Level: C1 (Advanced)
Content Objective: Students learn how Enron, once celebrated as America’s most innovative company, collapsed into the largest corporate bankruptcy in U.S. history at the time, and understand the accounting practices that concealed its failure for years.
Language Objective: Students practice complex narrative tenses — particularly the past perfect and past perfect continuous — to describe events that had already occurred, or had been occurring, before other past events in the story.

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1. Reading Section

The Company That Fooled Wall Street

By the time Enron collapsed in December 2001, most investors had no idea how thoroughly they had been deceived. For years, Wall Street analysts had praised the company as a model of innovation. Fortune magazine had named it “America’s Most Innovative Company” six years running. What almost nobody outside a small circle of executives realized was that, by the time those accolades were being handed out, Enron had already built an elaborate structure designed to hide the truth about its finances.

The company had started modestly enough. In 1985, Kenneth Lay had merged two unremarkable gas pipeline companies, Houston Natural Gas and InterNorth, to form what would become Enron. Within a decade, though, the business had transformed itself from a regional pipeline operator into something far more ambitious: an energy trading giant that bought and sold contracts the way a bank trades currencies. By the time Jeffrey Skilling, a former McKinsey consultant, had risen to become chief operating officer, Enron had adopted an accounting method that would eventually prove disastrous.

That method, known as mark-to-market accounting, allowed Enron to record projected future profits from long-term contracts immediately, even though the cash from those deals hadn’t yet arrived and, in some cases, never would. Once this practice had become standard at the company, it created an incentive that was hard to resist: if a deal looked profitable on paper, it could be booked as profit right away, regardless of what actually happened afterward.

By the late 1990s, some of Enron’s ventures had started losing money badly, but by then the company had already convinced investors that its earnings would keep climbing. Rather than admit the losses, chief financial officer Andrew Fastow had set up thousands of special-purpose entities — separate companies, on paper, that existed largely to absorb Enron’s bad debt and keep it off the parent company’s books. By 2001, these entities had hidden roughly $25 billion in debt that investors never saw.

The scheme had been unraveling quietly for months before the public found out. In August 2001, an Enron vice president named Sherron Watkins had already sent an internal memo warning that the company’s accounting “could implode in a wave of accounting scandals.” Skilling, who had only recently become CEO, resigned abruptly that same month, citing personal reasons — a move that, in hindsight, had signaled far more than anyone admitted at the time.

By October, Enron had reported a stunning quarterly loss and had been forced to reduce shareholders’ equity by over a billion dollars. Once regulators had begun investigating, the company’s credit rating collapsed, and a proposed rescue merger with a rival energy firm fell apart. Enron, which just a year earlier had been trading at nearly ninety dollars a share, filed for bankruptcy on December 2, 2001. By then, its stock had fallen to a few cents.

Thousands of employees, many of whom had invested their retirement savings almost entirely in company stock, discovered that their accounts had been frozen during the very weeks when Enron’s collapse had been accelerating. Executives, by contrast, had already sold much of their own stock before the worst news became public.

Skilling and Fastow were eventually convicted; Lay was convicted too, but he died before he could be sentenced. Arthur Andersen, the accounting firm that had audited Enron for years, had also destroyed documents once investigators started asking questions — a decision that ended the firm’s existence entirely. What had once looked like American business at its most inventive turned out to have been, for years, an elaborate act of concealment.

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2. Vocabulary Section

Word / Phrase	Meaning	Example
accolade	an award or expression of praise for an achievement	Fortune handed Enron a new accolade almost every year.
elaborate (adj.)	complex and detailed, often deliberately so	Fastow built an elaborate structure of shell companies.
incentive	something that motivates a particular behavior	Mark-to-market accounting created a dangerous incentive.
unravel	to gradually come apart or be exposed	The scheme had been unraveling for months before it became public.
implode	to collapse suddenly and violently inward	Watkins warned the accounting could implode.
accelerate	to happen faster, or to speed something up	Enron’s collapse had been accelerating for weeks.
concealment	the act of hiding something, often deliberately	The scandal was ultimately an act of concealment.
regulator	an official body that supervises and enforces rules in an industry	Once regulators had begun investigating, the stock collapsed.

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3. Example Sentences (Target Grammar in Use)

• By the time Enron collapsed, investors had already lost billions.
• Fastow had set up thousands of special-purpose entities before regulators noticed.
• The scheme had been unraveling for months before the public found out.
• Watkins had already sent a warning memo when Skilling resigned.
• Executives had sold much of their stock before the worst news became public.

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4. Grammar Section

Complex Narrative Tenses: Past Perfect and Past Perfect Continuous

Advanced narrative writing rarely moves in a straight line — it often steps back to explain what had already happened, or had been happening, before the main timeline of the story. This is where the past perfect and past perfect continuous become essential.

Tense	Formation	Use	Example
Past Simple	verb-ed / irregular form	main timeline events	Enron filed for bankruptcy in 2001.
Past Perfect	had + past participle	an action completed before another past action or point in time	By 2001, Fastow had hidden $25 billion in debt.
Past Perfect Continuous	had been + verb-ing	an ongoing action before another past point, emphasizing duration	The scheme had been unraveling for months before it became public.

Quick Tip: In narrative writing, the past perfect lets a writer “step back” in time to explain background events without confusing the reader about the order things happened. The past perfect continuous adds a sense of duration or process to that background — not just that something had happened, but that it had been happening for some time.

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5. Comprehension Questions

A. True or False

1. Enron was originally formed by merging two gas pipeline companies. (True / False)
2. Mark-to-market accounting required Enron to wait until cash arrived before recording profit. (True / False)
3. Sherron Watkins warned about accounting problems before the scandal became public. (True / False)
4. Kenneth Lay served a prison sentence for his role in the scandal. (True / False)

B. Short Answer

5. What accounting method allowed Enron to record future profits immediately?
6. What was the purpose of the special-purpose entities Andrew Fastow created?
7. What happened to many employees’ retirement accounts during Enron’s collapse?
8. What happened to Arthur Andersen as a result of the scandal?

C. Complete with the past perfect or past perfect continuous

9. By the time the scandal broke, Fastow ______ (hide) around $25 billion in debt.
10. The company’s accounting problems ______ (unravel) quietly for months before Watkins sent her memo.
11. Skilling ______ (only / recently / become) CEO when he resigned in August 2001.
12. Executives ______ (sell) much of their stock before the worst news became public.

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Answer Key

Click here to check tour answers

A. True or False

1. Enron was originally formed by merging two gas pipeline companies. — True (Houston Natural Gas and InterNorth)
2. Mark-to-market accounting required Enron to wait until cash arrived before recording profit. — False (it let Enron record projected future profits immediately, before the cash arrived)
3. Sherron Watkins warned about accounting problems before the scandal became public. — True
4. Kenneth Lay served a prison sentence for his role in the scandal. — False (he was convicted, but died before he could be sentenced)

B. Short Answer

5. What accounting method allowed Enron to record future profits immediately? — Mark-to-market accounting.
6. What was the purpose of the special-purpose entities Andrew Fastow created? — They existed largely to absorb Enron’s bad debt and keep it off the parent company’s books, hiding roughly $25 billion in debt.
7. What happened to many employees’ retirement accounts during Enron’s collapse? — Their accounts were frozen during the weeks when Enron’s collapse was accelerating, even though many had invested their retirement savings almost entirely in company stock.
8. What happened to Arthur Andersen as a result of the scandal? — The firm destroyed documents once investigators started asking questions, and that decision ended the firm’s existence entirely.

C. Complete with the past perfect or past perfect continuous

9. By the time the scandal broke, Fastow had hidden around $25 billion in debt.
10. The company’s accounting problems had been unraveling quietly for months before Watkins sent her memo.
11. Skilling had only recently become CEO when he resigned in August 2001.
12. Executives had sold much of their stock before the worst news became public.