Enron and the curse of Drexel 
Commentary: Energy trader's friends dry up
By David Callaway <<mailto:dcallaway@marketwatch.com>>, CBS.MarketWatch.com
Last Update: 1:15 AM ET Nov. 1, 2001
SAN FRANCISCO (CBS.MW) -- It was the master of its universe.

Its employees were rich, young and ruthless. It treated its clients and rivals alike, with disdain. Its leader counseled business tycoons and political powerbrokers alike. And when the bottom finally fell out, it didn't have a friend in the world to save it. 

Wall Street loves a success story. But it loves a success story gone wrong even more. Such was the case for Drexel Burnham Lambert, the junk bond empire of the 1980s, whose spiritual leader Michael Milken orchestrated one of the greatest financial shell games of all time before it collapsed in a heap of federal investigations, losses and the largest bankruptcy in Wall Street history. 

For Enron, the energy trading giant that has seen its shares lose more than two-thirds of their value this month amid questions about its financial transactions and its stability, the similarities are striking. 

Like Drexel, Enron set out to change an industry. Like Drexel, it succeeded, for a while. Under the guidance of Chairman Ken Lay, Enron evolved from a backwater Texas natural-gas pipeline company to become the nation's largest energy merchant. 

Its EnronOnline business transformed the way energy trading was done and funneled hundreds of billions of dollars in transactions through the company in last two years. The aggressive trading philosophy geared to squeezing a profit at all costs made millionaires of many employees, while those who were not deemed worthy simply vanished from the trading rooms, no questions asked. Enron was and is the dark star of the energy industry. 

For his part, Lay became an international corporate celebrity, advising President Bush on his campaign and taking a lead role with Vice President Dick Cheney on the administration's controversial energy plan earlier this year. 

But Enron's attempt to extend its dominance into the telecom industry and its secretive financial structure finally got the best of it. The unexplained resignation of its chief executive in August, the ouster of its chief financial officer last week and the company's inability to prove its financial health have prompted investors to bail out of Enron stock like jackrabbits escaping a brushfire. 

Now Lay & Co. are busy trying to raise cash from a skeptical Wall Street that is starting to admit it never understood the business in the first place (sound familiar?). Takeover speculation gave Enron shares a boost Wednesday, helping it end a 10-day losing streak. But it's unlikely anyone is going to step into this mess before a Securities and Exchange Commission investigation into its finances yields a few more answers. 

For investors, a short-term rally beyond the jump Wednesday is still possible now that all of the big mutual funds have dumped the shares. But at a closing price of $13.90, Enron shares are more than a Texas mile from their 52-week high of $84.88 last December. 

For Enron itself, it's time to put its cards on the table with regulators and Wall Street. As the Drexel saga showed, a strategy of defiance to the end only hastens the end.