Essay on CaseAssignment2

Enron had the largest bankruptcy in America’s history and it happened in less than a year because of scandals and manipulation Enron displayed with California’s energy supply. A few years ago, Enron was the world’s 7th largest corporation, valued at 70 billion dollars. At that time, Enron’s business model was full of energy and power. Ken Lay and Jeff Skilling had raised Enron to stand on a culture of greed, lies, and fraud, coupled with an unregulated accounting system, which caused Enron to go down. Lies were being told by top management to the government, its employees and investors. There was a rise in Enron 's share price because of pyramid scheme; their strategy consisted of claiming so much money to easily get away with their tricky ways. They deceived their investors so they could keep investing their money in the company.

The story of Enron is truly remarkable. As a company it merely controlled the electricity, natural gas and communications sectors of the world. It reported (key word, reported) revenues over one hundred billion US dollars and was presented America’s Most Innovative Company by Fortune magazine for six sequential years. But, with power comes greed and Enron from its inception employed people who set their eyes upon money, prestige, power or a combination of the three. The gluttony took over sectors which the company could not operate proficiently nor successfully.

It was 13 years ago that the announcement of bankruptcy by Enron Corporation, an American energy, commodities and service firm at the time, would unravel a scandal resulting in what is regarded as the most multifaceted white-collar crime FBI investigation conducted in history. High-ranking officials at the Houston-based company swindled investors and managed to further their own wealth through intricate, shifty accounting practices such as listing assets above their true value to increase cash inflows and earnings statements. This had the effect of making the company and its shares look more enticing than they really were to potential investors. Upon their declaration of negative net worth in December 2001, shareholders filed a $40 billion lawsuit against the company, citing a drop of shares from around $90 per share to around $1 per share within only a few months. In light of these events, officials at the Securities and Exchange Commission (SCE) were prompted to initiate further investigation to figure out how such a drastic loss occurred.

As Bethany McLean and Peter Elkind portray in The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron, there was a chain-reaction of events and a hole that dug deeper with time in the life-span of, at one time the world's 7th largest corporation, Enron. The events were formulated by an equation with many factors: arbitrary accounting practices, Wall Street's evolving nature and Enron's lack of successful business plans combined with, what Jeff Skilling, CEO of Enron, believed was the most natural of human characteristics, greed. This formula resulted in fraud, deceit, and ultimately the rise and fall of Enron.

Enron started as a sound company that had a promising future in the oil and energy business. The companies CEO and CFO were charged on 35 different accounts of fraud, conspiracy, and insider trading that cleared most of its employee’s retirement pensions and billions of dollars for others (Unknown, 2016). It is impossible to account for every transaction that a company will produce, but the revamping of government

Enron could become an “energy broker” in lieu of company delivering energy with the deregulation of electrical power in 1988. “Deregulation allowed Enron to be creative – for the first time, a company that had been required to “operate within the lines” could innovate and test limits.” (Sims and Brinkmann 2003) Enron went from a company with humble beginnings that has faced difficult years to an organization “where a handful of highly paid executives were able to pocket millions…” (Sims and Brinkmann 2003) With deregulation and the use of mark-to-market accounting Enron was able to legally make millions while being unethical.

Many are probably familiar with what has become one of America’s horror stories. It is a story about the American dream and promise gone amuck. The conclusion of the story is one that has shaped the way businesses operate ever since. The documentary Enron: The Smartest Guys in the Room (Gibney, 2005) examines the ethical blunders of the natural gas/energy company Enron. Alex Gibney (2005), director and producer for the documentary, focuses on the role of three men who were credited as being key players in the downfall of the company. The three men were Chief Executive Officer (CEO) Jeff Skilling, Founder and Chairman Ken Lay, and Chief Financial Officer (CFO) Andy Fastow. Gibney (2005) proceeds to outline the gradually rise of Enron, the

Corporate malfeasance has earned a place among the defining themes of the last decade and a half, helping to give birth to the global recession and the Occupy Wall Street movement. Enron, a Houston based commodities, energy, and service corporation, created arguably one of the worst scandals of the past two decades. Due to reporting tactics implemented by Chief Executive Officer Ken Law and Chief Executive Officer Jeff Skilling, which hid huge debts from the company’s balance sheet, the company filed for bankruptcy, shareholders lost $74 billion, thousands of employees and investors lost their retirement accounts, and many employees lost their jobs. Before the accounting scandal became public in 2001 due to whistleblower and Vice President

Enron executives and accountants cooked the books and lied about the financial state of the company. They manipulated the earnings and booked revenue that never came in. This was encouraged by Ken Lay as long as the company was making money. Once word got out that they were disclosing this information, their stock plummeted from $90 to $0.26 causing the corporation to file for bankruptcy.

Numerous factors impacting Enron lead to perceived solutions exacerbating the issues and escalating the magnitude of fraud perpetuated. As time progressed Enron faced increasing competition while simultaneously enduring the effects of the beginning of economic recession. The above issue increased the pressure on executives to continue posting performance numbers despite the reality of outside

Enron fires 20,000 employees and billions of investors’ money is gone almost overnight. Enron, an American energy, commodities and services company based out of Houston, Texas files for chapter 11 bankruptcy in 2001. Founded in 1985, Enron merged with Houston’s Natural Gas and InterNorth, which all were relatively regional companies in the United States (Forbes, 2013). They purchased large quantities of natural gas at a discounted rate then distributed it though its own pipeline system to wholesale customers like power companies (Forbes, 2013). Because of their witty business decisions, Enron helped transform the natural gas market and all the while, capturing huge profits for themselves. Over time, Enron had inflated its earnings by hiding debts and losses in subsidiary partnerships like energy trading, power generation, water, and retail electricity.

As documented in a promotional video for Enron, Kenneth Lay states: “Enron is a company that deals with everyone with absolute integrity. We play by all the rules. . . We want people to leave a transaction with Enron thinking they have been dealt with in the highest possible way, as far as integrity and truthfulness and really doing our business right.” (Enron Vision and Values, 1998, 3:32) Whereas this message was intended to affirm corporate mindset, Lay’s business leadership and conflict resolution promoted the contrary. In 1985, Kenneth Lay founded Enron Corporation to satisfy his personal ambition and insight in the deregulation of energy markets. As many entrepreneurs do, Lay placed a focus on the success and future of his business on the financial performance and growth rate. Although short term success can be gained by focusing solely on the bottom line, long term success can only occur by first meeting the requirements of the law and maintaining integrity through ethical decision making. As you will see, Lay’s leadership focus on the priority of enhancing the bottom line actually trumped his ability to promote ethical and legal decision making for his organization. This conflict was the root of the problem that promoted individuals in the organization to make unethical and unlawful decisions on a business level as well as personal level.

Enron Corporation was an energy company founded in Omaha, Nebraska. The corporation chose Houston, Texas to home its headquarters and staffed about 20,000 people. It was one of the largest natural gas and electricity providers in the United States, and even the world. In the 1990’s, Enron was widely considered a highly innovative, financially booming company, with shares trading at about $90 at their highest points. Little did the public know, the success of the company was a gigantic lie, and possibly the largest example of white-collar crime in the history of business.

The story of Enron begins in 1985, with the merger of two pipeline companies, orchestrated by a man named Kenneth L. Lay (1). In its 15 years of existence, Enron expanded its operations to provide products and services in the areas of electricity, natural gas as well as communications (9). Through its diversification, Enron would become known as a corporate America darling (9) and Fortune Magazine’s most innovative company for 5 years in a row (10). They reported extraordinary profits in a short amount of time. For example, in 1998 Enron shares were valued at a little over $20, while in mid-2000, those same shares were valued at just over $90 (10), the all-time high during the company’s existence (9).

The case of Enron Corporation and Andersen, LLP can be noted as one of the most infamous fraud scandals in US history. Investors lost millions of dollars and ruined the public’s trust. Enron was once the seventh largest public company in the United States and Andersen LLP was the world’s largest and most respected business organizations. Enron’s stock prices soared to approximately $100 to less than $10 in 2001. How did these two big giants fall into oblivion and what could have been done to avoid the disaster of these companies?