Enron Case Study

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.

Kenneth Lay, (former Enron Chairman and CEO) and Enron poured millions of dollars into both political parties, cultivating access and using the entrée to lobby Congress, the White House and regulatory agencies for action that critical to the energy company’s spectacular growth.

In 1987, the misappropriation of money by two traders of Enron Oil brought to light the Valhalla scandal. These traders created offshore accounts and phony books, thus betting on the price of oil for Enron on both sides. Despite the executive board’s attempt to bring this case to Lay’s attention, no action was taken against these traders. On the contrary, they were encouraged to keep making money. The traders bet all of Enron’s money

The focus of the corporation soon changed direction once it was realized that investing in selling intangible assets on the market could provide easier and higher revenue returns. This type of trading on the open stock market, with little regulations is what allowed the infamous criminal acts to take place and led to one of the world’s worst bankruptcy cases in United States history. An investigation finally occurred when investors found suspicious stock prices increasing exponentially and a whistleblower raised concern that finally revealed the fraudulent operations of Enron’s top executives conspiring with multiple businesses.

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.

The Enron corporation was formed in 1985 by the merging of two natural gas companies, Houston Natural Gas, and InterNorth; In the following year Kenneth Lay was appointed Chairman and CEO.2 Enron began its escapade of fraud and corruption in April of 1987 when it was discovered by Enron executives that Louis Borget and Thomas Mastroeni, traders in their Valhalla, New York office, known as Enron Oil, had been misappropriating funds; traders were “gambling beyond their limits, destroying trading reports, keeping two sets of books and manipulating accounting” (PBS, 2015) to make it appear as if the company’s profits were legitimate. The shocking yet not surprising response from CEO Kenneth Lay was not to fire the two

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.

It was believed by investors and creditors that Enron was the ideal place to invest their money due to the effective performance shown in their financial reports. However, that picture was completely fade as Skilling and his staff of executives were adopting creative accounting strategies for showing that Enron is much powerful that it really is. For this purpose, Skilling was greatly investing and competing with big financial corporations in the labor market by attracting MBA graduates to Enron and this could only be done by providing luxuries and compensation benefits. In particular, the CFO of Enron, Andrew Fastow, who played a big role on hiding the true financial position of Enron from investors, collected more than $40 million in the year before Enron’s collapse. According to Los Angeles times, Enron paid millions to its 140 senior executives, an average of $5.3 million each.

Enron Corporation was formed in 1985 when Houston Natural Gas merged with InterNorth to create an electricity and natural gas company that would eventually become Enron. After Houston Natural Gas merged with InterNorth, the former chairman of Houston Natural Gas, Kenneth Lay, was appointed as CEO of Enron. The Chief Executive Officer of Enron, Kenneth Lay’s ultimate goal was to make Enron “the world’s greatest company,” but unfortunately he failed to achieve his goal. During the 1990s, Enron was considered “America’s most innovative company,” and by December 2, 2001 Enron was the 7th largest U.S. Company in 2001 and became the largest corporate bankruptcy in U.S. history. Now it is considered to be one of the largest fraud scandals in the history of the United States.

Enron took advantage of this and ventured into the power business, this resulted it being the bread and butter for the company, both as an energy company and a Wall Street type trading firm. Lay then employed Jeffery Skilling to further develop and redefine Enron’s business strategy. He proposed a new business model which was buying gas from suppliers and selling it to consumers. (Peter & Ross 2002) this resulted in profits due to guaranteed supply and sales price and eventually a fixed commission involved in the transactions (Thomas, 2002)

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.

Enron managed the business did not obey the law. Enron made some criminal cases in finance and business to get the high profit and hide the debt. Some of the executives of Enron deceived the investors to buy the stock of Enron because the stock price will rise. Enron also made fake financial reports to cheat the shareholders, analysts and customers. Enron is dishonest to do the business. Kenneth Lay failed to do his duty as the chairman of Enron to manage his subordinates to let them destroyed the operation of

In 1990, Enron started business to sell electricity at market prices. To sell electricity to people Enron gains huge profit. Then Enron decided to sell gas also. That time

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).

Enron's entire scandal was based on a foundation of lies characterized by the most brazen and most unethical accounting and business practices that will forever have a place in the hall of scandals that have shamed American history. To the outside, Enron looked like a well run, innovative company. This was largely a result of self-created businesses or ventures that were made "off the balance sheet." These side businesses would sell stock, reporting profits, but not reporting losses. "Treating these businesses "off the balance sheet" meant that Enron pretended that these businesses were autonomous, separate firms. But, if the new business made money, Enron would report it as income. If the new business lost money or borrowed money, the losses and debt were not reported by Enron" (mgmtguru.com). As the Management Guru website explains, these tactics were alls designed to make Enron look like a more profitable company and to give it a higher stock price.