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ENRON SCANDAL

Enron was formed in 1985 from merger of two companies; Houston Gas and InterNorth Inc. by Kenneth Lay. It grew to be among the highly innovative companies throughout 1990s. Its unique business strategy made it known. Initially, the company’s objective was to sell electricity and gas but by 1990s it had ventured into other businesses such as pulp and paper companies and communications . Its success was indicated by the rise in annual revenues; between 1995 and 2000 Enron recorded a revenue rise of $91 billion dollars. However in 2001 as notes accounting fraud was revealed in its financial reports. It was established that the company had indeed experienced a loss of more that $500 million dollars (Li, 2010) for the previous five years; contrary to its audit reports. The company fell bankrupt later in 2001. This essay examines the scandal, its effects and critically gives an ethical analysis of the situation.

Enron scandal is the worst to have ever happened in the US business industry. Enron’s bankruptcy was a result of accounting fraud which was substantially institutionalized and creatively crafted within the management. The management focused on converting all the strategies into success to maintain their heavy compensations-through accounting manipulation; a greed financial officer with underground agreements to enrich himself; a collaborative law and auditing firms in Elkins and Arthur Andersen respectively; corrupt investment bankers- they structured all the financial deals in favor of Enron; deceptive financial analysts who would rate Enron high for attraction of investment, regardless of the reality of the economy; and a strong political system behind the company.

The introduction of US deregulation policy in gas exposed gas producers to trade risks and banks became reluctant to provide loans for gas production. In 1989, Enron

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