Enron scandal (1990s): Trading and mark-to-market

What the Enron record actually shows The Powers Report, the criminal dockets in Houston, and the Andersen case are the primary public sources. They describe accounting choices and off-balance-sheet structures that courts later treated as fraud, not a single missing ledger. Enron expanded from a pipeline company into a trader of energy and other contracts. It used mark-to-market accounting, permitted in some contexts, to recognize estimated values of long-term deals as current earnings.

Prosecutors and the Powers committee argued that valuations and related-party vehicles (including LJM partnerships associated with Fastow and structures known as the Raptors) were used to keep losses and debt out of the financial statements investors saw. Skilling resigned as CEO in August 2001. Sherron Watkins, a vice president, sent a letter to Lay warning that the company could implode in a wave of accounting scandals. The board's special committee later treated that warning as prophetic rather than speculative.

In October Enron took a large charge and the SEC opened an inquiry. A Dynegy rescue collapsed. Credit ratings fell. Bankruptcy followed on 2 December 2001, then the largest in U.S. history. Fastow pleaded guilty to conspiracy in 2004 and cooperated. The 2006 trial of Lay and Skilling produced guilty verdicts on conspiracy, fraud, and related counts. Lay's death on 5 July 2006 abated his conviction; Skilling's sentence was later reduced after appeals, including the Supreme Court's 2010 honest-services ruling in Skilling v. United States.