Enron tops the list of America's biggest corporate collapse. The giant energy group filed for bankruptcy protection after admitting that its profits over the previous few years had been nearly $600m lower than what had been claimed. Enron's standing was battered when it was revealed that it had used "special purpose vehicles", or off-balance sheet vehicles, to enhance its earnings and reduce its debt. .
Jeffrey Skilling, Enron's former president and briefly its chief executive, denied charges he had dumped Enron shares even as he told others to buy. .
''I did not dump any stock in Enron because I knew or even suspected that the company was in financial trouble,'' he said. .
If, in fact, Skilling did maintain or increase his ownership of Enron shares, it was because he was given more and more options. Even under Enron's option plan, in which options fully vested in three years, an unusually quick rate, Skilling wound up holding many Enron shares he could not legally sell. .
In 2000, for example, Skilling was granted 867,880 options to buy shares, in addition to his salary and bonus totaling $6.45 million. In that year, he exercised and sold just over 1.1 million shares from options he received in prior years, and pocketed $62.48 million. The board granted then Chairman and Chief Executive Kenneth Lay 782,380 options on top of his salary and bonus of $8.3 million, plus perks valued at $381,155. He sold about 2.3 million shares for $123.4 million. .
Because they were granted so many options that year (which they could not yet exercise and which are now worthless), Skilling or Lay can state truthfully that he added to his position in Enron shares. They both could have sold even more than they did. Lay in particular had $257 million in options he could have exercised at the end of 2000. But that doesn't mean they weren't bailing out.
The theory behind granting stock options is that it aligns executive interests with shareholder interests.