The December 2001 crisis, sometimes known as the Argentinazo (pronounced [aɾxentiˈnaso]), was a period of civil unrest and rioting in Argentina, which took place during December 2001, with the most violent incidents taking place on 19 and 20 December in the capital, Buenos Aires, Rosario and other large cities around the country. It was preceded by a popular revolt against the Argentine government, rallying behind the motto "All of them must go!" (Spanish: ¡Que se vayan todos!), which caused the resignation of then-president Fernando de la Rúa, giving way to a period of political instability during which five government officials performed the duties of the Argentinian presidency. This period of instability occurred during the larger period of crisis known as the Argentine great depression, an economic, political, and social crisis that lasted from 1998 until 2002.
The December 2001 crisis was a direct response to the government's imposition of "Corral" policies (Spanish: Corralito) at the behest of economic minister Domingo Cavallo, which restricted people's ability to withdraw cash from banks. Rioting and protests became widespread on 19 December 2001, immediately following the president's declaration of a state of emergency and his resignation on the following day. A state of extreme institutional instability continued for the next twelve days, during which the successor president Adolfo Rodríguez Saá resigned as well. While the degree of instability subsided, the events of December 2001 would become a blow against the legitimacy of the Argentine government that would persist for the following years.
The majority of the participants in the protests were unaffiliated with any political party or organization. Over the course of the protests, 39 people were killed by police and security forces. Of the 39 killed, nine were minors, which is an indication of the degree of repression ordered by the government to oppose the protests.
While political reforms under the previous president Carlos Menem had succeeded in reducing inflation, the downsides of his economic policies became more and more apparent starting in 1997. Maintaining the convertibility of pesos to dollars required the government of Argentina to obtain an abundant supply of American dollars. At first, this supply was maintained by the privatization of nearly all of the Argentinian state's industries and pension funds. As the privatization process was completed, Argentina's agricultureexport-based economy was unable to maintain a sufficient flow of dollars to the state, and the system began to require more and more sovereign debt.
Fernando de la Rúa's presidency
One of the key factors leading to the victory of the Alliance in the 1999 elections was its promise to uphold the convertibility plan. One of de la Rúa's campaign slogans declared "With me, one peso, one dollar" (Spanish: Conmigo, un peso, un dólar). Despite a changing international economic situation (including economic downturns in Brazil, one of Argentina's key economic partners), and mounting demands for increased monetary sovereignty,[by whom?] the Alliance committed itself to maintain the status quo at all costs.
The government coalition was strained from the first moment; the FrePaSo leaders resented being "junior members" of the government (being forced to that position after losing their bid to the Governorship of Buenos Aires), while the Radicals were divided between their left- and right-leaning factions (De la Rúa was a leader of the party's conservatives), especially regarding economic policy. In late 2000 a political scandal broke out when it was reported that SIDE, Argentina's intelligence service, had paid massive bribes to a number of senators to approve a controversial Labor Reform Act. The head of SIDE, Fernando de Santibañes, was a personal friend of De la Rúa. The crisis came to a head on October 2000 when Vice President Carlos Álvarez resigned, citing De la Rúa's unwillingness to tackle corruption.
March 2001 Crisis
De la Rúa's economic policies suffered a severe blow in March 2001 when Economy Minister José Luis Machinea resigned from office. He was briefly replaced by the then-Defense Minister Ricardo López Murphy, who himself was forced to resign following negative reception to his shock program. After only two weeks in office, López Murphy was replaced by Domingo Cavallo, who had previously served as Economy Minister between 1991 and 1996, and who was the original author of the Convertibility plan during Menem's presidency.
The crisis also caused the resignation of all the FrePaSo Cabinet ministers, leaving de la Rúa without political support. The congressional elections of October 2001 were a disaster for the government, which lost many of its seats in the Senate and the Chamber of Deputies to the Peronists. The election results marked also a growing unrest within Argentina's voters, who took to cast millions of null or blank votes. The Peronists seized the opportunity to appoint Senator Ramón Puerta to be President Pro-Tempore of the Argentine Senate, a situation which added to De la Rúa's political weakness since in the Argentine system the President Pro-Tempore of the Senate is next in line for the Presidency after the Vice President. With no Vice President of its own, Puerta's designation meant that De la Rúa had a virtual Peronist Vice President.
Social unrest was also growing. Since the late 1990s, protest movements had formed in Argentina, notably the piqueteros ("picketeers"), initially made up of unemployed workers. The piqueteros blockaded major roads and highways demanding government subsidies and other welfare measures. They featured prominently during the March 2001 crisis.
The crisis reached a breaking point on 29 November 2001, as major investors began to withdraw their deposits from the banks, summarily causing the collapse of the Argentinian banking system due to capital flight. This was compounded by the IMF's decision to refuse to refinance Argentina's debt.
At the beginning of December 2001, the IMF cut off the flow of funds to Argentina and capital flight became uncontrollable, with 25% of all the money in Argentinian banks having been withdrawn since the beginning of 2001. On 2 December, Finance Minister Cavallo announced a national cash-withdrawal limit of $250/week. Popular opinion was very negative, especially amongst the middle class (bearing in mind that the weekly withdrawal limit was higher than the total savings of the majority of the Argentinian population), for whom the economic crisis caused a breach of political confidence. Protests were held throughout December, although the largest and most important protests were those held on 19 and 20 December.
Although people could still use their money via credit cards, checks and other forms of non-cash payments, the enforcement of these measures caused delays and problems for the general population and especially for businesses. Massive queues at every bank and growing reports of political crisis contributed to inflame Argentina's political scenario.
De la Rúa's position had become unsustainable, and an attempt by the Catholic Church to mediate between the government and the opposition in mid-December failed. Between 16 and 19 December there were several incidents involving unemployed activists and protesters which demanded the handing-out of food bags from supermarkets. These incidents ended up with outright looting of supermarkets and convenience stores on 18 December, taking place on Rosario and the Greater Buenos Aires areas.
During the time of the strike, there were riots in the working class neighborhoods of some cities, largely instigated by the striking piqueteros. Looting occurred in various commercial districts in the country's interior and in Buenos Aires. Thousands of people participated in looting, truck-robbery, and street-blocking. From 13 to 19 December, seven people were killed by security forces and shopowners.
19 December 2001, PresidentDe la Rúa declares the state of siege throughout the country. Following the broadcast, a strong "cacerolazo" took place in Buenos Aires and other major cities of Argentina, and thousands took the streets and main plazas in protest. (video in Spanish)
Throughout the day new lootings took place, and the Government believed that Peronist agitators were fueling the protests, especially in the province of Buenos Aires. This came after noting that the lootings often took place in Peronist-governed towns, and that the Buenos Aires Provincial Police (which ultimately answered to Buenos Aires Governor Carlos Ruckauf, a top Peronist) was strangely mild in restoring order. With violence mounting across Argentina's major cities, President De la Rúa began to consider alternative measures to restore order.
The first option considered was to deploy the military to contain the violence. However, Argentine legislation forbids military intervention in domestic security matters unless the police and security forces are overwhelmed, a situation quickly pointed out by the Chairman of the Joint General Staff and the Chiefs of Staff of the Army, Navy and Air Force. The military also pointed out that they would only intervene if their deployment was authorized by a law voted in Congress, something impossible given the Peronist majority in both Houses. The Argentine military was unwilling to take the blame if violence grew worse, learning from what had previously happened when President Isabel Perón issued an executive order commanding them to fight the subversive guerrilla movements of the 1970s (see Dirty War).
Later that night, De la Rúa addressed the nation to announce the state of siege and to call the Peronists to negotiate a "government of national unity". Following the broadcast, spontaneous cacerolazos ("pot banging") took place throughout Buenos Aires and other major cities, signaling the middle-class' own unrest. 19 December concluded with the resignation of Domingo Cavallo, who had lost whatever support he had within the government. Groups of protesters mobilized throughout Buenos Aires, some of them arriving to Plaza de Mayo, where there were incidents with the Federal Police forces.
Police intervention in the conflict
What had begun as rioting by unemployed and leftist-leaning groups had turned into a middle-class protest with the cacerolazos, and the resignation of Cavallo did nothing to calm down the situation. The De la Rúa administration had agreed with the military to participate in an emergency handing-out of food, however, the plan failed due to lack of cooperation from the Ministry of Social Development.
Throughout the morning, groups of protesters converged on Plaza de Mayo despite the state of siege. The Federal Police, acting under orders from the government, proceeded to try to control the protests. An attempt by a federal judge to halt police operations was disregarded, and the situation worsened with the arrival of new groups of protesters.
As violence expanded, President De la Rúa tried to impose censorship on all news outlets from Buenos Aires. The idea was to use the state of siege to force the television networks to stop transmitting current events and broadcast emergency programming. This plan also failed because De la Rúa's own Media Secretary refused to carry out his instructions. The state's repression was thus broadcast both within Argentina and abroad, causing further mobilizations toward the Plaza.
Violent incidents between the police and protesters spread throughout the country. The most notorious ones took place at the Plaza de Mayo, where five people were killed. Some claim that the deaths were provoked by covert elements of the Buenos Aires Provincial Police in an attempt to further destabilize De la Rúa.
With his options steadily being reduced, De la Rúa went onto national television at 4 p.m. to offer the Peronists to join the government and try to bring some peace to the country. At that time, a caucus of Peronist governors was taking place at a country villa in the province of San Luis. Three hours later, Humberto Roggero, head of the Peronist bloc of the House of Deputies, announced that the Peronist Party would not be a part of a "government of national unity".
When he heard the Peronists' response, De la Rúa decided to resign from office. The situation on Plaza de Mayo (right in front of the Casa Rosada, the Presidential Palace) was still too violent for De la Rúa to leave by car to his official residence at Olivos. Thus, the President's security detail decided to take him out of the Casa Rosada on board an Air Force helicopter. The iconic images of De la Rúa's "escape" by helicopter were broadcast throughout the country.
The violence slowly abated. By the end of the day, 26 people had died, five of them in Buenos Aires.
With Álvarez having resigned a year earlier, the President Pro-Tempore of the Senate, Ramón Puerta, took over as Interim President until Congress could appoint a successor to De la Rúa.
All told, 36 people were killed by police forces during the December riots, including 7 children. The largest incidence of violence was in the Plaza de Mayo of Buenos Aires, in what would become known in Argentina as the "Plaza de Mayo Massacre" (Spanish: Masacre de Plaza de Mayo), where 5 people were killed and 227 were injured. These crimes were investigated and brought to court. Seventeen people were charged with murder, attempted murder, including the then-Secretary of Security Enrique Mathov and the former head of the Argentinian Federal Police, Ruben Santos.
While various officials and police officers have been charged and sentenced to prison, as of 2016 the majority of cases pertaining to violence during the December riots have not moved forward.
According to the Acephaly Act, Puerta would only be President until the Legislative Assembly (a joint session of the Senate and the House of Deputies) convened and appointed a new President from either one member of Congress or a provincial governor to complete the resigning President's period.
The Peronist governors assembled at San Luis -arguably the most powerful men in Argentina at the period- were divided on who to nominate. There were three "natural candidates", who were the governors of the three largest provinces: Carlos Ruckauf of Buenos Aires, José Manuel de la Sota of Córdoba and Carlos Reutemann of Santa Fe. As a temporary arrangement, the governors decided to nominate Adolfo Rodríguez Saá, Governor of San Luis. The Peronists' easy majority in both houses of Congress ensured that Rodríguez Saá was elected on 22 December.
While de la Rúa's term expired in 2003, some argued that only a president legitimated by popular vote would be able to bring Argentina out of the crisis. To that end, Rodríguez Saá was designated as interim president for only three months, until presidential elections were held on 3 March. If needed, a ballotage would be held on 17 March. The winner would take office on 5 April for the balance of de la Rúa's term.
However, Rodríguez Saá didn't seem at all satisfied with being a caretaker president. From the first moment, Rodríguez Saá embarked on ambitious projects aimed at giving him popularity. In his inaugural speech, he announced that Argentina would default on its foreign debt, an announcement received by rousing applause from the members of Congress. He then proceeded to announce the issuing of a "third currency" (alongside the peso and the dollar) to boost consumption. Later on, Rodríguez Saá announced that he would extradite every former military officer charged with human rights abuses during the Dirty War who was requested by foreign courts. Another measure was to stand down the state of siege.
There were also some unpopular designations to the Cabinet. The most notorious one was the appointment of former Mayor of Buenos Aires , arguably one of the most corrupt figures in Argentine politics. Rodríguez Saá also courted the powerful Peronist trade unions in a move that was recognized as an attempt to wrestle power from the other Peronist governors.
New riots and cacerolazos took place on Buenos Aires, with some protesters entering the Congress Palace and burning furniture. On 30 December, Rodríguez Saá called for a summit of Peronist governors at the Presidential holiday retreat of Chapadmalal, 19 kilometres (12 miles) south of Mar del Plata. Of the fourteen Peronist governors, only five attended. Realizing that he lacked support from his own party, Rodríguez Saá returned to his home province to announce his own resignation to the Presidency after barely a week in office.
Designation of Eduardo Duhalde
Former President Eduardo Duhalde (2002–2003)
Ramón Puerta refused to take over as interim President again, resigning as President Pro-Tempore of the Senate. With no President, Vice President or President Pro-Tempore of the Senate, the Presidency of Argentina was placed in the hands of the next-in-line: Eduardo Camaño, who was the Speaker of the House of Deputies.
Camaño was to take over until a new Legislative Assembly was convened. The Assembly convened on 1 January 2002, and debated extensively before designating Senator Eduardo Duhalde as President almost at midnight.
Duhalde was one of the top leaders of the Peronist Party. However, many had thought that Duhalde's political career was ruined after his defeat in the 1999 presidential elections. In an ironic twist of events, Duhalde was called to complete the term of the man who beat him in the elections, Fernando de la Rúa. This was not to be a provisional presidency, as Duhalde was designated to complete the interrupted term of De la Rúa until the 2003 presidential elections.
With regard to the economy Duhalde and his Economy Minister Jorge Remes Lenicov decided on an even more extreme freezing of the bank deposits, which was then coupled with the so-called pesificación ("peso-ification", a forced transformation of all dollar-denominated accounts into pesos at an arbitrary fixed exchange rate), and a regulated devaluation. The fixed exchange rate system was abandoned soon afterwards, which was followed by a large depreciation.
During the unrest millions of people formed neighbourhood assemblies, occupied unused land and factories, created barter and mutual aid networks, implemented workers' self-management across hundreds of factories and rejected trade unionism and political parties. Around a third of the population participated in these creations and these efforts have been repeatedly praised by anarchists.
The height of the tower is 55.86 metres (183.27 feet) from the ground on the low side and 56.67 metres (185.93 feet) on the high side. The width of the walls at the base is 2.44 m (8 ft 0.06 in). Its weight is estimated at 14,500 metric tons (16,000 short tons). The tower has 296 or 294 steps; the seventh floor has two fewer steps on the north-facing staircase.
The tower began to lean during construction in the 12th century, due to soft ground which could not properly support the structure's weight, and it worsened through the completion of construction in the 14th century. By 1990 the tilt had reached 5.5 degrees. The structure was stabilized by remedial work between 1993 and 2001, which reduced the tilt to 3.97 degrees.
There has been controversy about the real identity of the architect of the Leaning Tower of Pisa. For many years, the design was attributed to Guglielmo and Bonanno Pisano, a well-known 12th-century resident artist of Pisa, known for his bronze casting, particularly in the Pisa Duomo. Pisano left Pisa in 1185 for Monreale, Sicily, only to come back and die in his home town. A piece of cast bearing his name was discovered at the foot of the tower in 1820, but this may be related to the bronze door in the façade of the cathedral that was destroyed in 1595. A 2001 study seems to indicate Diotisalvi was the original architect, due to the time of construction and affinity with other Diotisalvi works, notably the bell tower of San Nicola and the Baptistery, both in Pisa.
Construction of the tower occurred in three stages over 199 years. On 5 January 1172, Donna Berta di Bernardo, a widow and resident of the house of dell'Opera di Santa Maria, bequeathed sixty soldi to the Opera Campanilis petrarum Sancte Marie. The sum was then used toward the purchase of a few stones which still form the base of the bell tower. On 9 August 1173, the foundations of the tower were laid. Work on the ground floor of the white marble campanile began on 14 August of the same year during a period of military success and prosperity. This ground floor is a blind arcade articulated by engaged columns with classical Corinthian capitals. Nearly four centuries later Giorgio Vasari wrote: "Guglielmo, according to what is being said, in the year 1174, together with sculptor Bonanno, laid the foundations of the bell tower of the cathedral in Pisa".
The tower began to sink after construction had progressed to the second floor in 1178. This was due to a mere three-metre foundation, set in weak, unstable subsoil, a design that was flawed from the beginning. Construction was subsequently halted for almost a century, as the Republic of Pisa was almost continually engaged in battles with Genoa, Lucca, and Florence. This allowed time for the underlying soil to settle. Otherwise, the tower would almost certainly have toppled. On 27 December 1233, the worker Benenato, son of Gerardo Bottici, oversaw the continuation of the tower's construction.
On 23 February 1260, Guido Speziale, son of Giovanni Pisano, was elected to oversee the building of the tower. On 12 April 1264, the master builder , architect of the Camposanto, and 23 workers went to the mountains close to Pisa to cut marble. The cut stones were given to Rainaldo Speziale, worker of St. Francesco. In 1272, construction resumed under Di Simone. In an effort to compensate for the tilt, the engineers built upper floors with one side taller than the other. Because of this, the tower is curved. Construction was halted again in 1284 when the Pisans were defeated by the Genoans in the Battle of Meloria.
The seventh floor was completed in 1319. The bell-chamber was finally added in 1372. It was built by , who succeeded in harmonizing the Gothic elements of the belfry with the Romanesque style of the tower. There are seven bells, one for each note of the musical major scale. The largest one was installed in 1655.
History following construction
Between 1589 and 1592,Galileo Galilei, who lived in Pisa at the time, is said to have dropped two cannonballs of different masses from the tower to demonstrate that their speed of descent was independent of their mass. The primary source for this is the biography Racconto istorico della vita di Galileo Galilei (Historical Account of the Life of Galileo Galilei), written by Galileo's pupil and secretary Vincenzo Viviani in 1654, but only published in 1717, long after his death. 
During World War II, the Allies suspected that the Germans were using the tower as an observation post. A U.S. Armysergeant sent to confirm the presence of German troops in the tower was impressed by the beauty of the cathedral and its campanile, and thus refrained from ordering an artillery strike, sparing it from destruction.
Numerous efforts have been made to restore the tower to a vertical orientation or at least keep it from falling over. Most of these efforts failed; some worsened the tilt. On 27 February 1964, the government of Italy requested aid in preventing the tower from toppling. It was, however, considered important to retain the current tilt, due to the role that this element played in promoting the tourism industry of Pisa.
A multinational task force of engineers, mathematicians, and historians gathered on the Azores islands to discuss stabilisation methods.[when?] It was found that the tilt was increasing in combination with the softer foundations on the lower side. Many methods were proposed to stabilise the tower, including the addition of 800 tonnes of lead counterweights to the raised end of the base.
The tower was closed to the public on 7 January 1990, after more than two decades of stabilisation studies and spurred by the abrupt collapse of the Civic Tower of Pavia in 1989. The bells were removed to relieve some weight and cables were cinched around the third level and anchored several hundred meters away. Apartments and houses in the path of a potential fall of the tower were vacated for safety. The selected method for preventing the collapse of the tower was to slightly reduce its tilt to a safer angle by soil removal 38 cubic metres (1,342 cubic feet) from underneath the raised end. The tower's tilt was reduced by 45 centimetres (17.7 inches), returning to its 1838 position. After a decade of corrective reconstruction and stabilization efforts, the tower was reopened to the public on 15 December 2001, and was declared stable for at least another 300 years. In total, 70 metric tons (77 short tons) of soil were removed.
After a phase (1990–2001) of structural strengthening, the tower has been undergoing gradual surface restoration to repair visible damage, mostly corrosion and blackening. These are particularly pronounced due to the tower's age and its exposure to wind and rain.
In May 2008, engineers announced that the tower had been stabilized such that it had stopped moving for the first time in its history. They stated that it would be stable for at least 200 years.
At least four strong earthquakes hit the region since 1280, but the apparently vulnerable Tower survived. The reason was not understood until a research group of 16 engineers investigated. The researchers concluded that the Tower was able to withstand the tremors because of dynamic soil-structure interaction (DSSI): the height and stiffness of the Tower together with the softness of the foundation soil influences the vibrational characteristics of the structure in such a way that the Tower does not resonate with earthquake ground motion. The same soft soil that caused the leaning and brought the Tower to the verge of collapse helped it survive.
About the 5th bell: The name Pasquareccia comes from Easter, because it used to ring on Easter day. However, this bell is older than the bell-chamber itself, and comes from the tower Vergata in Palazzo Pretorio in Pisa, where it was called La Giustizia (The Justice). The bell was tolled to announce executions of criminals and traitors, including Count Ugolino in 1289. A new bell was installed in the bell tower at the end of the 18th century to replace the broken Pasquareccia.
The circular shape and great height of the campanile were unusual for their time, and the crowning belfry is stylistically distinct from the rest of the construction. This belfry incorporates a 14 cm (5.5 in) correction for the inclined axis below. The siting of the campanile within the Piazza del Duomo diverges from the axial alignment of the cathedral and baptistery of the Piazza del Duomo.
Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. Several years later, when Jeffrey Skilling was hired, he developed a staff of executives that – by the use of accounting loopholes, special purpose entities, and poor financial reporting – were able to hide billions of dollars in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives not only misled Enron's Board of Directors and Audit Committee on high-risk accounting practices, but also pressured Arthur Andersen to ignore the issues.
Enron shareholders filed a $40 billion lawsuit after the company's stock price, which achieved a high of US$90.75 per share in mid-2000, plummeted to less than $1 by the end of November 2001. The U.S. Securities and Exchange Commission (SEC) began an investigation, and rival Houston competitor Dynegy offered to purchase the company at a very low price. The deal failed, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Enron's $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until WorldCom's bankruptcy the next year.
Many executives at Enron were indicted for a variety of charges and some were later sentenced to prison. Andersen was found guilty of illegally destroying documents relevant to the SEC investigation, which voided its license to audit public companies and effectively closed the firm. By the time the ruling was overturned at the U.S. Supreme Court, the company had lost the majority of its customers and had ceased operating. Enron employees and shareholders received limited returns in lawsuits, despite losing billions in pensions and stock prices.
As a consequence of the scandal, new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies. One piece of legislation, the Sarbanes–Oxley Act, increased penalties for destroying, altering, or fabricating records in federal investigations or for attempting to defraud shareholders. The act also increased the accountability of auditing firms to remain unbiased and independent of their clients.
As Enron became the largest seller of natural gas in North America by 1992, its trading of gas contracts earned $122 million (before interest and taxes), the second largest contributor to the company's net income. The November 1999 creation of the EnronOnline trading website allowed the company to better manage its contracts trading business.:7
In an attempt to achieve further growth, Enron pursued a diversification strategy. The company owned and operated a variety of assets including gas pipelines, electricity plants, pulp and paper plants, water plants, and broadband services across the globe. The corporation also gained additional revenue by trading contracts for the same array of products and services with which it was involved.:5
This included setting up power generation plants in developing countries and emerging markets including The Philippines (Subic Bay), Indonesia and India (Dabhol).
Enron's stock increased from the start of the 1990s until year-end 1998 by 311%, only modestly higher than the average rate of growth in the Standard & Poor 500 index.:1 However, the stock increased by 56% in 1999 and a further 87% in 2000, compared to a 20% increase and a 10% decrease for the index during the same years. By December 31, 2000, Enron's stock was priced at $83.13 and its market capitalization exceeded $60 billion, 70 times earnings and six times book value, an indication of the stock market's high expectations about its future prospects. In addition, Enron was rated the most innovative large company in America in Fortune's Most Admired Companies survey.:1
Causes of downfall
Enron's complex financial statements were confusing to shareholders and analysts.:6 In addition, its complex business model and unethical practices required that the company use accounting limitations to misrepresent earnings and modify the balance sheet to indicate favorable performance.:9
The combination of these issues later resulted in the bankruptcy of the company, and the majority of them were perpetuated by the indirect knowledge or direct actions of Lay, Jeffrey Skilling, Andrew Fastow, and other executives such as Rebecca Mark. Lay served as the chairman of the company in its last few years, and approved of the actions of Skilling and Fastow, although he did not always inquire about the details. Skilling constantly focused on meeting Wall Street expectations, advocated the use of mark-to-market accounting (accounting based on market value, which was then inflated) and pressured Enron executives to find new ways to hide its debt. Fastow and other executives "created off-balance-sheet vehicles, complex financing structures, and deals so bewildering that few people could understand them.":132–133
Enron and other energy suppliers earned profits by providing services such as wholesale trading and risk management in addition to building and maintaining electric power plants, natural gas pipelines, storage, and processing facilities. When accepting the risk of buying and selling products, merchants are allowed to report the selling price as revenues and the products' costs as cost of goods sold. In contrast, an "agent" provides a service to the customer, but does not take the same risks as merchants for buying and selling. Service providers, when classified as agents, may report trading and brokerage fees as revenue, although not for the full value of the transaction.:101–103
Although trading companies such as Goldman Sachs and Merrill Lynch used the conventional "agent model" for reporting revenue (where only the trading or brokerage fee would be reported as revenue), Enron instead elected to report the entire value of each of its trades as revenue. This "merchant model" was considered much more aggressive in the accounting interpretation than the agent model.:102 Enron's method of reporting inflated trading revenue was later adopted by other companies in the energy trading industry in an attempt to stay competitive with the company's large increase in revenue. Other energy companies such as Duke Energy, Reliant Energy, and Dynegy joined Enron in the largest 50 of the revenue-based Fortune 500 owing mainly to their adoption of the same trading revenue accounting as Enron.:105
Between 1996 and 2000, Enron's revenues increased by more than 750%, rising from $13.3 billion in 1996 to $100.8 billion in 2000. This expansion of 65% per year was unprecedented in any industry, including the energy industry, which typically considered growth of 2–3% per year to be respectable. For just the first nine months of 2001, Enron reported $138.7 billion in revenues, placing the company at the sixth position on the Fortune Global 500.:97–100
In Enron's natural gas business, the accounting had been fairly straightforward: in each time period, the company listed actual costs of supplying the gas and actual revenues received from selling it. However, when Skilling joined the company, he demanded that the trading business adopt mark-to-market accounting, claiming that it would represent "true economic value.":39–42 Enron became the first nonfinancial company to use the method to account for its complex long-term contracts. Mark-to-market accounting requires that once a long-term contract has been signed, income is estimated as the present value of net future cash flow. Often, the viability of these contracts and their related costs were difficult to estimate.:10 Owing to the large discrepancies between reported profits and cash, investors were typically given false or misleading reports. Under this method, income from projects could be recorded, although the firm might never have received the money, with this income increasing financial earnings on the books. However, because in future years the profits could not be included, new and additional income had to be included from more projects to develop additional growth to appease investors.:39–42 As one Enron competitor stated, "If you accelerate your income, then you have to keep doing more and more deals to show the same or rising income." Despite potential pitfalls, the U.S. Securities and Exchange Commission (SEC) approved the accounting method for Enron in its trading of natural gas futures contracts on January 30, 1992.:39–42 However, Enron later expanded its use to other areas in the company to help it meet Wall Street projections.:127
For one contract, in July 2000, Enron and Blockbuster Video signed a 20-year agreement to introduce on-demand entertainment to various U.S. cities by year's end. After several pilot projects, Enron claimed estimated profits of more than $110 million from the deal, even though analysts questioned the technical viability and market demand of the service.:10 When the network failed to work, Blockbuster withdrew from the contract. Enron continued to claim future profits, even though the deal resulted in a loss.
Enron used special purpose entities—limited partnerships or companies created to fulfill a temporary or specific purpose to fund or manage risks associated with specific assets. The company elected to disclose minimal details on its use of "special purpose entities".:11 These shell companies were created by a sponsor, but funded by independent equity investors and debt financing. For financial reporting purposes, a series of rules dictate whether a special purpose entity is a separate entity from the sponsor. In total, by 2001, Enron had used hundreds of special purpose entities to hide its debt.:10 Enron used a number of special purpose entities, such as partnerships in its Thomas and Condor tax shelters, financial asset securitization investment trusts (FASITs) in the Apache deal, real estate mortgage investment conduits (REMICs) in the Steele deal, and REMICs and real estate investment trusts (REITs) in the Cochise deal.
The special purpose entities were Tobashi schemes used for more than just circumventing accounting conventions. As a result of one violation, Enron's balance sheet understated its liabilities and overstated its equity, and its earnings were overstated.:11 Enron disclosed to its shareholders that it had hedged downside risk in its own illiquid investments using special purpose entities. However, investors were oblivious to the fact that the special purpose entities were actually using the company's own stock and financial guarantees to finance these hedges. This prevented Enron from being protected from the downside risk.:11 Notable examples of special purpose entities that Enron employed were JEDI, Chewco, Whitewing, and LJM.
In 1993, Enron established a joint venture in energy investments with CalPERS, the California state pension fund, called the Joint Energy Development Investments (JEDI).:67 In 1997, Skilling, serving as Chief Operating Officer (COO), asked CalPERS to join Enron in a separate investment. CalPERS was interested in the idea, but only if it could be terminated as a partner in JEDI.:30 However, Enron did not want to show any debt from assuming CalPERS' stake in JEDI on its balance sheet. Chief Financial Officer (CFO) Fastow developed the special purpose entity Chewco Investmentslimited partnership (L.P.) which raised debt guaranteed by Enron and was used to acquire CalPERS's joint venture stake for $383 million.:11 Because of Fastow's organization of Chewco, JEDI's losses were kept off of Enron's balance sheet.
In autumn 2001, CalPERS and Enron's arrangement was discovered, which required the discontinuation of Enron's prior accounting method for Chewco and JEDI. This disqualification revealed that Enron's reported earnings from 1997 to mid-2001 would need to be reduced by $405 million and that the company's indebtedness would increase by $628 million.:31
Whitewing was the name of a special purpose entity used as a financing method by Enron. In December 1997, with funding of $579 million provided by Enron and $500 million by an outside investor, Whitewing Associates L.P. was formed. Two years later, the entity's arrangement was changed so that it would no longer be consolidated with Enron and be counted on the company's balance sheet. Whitewing was used to purchase Enron assets, including stakes in power plants, pipelines, stocks, and other investments. Between 1999 and 2001, Whitewing bought assets from Enron worth $2 billion, using Enron stock as collateral. Although the transactions were approved by the Enron board, the asset transfers were not true sales and should have been treated instead as loans.
In 1999, Fastow formulated two limited partnerships: LJM Cayman. L.P. (LJM1) and LJM2 Co-Investment L.P. (LJM2), for the purpose of buying Enron's poorly performing stocks and stakes to improve its financial statements. LJM 1 and 2 were created solely to serve as the outside equity investor needed for the special purpose entities that were being used by Enron.:31 Fastow had to go before the board of directors to receive an exemption from Enron's code of ethics (as he had the title of CFO) in order to manage the companies.:193, 197 The two partnerships were funded with around $390 million provided by Wachovia, J.P. Morgan Chase, Credit Suisse First Boston, Citigroup, and other investors. Merrill Lynch, which marketed the equity, also contributed $22 million to fund the entities.:31
Enron transferred to "Raptor I-IV", four LJM-related special purpose entities named after the velociraptors in Jurassic Park, more than "$1.2 billion in assets, including millions of shares of Enron common stock and long term rights to purchase millions more shares, plus $150 million of Enron notes payable" as disclosed in the company's financial statement footnotes.:33 The special purpose entities had been used to pay for all of this using the entities' debt instruments. The footnotes also declared that the instruments' face amount totaled $1.5 billion, and the entities notional amount of $2.1 billion had been used to enter into derivative contracts with Enron.:33
Enron capitalized the Raptors, and, in a manner similar to the accounting employed when a company issues stock at a public offering, then booked the notes payable issued as assets on its balance sheet while increasing the shareholders' equity for the same amount.:38 This treatment later became an issue for Enron and its auditor Arthur Andersen as removing it from the balance sheet resulted in a $1.2 billion decrease in net shareholders' equity.
Eventually the derivative contracts worth $2.1 billion lost significant value. Swaps were established at the time the stock price achieved its maximum. During the ensuing year, the value of the portfolio under the swaps fell by $1.1 billion as the stock prices decreased (the loss of value meant that the special purpose entities technically now owed Enron $1.1 billion by the contracts). Enron, which used a "mark-to-market" accounting method, claimed a $500 million gain on the swap contracts in its 2000 annual report. The gain was responsible for offsetting its stock portfolio losses and was attributed to nearly a third of Enron's earnings for 2000 (before it was properly restated in 2001).:39
On paper, Enron had a model board of directors comprising predominantly outsiders with significant ownership stakes and a talented audit committee. In its 2000 review of best corporate boards, Chief Executive included Enron among its five best boards. Even with its complex corporate governance and network of intermediaries, Enron was still able to "attract large sums of capital to fund a questionable business model, conceal its true performance through a series of accounting and financing maneuvers, and hype its stock to unsustainable levels.":4
Although Enron's compensation and performance management system was designed to retain and reward its most valuable employees, the system contributed to a dysfunctional corporate culture that became obsessed with short-term earnings to maximize bonuses. Employees constantly tried to start deals, often disregarding the quality of cash flow or profits, in order to get a better rating for their performance review. Additionally, accounting results were recorded as soon as possible to keep up with the company's stock price. This practice helped ensure deal-makers and executives received large cash bonuses and stock options.:112
The company was constantly emphasizing its stock price. Management was compensated extensively using stock options, similar to other U.S. companies. This policy of stock option awards caused management to create expectations of rapid growth in efforts to give the appearance of reported earnings to meet Wall Street's expectations. The stock ticker was located in lobbies, elevators, and on company computers.:187 At budget meetings, Skilling would develop target earnings by asking "What earnings do you need to keep our stock price up?" and that number would be used, even if it was not feasible.:127 On December 31, 2000, Enron had 96 million shares outstanding as stock option plans (approximately 13% of common shares outstanding). Enron's proxy statement stated that, within three years, these awards were expected to be exercised.:13 Using Enron's January 2001 stock price of $83.13 and the directors' beneficial ownership reported in the 2001 proxy, the value of director stock ownership was $659 million for Lay, and $174 million for Skilling.
Skilling believed that if employees were constantly worried about cost, it would hinder original thinking.:119 As a result, extravagant spending was rampant throughout the company, especially among the executives. Employees had large expense accounts and many executives were paid sometimes twice as much as competitors.:401 In 1998, the top 200 highest-paid employees received $193 million from salaries, bonuses, and stock. Two years later, the figure jumped to $1.4 billion.:241
Before its scandal, Enron was lauded for its sophisticated financial risk management tools. Risk management was crucial to Enron not only because of its regulatory environment, but also because of its business plan. Enron established long-term fixed commitments which needed to be hedged to prepare for the invariable fluctuation of future energy prices. Enron's bankruptcy downfall was attributed to its reckless use of derivatives and special purpose entities. By hedging its risks with special purpose entities which it owned, Enron retained the risks associated with the transactions. This arrangement had Enron implementing hedges with itself.
Enron's aggressive accounting practices were not hidden from the board of directors, as later learned by a Senate subcommittee. The board was informed of the rationale for using the Whitewing, LJM, and Raptor transactions, and after approving them, received status updates on the entities' operations. Although not all of Enron's widespread improper accounting practices were revealed to the board, the practices were dependent on board decisions. Even though Enron extensively relied on derivatives for its business, the company's Finance Committee and board did not have enough experience with derivatives to understand what they were being told. The Senate subcommittee argued that had there been a detailed understanding of how the derivatives were organized, the board would have prevented their use.
Enron's auditor firm, Arthur Andersen, was accused of applying reckless standards in its audits because of a conflict of interest over the significant consulting fees generated by Enron. During 2000, Arthur Andersen earned $25 million in audit fees and $27 million in consulting fees (this amount accounted for roughly 27% of the audit fees of public clients for Arthur Andersen's Houston office). The auditor's methods were questioned as either being completed solely to receive its annual fees or for its lack of expertise in properly reviewing Enron's revenue recognition, special entities, derivatives, and other accounting practices.:15
Enron hired numerous Certified Public Accountants (CPAs) as well as accountants who had worked on developing accounting rules with the Financial Accounting Standards Board (FASB). The accountants searched for new ways to save the company money, including capitalizing on loopholes found in Generally Accepted Accounting Principles (GAAP), the accounting industry's standards. One Enron accountant revealed "We tried to aggressively use the literature [GAAP] to our advantage. All the rules create all these opportunities. We got to where we did because we exploited that weakness.":142
Andersen's auditors were pressured by Enron's management to defer recognizing the charges from the special purpose entities as its credit risks became known. Since the entities would never return a profit, accounting guidelines required that Enron should take a write-off, where the value of the entity was removed from the balance sheet at a loss. To pressure Andersen into meeting Enron's earnings expectations, Enron would occasionally allow accounting companies Ernst & Young or PricewaterhouseCoopers to complete accounting tasks to create the illusion of hiring a new company to replace Andersen.:148 Although Andersen was equipped with internal controls to protect against conflicted incentives of local partners, it failed to prevent conflict of interest. In one case, Andersen's Houston office, which performed the Enron audit, was able to overrule any critical reviews of Enron's accounting decisions by Andersen's Chicago partner. In addition, after news of U.S. Securities and Exchange Commission (SEC) investigations of Enron were made public, Andersen would later shred several tons of relevant documents and delete nearly 30,000 e-mails and computer files, causing accusations of a cover-up.:15:383
Revelations concerning Andersen's overall performance led to the break-up of the firm, and to the following assessment by the Powers Committee (appointed by Enron's board to look into the firm's accounting in October 2001): "The evidence available to us suggests that Andersen did not fulfill its professional responsibilities in connection with its audits of Enron's financial statements, or its obligation to bring to the attention of Enron's Board (or the Audit and Compliance Committee) concerns about Enron's internal contracts over the related-party transactions".
Corporate Audit committees usually meet just a few times during the year, and their members typically have only modest experience with accounting and finance. Enron's audit committee had more expertise than many. It included:
Enron's audit committee was later criticized for its brief meetings that would cover large amounts of material. In one meeting on February 12, 2001, the committee met for an hour and a half. Enron's audit committee did not have the technical knowledge to question the auditors properly on accounting issues related to the company's special purpose entities. The committee was also unable to question the company's management due to pressures on the committee.:14 The United States Senate Permanent Subcommittee on Investigations of the Committee on Governmental Affairs' report accused the board members of allowing conflicts of interest to impede their duties as monitoring the company's accounting practices. When Enron's scandal became public, the audit committee's conflicts of interest were regarded with suspicion.
Ethical and political analyses
Commentators attributed the mismanagement behind Enron's fall to a variety of ethical and political-economic causes. Ethical explanations centered on executive greed and hubris, a lack of corporate social responsibility, situation ethics, and get-it-done business pragmatism. Political-economic explanations cited post-1970s deregulation, and inadequate staff and funding for regulatory oversight. A more libertarian analysis maintained that Enron's collapse resulted from the company's reliance on political lobbying, rent-seeking, and the gaming of regulations.
Other accounting issues
Enron made a habit of booking costs of cancelled projects as assets, with the rationale that no official letter had stated that the project was cancelled. This method was known as "the snowball", and although it was initially dictated that such practices be used only for projects worth less than $90 million, it was later increased to $200 million.:77
In 1998, when analysts were given a tour of the Enron Energy Services office, they were impressed with how the employees were working so vigorously. In reality, Skilling had moved other employees to the office from other departments (instructing them to pretend to work hard) to create the appearance that the division was larger than it was.:179–180 This ruse was used several times to fool analysts about the progress of different areas of Enron to help improve the stock price.
Timeline of downfall
At the beginning of 2001, the Enron Corporation, the world's dominant energy trader, appeared unstoppable. The company's decade-long effort to persuade lawmakers to deregulate electricity markets had succeeded from California to New York. Its ties to the Bush administration assured that its views would be heard in Washington. Its sales, profits and stock were soaring.
—A. Berenson and R. A. Oppel, Jr. The New York Times, Oct 28, 2001.
On September 20, 2000, a reporter at The Wall Street Journal Dallas bureau wrote a story about how mark-to-market accounting had become prevalent in the energy industry. He noted that outsiders had no real way of knowing the assumptions on which companies that use mark-to-market base their earnings. While it only appeared in the Texas Journal, the Texas regional edition of the Journal,short-sellerJim Chanos happened to read it and decided to check Enron's 10-K report for himself. He didn't think it made sense that Enron's broadband unit appeared to far outpace a then-troubled broadband industry. He also noticed that the company was burning through its invested capital, and was alarmed by the large chunks of stock being sold by insiders. In November 2000, he decided to short Enron's stock.:334–338
In February 2001, Chief Accounting Officer Rick Causey told budget managers: "From an accounting standpoint, this will be our easiest year ever. We've got 2001 in the bag.":299 On March 5, Bethany McLean's Fortune article Is Enron Overpriced? questioned how Enron could maintain its high stock value, which was trading at 55 times its earnings. She argued that analysts and investors did not know exactly how Enron made money. McLean was first drawn to the company's financial situation after Chanos suggested she view the company's 10-K for herself.:338 In a post-mortem interview with The Washington Post, McLean recalled finding "strange transactions", "erratic cash flow", and "huge debt." The debt was the biggest red flag to McLean; she wondered how a supposedly profitable company could be "adding debt at such a rapid rate." Later, in her book, The Smartest Guys in the Room, she recalled speaking off the record with a number of people in the investment community who were growing skeptical about Enron.:338
McLean telephoned Skilling to discuss her findings prior to publishing the article, but he called her "unethical" for not properly researching the company. Fastow cited two Fortune reporters that Enron could not reveal earnings details as the company had more than 1,200 trading books for assorted commodities and did "... not want anyone to know what's on those books. We don't want to tell anyone where we're making money."
In a conference call on April 17, 2001, then-Chief Executive Officer (CEO) Skilling verbally attacked Wall Street analyst Richard Grubman, who questioned Enron's unusual accounting practice during a recorded conference call. When Grubman complained that Enron was the only company that could not release a balance sheet along with its earnings statements, Skilling stammered "Well uh ... Thank you very much, we appreciate it ... Asshole." This became an inside joke among many Enron employees, mocking Grubman for his perceived meddling rather than Skilling's offensiveness, with slogans such as "Ask Why, Asshole", a variation on Enron's official slogan "Ask why". However, Skilling's comment was met with dismay and astonishment by press and public, as he had previously disdained criticism of Enron coolly or humorously.
By the late 1990s Enron's stock was trading for $80–90 per share, and few seemed to concern themselves with the opacity of the company's financial disclosures. In mid-July 2001, Enron reported revenues of $50.1 billion, almost triple year-to-date, and beating analysts' estimates by 3 cents a share. Despite this, Enron's profit margin had stayed at a modest average of about 2.1%, and its share price had decreased by more than 30% since the same quarter of 2000.
As time passed, a number of serious concerns confronted the company. Enron had recently faced several serious operational challenges, namely logistical difficulties in operating a new broadband communications trading unit, and the losses from constructing the Dabhol Power project, a large gas powered power plant in India that had been mired in controversy since the beginning in relation to its high pricing and bribery at the highest level. These were subsequently confirmed in the 2002 Senate investigation. There was also increasing criticism of the company for the role that its subsidiary Enron Energy Services had in the California electricity crisis of 2000–2001.
There are no accounting issues, no trading issues, no reserve issues, no previously unknown problem issues. I think I can honestly say that the company is probably in the strongest and best shape that it has probably ever been in.
—Kenneth Lay answering an analyst's question on August 14, 2001.:347
On August 14, Skilling announced he was resigning his position as CEO after only six months. Skilling had long served as president and COO before being promoted to CEO. Skilling cited personal reasons for leaving the company. Observers noted that in the months before his exit, Skilling had sold at minimum 450,000 shares of Enron at a value of around $33 million (though he still owned over a million shares at the date of his departure). Nevertheless, Lay, who was serving as chairman at Enron, assured surprised market watchers that there would be "no change in the performance or outlook of the company going forward" from Skilling's departure. Lay announced he himself would re-assume the position of chief executive officer.
The next day, however, Skilling admitted that a very significant reason for his departure was Enron's faltering price in the stock market. The economist Paul Krugman asserted in his The New York Times column that Enron was an illustration of the consequences that occur from the deregulation and commodification of things such as energy. A few days later, in a letter to the editor, Kenneth Lay defended Enron and the philosophy of the company:
The broader goal of [Krugman's] latest attack on Enron appears to be to discredit the free-market system, a system that entrusts people to make choices and enjoy the fruits of their labor, skill, intellect and heart. He would apparently rely on a system of monopolies controlled or sponsored by government to make choices for people. We disagree, finding ourselves less trusting of the integrity and good faith of such institutions and their leaders.
The example Mr. Krugman cites of "financialization" run amok (the electricity market in California) is the product of exactly his kind of system, with active government intervention at every step. Indeed, the only winners in the California fiasco were the government-owned utilities of Los Angeles, the Pacific Northwest and British Columbia. The disaster that squandered the wealth of California was born of regulation by the few, not by markets of the many.
On August 15, Sherron Watkins, vice president for corporate development, sent an anonymous letter to Lay warning him about the company's accounting practices. One statement in the letter said: "I am incredibly nervous that we will implode in a wave of accounting scandals." Watkins contacted a friend who worked for Arthur Andersen and he drafted a memorandum to give to the audit partners about the points she raised. On August 22, Watkins met individually with Lay and gave him a six-page letter further explaining Enron's accounting issues. Lay questioned her as to whether she had told anyone outside of the company and then vowed to have the company's law firm, Vinson & Elkins, review the issues, although she argued that using the law firm would present a conflict of interest.:357 Lay consulted with other executives, and although they wanted to dismiss Watkins (as Texas law did not protect company whistleblowers), they decided against it to prevent a lawsuit.:358 On October 15, Vinson & Elkins announced that Enron had done nothing wrong in its accounting practices as Andersen had approved each issue.
By the end of August 2001, his company's stock value still falling, Lay named Greg Whalley, president and COO of Enron Wholesale Services, to succeed Skilling as president and COO of the entire company. He also named Mark Frevert as vice chairman, and appointed Whalley and Frevert to positions in the chairman's office. Some observers suggested that Enron's investors were in significant need of reassurance, not only because the company's business was difficult to understand (even "indecipherable") but also because it was difficult to properly describe the company in financial statements. One analyst stated "it's really hard for analysts to determine where [Enron] are making money in a given quarter and where they are losing money." Lay accepted that Enron's business was very complex, but asserted that analysts would "never get all the information they want" to satisfy their curiosity. He also explained that the complexity of the business was due largely to tax strategies and position-hedging. Lay's efforts seemed to meet with limited success; by September 9, one prominent hedge fund manager noted that "[Enron] stock is trading under a cloud." The sudden departure of Skilling combined with the opacity of Enron's accounting books made proper assessment difficult for Wall Street. In addition, the company admitted to repeatedly using "related-party transactions," which some feared could be too-easily used to transfer losses that might otherwise appear on Enron's own balance sheet. A particularly troubling aspect of this technique was that several of the "related-party" entities had been or were being controlled by CFO Fastow.
After the September 11 attacks media attention shifted away from the company and its troubles; a little less than a month later Enron announced its intention to begin the process of selling its lower-margin assets in favor of its core businesses of gas and electricity trading. This policy included selling Portland General Electric to another Oregon utility, Northwest Natural Gas, for about $1.9 billion in cash and stock, and possibly selling its 65% stake in the Dabhol project in India.
Restructuring losses and SEC investigation
On October 16, 2001, Enron announced that restatements to its financial statements for years 1997 to 2000 were necessary to correct accounting violations. The restatements for the period reduced earnings by $613 million (or 23% of reported profits during the period), increased liabilities at the end of 2000 by $628 million (6% of reported liabilities and 5.5% of reported equity), and reduced equity at the end of 2000 by $1.2 billion (10% of reported equity).:11 Additionally, in January Jeff Skilling had asserted that the broadband unit alone was worth $35 billion, a claim also mistrusted. An analyst at Standard & Poor's said, "I don't think anyone knows what the broadband operation is worth."
Enron's management team claimed the losses were mostly due to investment losses, along with charges such as about $180 million in money spent restructuring the company's troubled broadband trading unit. In a statement, Lay said, "After a thorough review of our businesses, we have decided to take these charges to clear away issues that have clouded the performance and earnings potential of our core energy businesses." Some analysts were unnerved. David Fleischer at Goldman Sachs, an analyst termed previously 'one of the company's strongest supporters' asserted that the Enron management "...lost credibility and have to reprove themselves. They need to convince investors these earnings are real, that the company is for real and that growth will be realized."
Fastow disclosed to Enron's board of directors on October 22 that he earned $30 million from compensation arrangements when managing the LJM limited partnerships. That day, the share price of Enron decreased to $20.65, down $5.40 in one day, after the announcement by the SEC that it was investigating several suspicious deals struck by Enron, characterizing them as "some of the most opaque transactions with insiders ever seen". Attempting to explain the billion-dollar charge and calm investors, Enron's disclosures spoke of "share settled costless collar arrangements," "derivative instruments which eliminated the contingent nature of existing restricted forward contracts," and strategies that served "to hedge certain merchant investments and other assets." Such puzzling phraseology left many analysts feeling ignorant about just how Enron managed its business. Regarding the SEC investigation, chairman and CEO Lay said, "We will cooperate fully with the SEC and look forward to the opportunity to put any concern about these transactions to rest."
Two days later, on October 25, Fastow was removed as CFO, despite Lay's assurances as early as the previous day that he and the board had confidence in him. In announcing Fastow's ouster, Lay said, "In my continued discussions with the financial community, it became clear to me that restoring investor confidence would require us to replace Andy as CFO." The move came after several banks refused to issue loans to Enron as long as Fastow remained CFO. However, with Skilling and Fastow now both departed, some analysts feared that revealing the company's practices would be made all the more difficult. Enron's stock was now trading at $16.41, having lost half its value in a little more than a week.
Jeff McMahon, head of industrial markets, succeeded Fastow as CFO. His first task was to deal with a cash crisis. A day earlier, Enron discovered that it was unable to roll its commercial paper, effectively losing access to several billion dollars in financing. The company had actually experienced difficulty selling its commercial paper for a week, but was now unable to sell even overnight paper. On October 27 the company began buying back all its commercial paper, valued at around $3.3 billion, in an effort to calm investor fears about Enron's supply of cash. Enron financed the re-purchase by depleting its lines of credit at several banks. While the company's debt rating was still considered investment-grade, its bonds were trading at levels slightly less, making future sales problematic.
As the month came to a close, serious concerns were being raised by some observers regarding Enron's possible manipulation of accepted accounting rules; however, analysis was claimed to be impossible based on the incomplete information provided by Enron. Industry analysts feared that Enron was the new Long-Term Capital Management, the hedge fund whose bankruptcy in 1998 threatened systemic failure of the international financial markets. Enron's tremendous presence worried some about the consequences of the company's possible bankruptcy. Enron executives accepted questions in written form only.
Credit rating downgrade
The main short-term danger to Enron's survival at the end of October 2001 seemed to be its credit rating. It was reported at the time that Moody's and Fitch, two of the three biggest credit-rating agencies, had slated Enron for review for possible downgrade. Such a downgrade would force Enron to issue millions of shares of stock to cover loans it had guaranteed, which would decrease the value of existing stock further. Additionally, all manner of companies began reviewing their existing contracts with Enron, especially in the long term, in the event that Enron's rating were lowered below investment grade, a possible hindrance for future transactions.
Analysts and observers continued their complaints regarding the difficulty or impossibility of properly assessing a company whose financial statements were so cryptic. Some feared that no one at Enron apart from Skilling and Fastow could completely explain years of mysterious transactions. "You're getting way over my head," said Lay during late August 2001 in response to detailed questions about Enron's business, a reaction that worried analysts.
On October 29, responding to growing concerns that Enron might have insufficient cash on hand, news spread that Enron was seeking a further $1–2 billion in financing from banks. The next day, as feared, Moody's lowered Enron's credit rating from Baa1 to Baa2, two levels above junk status. Standard & Poor's affirmed Enron's rating of BBB+, the equivalent of Moody's Baa1. Moody's also warned that it would downgrade Enron's commercial paper rating, the consequence of which would likely prevent the company from finding the further financing it sought to keep solvent.
November began with the disclosure that the SEC was now pursuing a formal investigation, prompted by questions related to Enron's dealings with "related parties". Enron's board also announced that it would commission a special committee to investigate the transactions, directed by William C. Powers, the dean of the University of Texas law school. The next day, an editorial in The New York Times demanded an "aggressive" investigation into the matter. Enron was able to secure an additional $1 billion in financing from cross-town rival Dynegy on November 2, but the news was not universally admired in that the debt was secured by assets from the company's valuable Northern Natural Gas and Transwestern Pipeline.
Proposed buyout by Dynegy
Sources claimed that Enron was planning to explain its business practices more fully within the coming days, as a confidence-building gesture. Enron's stock was now trading at around $7, and by this time it was obvious that Enron could not stay independent. However, investors worried that the company would not be able to find a buyer.
After Enron had received a wide spectrum of rejections, Enron management apparently found a buyer when the board of Dynegy, another energy trader based in Houston, voted late at night on November 7 to acquire Enron at a very low price of about $8 billion in stock.Chevron Texaco, which at the time owned about a quarter of Dynegy, agreed to provide Enron with $2.5 billion in cash, specifically $1 billion at first and the rest when the deal was completed. Dynegy would also be required to assume nearly $13 billion of debt, plus any other debt hitherto occluded by the Enron management's secretive business practices, possibly as much as $10 billion in "hidden" debt. Dynegy and Enron confirmed their deal on November 8, 2001.
With Enron in a state of near collapse, the deal was largely on Dynegy's terms. Dynegy would be the surviving company, and Dynegy CEO Charles Watson and his management team would head the merged company. Enron would get three seats on the board, one of which would go to Lay. Of Enron's senior executives, only Whalley would join the merged company's C-suite, as an executive vice president. Dynergy agreed to invest $1.5 billion into Enron to keep it alive until the deal closed.:395
Commentators remarked on the different corporate cultures between Dynegy and Enron, and on Watson's "straight-talking" personality. Some wondered if Enron's troubles had not simply been the result of innocent accounting errors. By November, Enron was asserting that the billion-plus "one-time charges" disclosed in October should in reality have been $200 million, with the rest of the amount simply corrections of dormant accounting mistakes. Many feared other "mistakes" and restatements might yet be revealed.
Another major correction of Enron's earnings was announced on November 9, with a reduction of $591 million of the stated revenue of years 1997–2000. The charges were said to come largely from two special purpose partnerships (JEDI and Chewco). The corrections resulted in the virtual elimination of profit for fiscal year 1997, with significant reductions for the other years. Despite this disclosure, Dynegy declared it still intended to purchase Enron. Both companies were said to be anxious to receive an official assessment of the proposed sale from Moody's and S&P presumably to understand the effect the completion of any buyout transaction would have on Dynegy and Enron's credit rating. In addition, concerns were raised regarding antitrust regulatory restrictions resulting in possible divestiture, along with what to some observers were the radically different corporate cultures of Enron and Dynegy.
Both companies promoted the deal aggressively, and some observers were hopeful; Watson was praised for attempting to create the largest company on the energy market. At the time, Watson said: "We feel [Enron] is a very solid company with plenty of capacity to withstand whatever happens the next few months." One analyst called the deal "a whopper ... a very good deal financially, certainly should be a good deal strategically, and provides some immediate balance-sheet backstop for Enron."
Credit issues were becoming more critical, however. Around the time the buyout was made public, Moody's and S&P both reduced Enron's rating to just one notch above junk status. Were the company's rating to fall below investment-grade, its ability to trade would be severely limited if there was a reduction or elimination of its credit lines with competitors. In a conference call, S&P affirmed that, were Enron not to be bought, S&P would reduce its rating to low BB or high B, ratings noted as being within junk status. Additionally, many traders had limited their involvement with Enron, or stopped doing business altogether, fearing more bad news. Watson again attempted to re-assure, attesting at a presentation to investors that there was "nothing wrong with Enron's business". He also acknowledged that remunerative steps (in the form of more stock options) would have to be taken to redress the animosity of many Enron employees towards management after it was revealed that Lay and other officials had sold hundreds of millions of dollars' worth of stock during the months prior to the crisis. The situation was not helped by the disclosure that Lay, his "reputation in tatters", stood to receive a payment of $60 million as a change-of-control fee subsequent to the Dynegy acquisition, while many Enron employees had seen their retirement accounts, which were based largely on Enron stock, ravaged as the price decreased 90% in a year. An official at a company owned by Enron stated "We had some married couples who both worked who lost as much as $800,000 or $900,000. It pretty much wiped out every employee's savings plan."
Watson assured investors that the true nature of Enron's business had been made apparent to him: "We have comfort there is not another shoe to drop. If there is no shoe, this is a phenomenally good transaction." Watson further asserted that Enron's energy trading part alone was worth the price Dynegy was paying for the whole company.
By mid-November, Enron announced it was planning to sell about $8 billion worth of underperforming assets, along with a general plan to reduce its scale for the sake of financial stability. On November 19 Enron disclosed to the public further evidence of its critical state of affairs. Most pressingly that the company had debt repayment obligations in the range of $9 billion by the end of 2002. Such debts were "vastly in excess" of its available cash. Also, the success of measures to preserve its solvency were not guaranteed, specifically as regarded asset sales and debt refinancing. In a statement, Enron revealed "An adverse outcome with respect to any of these matters would likely have a material adverse impact on Enron's ability to continue as a going concern."
Two days later, on November 21, Wall Street expressed serious doubts that Dynegy would proceed with its deal at all, or would seek to radically renegotiate. Furthermore, Enron revealed in a 10-Q filing that almost all the money it had recently borrowed for purposes including buying its commercial paper, or about $5 billion, had been exhausted in just 50 days. Analysts were unnerved at the revelation, especially since Dynegy was reported to have also been unaware of Enron's rate of cash use. In order to end the proposed buyout, Dynegy would need to legally demonstrate a "material change" in the circumstances of the transaction; as late as November 22, sources close to Dynegy were skeptical that the latest revelations constituted sufficient grounds. Indeed, while Lay assumed that one of his underlings had shared the 10-Q with Dynegy officials, no one at Dynegy saw it until it was released to the public. It subsequently emerged that Enron's traders had grabbed much of the money from Dynegy's cash infusion and used it to guarantee payment to their trading partners when it came time to settle up.
The SEC announced it had filed civil fraud complaints against Andersen. A few days later, sources claimed Enron and Dynegy were renegotiating the terms of their arrangement. Dynegy now demanded Enron agree to be bought for $4 billion rather than the previous $8 billion. Observers were reporting difficulties in ascertaining which of Enron's operations, if any, were profitable. Reports described an en masse shift of business to Enron's competitors for the sake of risk exposure reduction.
Enron's stock price (former NYSE ticker symbol: ENE) from August 23, 2000 ($90) to January 11, 2002 ($0.12). As a result of the decrease of the stock price, shareholders incurred paper losses of nearly $11 billion.
On November 28, 2001, Enron's two worst possible outcomes came true. Credit rating agencies all reduced Enron's credit rating to junk status, and Dynegy's board tore up the merger agreement on Watson's advice. Watson later said, "At the end, you couldn't give it [Enron] to me.":403 Although they had seemingly ironed out a number of outstanding issues at a meeting in New York over the previous weekend, ultimately Dynegy's concerns about Enron's liquidity and dwindling business proved insurmountable. The company had very little cash with which to operate, let alone satisfy enormous debts. Its stock price fell to $0.61 at the end of the day's trading. One editorial observer wrote that "Enron is now shorthand for the perfect financial storm."
Systemic consequences were felt, as Enron's creditors and other energy trading companies suffered the loss of several percentage points. Some analysts felt Enron's failure indicated the risks of the post-September 11 economy, and encouraged traders to lock in profits where they could. The question now became how to determine the total exposure of the markets and other traders to Enron's failure. Early calculations estimated $18.7 billion. One adviser stated, "We don't really know who is out there exposed to Enron's credit. I'm telling my clients to prepare for the worst."
Within 24 hours, speculation abounded that Enron would have no choice but to file for bankruptcy. Enron was estimated to have about $23 billion in liabilities from both debt outstanding and guaranteed loans. Citigroup and JP Morgan Chase in particular appeared to have significant amounts to lose with Enron's bankruptcy. Additionally, many of Enron's major assets were pledged to lenders in order to secure loans, causing doubt about what, if anything, unsecured creditors and eventually stockholders might receive in bankruptcy proceedings. As it turned out, new corporate treasurer Ray Bowen had known as early as the day Dynegy pulled out of the deal that Enron was headed for bankruptcy. He spent most of the next two days scrambling to find a bank who would take Enron's remaining cash after pulling all of its money out of Citibank. He was ultimately forced to make do with a small Houston bank.
By the close of business on November 30, 2001, it was obvious Enron was at the end of its tether. That day, Enron Europe, the holding company for Enron's operations in continental Europe, filed for bankruptcy. The board voted unanimously to file for Chapter 11 protection the following night, December 1. It became the largest bankruptcy in U.S. history, surpassing the 1970 bankruptcy of the Penn Central (WorldCom's bankruptcy the next year surpassed Enron's bankruptcy so the title was short held), and resulted in 4,000 lost jobs. The day that Enron filed for bankruptcy, thousands of employees were told to pack their belongings and given 30 minutes to vacate the building. Nearly 62% of 15,000 employees' savings plans relied on Enron stock that was purchased at $83 in early 2001 and was now practically worthless.
In its accounting work for Enron, Andersen had been sloppy and weak. But that's how Enron had always wanted it. In truth, even as they angrily pointed fingers, the two deserved each other.
On January 17, 2002, Enron dismissed Arthur Andersen as its auditor, citing its accounting advice and the destruction of documents. Andersen countered that it had already ended its relationship with the company when Enron became bankrupt.
Fastow and his wife, Lea, both pleaded guilty to charges against them. Fastow was initially charged with 98 counts of fraud, money laundering, insider trading, and conspiracy, among other crimes. Fastow pleaded guilty to two charges of conspiracy and was sentenced to ten years with no parole in a plea bargain to testify against Lay, Skilling, and Causey. Lea was indicted on six felony counts, but prosecutors later dismissed them in favor of a single misdemeanor tax charge. Lea was sentenced to one year for helping her husband hide income from the government.
Lay and Skilling went on trial for their part in the Enron scandal in January 2006. The 53-count, 65-page indictment covers a broad range of financial crimes, including bank fraud, making false statements to banks and auditors, securities fraud, wire fraud, money laundering, conspiracy, and insider trading. United States District Judge Sim Lake had previously denied motions by the defendants to have separate trials and to relocate the case out of Houston, where the defendants argued the negative publicity concerning Enron's demise would make it impossible to get a fair trial. On May 25, 2006, the jury in the Lay and Skilling trial returned its verdicts. Skilling was convicted of 19 of 28 counts of securities fraud and wire fraud and acquitted on the remaining nine, including charges of insider trading. He was sentenced to 24 years and 4 months in prison. In 2013 the United States Department of Justice reached a deal with Skilling, which resulted in ten years being cut from his sentence.
Lay pleaded not guilty to the eleven criminal charges, and claimed that he was misled by those around him. He attributed the main cause for the company's demise to Fastow. Lay was convicted of all six counts of securities and wire fraud for which he had been tried, and he was subject to a maximum total sentence of 45 years in prison. However, before sentencing was scheduled, Lay died on July 5, 2006. At the time of his death, the SEC had been seeking more than $90 million from Lay in addition to civil fines. The case of Lay's wife, Linda, is a difficult one. She sold roughly 500,000 shares of Enron ten minutes to thirty minutes before the information that Enron was collapsing went public on November 28, 2001. Linda was never charged with any of the events related to Enron.
Although Michael Kopper worked at Enron for more than seven years, Lay did not know of Kopper even after the company's bankruptcy. Kopper was able to keep his name anonymous in the entire affair.:153 Kopper was the first Enron executive to plead guilty. Chief Accounting Officer Rick Causey was indicted with six felony charges for disguising Enron's financial condition during his tenure. After pleading not guilty, he later switched to guilty and was sentenced to seven years in prison.
All told, sixteen people pleaded guilty for crimes committed at the company, and five others, including four former Merrill Lynch employees, were found guilty. Eight former Enron executives testified—the main witness being Fastow—against Lay and Skilling, his former bosses. Another was Kenneth Rice, the former chief of Enron Corp.'s high-speed Internet unit, who cooperated and whose testimony helped convict Skilling and Lay. In June 2007, he received a 27-month sentence.
Michael W. Krautz, a former Enron accountant, was among the accused who was acquitted of charges related to the scandal. Represented by Barry Pollack, Krautz was acquitted of federal criminal fraud charges after a month-long jury trial.
Arthur Andersen was charged with and found guilty of obstruction of justice for shredding the thousands of documents and deleting e-mails and company files that tied the firm to its audit of Enron. Although only a small number of Arthur Andersen's employees were involved with the scandal, the firm was effectively put out of business; the SEC is not allowed to accept audits from convicted felons. The company surrendered its CPA license on August 31, 2002, and 85,000 employees lost their jobs. The conviction was later overturned by the U.S. Supreme Court due to the jury not being properly instructed on the charge against Andersen. The Supreme Court ruling theoretically left Andersen free to resume operations. However, the damage to the Andersen name has been so great that it has not returned as a viable business even on a limited scale.
Giles Darby, David Bermingham, and Gary Mulgrew worked for Greenwich NatWest. The three British men had worked with Fastow on a special purpose entity he had started called Swap Sub. When Fastow was being investigated by the SEC, the three men met with the British Financial Services Authority (FSA) in November 2001 to discuss their interactions with Fastow. In June 2002, the U.S. issued warrants for their arrest on seven counts of wire fraud, and they were then extradited. On July 12, a potential Enron witness scheduled to be extradited to the U.S., Neil Coulbeck, was found dead in a park in north-east London. Coulbeck's death was eventually ruled to have been a suicide. The U.S. case alleged that Coulbeck and others conspired with Fastow. In a plea bargain in November 2007, the trio plead guilty to one count of wire fraud while the other six counts were dismissed. Darby, Bermingham, and Mulgrew were each sentenced to 37 months in prison. In August 2010, Bermingham and Mulgrew retracted their confessions.
Employees and shareholders
Enron's headquarters in Downtown Houston was leased from a consortium of banks who had bought the property for $285 million in the 1990s. It was sold for $55.5 million, just before Enron moved out in 2004.
While some employees, like John D. Arnold, received large bonuses in the final days of the company, Enron's shareholders lost $74 billion in the four years before the company's bankruptcy ($40 to $45 billion was attributed to fraud). As Enron had nearly $67 billion that it owed creditors, employees and shareholders received limited, if any, assistance aside from severance from Enron. To pay its creditors, Enron held auctions to sell assets including art, photographs, logo signs, and its pipelines.
A class action lawsuit on behalf of about 20,000 Enron employees who alleged mismanagement of their 401(k) plans resulted in a July 2005 settlement of $356 million against Enron and 401(k) manager Northern Trust. A year later the settlement was reduced to $37.5 million in an agreement by Federal judge Melinda Harmon, with Northern Trust neither admitting or denying wrongdoing.
In May 2004, more than 20,000 of Enron's former employees won a suit of $85 million for compensation of $2 billion that was lost from their pensions. From the settlement, the employees each received about $3,100. The next year, investors received another settlement from several banks of $4.2 billion. In September 2008, a $7.2-billion settlement from a $40-billion lawsuit, was reached on behalf of the shareholders. The settlement was distributed among the main plaintiff, University of California (UC), and 1.5 million individuals and groups. UC's law firm , received $688 million in fees, the highest in a U.S. securities fraud case. At the distribution, UC announced in a press release "We are extremely pleased to be returning these funds to the members of the class. Getting here has required a long, challenging effort, but the results for Enron investors are unprecedented."
In the Titanic, the captain went down with the ship. And Enron looks to me like the captain first gave himself and his friends a bonus, then lowered himself and the top folks down the lifeboat and then hollered up and said, 'By the way, everything is going to be just fine.'
Between December 2001 and April 2002, the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services held multiple hearings about the Enron scandal and related accounting and investor protection issues. These hearings and the corporate scandals that followed Enron led to the passage of the Sarbanes-Oxley Act on July 30, 2002. The Act is nearly "a mirror image of Enron: the company's perceived corporate governance failings are matched virtually point for point in the principal provisions of the Act."
The main provisions of the Sarbanes-Oxley Act included the establishment of the Public Company Accounting Oversight Board to develop standards for the preparation of audit reports; the restriction of public accounting companies from providing any non-auditing services when auditing; provisions for the independence of audit committee members, executives being required to sign off on financial reports, and relinquishment of certain executives' bonuses in case of financial restatements; and expanded financial disclosure of companies' relationships with unconsolidated entities.
On February 13, 2002, due to the instances of corporate malfeasances and accounting violations, the SEC recommended changes of the stock exchanges' regulations. In June 2002, the New York Stock Exchange announced a new governance proposal, which was approved by the SEC in November 2003. The main provisions of the final NYSE proposal include:
All companies must have a majority of independent directors.
Independent directors must comply with an elaborate definition of independent directors.
The compensation committee, nominating committee, and audit committee shall consist of independent directors.
All audit committee members should be financially literate. In addition, at least one member of the audit committee is required to have accounting or related financial management expertise.
In addition to its regular sessions, the board should hold additional sessions without management.
Criticism of the Bush Administration
Kenneth Lay was a longtime supporter of U.S. president George W. Bush and a donor to his various political campaigns, including his successful bid for the presidency in 2000. As such, critics of Bush and his administration attempted to link them to the scandal. A January 2002 article in The Economist claimed that Lay had been a close personal friend of Bush's family and had backed him financially since his unsuccessful campaign for Congress in 1978. Allegedly, Lay was even rumored at one point to be in the running to serve as Secretary of Energy for Bush.
In an article that same month, Time magazine accused the Bush administration of making desperate attempts to distance themselves from the scandal. According to author Frank Pellegrini, various Bush appointments held connections to Enron, including deputy White House Chief of Staff Karl Rove as a stockholder, Secretary of the ArmyThomas White Jr. as a former executive, and SEC chairman Harvey Pitt, a former employee of Arthur Andersen. Former Montana governorMarc Racicot, whom Bush considered for appointment for Secretary of the Interior, briefly served as a lobbyist for the company after leaving office. After opening a criminal investigation into the scandal, Attorney GeneralJohn Ashcroft recused himself and his chief of staff from the case when Democratic Congressman Henry Waxman accused Ashcroft of receiving $25,000 from Enron for his failed reelection campaign to the Senate in 2000. As Pellegrini wrote, "The Democrats will have the company-he-keeps, guilt-by-association thing on their side, and with all the ... general whiff of rich man's cover-up about the whole affair, they'll have a class warfare card to play this spring." 
^Cohen, Daniel A.; Dey Aiyesha; Thomas Z. Lys (February 2005). "Trends in Earnings Management and Informativeness of Earnings Announcements in the Pre- and Post-Sarbanes Oxley Periods". Evanston, Illinois: Kellogg School of Management: 5. SSRN658782. Cite journal requires |journal= (help)
^McCullough, Robert (January 2002). "Understanding Whitewing"(PDF). Portland, Oregon: McCullough Research: 1. Archived from the original(PDF) on October 18, 2010. Retrieved October 17, 2010. Cite journal requires |journal= (help)
^"Bush and Enron's collapse". The Economist. January 11, 2002. Retrieved June 20, 2018. The problem for Mr Bush is that the ties between the company and his administration were especially intricate and close. Mr Lay has been a supporter of Mr Bush ever since the president's unsuccessful campaign for Congress in 1978, and has been known as a close personal friend of Mr Bush and his family. At one stage, Mr Lay was mooted as a possible energy secretary under Mr Bush.
The original Polaroid Corporation filed for federal bankruptcy protection on October 11, 2001. The outcome was that within ten months, most of the business including the “Polaroid” name itself and non-bankrupt foreign subsidiaries had been sold to Bank One’s One Equity Partners. OEP Imaging Corporation then changed its name to Polaroid Holding Company. However, this new company operates using the name of its bankrupt predecessor, Polaroid Corporation.
Significant criticism surrounded this “takeover” because the process left executives of the company with large bonuses, while stockholders, as well as current and retired employees, were left with nothing. The company announced a plan that gave the top 45 executives bonuses just for staying at their jobs. Meanwhile, other employees were restricted from selling their stock before leaving their jobs.
As part of the settlement, the original Polaroid Corporation changed its name to Primary PDC, Inc. Having sold its assets, it was now effectively nothing more than an administrative shell. Primary PDC received approximately 35 percent of the “new” Polaroid, which was to be distributed to its unsecured creditors including bondholders. As of late 2006, Primary PDC remained in existence under Chapter 11 bankruptcy protection, but conducts no commercial business and has no employees.
Polaroid’s bankruptcy is widely attributed to the failure of senior management — unable to anticipate the impact of digital cameras on its film business. This type of managerial failure is also known as the success trap
After the bankruptcy, the Polaroid brand was licensed for use on other products with the assistance of Skadden, Arps, Slate, Meagher & Flom. In September 2002, World Wide Licenses, a subsidiary of The Character Group plc, was granted the exclusive rights for three years to manufacture and sell digital cameras under the Polaroid brand for distribution internationally. Polaroid branded LCDs and plasma televisions and portable DVD players had also appeared on the market.
On April 27, 2005, Petters Group Worldwide announced its acquisition of PHC. Petters has in the past bought up failed companies with well-known names for the value of those names. The same year, Flextronics purchased Polaroid’s manufacturing operations and the decision was made to send most of the manufacturing to China. It stopped making Polaroid cameras in 2007 and discontinued the sale of Polaroid film after 2009 to the dismay of loyal consumers. On December 18, 2008, the post-reorganization Polaroid Corp. filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the District of Minnesota. The bankruptcy filing came shortly after the criminal investigation of its parent company, Petters Group Worldwide, and the parent company founder, Tom Petters.
The Australian, Ian Thorpe becomes the first swimmer to win six gold medals at a single World Swimming Championship.
With the 2001 Australian Championships held in Hobart in March, Thorpe added the 800 m freestyle to his repertoire, after FINA had added the event for the 2001 World Aquatics Championships. Thorpe began his campaign by successfully defending his 400 m title with a time just 0.17 s outside his world record. The following night in the 800 m event, he drew away from Hackett in the last 100 m to break Kieren Perkins’ 1994 world record by over four seconds. He earned his third title by cutting 0.66 s from van den Hoogenband’s 200 m world record to set a new mark of 1 min 44.69 s. This performance made him the third male after John Konrads and Tim Shaw to hold world records over three distances simultaneously. His subsequent victory in the 100 m freestyle in a new personal best of 49.05 s made him the first since Konrads in 1959 to hold all Australian freestyle titles from 100 m to 800 m. This indicated that he could swim faster at the subsequent World Championships in Fukuoka, where he was looking to regain the ascendancy from van den Hoogenband.
Thorpe arrived in Fukuoka having been chosen by broadcaster TV Asahi as the marketing drawcard of the event. With the 4 × 100 m freestyle relay being held after the 400 m freestyle on the first night, Thorpe appeared to be conserving energy when he reached the 200 m mark two seconds outside his world record. Although he was 0.93 s behind at the final turn, a final 50 m burst in 24.36 s saw him cut a further 0.42 s from his world record. The relay saw him dive in fractionally ahead of American Jason Lezak after Klim, Callus and Pearson had completed the first three legs. Thorpe fell behind in the early half of the leg before kicking away in the closing stages, to seal gold with his fastest-ever relay split of 47.87 s. In the 800 m final, he shadowed Hackett for the first 750 m, staying within a body length. He then broke clear to win by a body length, lowering his world record by over two seconds. The 200 m freestyle rematch with van den Hoogenband provided Thorpe with a chance to rectify his strategy from the Olympics; this time he allowed the Dutchman to lead through the first 100 m. Thorpe pulled even at the 150 m mark and then broke away towards the finishing wall two body lengths clear. He lowered his world record to 1 min 44.06 s in the process, prompting van den Hoogenband to raise his arm aloft. Thorpe’s winning streak was interrupted in the 100 m freestyle when his personal best of 48.81 s placed him fourth, but he returned to form in the 4 × 200 m freestyle relay. Anchoring the team of Klim, Hackett and Kirby, the Australians lowered their world record time by more than two seconds, leaving the Italians more than six seconds in arrears. Having overtaken Klim as Australia’s leading 100 m freestyle swimmer, Thorpe was entrusted with anchoring the 4 × 100 m medley relay team on 28 July. After Matt Welsh, Regan Harrison and Geoff Huegill had finished their legs, Thorpe’s change left him half a body length behind the new 100 m world champion Anthony Ervin of the United States. The Americans were expected to win, and with his typically slow start, Thorpe turned a body length behind with 50 m remaining. With an American victory seeming inevitable, Thorpe managed to accelerate and deprive Ervin of the lead in the last 5 m. This made Thorpe the only swimmer to have won six gold medals at a World Championships, and the first since Shaw in 1974 to win the 200–400–800 treble. His performances formed the basis for Australia’s gold medal win over the United States 13–9. It was also the first time since the 1956 Summer Olympics that Australia had topped the medal tally at a global meet. Thorpe’s achievements led to predictions that he could match Mark Spitz’s seven gold medals at the 1972 Summer Olympics, which he played down.
The US Congress certifies George W Bush winner of 2000 presidential elections.
On this day in 2001, more than five weeks after balloting ended, Vice President Al Gore, the 2000 Democratic presidential nominee, presided over a joint session of Congress that certified George W. Bush of Texas, the Republican nominee, as the winner. The disputed outcome in Florida caused the delay. It was resolved when the U.S. Supreme Court ruled, 5-4, on Dec. 12 to halt a statewide manual recount of the ballots ordered, in a 4-3 vote, by the Florida Supreme Court.
Bush’s margin of victory at that point was less than one half of one percent. The high court’s ruling gave him Florida’s 25 electoral votes. That, in turn, gave him 271 votes to Gore’s 266 — one more than the 270 required to be declared the winner. It paved the way for Bush to take the oath of office on Jan. 20, 2001, thereby becoming the nation’s 43rd president.
Although Gore finished second in the electoral vote, he received 543,895 more popular votes than Bush. This marked the fourth election in U.S. history in which the winner failed to get a plurality of the popular vote. The others were the elections of 1824, 1876 and 1888.
Gore failed to win the popular vote in his home state, Tennessee, which both he and his father had represented in the Senate, making him the first major-party presidential candidate to have lost his home state since Democrat George McGovern lost South Dakota in 1972.
Furthermore, Gore lost West Virginia, a state that had voted Republican only once in the previous six presidential elections. He also lost Arkansas, the home state of two-term President Bill Clinton, after having largely shunned Clinton’s help during his own presidential campaign. A victory in any one of those three states would have given Gore enough electoral votes to win the presidency without Florida.
Bush lost Connecticut, the state of his birth. He was also the first Republican to win the presidency without winning Vermont or Illinois, the second Republican to win the presidency without winning California — James A. Garfield in 1880 was the first — and the only victorious Republican to fail to receive any electoral votes from California.
On this day in 2001, Italy’s Leaning Tower of Pisa reopens after a team of experts spent 11 years and $27 million to fortify the tower without eliminating its famous lean.
In the 12th century, construction began on the bell tower for the cathedral of Pisa, a busy trade center on the Arno River in western Italy, some 50 miles from Florence. While construction was still in progress, the tower’s foundation began to sink into the soft, marshy ground, causing it to lean to one side. Its builders tried to compensate for the lean by making the top stories slightly taller on one side, but the extra masonry required only made the tower sink further. By the time it was completed in 1360, modern-day engineers say it was a miracle it didn’t fall down completely.
Though the cathedral itself and the adjoining baptistery also leaned slightly, it was the Torre Pendente di Pisa, or Leaning Tower of Pisa, that became the city’s most famous tourist attraction. By the 20th century, the 190-foot-high white marble tower leaned a dramatic 15 feet off the perpendicular. In the year before its closing in 1990, 1 million people visited the old tower, climbing its 293 weathered steps to the top and gazing out over the green Campo dei Miracoli outside. Fearing it was about to collapse, officials appointed a group of 14 archeologists, architects and soil experts to figure out how to take some–but not all–of the famous tilt away.
Though an initial attempt in 1994 almost toppled the tower, engineers were eventually able to reduce the lean by between 16 and 17 inches by removing earth from underneath the foundations. When the tower reopened on December 15, 2001, engineers predicted it would take 300 years to return to its 1990 position. Though entrance to the tower is now limited to guided tours, hordes of tourists can still be found outside, striking the classic pose–standing next to the tower pretending to hold it up–as cameras flash.
The Convention on Cybercrime is signed in Budapest, Hungary.
The Convention on Cybercrime, also known as the Budapest Convention on Cybercrime or the Budapest Convention, is the first international treaty seeking to address Internet and computer crime by harmonizing national laws, improving investigative techniques, and increasing cooperation among nations. It was drawn up by the Council of Europe in Strasbourg, France, with the active participation of the Council of Europe’s observer states Canada, Japan, South Africa and the United States.
The Convention and its Explanatory Report was adopted by the Committee of Ministers of the Council of Europe at its 109th Session on 8 November 2001. It was opened for signature in Budapest, on 23 November 2001 and it entered into force on 1 July 2004. As of December 2016, 52 states have ratified the convention, while a further four states had signed the convention but not ratified it.
Since it entered into force, important countries like Brazil and India have declined to adopt the Convention on the grounds that they did not participate in its drafting. Russia opposes the Convention, stating that adoption would violate Russian sovereignty, and has usually refused to cooperate in law enforcement investigations relating to cybercrime.
On 1 March 2006, the Additional Protocol to the Convention on Cybercrime came into force. Those States that have ratified the additional protocol are required to criminalize the dissemination of racist and xenophobic material through computer systems, as well as threats and insults motivated by racism or xenophobia.
The Polaroid Corporation asks for federal bankruptcy protection.
Polaroid Corp. filed for voluntary Chapter 11 bankruptcy protection in Delaware Friday, capping three days of speculation in which the instant photography company’s stock had not traded.
The company, which has been struggling with more than $900 million in debt, said it still is considering an outright sale of all or part of the company and that it plans to cut further staff, close facilities and sell non-core assets to reduce costs.
Filing Chapter 11 bankruptcy protects a company from creditors and keeps it operational until a restructuring plan can be formed to either lift it out of debt, sell, or liquidate assets.
The intent had been to pursue an out-of-court , pre-negotiated bankruptcy filing, but ultimately the company’s liquidity was just too tight and it just couldn’t hold out long enough to get a deal done,” said Brad Geer of Houlihan Lokey Howard and Zukin, the financial firm advising Polaroid’s bondholders.
Polaroid said it has obtained a commitment for $50 million in debtor-in-possession financing from a bank group led by J.P. Morgan Chase & Co. Upon court approval, which is expected shortly, $40 million will be available immediately on an interim basis to pay suppliers and help keep the company operational. The full $50 million commitment is subject to final court approval and other conditions.
Polaroid said it will continue to manufacture, market and distribute its core instant imaging products and to provide customer service and support. Employees will continue to be paid with full benefits.