Financial Instruments and Markets: A Casebook

15

The Enron Odyssey (A): The Special Purpose of “SPEs”

During April 2001 in Houston, Texas, the atmosphere at Enron Corporation was lively and exciting. The company continued to be touted as one of the best places to work and recommended as a smart investment in both the equity and debt markets.¹ Thanks to the profit-seeking initiatives of its highly motivated and experienced employees, Enron continued to expand its operations into new areas of business.² The company accompanied its business expansion with a strong focus on financial innovation that had earned its top management awards for thought leadership.³ Much of the expansion and innovation had been instigated during a breakthrough strategy meeting held in 1988. At this meeting, the company had decided to make a radical shift away from the commonplace strategies of traditional energy companies and, instead, to create a new company that made money off deregulation and the inefficiencies in various commodity markets.⁴

The business model of the “new” Enron was complicated and required the expertise of thousands of professionals from a variety of disciplines. As Enron's business model grew more complex, so did its finances. Special purpose entities (SPEs), corporate structures that allowed Enron to move assets off its balance sheet, had been popping up just as quickly as the legal paperwork could be filled out. Recently, some institutional investors and analysts had shown curiosity concerning the growing complexity of Enron's ...