Enron History
Enron History
Special Purpose Entities (SPEs) were used and often abused by most large corporations in the late 1990’s. Enron was likely the corporation that abused the accounting treatment the most, but certainly not the only one. The Enron SPEs were not hidden from the auditors or the investing public, but were so extensive, invasive, and complex that no one, including primary architect, Andrew Fastow, was able to understand the total implications. The 2000 financial statements for Enron included over 90 lines of disclosures about more than 700 SPEs.
1991
The first SPE used by Enron was called Cactus in late 1991 following approval of EIIF Issue 90-15 in July 1991. The situation was that Jeff Skilling had made promises of $900 million to multiple large natural gas producers to start the “gas bank,” but Enron did not have the cash to fulfill the promises. Jeff Skilling and Andy Fastow (new on the job 1989) set up an SPE and convinced several investors, including GE, to put up $27 million (3%). With $873 million from investment banks, Enron had the $900 million necessary for the contracts. The contracts were sold to Cactus with the intent that Enron or other dealers would buy back the contracts at a later date when the gas was needed at spot rate existing at the time. The net impact was that the gas bank got started and Enron did not need to recognize any debt or future relationship on their financial statements. No entries were made in the general ledger or reported on the financial statements. Cactus was disclosed in the footnotes.
1993
A different variation of SPEs and off-balance-sheet financing was introduced with JEDI (Joint Energy Development Investments). Skilling and Fastow convinced CalPERS (California Public Employees Retirement System) to invest $250 million into a joint investment partnership to be run by Enron for the purpose of making energy related investments. Enron put in $250 million of its own stock over the four year 1993-1996
Special Purpose Entities (SPEs) were used and often abused by most large corporations in the late 1990’s. Enron was likely the corporation that abused the accounting treatment the most, but certainly not the only one. The Enron SPEs were not hidden from the auditors or the investing public, but were so extensive, invasive, and complex that no one, including primary architect, Andrew Fastow, was able to understand the total implications. The 2000 financial statements for Enron included over 90 lines of disclosures about more than 700 SPEs.
1991
The first SPE used by Enron was called Cactus in late 1991 following approval of EIIF Issue 90-15 in July 1991. The situation was that Jeff Skilling had made promises of $900 million to multiple large natural gas producers to start the “gas bank,” but Enron did not have the cash to fulfill the promises. Jeff Skilling and Andy Fastow (new on the job 1989) set up an SPE and convinced several investors, including GE, to put up $27 million (3%). With $873 million from investment banks, Enron had the $900 million necessary for the contracts. The contracts were sold to Cactus with the intent that Enron or other dealers would buy back the contracts at a later date when the gas was needed at spot rate existing at the time. The net impact was that the gas bank got started and Enron did not need to recognize any debt or future relationship on their financial statements. No entries were made in the general ledger or reported on the financial statements. Cactus was disclosed in the footnotes.
1993
A different variation of SPEs and off-balance-sheet financing was introduced with JEDI (Joint Energy Development Investments). Skilling and Fastow convinced CalPERS (California Public Employees Retirement System) to invest $250 million into a joint investment partnership to be run by Enron for the purpose of making energy related investments. Enron put in $250 million of its own stock over the four year 1993-1996