Essay enron's case

956 Words Jun 19th, 2014 4 Pages
German Jordanian University
Business Ethics (316)
Lecturer: Mr. Montaser Tawalbeh

Case Study

Enron: Were They the Crookedest Guys in the Room?

Case Summary

Enron has become the classic case on business ethics. Enron formed after the merger of Internorth Incorporated and Houston Natural Gas in 1985. On January 1, 1987, as part of the merger agreement, Ken Lay became the new CEO. In 1990, Ken Lay hired Jeffrey Skilling from McKinsey and Company as the Head of Enron Finance. By 1995, Enron had become the largest independent natural gas company in the United States. In 1997, Skilling became president and Chief Operating Officer at Enron. Ken Lay’s goal was for Enron to have the same brand recognition as AT&T.

Enron’s long
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Enron was in its strongest financial shape in history. After Skilling resigned, Ken Lay asked employees to write him if they had any concerns. Sherron Watkins sent him a letter with the question “Was Enron too risky to work for?” Ms. Watkins worked in the Accounting Department and had a number of concerns about CFO Andrew Fastow’s partnerships that related to off balance sheet transactions. Fastow used Special Purpose Entities (SPEs) to move assets and liabilities off the balance sheet. As a result, Limited Liability Partnerships were formed by Fastow to transfer debt and risk “off line”. The net result was that Enron was able to produce lower debt levels and hide losses in their financial statements. In addition, the deals were financed using Enron stock.

On October 16, 2001, Enron reported a $618 million third-quarter loss and disclosed a $1.2 billion reduction in the value of the shareholders' stake in the company, partly related to the partnerships run by Fastow. Andy Fastow resigned as CFO on October 24, 2001 after the SEC announced they were going to investigate the financial reporting at Enron. By November 2001, it was disclosed that Enron had potentially hidden billions of dollars in debt and that Enron’s financial statements had not been accurate for years. Ken Lay’s response to the off balance sheet transactions from Fastow was that they were over Lay’s head so that

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