Enron: The Smartest Guys in the Room Essay

The Enron scandal, collapseed in October cc1, at last led to the un victoryful person of the Enron Corporation, an the Statesn nix guild establish in Houston, Texas, and the de facto dissolution of Arthur Andersen, which was unmatchable of the five stup abrogateousst audit and accountancy partnerships in the world. In addition to universe the largest bankruptcy reorganization in American taradiddle at that time, Enron was attri as yeted as the biggest audit failure. Enron was formed in 1985 by Kenneth fix aft(prenominal) merging Houston Natural Gas and InterNorth. S of both timeal years by and by, when Jeffrey Skilling was hired, he developed a staff of executives that, by the put on of score loopholes, modified design entities, and poor financial insurance coverage, were able to hide trillions of dollars in debt from failed bunchs and projects. point Financial Officer Andre Fastow and a nonher(prenominal) executives not all misled Enrons come on of directors and audit committee on high-risk history practices, merely likewise pressured Andersen to ignore the issues.Enron mete outholders filed a $40 billion lawsuit after the ships follows threadbare price, which chance upond a high of US$90.75 per share in mid-cc0, plummeted to less than $1 by the end of November 2001. The U.S. Securities and Ex trade Commission ( unsweet) began an investigation, and equate Houston competitor Dynegy offered to purchase the companion at a very(prenominal) frugal crisis price. The deal failed, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the coupled States bankruptcy Code. Enrons $63.4 billion in assets made it the largest corporeal bankruptcy in U.S. history until WorldComs bankruptcy the next year. many another(prenominal) executives at Enron were indicted for a variety of hits and were upstartr sentenced to prison. Enrons auditor, Arthur Andersen, was rear guilty in a United States District Court, but by the time the sentiment was overturned at the U.S. Supreme Court, the company had lost the majority of its customers and had closed. Employees and shareholders authoritative contain returns in lawsuits, despite losing billions in pensions and investment company 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, change magnitude penalties for destroying, altering, or fabricating records in federal positive investigations or for attempting to defraud shareholders. The act in any case increased the account office of auditing firms to last out unbiased and independent of their clients.Rise ofEnronIn 1985, Kenneth discharge merged the inseparable gas pipeline companies of Houston Natural Gas and InterNorth to form Enron. In the archaeozoic 1990s, he helped to initiate the selling of electricality at market prices and, soon after , the United States Congress approved legislation deregulating the sale of inhering gas. The resulting markets made it thinkable for traders much(prenominal) as Enron to sell competency at higher(prenominal) prices, thereby significantly increasing its revenue. aft(prenominal) producers and local governments decried the vector sum price volatility and asked for increased regulation, strong lobbying on the part of Enron and others allowed for the proliferation of buddy capitalism. As Enron became the largest seller of natural gas in North America by 1992, its gas contracts traffic earned internet in front use up and evaluatees of $122 zillion, the second largest contributor to the companys net income. The November 1999 creation of the EnronOnline employment website allowed the company to better grapple its contracts traffic problem. In an attempt to achieve kick upstairs growth, Enron pursued a diversification strategy.The company owned and operated a variety of ass ets including gas pipelines, electrical muscle plants, pulp and paper plants, water plants, and wideband services across the globe. The corporation alike gained extra revenue by trading contracts for the same array of products and services with which it was involved. Enrons carnation increased from the start of the 1990s until year-end 1998 by 311% percent, only modestly higher than the average rate of growth in the Standard & Poor vitamin D index. However, the demarcation increased by 56% in 1999 and a come along 87% in 2000, compared to a 20% increase and a 10% decrease for the index during the same years. By December 31, 2000, Enrons descent was priced at $83.13 and its market capitalization exceeded $60 billion, 70 times wages and six times book value, an indication of the convey markets high expectations close to its future prospects. In addition, Enron was rated the most innovative large company in America in Fortunes more or less Admired Companies survey.Causes o f downfallEnrons complex financial statements were conf development to shareholders and analysts. In addition, its complex business model and unethical practices required that the company use chronicle limitations to misrepresent meshwork and modify the offset sheet to mention favorable performance. The combination of these issues later resulted in the bankruptcy of the company, and the majority of them were perpetuated by the indirect k at a timeledge or direct actions of Lay,Jeffrey Skilling, Andrew Fastow, and other executives. Lay served as the president of the company in its last a couple of(prenominal) years, and approved of the actions of Skilling and Fastow although he did not always inquire virtually the details. Skilling forever and a day focused on tallying Wall highway expectations, advocated the use of mark-to-market invoice (account found on market value, which was whence inflated) and pressured Enron executives to find new ways to hide its debt. Fastow a nd other executives created off-balance-sheet vehicles, complex financing structures, and deals so bewildering that few people could encounter them. revenue recognition of import article Revenue recognitionEnron and other energy suppliers earned kales by providing services such as sell trading and risk counseling in addition to building and maintaining electric power plants, natural gas pipelines, storage, and processing facilities. When accepting the risk of get and selling products, merchants are allowed to report the selling price as revenues and the products cost as cost of goods sold. In contrast, an agent provides a service to the customer, but does not compress the same risks as merchants for buying and selling. Service providers, when sort as agents, are able to report trading and brokerage presents as revenue, although not for the full value of the transaction. 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 explanation interpretation than the agent model. Enrons 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 companys large increase in revenue. Other energy companies such as Duke Energy, Reliant Energy, and Dynegy joined Enron in the wealthiest 50 of the Fortune ergocalciferol mainly due to their adoption of the same trading revenueaccounting as Enron. Between 1996 and 2000, Enrons revenues increased by more than 750%, raise from $13.3 billion in 1996 to $100.8 billion in 2000. This extensive expansion of 65% per year was unprecedented in any industry, including the energy industry which typically considered growth of 23% per year to be respecta ble. For just the depression nine months of 2001, Enron reported $138.7 billion in revenues, which placed the company at the sixth position on the Fortune Global 500. Mark-to-market accountingMain article Mark-to-market accountingIn Enrons natural gas business, the accounting had been fairly straight former in each time period, the company listed veritable costs of supplying the gas and actual revenues mystifyd from selling it. However, when Skilling joined the company, he demanded that the trading business adopt mark-to-market accounting, citing that it would represent true economic value. Enron became the offshoot non-financial company to use the method to account for its complex long contracts. The mark-to-market method requires estimations of future incomes when a long-term contract is gestural. These estimations are based on the future net value of the bullion bleed, costs cogitate to the contract were often hard to predict. Often, the viability of these contracts and their related costs were difficult to estimate. repayable to the large discrepancies of attempting to match moolahs and bullion, investors were typically given false or misleading reports. While using the method, income from projects could be enter, although they might not render ever collectd the money, and in turn increasing financial earnings on the books.However, in future years, the profits could not be included, so new and additional income had to be included from more projects to develop additional growth to appease investors. As one Enron competitor declared, If you accelerate your income, then you fuddle to sustain doing more and more deals to show the same or rising income. Despite electromotive force 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. However, Enron later expanded its use to other areas in the company to help it meet Wall road pr ojections. For one contract, in July 2000, Enron and smash hit Video signed a 20-year agreement to introduce on-demand entertainment to various U.S. cities by year-end. After severalpilot projects, Enron recognized estimated profits of more than $110 million from the deal, even though analysts questioned the technical viability and market demand of the service. When the ne cardinalrk failed to work, Blockbuster withdrew from the contract. Enron continued to recognize future profits, even though the deal resulted in a loss. Special purpose entitiesMain article Special purpose entityEnron used supererogatory purpose entitieslimited partnerships or companies created to fulfill a temporary or specific purposeto fund or manage risks associated with specific assets. The company elected to disclose minimal details on its use of special purpose entities. These shell firms were created by a sponsor, but funded by independent equity investors and debt financing. For financial reporting pu rposes, a serial of rules dictates whether a special purpose entity is a separate entity from the sponsor. In innate, by 2001, Enron had used hundreds of special purpose entities to hide its debt. Enron used a turn of events of special purpose entities, such as partnerships in its Thomas and Condor tax shelters, financial asset securitization investment trusts (FASITs) in the Apache deal, reliable 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 used for more than just circumventing accounting conventions. As a result of one violation, Enrons balance sheet understated its liabilities and mislead its equity, and its earnings were overstated. Enron disclosed to its shareholders that it had remitd downside risk in its own illiquid investments using special purpose entities.However, the investors were oblivious to the fact that the special purpose entities we re rattling using the companys own stock and financial guarantees to pay these hedges. This prevented Enron from being protected from the downside risk. Notable examples of special purpose entities that Enron employed were JEDI, Chewco, Whitewing, and LJM. administrator compensationAlthough Enrons compensation and performance management system was intentional to retain and reward its most valuable employees, the system contributed to a impaired corporate culture that became obsessed with short-termearnings to maximize bonuses. Employees constantly tried to start deals, often disregarding the quality of gold flow or profits, in order to get a better evaluate for their performance re overtake. Additionally, accounting results were recorded as soon as potential to keep up with the companys stock price. This practice helped see deal-makers and executives received large cash bonuses and stock options. The companys main focus was its stock price. Management was compensated extensiv ely using stock options, similar to other U.S. companies. This policy of stock option awards caused management to create expectations of intense growth in efforts to give the come out of the closetance of reported earnings to meet Wall Streets expectations. The stock ticker was set all throughout the company buildings, including the lobbies, elevators, and computers.At budget meetings, Skilling would develop show earnings by asking What earnings do you contract to keep our stock price up? and that number would be used, even if it was not feasible. At December 31, 2000, Enron had 96 million shares outstanding as stock option plans(approximately 13% of common shares outstanding). Enrons proxy statement stated that, within three years, these awards were expected to be exercised. Using Enrons 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 Skilli ng. Skilling believed that if employees were constantly worried just about cost, it would hinder original thinking. As a result, extravagant spending was rearing throughout the company, curiously among the executives. Employees had large expense accounts and many executives were paid abouttimes twice as much as competitors. In 1998, the top 200 highest-paid employees received $193 million from salaries, bonuses, and stock. devil years later, the figure jumped to $1.4 billion.Timeline of downfallAt the set forthning of 2001, the Enron Corporation, the worlds dominant energy trader, appeared unstoppable. The companys decade-long effort to persuade lawmakers to deregulate electricity markets had succeeded from California to New York. Its ties to the scrub administration guarantee 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. In February 2001, Chief Accounting Officer st ack Causey told budget theatre directors From anaccounting standpoint, this will be our easiest year ever. Weve got 2001 in the bag. On March 5, Bethany McLeansFortune 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 was earning its income. McLean was first drawn to the companys situation after an analyst suggested she view the companys 10-K report, where she found strange transactions, erratic cash flow, and huge debt. She telephoned Skilling to discuss her findings preceding 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 mixed commodities and did not want anyone to know whats on those books. We wear upont want to tell anyone where were making money. In a convention call on April 17, 2001, then-Chief Executive Officer ( pass operating officer) Skilling verbally attacked Wall Street analyst Richard Grubman, who questioned Enrons 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 replied Well, thank you very much, we appreciate that asshole. This became an interior joke among many Enron employees, mocking Grubman for his perceived meddling rather than Skillings offensiveness, with slogans such as Ask Why, Asshole, a variation on Enrons official slogan Ask why.However, Skillings stimulation was met with dismay and astonishment by press and public, as he had oldly disdained criticism of Enron coolly or humorously. By the late 1990s Enrons stock was trading for $8090 per share, and few seemed to concern themselves with the opaqueness of the companys financial disclosures. In mi d-July 2001, Enron reported revenues of $50.1 billion, almost dual year-to-date, and beating analysts estimates by 3 cents a share. Despite this, Enrons 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 after part of 2000. As time passed, a number of serious concerns confronted the company. Enron had recently set about several serious operational challenges, namely logistical difficulties in operate a new broadband communications trading unit of measurement, and the losings from constructing the Dabhol authority project, a large power plant in India.Therewas also increasing criticism of the company for the role that its subsidiary Enron Energy operate had in the California electricity crisis of 2000-2001. There are no accounting issues, no trading issues, no reserve issues, no previously mystical problem issues. I think I can honestly distinguish that the company is probably in the strongest and bes t shape that it has probably ever been in. (Kenneth Lay answering an analysts question on majestic 14, 2001.) On rattling(a) 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 close to $33 million (though he keep mum owned over a million shares at the date of his freeing). 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 frontwards from Skillings departure. Lay announced he himself would re-assume the position of chief executive officer.Investors confidence declines slightlything is rotten with the state of Enron.The New York Times, Sept 9, 2001.By the end of August 2001, his c ompanys stock value clam up falling, Lay named Greg Whalley, president and COO of Enron Wholesale Services and Mark Frevert, to positions in the chairmans office. near beholders suggested that Enrons investors were in significant need of reassurance, not only because the companys business was difficult to understand (even indecipherable) but also because it was difficult to properly describe the company in financial statements. One analyst stated its unfeignedly hard for analysts to determine where Enron are making money in a given quarter and where they are losing money. Lay accepted that Enrons business was very complex, but asserted that analysts would never get all the randomness they want to satisfy their curiosity. He also excuseed that the complexity of the business was due largely to tax strategies and position-hedging. Lays 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 su dden departure of Skilling combined withthe opacity of Enrons accounting books made proper mind difficult for Wall Street. In addition, the company admitted to repeatedly using related-party transactions, which round feared could be too-easily used to transfer losses that might otherwise appear on Enrons own balance sheet. A pickyly distressful aspect of this technique was that several of the related-party entities had been or were being controlled by chief financial officer Fastow. After the September 11, 2001 attacks, media attention shifted away from the company and its troubles a exact 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 operating theatre utility, Northwest Natural Gas, for about $1.9 billion in cash and stock, and possibly selling its 65% stake in the Dabhol project in I ndia. Restructuring losses and SEC investigationOn October 16, 2001, Enron announced that restatements to its financial statements for years 1997 to 2000 were essential to correct accounting violations. The restatements for the period debased 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). Additionally, in January Jeff Skilling had asserted that the broadband unit alone was worth $35 billion, a claim also mistrusted. An analyst at Standard & Poors utter I outweart think anyone knows what the broadband operation is worth. Enrons management squad claimed the losses were mostly due to investment losses, along with charges such as about $180 million in money spent restructuring the companys troubled broadband trading unit.In a statement, Lay revealed, After a thoroug h review of our businesses, we welcome decided to take these charges to clear away issues that impart 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 companys 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 disclosedto Enrons 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 the various suspicious activities of Enron, characterizing them as some of the most opaque transactions with insiders ever seen Attempting to explain the billion-dollar charge an d calm investors, Enrons disclosures spoke of share settled costless call for 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 S.E.C. and look forward to the opportunity to put any concern about these transactions to rest. Two days later, on October 25, despite his reassurances days earlier, Lay dismissed Fastow from his position, citing In my continued discussions with the financial community, it became clear to me that restoring investor confidence would require us to switch Andy as CFO.However, with Skilling and Fastow now some(prenominal) departed, some analysts feared that revealing the companys practices would be made all the mo re difficult. Enrons stock was now trading at $16.41, having lost half its value in a little more than a week. 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 Enrons supply of cash. Enron financed the re-purchase by depleting its lines of citation at several banks. While the companys 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 Enrons possible manipulation of accepted accounting rules however, analysis was claimed to be impossible based on the incomplete information provided by Enron. patience 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. Enrons formidable presence worried some abo ut the consequences of the companys possible bankruptcy. Enron executives accepted questions in written form only.Proposed buyout by DynegySources claimed that Enron was planning to explain its business practices more fully within the coming days, as a confidence-building gesture. Enrons stock was now trading at around $7, as investors worried that the company would not be able to find a buyer. After it 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 catch 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, positively charged any other debt hitherto occluded by the Enron managements sec retive business practices, possibly as much as $10 billion in hidden debt. Dynegy and Enron confirmed their deal on November 8, 2001. Commentators remarked on the different corporate cultures between Dynegy and Enron, and on the straight-talking personality of the CEO of Dynegy, Charles Watson.Some wondered if Enrons 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 chastenings of dormant accounting mistakes. Many feared other mistakes and restatements might yet be revealed. Another major correction of Enrons earnings was announced on November 9, with a decline of $591 million of the stated revenue of years 19972000. 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 Moodys and S&P presumably to understand the effect the completion of any buyout transaction would have on Dynegy and Enrons credit rating. In addition, concerns were raised regarding antitrust regulative restrictions resulting in possible divestiture, along with what to some observers were the radically different corporate cultures of Enron and Dynegy.Both companiespromoted 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 significant 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 strate gically, and provides some immediate balance-sheet backstop for Enron. Credit issues were becoming more critical, however. close to the time the buyout was made public, Moodys and S&P both reduced Enrons rating to just one notch supra junk status. Were the companys 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 stop 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 Enrons 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 employ ees for 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 learnedness, while many Enron employees had seen their retirement accounts, which were based largely on Enron stock, decimated 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 employees savings plan. Watson assured investors that the true nature of Enrons 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 Enrons energy trading part alone was worth the price Dynegy was paying for the safe and sound company.By mid-November, Enron announced it was planning to sell about $8 billion worth of underperforming assets, along with a general plan to reduceits master 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 untoward outcome with respect to any of these matters would likely have a clobber adverse impact on Enrons 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 adjudicate to radically renegotiate.Furthermore Enron reve aled 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 Enrons 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. The SEC announced it had filed civil fraud complaints against Andersen. A few days later, sources claimed Enron and Dynegy were renegotiating the monetary value 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 Enrons operations, if any, were profitable. Reports described an en masse shif t of business to Enrons competitors for the sake of risk exposure reduction.BankruptcyEnrons 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 lost nearly $11 billion. On November 28, 2001, Enrons two worst-possible outcomes came true Dynegy Inc. unilaterally disengaged from the proposed acquisition of the company, and Enrons credit rating was reduced to junk status. Watson later said At the end, you couldnt give it Enron to me. The company had very little cash with which to operate, let alone satisfy enormous debts. Its stock price vicious to $0.61 at the end ofthe days trading. One editorial observer wrote that Enron is now shorthand for the perfect financial storm. Systemic consequences were felt, as Enrons creditors and other energy trading companies suffered the loss of several percentage points. Some analysts felt Enrons failure indicated the risks of the postSeptemb er 11 economy, and further 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 Enrons failure. Early calculations estimated $18.7 billion. One adviser stated, We dont really know who is out there exposed to Enrons credit. Im telling my clients to prepare for the worst. 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 Enrons bankruptcy. Additionally, many of Enrons 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.Enrons European operations filed for bankruptcy on November 30, 2001, and it sought Chapter 11 testimonial two days later on December 2. It was the largest bankruptcy in U.S. history (before being surpassed by WorldComs bankruptcy the next year), and resulted in 4,000 lost jobs. The day that Enron filed for bankruptcy, the employees were told to pack their belongings and were given 30 legal proceeding 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 thats how Enron had always wanted it. In truth, even as they angrily pointed fingers, the two deserved each other. Bethany McLean and gumshoe Elkind in The Smartest Guys in the Room. On January 17, 2002 Enron dismissed Arthur Andersen as its auditor, citing its accounting advice and the oddment of documents. Andersen countered that it had already ended its relationship with the company when Enron became bankrupt.