Case Study Enron Scandal

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CASE 3 Enron: Questionable Accounting Leads to Collapse

Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant Tilted ―E‖ in front, slowly revolving in the Texas sun. Enron‘s suggested to Chinese feng shui practitioner Meihwa Lin a model of instability, which was perhaps an omen of things to come. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt that had been concealed through a complex scheme of offbalance –sheet partnership. Forced to declare bankruptcy, the energy firm laid off four thousand employees; thousand more lost their retirement saving, which had been invested in Enron stock. The company‘s shareholders lost tens of
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Delivering bad news could result in the ―death‖ of the messenger, so problems in the trading operation, for ~ample, were covered up rather than being communicated to management. Enron Chair Ken Lay once said that he felt that one of the great successes at Enron was e creation of a corporate culture in which people could reach their full potential. He said at he wanted it to be a highly moral and ethical culture and that he tried to ensure that people did in fact honor the values of respect, integrity, and excellence. On his desk was an Enron paperweight with the slogan ―Vision and Values.‖ Despite these intentions, however, ethical behavior was not put into practice. Instead, integrity was pushed the side at Enron, Particularly by top managers. Some employees at the company believed that nearly anything could be turned into a financial product and, with the aid of complex statistical modeling, :traded for profit. Short on assets and heavily reliant on intellectual capital, Enron‘s corporate culture rewarded innovation and punished employees deemed weak.

Enron‘s bankruptcy in 2001 was the largest in U.S. corporate history at the time. The bankruptcy filing came after a series of revelations that the giant energy trader had been using partnerships, called special-purpose entities (SPEs), to conceal
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