Short seller Jim Chanos is best known for calling the collapse of Enron, the world’s largest energy trading company at the time. He was widely credited as the first person to figure out that Enron was a house of cards. “As the dot-com era went on, people really began to embrace more and more stories that weren’t quite tech companies,” Chanos said in the latest installment of CNBC’s ” Art of the Trade .” “It persuaded investors that they were disrupting existing businesses, like energy. It was the perfect time for an aggressive company like that to be marketing that story to investors.” Enron’s unprofitable business model and problematic accounting practices led Chanos to make a short bet on the company in late 2000, and he continued to add to the position amid news of heavy insider selling and executive departures. “We added pretty much … almost all the way down,” he said. “Because the news got worse and worse and worse, and every piece of incremental bad news was much worse than what we’ve been through.” Here’s one thing that might come as a surprise: Enron was not the only stock Chanos shorted and profited from during the episode. As Enron shares sank fast in late 2001, its competitor Dynegy made a life-saving offer to acquire Enron. The news boosted both Enron and Dynegy’s stocks. However, Chanos saw a big red flag in Dynegy that make him bet against the stock, which eventually plunged 90%. Monday marked the 20th anniversary of the Securities and Exchange Commission charging former Enron Corporation chief executive Jeffrey Skilling with fraud and other crimes in connection with the energy trader’s collapse. Watch the full video above to learn about Chanos’ legendary Enron bet.
