Enron Scandal Essay example

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The Enron Scandal
One of the most popular business bankruptcies and collapses known to date is that of the Enron Corporation. Enron, once known as "America's Most Innovative Company" by Fortune Magazine six straight years from 1996 to 2001. Enron seemed to be doing very well until the summer of 2001 generating a lot of cash and new businesses, but in October of 2001 Enron was forced to disclose that their accounting practices had been very creative, and failed to follow generally accepted accounting principles. Profits that had been soaring sky high were wiped away and replaced with enormous losses and charges that were never recorded properly. Unfortunately, Enron executives who were responsible for the shady accounting practices
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Without these government oversights Enron could do as they pleased and is the reason why they became a 100-billion dollar business (Lindstrom, 2004).
Enron began business in 1986 as a small pipeline company out of Houston. At that time Enron's goal was to create the first national gas pipeline. Unfortunately for Enron, the gas industry was regulated by the government, meaning they were told how much to charge for power, and profits were set a maximum. Through American-style bribery, also known as political donations, Enron was able to deregulate the gas market (Anonymous, 2004). With the help of Chief Executive Officer, Kenneth Lay, Enron was able to successfully enter into the energy market. Again, through political donations by Enron to political legislation they were able to deregulate the energy market, bringing together buyers and sellers of energy, and dominate trade contracts made possible through the use of financial instruments called derivatives (Lindstrom, 2004).
"A derivative is an instrument whose value is "derived" from the underlying value of something else, such as a stock, a bond, or in the case of Enron's derivatives, a unit of electricity. Derivatives are useful because they enable an investor to hedge against a decline in value. For example, Enron could enter a contract with a purchaser of electricity, such as a utility, guaranteeing that the purchaser would pay a certain price for a certain amount of…

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