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CNN Sunday Morning

What was Gained and Lost with Enron?

Aired January 27, 2002 - 11:23   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDRICKA WHITFIELD, CNN ANCHOR: Well, much has been made of the stock sold by Enron executives, as the company was about to implode. CNN's Brooks Jackson takes a closer look at what was gained and what was lost.

(BEGIN VIDEOTAPE)

BROOKS JACKSON, CNN CORRESPONDENT (voice-over): There were literally thousands of sales all documented in reports to the Securities and Exchange Commission. But how many, and when, and for how much? We asked an expert, Paul Elliot of Thompson Market Strategy, to conduct for CNN the most comprehensive analysis yet of Enron executive stock sales.

PAUL ELLIOTT, THOMPSON MARKET STRATEGY: The insiders were behaving like the dot-com millionaires you hear about.

JACKSON (on-camera): Just look, this is Enron's stock price for the last four years, and these bars are the sales by insiders for each month in dollars. The selling peaked as Enron's stock price was soaring. Close to half the open market sales of the past four years took place in the first five months of 2000. That's well over a year before Enron's troubles became public. The selling moderated later that year as the stock price rose even higher, but continued as the price headed down.

These sales, as the price was plunging, are a particular concern. Were Enron insiders bailing out? What did they know that the public didn't?

(voice-over): And our study turned up even more sales of Enron stock by Chairman Ken Lay than earlier media studies. Counting stock Lay turned back to Enron to cover cost of exercising stock options, something other studies have omitted, Lay sold more than $200 million in Enron stock. But Lay's actual profit was less than that, $119 million after subtracting the cost of exercising those options.

Jeffrey Skilling, the former Enron CEO, who resigned last year, sold $190 million worth of shares, netting a profit of $112 million. And Andrew Fastow, the Enron chief financial officer behind the controversial partnerships that disguised Enron's debts and losses, sold nearly $32 million in Enron shares, netting a profit of $18.5 million after option costs. In all, 36 Enron insiders sold nearly 236 million shares for nearly $1.3 billion. Subtract the 440 million it cost Enron insiders to exercise stock options, and the net profit is just shy of $842 million, less actual profit than earlier studies suggested, but still a whale of a lot of money.

(on-camera): Insider sales alone, however, prove nothing. And Enron's totals are almost piddling compared to insider sales at many other companies. Last year alone, Bill Gates sold more than $2 billion worth of Microsoft stock. Larry Ellison sold more than $800 million of Oracle. And Michael Dell sold more than $250 million of Dell Computer. In fact, the peak of Enron's selling in 2000 coincided with an unprecedented frenzy of insider selling at U.S. companies generally, as the high tech stock bubble reached its peak.

ELLIOTT: In March 2000, when Enron executives sold about $100 million worth of stock, insiders market wide sold over $25 billion worth and that's something we have never seen.

JACKSON (voice-over): For the most part, executives like Lay were not selling stock they already owned. They were selling stock they had bought from the company, usually on the same day, using stock options. In fact, our study showed 92 percent of the Enron insider sales in the past four years were shares bought using options.

(on-camera): There's still more to come. Lay, for one, has yet to file reports of lots of Enron stock his lawyer says he had to surrender to Enron last year, to repay money he borrowed using the stock as security. But, for the most part, the sales were all publicly reported, not at all unusual for the time, and perfectly legal unless -- unless it can be proven they sold knowing the company was doomed, while hiding that from the public.

Brooks Jackson, CNN, Washington.

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