Thursday, November 1, 2001.
As rumors spread all over Wall Street that Enron's bankruptcy was imminent, a heavy silence and sense of unease hung over the headquarters in Houston, Texas.
"We've completely run out of funds. We only have ten million dollars in cash left that we can use right away."
At the words of CFO Semi Lentz, who was in charge of the company's finances, Enron Chairman Jack Haywood sat in the seat of honor on the sofa in his office and, without realizing it, squeezed his eyes shut.
It felt as though he had been pushed off a cliff with no bottom in sight.
Ever since the last remaining hope, the acquisition talks, had fallen through, and their futures investments had also failed, leaving them with massive losses, they had been getting through each day by the skin of their teeth, like walking a tightrope. So he had been somewhat prepared for this.
But when bankruptcy actually loomed as a reality, his mind went completely blank.
"Has there been any word from Citigroup or JPMorgan?"
When Chairman Haywood asked, as if clutching at his last straw, CFO Lentz, who had been looking his way, replied weakly with a dark expression.
"Even before coming in, I called to ask for additional funding, but they flatly refused and said it was impossible."
"If we go bankrupt like this, it will be difficult for them to recover their existing loans. And they still will not lend us any money?"
CFO Lentz hesitated for a moment, then reluctantly opened his mouth.
"I have heard that Citigroup and JPMorgan have recently increased their provisions significantly… It seems they have already accepted our bankruptcy as a fait accompli and made up their minds to treat the loans they gave us as losses."
"Ghhh."
Feeling as though he had reached a dead end, Chairman Haywood twisted his face and let out a groan.
Then Caleb, the COO who was sitting across from CFO Lentz, cautiously gauged the mood and spoke carefully.
"Chairman. I think the time has come for you to make a decision."
"Are you telling me to go file for bankruptcy with the court right now?!"
Chairman Haywood glared and shouted at him in an instant.
But despite that piercing stare, Caleb, the COO, continued speaking resolutely.
"I know it's not an easy decision. But in a situation where there is no way left to raise funds, if we let the company default like this, things will become much more serious."
"Hmm."
Chairman Haywood let out a low groan, unable to give any reply.
Seeing him grit his teeth in frustration, Caleb leaned forward in his seat and continued to persuade him.
"If, instead of letting the company be liquidated like this, we file for Chapter 11 with the court, and it gets accepted, we can at least hold on to a small hope of getting back on our feet."
Unlike Chapter 7, which immediately liquidates a company and distributes whatever money remains to its creditors, Chapter 11 of the U.S. Bankruptcy Code is a system that allows a company to recover after undergoing restructuring under court supervision, if the court judges that restoring the company is more beneficial than liquidating it.
In Korean terms, it was essentially the same as court receivership.
CFO Lentz, who had been listening, also joined in and urged him to make a decision.
"I know it's a difficult call to make, but if you hesitate and miss the timing, even this option may no longer be possible."
Chairman Haywood frowned deeply, squeezed his eyes shut for a moment, and then, as if accepting that there was no other way, spoke with a resigned expression.
"Hoo… If that's the only solution left, then it can't be helped."
The two men, who had been secretly worried that he might keep digging in his heels, looked relieved when Chairman Haywood accepted filing for bankruptcy far more readily than they had expected.
"Then I will submit the application for bankruptcy protection to the court right away."
"No, wait a moment."
At Chairman Haywood's words, the two men looked at him with puzzled expressions.
"We should still have enough leeway to hold out for one more day."
CFO Lentz nodded slightly and replied.
"That should be possible."
"Good. Then submit the application to the court tomorrow, not today."
Caleb put on a face full of doubt at the inexplicable instruction.
"Delaying it by one day won't really change anything, so why are you doing this?"
Chairman Haywood glanced in turn at the two men sitting on either side of him and spoke in a subdued voice.
"Once bankruptcy protection is accepted, the court will start intervening in the company's management, won't it?"
"That's true."
From the start, Chapter 11 was a system premised on court supervision, so it was only natural.
"Once we enter restructuring, there will be layoffs and wage cuts. Before that happens, prepare the approval documents so we can process the payment of this year's executive bonuses first and bring them to me."
"...!"
With the company on the brink of bankruptcy, the two men could not hide their dismay when Chairman Haywood, who bore the greatest responsibility, brazenly showed that he intended to look after his own interests first.
Chairman Haywood narrowed his eyes and continued.
"We did everything to grow the company, but the situation has gotten twisted, and now it's even hard to move to another place. At the very least, shouldn't I take the bonus I'm supposed to receive?"
They knew it was an unethical act that would be condemned if it came to light, but Lentz and Caleb kept their mouths shut and only traded cautious glances.
Then Lentz adjusted his gold-rimmed glasses and spoke first.
"There could be legal issues when the bankruptcy court reviews this."
"I'm not taking a bonus that didn't exist. I'm just being paid money that I was originally supposed to receive. What's the problem with that?"
"But…"
Lentz trailed off.
Under normal circumstances, it would not have been an issue, but the problem was that the company was on the verge of filing for bankruptcy. On top of that, the company had fallen into severe trouble due to accounting fraud and various other misdeeds committed by the management. Taking a huge bonus in such a situation was something no one could reasonably accept.
"Even if it becomes an issue, couldn't we take care of it in advance so that there's no legal responsibility?"
The two of them hesitated for a long moment, then finally nodded.
"Understood."
"I'll call in our advisory lawyer and have him draft the bonus payment plan so that no troublesome situation arises."
When Lentz spoke first, Caleb quickly followed.
Chairman Haywood leaned back into his chair with a satisfied expression.
"Good. We don't have much time, so move quickly."
"Yes."
The two men nodded heavily.
***
The next day.
True to its name as the center of global finance, the inside of the New York Stock Exchange was filled with the scorching heat thrown off by traders and the loud shouts that hammered against the ears.
"Buy 50,000 shares at 24.31!"
"Let's buy 30,000 shares of IBM!"
"Not at that price. Raise it."
"Thirty-one dollars ten cents. That's the limit!"
"Okay. Done!"
Traders in colorful vests and jackets continued their deals, flashing elaborate hand signals or shouting at the top of their lungs with veins bulging in their necks.
With huge sums of money changing hands on a single order, it was literally a battlefield without gunfire, so everyone stayed on edge and reacted instantly to the flow of the market.
The very center of the exchange, packed with these traders, was nothing short of chaos.
Ian Jefferson, the chief trader at Salomon Smith Barney Securities, had his shirt sleeves rolled up, a phone receiver in one hand, and at the same time swept his eyes quickly across the six monitors set up in front of him as he spoke.
"Merck and Immunex reported earnings higher than analysts' expectations, so all the pharma stocks are on the rise."
[Buy 50,000 shares of Immunex!]
"It's already up 3% from yesterday. Are you sure?"
[It doesn't matter. Buy it at the current price.]
"Okay. Hold on a moment."
When Jefferson, with the receiver tucked against his body, quickly wrote down the order details on a memo pad and held it out, the staff member in front of the booth took the note and passed it to another trader standing by the post.
Not long after, when the terminal in the booth displayed that the trade was complete, Jefferson brought the receiver back up to his ear.
"It's filled."
Having wrapped up one deal, Jefferson loosened his tie knot and finally caught his breath.
"Looks like today will end as a steady uptrend as well."
"Let's hope it does."
Looking at the monitors showing all three major indices in the red and continuing to extend their gains, Jefferson replied to the female employee sitting next to him.
At that moment, the Goldman Sachs booth across from them suddenly erupted into loud chatter.
"What is it?"
Just as Jefferson narrowed one eye, a subordinate's urgent voice came from his left.
"There's breaking news. Enron has filed for bankruptcy protection with the court!"
He hurriedly turned his head and checked the Bloomberg terminal, and sure enough, the breaking news was on the screen.
"Hmm."
Jefferson let out a low hum and quickly scanned the breaking news.
[
Enron's board of directors unanimously decides to file for protection under Chapter 11 of the Bankruptcy Code. Expected to become the largest bankruptcy in U.S. history since Texaco in 1987.]
He quickly tapped on the keyboard and brought up Enron's stock price on the monitor. The price, which had been hovering around one dollar per share on rumors that bankruptcy was imminent, was now plunging straight down.
[ENE : 0.35 (-71.3%)]
Since it was practically a foregone conclusion, Jefferson ran one hand back through his hair and muttered in a flat, dry voice.
"...So it's come to this in the end."
As the news of the bankruptcy filing triggered an explosive wave of panic selling, Enron's stock drew a long bearish candlestick and plunged endlessly downward.
Even the Eldorado Fund's short covering, which had been propping the price up around the one-dollar range until now, was completely finished. There was no one left to absorb the sell orders that were pouring in from all directions like a tsunami.
When Jefferson saw the stock crash straight down to ten cents in a single drop, he muttered to himself with a bitter expression.
"A company worth tens of billions of dollars turning into a penny stock in just a few months… I really have no words."
It was hard even to imagine how much Seok-won had made on this bet after seeing it coming and placing a massive short position early on.
Jefferson shook his head and let out a hollow laugh.
"He's basically sweeping up all the dollars on Wall Street by himself."
The one small consolation was that this was already well-known bad news, so the market seemed to be taking it in stride without suffering a major shock.
As proof of that, although the gains had narrowed a bit compared to earlier, all three major indices were still in positive territory.
"At least that's something."
***
[Enron, which had been monopolizing 25% of energy trading in the United States and Europe, filed for bankruptcy protection this afternoon with the New York Federal Bankruptcy Court under Chapter 11 of the U.S. Bankruptcy Code. If Enron, whose total assets amount to 62.8 billion dollars, ends up going bankrupt like this, it will surpass Texaco's 35.9 billion dollars in 1987 and set a new record for the largest bankruptcy. Around 21,000 employees worldwide will lose their jobs as a result of this bankruptcy...]
At the same time as the bankruptcy filing, the screen showed employees who had been told to pack up and vacate their offices immediately, streaming out of the headquarters building one after another with boxes of their belongings in their arms.
They all wore vacant expressions, as if they could not believe the reality of having become unemployed in an instant.
[This makes no sense. The company just threw us out onto the street!]
[There's someone sick at home, so what are we supposed to do about the medical insurance… sigh, this is hopeless.]
Standing in the penthouse living room, where Central Park's blue-green expanse could be seen through the wall-length glass windows, Seok-won watched the news with his arms crossed and an expressionless face. Then he spoke in a low, settled voice.
"When one cockroach shows up, it means there are a lot more hiding where you can't see them."
TL/n -
Enron filed for Chapter 11 bankruptcy protection on December 2, 2001, marking one of the largest corporate bankruptcies in U.S. history at that time. The company, which was involved in extensive accounting fraud, collapsed after its stock price plummeted from over $90 to less than $1. The scandal led to significant regulatory changes, including the Sarbanes-Oxley Act, aimed at improving corporate transparency and governance.
Sarbanes-Oxley Act: Passed in 2002, this law introduced stricter auditing rules, required CEOs and CFOs to personally certify financial statements, and created the Public Company Accounting Oversight Board (PCAOB).