Enron Corp. - University of California | Office of The President

A. The Beginning of Enron
SUMMARY OF COMPLAINT
"Quis Custodiet Custodies?"
"But Who Will Guard the Guards Themselves?"
5. Enron was formed in 85 when Kenneth Lay ("Lay") arranged the merger of two
pipeline companies and Lay became the Chairman/CEO of the surviving entity. Over the next five
years, Enron operated as a stodgy regulated natural gas company, which was burdened by excessive
debt and was in danger of being taken over. Between 85-90, Enron's stock performed poorly, trading
at between $5-$7 per share and Enron's top executives received very modest annual bonuses and
engaged in little if any sales of Enron stock. 3
6. In 90, Lay decided to attempt to transform Enron into a higher growth, higher profit
enterprise and recruited Jeffrey Skilling ("Skilling") and Andrew Fastow ("Fastow") to become
executives and help him transform Enron into a growth company which engaged in providing and
trading wholesale energy resources and services, operating power plants and water supply facilities
(WEOS), providing retail energy and management services to companies all over the world (EES)
and later building a large broadband fiber optic communication network and also trading in
broadband communication access, i.e., "broadband intermediation" (EBS). During 90-96, Enron
began to show accelerating growth in revenue and profits and its stock price rose to $23-3/4 in late
96.
7. However, even early on, Lay, Skilling and Fastow began to inflate Enron's results by
doing transactions with entities it controlled. In 95, one James Alexander warned Lay that Enron
was on a perilous path in this regard. He told Lay he perceived conflicts of interest between Enron
and a company Alexander worked for, Enron Global Power and Pipelines, which had been formed
3 All share and per share amounts are adjusted to reflect Enron's 2-for-1 stock split in 8/99.
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