares often far outnumber allocated shares for many years after the leveraged transaction. This is a timeline of significant events in the development of ESOPs as a financial instrument, as well as some of the key personalities involved in developing the basic concepts, laws and organizations related to ESOPs in
8137-500: The specific companies were not employee-owned. Enron, Polaroid and United Airlines , all of which had ESOPs when they went bankrupt, were C corporations . Most S corporation ESOPs offer their employees at least one qualified retirement savings plan like a 401(k) in addition to the ESOP, allowing for greater diversification of assets. Studies in Massachusetts, Ohio, and Washington State show that on average, employees participating in
8240-567: The success in England, the company developed and diversified its assets worldwide under the name of Enron International (EI), headed by former HNG executive Rebecca Mark . By 1994, EI's portfolio included assets in The Philippines, Australia, Guatemala, Germany, France, India, Argentina, the Caribbean, China, England, Colombia, Turkey, Bolivia, Brazil, Indonesia, Norway, Poland, and Japan. The division
8343-647: The then largest Chapter 11 bankruptcy in history (since surpassed by those of Worldcom during 2002 and Lehman Brothers during 2008), resulting in $ 11 billion in shareholder losses. As the scandal progressed, Enron share prices decreased from US$ 90 during the summer of 2000, to just pennies. Enron's demise occurred after the revelation that much of its profit and revenue were the result of deals with special-purpose entities ( limited partnerships which it controlled). This maneuver allowed many of Enron's debts and losses to disappear from its financial statements. Enron filed for bankruptcy on December 2, 2001. In addition,
8446-405: The time. These acts contributed to the need for rolling blackouts, which adversely affected many businesses dependent upon a reliable supply of electricity, and inconvenienced a large number of retail customers. This scattered supply increased the price, and Enron traders were thus able to sell power at premium prices, sometimes up to a factor of 20 × its normal peak value. The callousness of
8549-479: The traders' attitude toward ratepayers was documented in an evidence tape of a conversation regarding the matter, and sarcastically referencing the confusion of retiree voters in Florida's Miami-Dade County in the November 2000, presidential election. "They're f**king taking all the money back from you guys? All the money you guys stole from those poor grandmothers in California?" "Yeah, Grandma Millie man. But she's
8652-626: The transaction was completed. The subsidiary Northern Natural Gas operated the largest pipeline company in North America. By the 1980s, InterNorth became a major force for natural gas production, transmission, and marketing as well as for natural gas liquids , and was an innovator in the plastics industry . In 1983, InterNorth merged with the Belco Petroleum Company, a Fortune 500 oil exploration and development company founded by Arthur Belfer . The Houston Natural Gas (HNG) corporation
8755-418: The two companies agreed to give billions of dollars to Enron's creditors. By May 2011, $ 21.8 billion had been distributed to the creditors, totaling 53 percent of Enron's debts at the time of bankruptcy. Enron Creditors Recovery Corporation was ultimately dissolved on November 28, 2016. Azurix, the former water utility part of the company, remains under Enron ownership, although it is currently asset-less. It
8858-595: The vast oversupply of the system, with only 5% of the 40 million miles being active wires, Enron purchased the inactive "dark fibers", expecting to buy them at low cost and then make a profit as the need for more usage by internet providers increased, with Enron expecting to lease its acquired dark fibers in 20-year contracts to providers. However, Enron's accounting would use estimates to determine how much their dark fiber would be worth when "lit" and apply those estimates to their current income, adding exaggerated revenue to their accounts since transactions were not yet made and it
8961-546: The whole state of California". The location was also more protected from natural disasters than areas such as Los Angeles or the East Coast. According to Wall Street Daily , "Enron had a secret", it "wanted to trade bandwidth like it traded oil, gas, electricity, etc. It launched a secret plan to build an enormous amount of fiber optic transmission capacity in Las Vegas ;... it was all part of Enron's plan to essentially own
9064-469: The world". Enron, seeing stability after the merger, began to look overseas for new possible energy opportunities in 1991. Enron's first such opportunity was a natural gas power plant utilizing cogeneration that the company built near Middlesbrough , UK. The power plant was so large it could produce up to 3% of the United Kingdom's electricity demand with a capacity of over 1,875 megawatts . Seeing
9167-517: Was InterNorth , which was formed in 1930, in Omaha, Nebraska , just a few months after Black Tuesday . The low cost of natural gas and the cheap supply of labor during the Great Depression helped to fuel the company's early beginnings, doubling in size by 1932. Over the next 50 years, Northern expanded even more as it acquired many energy companies. It was reorganized in 1979 as the main subsidiary of
9270-690: Was a factor in the enactment of the Sarbanes–Oxley Act of 2002 . The scandal also affected the greater business world by causing, together with even larger fraudulent bankruptcy WorldCom , the dissolution of the Arthur Andersen accounting firm, which had been Enron and WorldCom's main auditor for years. Enron filed for bankruptcy in the Southern District of New York in late 2001 and selected Weil, Gotshal & Manges as its bankruptcy counsel. Enron emerged from bankruptcy in November 2004, under
9373-618: 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. At
9476-579: Was appointed as the first Secretary of Labor on March 5, 1913, by President Wilson. As part of this action, the United States Conciliation Service was created as an agency within the department; its purpose was to provide mediation for labor disputes . In October 1919, Secretary Wilson chaired the first meeting of the International Labour Organization even though the U.S. was not yet a member. In September 1916,
9579-423: Was canceled, with Enron shares dropping from $ 80 per share in mid-February 2001 to below $ 60 the week after the deal was killed. The branch of the company that Jeffrey Skilling "said would eventually add $ 40 billion to Enron's stock value" added only about $ 408 million in revenue for Enron in 2001, with the company's broadband arm closed shortly after its meager second-quarter earnings report in July 2001. Following
9682-418: Was changed to Enron Creditors Recovery Corporation. Its goal is to repay the old Enron's remaining creditors and end Enron's affairs. In December 2008, it was announced that Enron's creditors would receive $ 7.2 billion from the company's liquidation (approximately 17 percent of the debts owed by the company). After Citigroup and JP Morgan Chase were sued for their role in abetting Enron's practices with loans,
9785-436: Was in 1999 when Enron promised to repay Merrill Lynch 's investment with interest to show a profit on its books. Debts and losses were put into entities formed offshore that were not included in the company's financial statements ; other sophisticated and arcane financial transactions between Enron and related companies were used to eliminate unprofitable entities from the company's books. The company's most valuable asset and
9888-610: Was initially formed from the Houston Oil Co. in 1925 to provide gas to customers in the Houston market through the building of gas pipelines . Under the leadership of CEO Robert Herring from 1967 to 1981, the company took advantage of the unregulated Texas natural gas market and the commodity surge in the early 1970s to become a dominant force in the energy industry. Toward the end of the 1970s, HNG's luck began to run out with rising gas prices forcing clients to switch to oil. In addition, with
9991-412: Was initially named HNG/InterNorth Inc. , even though InterNorth was technically the parent. At the outset, Segnar was CEO but was soon fired by the board of directors to name Lay to the post. Lay moved its headquarters back to Houston and set out to find a new name, spending more than $ 100,000 in focus groups and consultants in the process. Lippincott & Margulies , the advertising firm responsible for
10094-486: Was not known if the cables would ever be active. Enron's trading with other energy companies within the broadband market was its attempt to lure large telecommunications companies, such as Verizon Communications , into its broadband scheme to create its own new market. By the second quarter of 2001, Enron Broadband Services was reporting losses. On March 12, 2001, a proposed 20-year deal between Enron and Blockbuster Inc. to stream movies on demand over Enron's connections
10197-414: Was on the Fortune ' s "100 Best Companies to Work for in America" list during 2000, and had offices that were stunning in their opulence. Enron was hailed by many, including labor and the workforce, as an overall great company, praised for its large long-term pensions, benefits for its workers, and extremely effective management until the exposure of its corporate fraud. The first analyst to question
10300-533: Was one of the final projects of legendary graphic designer Paul Rand before his death in 1996, and debuted almost three months after his departure. In 1998, Enron International acquired Wessex Water for $ 2.88 billion. Wessex Water became the core asset of a new company, Azurix , which expanded to other water companies. After Azurix's promising IPO in June 1999, Enron "sucked out over $ 1 billion in cash while loading it up with debt", according to Bethany McLean and Peter Elkind, authors of The Smartest Guys in
10403-631: Was one such state to do so. Enron, seeing an opportunity with rising prices, was eager to jump into the market. In 1997, Enron acquired Portland General Electric (PGE). Although an Oregon utility, it had the potential to begin serving the massive California market since PGE was a regulated utility. The new Enron division, Enron Energy, ramped up its efforts by offering discounts to potential customers in California starting in 1998. Enron Energy also began to sell natural gas to customers in Ohio and wind power in Iowa. However,
10506-434: Was producing a large share of earnings for Enron, contributing 25% of earnings in 1996. Mark and EI believed the water industry was the next market to be deregulated by authorities. Seeing the potential, they searched for ways to enter the market, similar to PGE. During this period of growth, Enron introduced a new corporate identity on January 14, 1997, and from that point adopted their distinctive tricolor E logo. This logo
10609-602: Was used by virtually every energy company in the United States. By promoting the company's aggressive investment strategy, Enron's president and chief operating officer Jeffrey Skilling helped make Enron the biggest wholesaler of gas and electricity, trading over $ 27 billion per quarter. The corporation's financial claims, however, had to be accepted at face value. Under Skilling, Enron adopted mark-to-market accounting , in which anticipated future profits from any deal were tabulated as if currently real. Thus, Enron could record gains from what over time might turn out to be losses, as
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