Power Failure

As Enron crashes, angry workers and shareholders ask, Where were the firm's directors? The regulators? The stock analysts?

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Still, there's a search for accountability, to make sure nothing like this happens again. John Dingell, ranking member of the House Energy Committee, said it best: "Where was the SEC? Where was the Financial Accounting Standards Board? Where was Enron's audit committee? Where were the accountants? Where were the lawyers? Where were the investment bankers? Where were the analysts? Where was common sense?" Byron Wien, an investment strategist at Morgan Stanley Dean Witter, says, "This is an indictment of a lot of different things, from the debt-rating agencies to bank lending practices."

There have been warnings in the accounting abuses revealed by smaller corporate blowups in recent years, including appliance maker Sunbeam in 1998 and travel-services firm CUC International after it became Cendant in a 1997 merger. But Enron fell much harder and faster. Its stock had nearly tripled in two years, to $90 in August 2000. It booked sales of more than $100 billion last year, seventh on the FORTUNE 500. Its chairman, Kenneth Lay, 59, was a celebrity in Houston, a pillar of civic and charitable causes. An early financial supporter and confidant of George W. Bush, Lay was the only energy executive to be invited for a one-on-one with Dick Cheney when the Vice President was framing the Administration's energy policy. Enron led the energy industry in 1999-2000 campaign contributions, giving both parties--but mostly Bush and the G.O.P.--$2.3 million overall, nearly twice as much as Exxon-Mobil, according to the Center for Responsive Politics.

Just 10 years ago, Enron was a stodgy pipeline company, generating 85% of its revenue through the transmission of natural gas. By this year, although the company still controls 30,000 miles of pipeline, 80% of its revenue was generated on trading screens. Enron made markets in everything from energy to paper to broadband capacity. Says Peter Fusaro, president of Global Change Associates, a consultancy that has studied Enron: "They tried to commoditize everything."

And they were well on their way. Before resigning in August, Enron's hard-charging chief operating officer, Jeff Skilling, was using supercomputers and fiber-optic cable to operate a global trading grid. The ultimate goal was never to touch another cubic foot of natural gas, yet to make billions by trading it. By 1998 Skilling's vision was taking shape, and he had become Lay's heir apparent.

Enron's headquarters in Houston exuded success. The garage housed Ferraris and Porsches, and the company's new skyscraper was going up next door. But Skilling made a huge mistake. Enron, already saddled with about $5 billion in money-losing investments from utilities around the world, borrowed $1 billion more in the past three years to get into the business of trading data-transmission capacity on fiber-optic cables.

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