Enron scandal (2002): Watkins letter (August 2001)

Enron's December 2001 bankruptcy exposed off-balance-sheet vehicles and mark-to-market abuse; prosecutions and the 2002 Sarbanes-Oxley Act followed. Enron Corporation, a Houston energy trader that had been a stock-market favorite of the late 1990s, filed for Chapter 11 protection on 2 December 2001. Restatements, a failed merger with Dynegy, and a sudden collapse of confidence had erased a market capitalization that had stood near $70-80 billion at its peak in 2000.

Investigations by the U.S. Department of Justice, the SEC, and a special committee of Enron's own board (the Powers Report, February 2002) described mark-to-market accounting used on thin evidence, special-purpose entities that hid losses, and an auditor, Arthur Andersen LLP, that was destroyed by the obstruction case that followed, even after the Supreme Court later reversed Andersen's conviction in 2005.

Jeffrey K. Skilling was convicted in 2006 in the Southern District of Texas. Kenneth L. Lay was also convicted that year but died before sentencing, and the court vacated his conviction. Andrew S. Fastow, the former CFO, pleaded guilty in 2004. Congress answered with the Sarbanes-Oxley Act, signed 30 July 2002, the statute most often cited as Enron's legal monument.