Portal de Periódicos da CAPES

From Insull to Enron: Corporate (Re)Regulation After the Rise and Fall of Two Energy Icons

2005; Volume: 26; Issue: 1 Linguagem: Inglês

0270-9163

W. Henderson, Richard D. Cudahy,

Global Financial Regulation and Crises

I. INTRODUCTION For most Americans, the sudden and horrific collapse of the Enron Corporation will go down as the most shocking and significant corporate event of their generation. Yet, remarkably, it is a surprise to many people that the New Deal regulatory framework - which was recently reformed and toughened response to the Enron debacle - was itself created the wake of a strikingly similar corporate crash. In late 1931 and early 1932, investors, business executives, and ordinary citizens looked on horror as Samuel Insull's grand and seemingly invulnerable electric utility holding company empire foundered without warning and slipped into receivership. This debacle wiped out the holdings of 600,000 shareholders and 500,000 bondholders,1 most of whom believed that they had entrusted their savings to a safe and secure electric utility enterprise. As Insull (much like Enron seventy years later) was vilified the press, candidate Franklin D. Roosevelt seized upon this business disaster to press his case for corporate reform during the 1932 presidential campaign. Though Insull and his crash are today largely forgotten, we are still subject to its regulatory aftermath-measures that were adopted in direct response to Insull's real or alleged doings . . . .2 This legislation, a substantial part of the New Deal regulatory agenda, includes the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Federal Power Act of 1935, and the legislation creating the Tennessee Valley Authority and the Rural Electrification Administration.3 As noted by one Insull historian, It is no exaggeration to see the legislative innovations of the New Deal a phoenix arising from the ashes of the Insull empire.4 At least superficially, the Insull failure and the Enron collapse seventy years later appear to have followed virtually identical scenarios. For example, both companies rose to dizzying levels of economic power and political and public adulation. Virtually overnight, both icons plummeted ignominiously into bankruptcy, giving rise to frantic hand wringing and finger pointing by politicians and the press. Apparently, everyone had been duped. Yet, a careful examination of the rise and fall of Samuel Insull reveals many interesting (and sometimes ironic) differences from the Enron debacle. Perhaps most striking is the fact that all of the Insull criminal and civil proceedings, which dragged on until Insull's death 1938, ended acquittals for Samuel Insull and his large coterie of executives.6 In contrast, the federal laws that were passed the aftermath of Insull have been successfully deployed to obtain several criminal convictions of Enron figures (with possibly more to come)7 and numerous civil settlements.8 Another fortunate and arguably related distinction between the Insull and the Enron eras is that, notwithstanding similar stock market collapses 1929 and 2000, the country has thus far averted a severe economic depression the wake of Enron. Thus, Insull's most consoling legacy may be that the full force of history has not repeated itself full. There is nothing like a narrow escape from ruin to produce sober, level-headed reflection on matters of public policy. This Article suggests that our ruminations on government regulation are more likely to draw the right conclusions if we understand the historical continuum that connects Insull with Enron. The setting for our analysis is the growth and maturation of the electric power industry over a span of 120 years. At two junctures - separated by a nearly seventy-year interval - the collapse of two energy titans, Insull and Enron, helped to galvanize major changes the regulation of financial markets. Since the Enron experience is current and ongoing, as well as the subject of numerous discussions and analyses a continuing torrent of books and articles,9 its specific facts will be dealt with a summary fashion. …