Enron Scandal

What did Enron buy and sell? Electricity? Natural gas? The corporation created a market in energy, gambled in it and manipulated it. It moved on into other futures markets, even seriously considering "trading weather." At one point, we learn, its gambling traders lost the entire company in bad trades, and covered their losses by hiding the news and producing phony profit reports that drove the share price even higher. Enron was a corporation devoted to maintaining a high share price at any cost. How Wall Street and the bankers wanted to investigate if they are the first to get profit from all that.

Jumping right into the summary then. Enron was one of the most successful corporations in America during its prime. Marketing electricity and other commodities, as well as, providing financial and risk management services to other companies were the main types of business that Enron conducted. However, Enron’s successful appearance was found out to be a façade, when it came out that the corporation was making a plethora of unethical business moves. Once the corporation’s actions became public, Enron’s fall from grace quickly followed. (Johnson, 2003)

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.

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.

The fall of the colossal entity called Enron has forever changed the level of trust that the American public holds for large corporations. The wake of devastation caused by this and other recent corporate financial scandals has brought about a web of new reforms and regulations such as the Sarbanes-Oxley Act, which was signed into law on July 30th, 2002. We are forced to ask ourselves if it will happen again. This essay will examine the collapse of Enron and detail the main causes behind this embarrassing stain of American history.

The Enron corporation was an amalgamation of Houston Natural Gas and Internorth two of the largest natural gas suppliers in the United States. It was built upon the company 's ability to convince congress to deregulate the sale of natural gas through supplying electrical pieces at market prices. This allowed Enron to begin to sell power at higher prices therefore driving their revenue up. The company also began to spread its grasp out of natural gas and into a myriad of other power sources across the globe including water, pulp and paper plants. This was all done through a massive series of loopholes and massive amounts of money being funneled into Congress to lobby against regulations of such activities.

Enron’s collapse had many causes. One of the causes was all the debt that Enron was having due to all the failed direct foreign investments (DFI) they made. At Enron, people tried to trade everything they could. They tried to trade weather derivatives, broadband internet access, water, news, etc.

When Jeffrey Skilling was hired, the company started using mark-to-market accounting which allowed the company to record potential profits and giving the appearance that the company is extremely profitable even when it isn’t. Enron continuously created deals and new projects to increase potential profits for the company and never actually making any money in the process. Skilling’s best idea was to turn Enron into a stock market for natural gas. Enron began to move towards trade of energy rather

Enron began by merger of two Houston pipeline companies in 1985, although as a new company Enron faced a lot of financial difficulties in the starting years, though the company was able to survive these financial problems (Enron Ethics, 2010). In 1988 the deregulation of the electrical power markets came into action and flipped the company from up to down, after deregulation company business updated from delivering energy to becoming an energy broker and soon after this Enron once a company struggling

Enron began in July 1985, and its headquarters were in Houston. It started from a small regional energy supplier. However, Enron was dissatisfied with the traditional way of doing business, so it began to look toward energy security. Enron 's management believed that the creation of derivative securities market for any commodity was possible, so Enron developed energy commodity futures, options, and other financial derivatives. Energy deregulation brought this company great commercial opportunities. Enron was considered to be a model of the innovative company. Because of the deregulation, it became a trader of everything from oil and gas futures to weather derivatives. They took a new strategy by setting up a “gas bank”. Later, the generation of electricity forced Enron to explore new industrial customers for its gas. From 1990 to 2000, Enron largely expanded their oversea business. In 1994, Enron began buying and selling electricity. After Skilling became the COO and Fastow became the CFO of the company, Enron continued to implement dual strategies of expanding its trading activities and synchronously investing a lot of money in physical assets. Enron’s shares, in the late 1990s, had significantly outperformed the market even when the market fell.

Enron was a major commodities and energy company that was headquartered in Houston, Texas. It was a company once very respected and, in the eyes of the public, very profitable. It placed in the top 20 on the Fortune Global 500 in 2000, and its stock was considered at a time to be blue chip, guaranteed to make stable gains over time. Enron formed as a merger between two natural gas companies, Houston Natural Gas and InterNorth, officially becoming the company known as Enron in 1979, after newly appointed CEO Kenneth Lay moved the company’s headquarters and began a search for a name to replace the current operating name of HNG/InterNorth. Enron became one of the world’s prominent electricity and natural gas companies before its bankruptcy in 2001, employing over 20,000 employees. Its operations were largely focussed within the United States, but they had some international outreach. Upon officially becoming Enron, the company leadership slowly transitioned the focus of the company from energy production to trading and supply: making its profits off of margins of energy commodities it traded. It was named ‘America’s Most Innovative Company’ by Fortune for six consecutive years (1996-2001), largely because of the success of Enron Online, an electronic site that allowed users to trade energy commodities with the company. However, failures of Enron in the retail energy market, water market, and large investments into high-speed telecom that

Special purpose entities are companies that are created to help the main company manage risk. This type of entity should be created by outside investors, who are independent of the main organization. Unfortunately, Enron did not follow accounting rules as it related to SPE’s and made multiple deals that were not considered arm’s length transactions, including some where employees of Enron were managers of the SPE’s. Some of the deals would not be favorable to the SPE’s, however, they resulted in dramatic increases to the

All of the prior represents the business side of the downfall of Enron. That being said, businesses fail all of the time. The reason why Enron Corporation and its executives will always live in infamy is not because the company failed, but how and why the company failed. How, exactly, does a company worth about $70 million collapse in less than a month? It became clear that the company not only had financial problems, but ethical problems that started from the top of the company and trickled down. A key player in these problems was Jeffrey Skilling. He was a man brought to the company by Ken Lay himself. Skilling brought his own accounting concept to the company. It was called mark-to-market accounting. This concept allowed Enron to record potential profits the day a deal was signed. This meant that the company could report whatever they “thought” profits from the deal were going to be and count the number towards actual profits, even if no money actually came in. Mark-to-market accounting granted Enron the power to report major profits to the public, even if they were little or even negative. It became a major way

In late 1970 's to early 1980 's, the competition in U.S. gas market lead the market price of gas become unstable. There are three major types of economic units in the gas market, they are suppliers, customers, pipeline companies. Suppliers and customers enter into a long term contracts with pipeline company because of the uncertainty in the price of gas. Therefore, U.S. government trying to control the price of gas by strictly regulation and caused shortage in gas market. The situation became worse in middle of 1980 's. U.S. government started to deregulate the gas industry and the demand for gas declined. Pipeline companies face many financial problems with no customers. The deregulation create a short term volatility in gas price and making gas users more challenging to do planning and pricing. At that time, Enron provided long term fixed contracts to their customer and help the customers to

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).