Ethics Of Enron : A Corporate Disaster

By August 2001, the financial statement fraud became obvious and by October Enron management announced that the company was worth $1.2 billion less than what was previously recorded. The difference was due to inflated estimates of income and failure to include all the debt in the financial reports that were sent out to investors. The Securities and Exchange Commission (SEC) started investigating Enron. By November 2001 Enron admitted to overstating its past four year earnings by $586 million and admitted to owing over $6 billion in debt. After this admission the price of Enron stock dropped incredibly. Investors and creditors requested immediate repayments from Enron. However, since Enron could not come up with any cash to repay its creditors, it filed for bankruptcy in December of 2001. Thousands of Enron employees and investors lost their savings, their children’s college funds and pension when Enron collapsed due to financial statement misrepresentation by its management. A lawsuit on behalf of a group of Enron’s shareholders was filed against Enron’s executives and directors whereby 29 of them were accused of insider trading and misleading the public.

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.

Kenneth Lay, former Chairman and CEO, and Jeff Skilling who was also a CEO and COO of Enron, had the major part in Enron when it collapsed and went bankrupt. Because of deregulations Ken Lay enter Enron in 1985 through a merger a vast network of natural gas and pipeline. Later, Enron grew into an energy trading company which was worth $68 billion in 2000. Lays family was poor, which made him ambitious to earn wealth regardless of the path he takes, hence, unethical professionalism at Enron. Enron took advantage of his decision to let gas prices float on the market. Rich Kinde found out about Enron’s oil scandal in 1987 by the misappropriation of

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.

On December of 2001, the nation’s seventh largest corporation valued at almost $70 billion dollars filed for bankruptcy. Illegal and fraudulent accounting procedures would led to the demise of the company. Over 20,000 people lost their jobs, and about $2 billion in pensions and retirement funds disappeared. Despite all this, Kenneth Lay, Jeffrey Skilling and Anthony Fastow profited greatly from Enron. These events resulted in the implementation of new legislation on the accuracy of financial reporting for public companies. The fall of Enron became known as the largest corporate bankruptcy in the United States at the time.

In 2001, Enron, the largest energy company in the U.S., collapsed after a vast creative-accounting scandal. Enron practiced a type of accounting called mark-to-market practice which it used to hide losses. Mark-to-market accounting it not illegal on its own but it was used improperly by Enron. The CFO and CEO of Enron were able to write off any losses to an off-the-book balance sheet and made the company appear financially healthy (Seabury, 2008). Investors lost $74 billion while thousands of employees lost their jobs and

Enron was a publicly traded energy company formed in 1985 by Kenneth Lay when Internorth acquired Houston Natural Gas; the company, based in Houston Texas, Enron (originally entitled “EnterOn”, but was later subjected to abbreviation), worked specifically in power, natural gas, and paper and even ventured into various non-energy-based fields as they expanded, including: Internet bandwidth, risk management, and weather derivatives. Several years after the founding of the company, Enron hired a man by the name of Jeffrey Skilling, a former chemical and energy consultant, who, upon promotion, created a team of high-level administrative employees who, by using special purpose entities, lackluster reporting of finances, and unethical accounting practices, hid billions of dollars of debt from unsuccessful arrangements and ventures from stock holders and the U.S. Securities and Exchange Commission. Enron executives achieved this scheme by using a controversial accounting method entitled “mark-to-market accounting,” which in essence, assigns value to financial commodities based on their projected market values; mark-to-market accounting is the opposite of cost-based accounting which records the price of a commodity at the purchase price. As a result of this new method, Enron’s worth skyrocketed to over $70 billion at one time, only to collapse miserably several years later—ultimately costing thousands upon thousands of people their jobs, pensions, and retirements. Enron’s employees

In October of 2001, Enron announced a third-quarter loss of $618 million. The SEC and the U.S. Department of Justice both launched investigations into the sudden fall of the company and found that Enron had overstated their earnings by an estimated $586 million since 1997. Top executives in the company sold their majority shares days before the company’s collapse leaving lower level employees with worthless stocks in their pensions causing them to lose the majority of their life savings (CNN). As of today, charges have been brought against at least sixteen employees and executives in connection with Enron on counts of wire fraud, securities fraud, insider trading and money laundering among others. Flashback to June 17, 1972, and the

The first important factor in the Enron case advanced interests on share price. The second factor how the company was liberalized over the past 20 years along with the reduction of legal responsibility of investment banks and accounting firms. The third factor, which is the most important, was the immediate alteration of pay packages given to investment bankers, executives, and accountants (Barreveld, 2002). In this case, the factors mentioned above was a result of the culture implemented by the executive leaders whom were influenced by unethical behaviors they engaged in. One could agree that Enron was definitely reaping the bad seeds that the

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.

In 1985 Houston Natural Gas and InterNorth merged to become Enron which started specializing in natural gas production. It moved from a $10 billion company in 1990 to a $101 billion in ten years. Kenneth Lay is the founder, Chairman and CEO who was challenged by the board of directors to diversify the company portfolio, grow faster, increase investor’s confidence, attract more investments and increase their credit rating. This is a great vision that has to come through legitimate means and sustainable growth. Unfortunately Enron managements’ greediness justified to themselves a lot of unethical actions to achieve their self-interest. They took advantage of loop holes in deregulated markets, influenced

The key factors or critical issues presented in the case are the downfalls of Enron, which originated out of Houston Texas by Han, Henry(n.d.). He was one of the highest paid Chief Executive Officers in 1999. This organization was aware of the first gas pipeline company that implied known worldwide. The company covers the world’s leading electricity innovations, personnel management, and risk management processes. Also, further studies the company 's dramatic failed complex issues that the forced company to file bankruptcy. These items consisted of its trading strategies became under attack or questionable by others within the business sector. Their methods of financial reporting problems (showed the company as attaining, loses, however, the owners and other factors of the organization showed an excessive amount of profit and growth), and governance breakdowns inside and outside the organization. The case offers students a prospect to explore the rise and fall of Enron and to understand the systemic issues in management that affected its board of directors, the audit committee, the external auditors, and financial analysts. Therefore, this was the beginning of the end at Enron: Jeff Skilling publicly announced he was quitting as Chief Financial Officer. "For many of those working within the organization, this is when the downfall and it became (Skilling Takes a Hike (2001) evident. The CEO and CFO or Enron 's regarded as the villain my personal perception are that they

As competition increased and the economy started to plunge in the early 2000s, Enron struggled to maintain their profit margins. Executives determined that in order to keep their debt ratio low, they would need to transfer debt from their balance sheet. “Reducing hard assets while earning increasing paper profits served to increase Enron’s return on assets (ROA) and reduce its debt-to-total-assets ratio, making the company more attractive to credit rating agencies and investors” (Thomas, 2002). Executives developed Structured Financing and Special Purpose Entities (SPE), which they used to transfer the majority of Enron’s debt to the SPEs. Enron also failed to appropriately disclose information regarding the related party transactions in the notes to the financial statements.Andersen performed audit work for Enron and rendered an unqualified opinion of their financial statements while this activity occurred. The seriousness and amount of misstatement has led some to believe that Andersen must have known what was going on inside Enron, but decided to overlook it. Assets and equities were overstated by over $1.2 billion, which can clearly be considered a material amount (Cunningham & Harris, 2006). These are a few of several practices that spiraled out of control in an effort to meet forecasted quarterly earnings. As competition grew against the energy giant and their

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.