The Enron Effect

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Enron joins WorldCom, Adelphia and Tyco among the big companies busted by President Bush's Corporate Fraud Task Force, which has won 1,063 convictions, including guilty verdicts against 36 chief financial officers and 167 corporate CEOs and presidents. "Behavior has clearly changed since the Enron crisis," says Roman Weil, a professor of accounting at the University of Chicago. Part of that is a result of the Sarbanes-Oxley bill, which holds bosses criminally responsible if their company's accounting is faulty. So CEOs are paying closer attention to financial statements--and passing that responsibility down the line. "The criminalization has made executives more alert to what they're signing," says Weil.

Enron's greatest failure may have been asserting that it could offset major risks by buying assets like utilities and then developing and trading complex financial instruments around them. The company's energy-trading imitators paid a dear price: the Williams Co., based in Oklahoma, and Dynegy, based in Texas, saw their stock prices drop from the $45 range to less than $1 before rebounding slightly.

And yet risk taking is very much alive. About 500 hedge funds, up from 180 in less than two years, have more than $100 billion at work in the energy sector, says tracker Peter Fusaro, head of Energy and Environmental Capital Management. "We're in the middle of the vortex," he says, pointing to hot economies in Houston and Calgary, Canada. "The bigger issue is--get to know your risks. Enron was the dumbest energy company in the world."

Attorneys for Skilling and Lay plan to appeal, possibly using the argument that got Enron accountant Arthur Andersen off the hook--the fine points of jury instructions. Like most appeals, that's a long shot. Sentencing for Lay and Skilling is set for September, but with the trial over, 16 other Enron employees who turned state's witness can also be sentenced.

The moral victory is won, says Steve Berman, a Seattle attorney representing some 21,000 employees who lost their pensions. "Now we hope to get them an economic victory." Banks like JPMorgan Chase and Citigroup, who financed Enron's schemes with stock and bond offerings, have already agreed to pay $7.3 billion in restitution to shareholders. They're getting nothing from Skilling and Lay, whom the feds are already dunning for more than $150 million. "There's little chance of recovery from them, but most will be satisfied that Skilling and Lay were convicted," says Robin Harrison of Houston, one of the attorneys representing retired employees. "Right to the end, people were concerned they might get away with it."