...Enron Case Study Seven years after the fact, the story of the meteoric rise and subsequent fall of the Enron Corporation continues to capture the imagination of the general public. What really happened with Enron? Outside of those associated with the corporate world, either through business or education, relatively few people seem to have a complete sense of the myriad people, places, and events making up the sixteen years of Enron’s existence as an American energy company. Some argue Enron’s record-breaking bankruptcy and eventual demise was the result of a lack of ethical corporate behavior attributed, more generally, to capitalism’s inability to check the unmitigated growth of corporate greed. Others believe Enron’s collapse can be traced back to questionable accounting practices such as mark-to-market accounting and the utilization of Special Purpose Entities (SPE’s) to hide financial debt. In other instances, people point toward Enron’s mismanagement of risk and overextension of capital resources, coupled with the stark philosophical differences in management that existed between company leaders, as the primary reasons why the company went bankrupt. Yet, despite these various analyses of why things went wrong, the story of Enron’s rise and fall continues to mystify the general public as well as generate continued interest in what actually happened. The broad purpose of this paper is to investigate the Enron scandal from a variety perspectives...
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...Enron Ponzi Scheme Enron Ponzi Scheme The Enron scandal was a corporate scandal that involved the American energy giant Enron Company based in Houston, Texas and the auditing and accountancy-consulting firm Arthur Andersen. The scandal was uncovered in October 2001. Enron Corporation was undoubtedly a giant corporation and in fact, some individuals suggest that it was one of the largest energy companies’ world over. It comprised of a multibillion corporation that employed several individuals and had various affiliations right to the White House. Enron majorly depended on external sources of credit to finance its operations (Loren, 2003). In 2001, the corporation collapsed leaving in its wake financial chaos and financially ruined lives and families. It emerged that the Enron Corporation’s remarkable financial condition thrived on institutionalized, systemic and intricately planned accounting fraud that was later to be referred to as the “Enron scandal”. From that instance, Enron has continued to become a very popular symbol and example of willfully orchestrated corruption. The collapse of Enron Corporation destroyed lives and shattered reputations, questions have been raised on how the fraudulent transactions occurred and who was involved. In this paper, all these questions will be investigated explicitly. The paper will also focus on the various ways in which the Enron debacle created an awareness of corporate ethics within the United States (Peter & Ross, 2002). Enron...
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...Enron Corporation: THE RISE AND FALL; ACCOUNTING SCANDAL Submitted To: Professor Bill Bristol Submitted By: Kenneth Rhodes, Jr. Metropolitan College of New York (MCNY) TABLE OF CONTENTS I. ABSTRACT...............................................................................................................................2 II. purpose and service....................................................................................................3 III. HistorY............................................................................................................................3-5 IV. The Downfall..............................................................................................................5-6 V. Accounting Scandal................................................................................................6-7 VI. Accounting Practices...........................................................................................7-8 VII. Files’ for Bankruptcy.............................................................................................9 VIII. Auditing.....................................................................................................................9-10 IX. Conclusion: THE AFTERMATH..........................................................................10-11 XI. BIBLIOGRAPHY................................................................................................................12 I. ABSTRACT ...
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...Enron: Ethics and Auditing Gone Wrong Enron was once a promising company headed toward greatness but all of this was just for show and thus not long enough; it was discovered that one of the world’s most admired companies was just faking all their records taking down a lot of investors of their company to bankruptcy as well as their employees. The Enron scandal has paved the way not only to America’s consciousness on risks involved on how corporations work, but how stakeholders can be victimized by fraud if corporations are not properly audited and regulated. It also opened consciousness of the whole world as well. In this paper, we will take a look on how proper implementation of business ethics and auditing can help avoid tragedies like Enron. 1. Enron’s rise to Top 2. Fall of Enron 3. Reflection Enron’s rise to Top Kenneth Lay founded Enron in 1985 and after two years, the company becomes involved in a scandal after two traders suspiciously got consistent profits on betting on the oil markets. The auditors found out about their schemes but Lay still encouraged them to “keep making us millions” (1). When Enron’s reserves were found out to be gambled away by the traders, they were fired and this almost brought down the company. Lay, after finding this out, denies any knowledge of wrong doings. Due to this, Lay hires a new CEO Jeffrey Skilling who agreed to join Enron on the condition that the company uses the market to market accounting method which allows Enron to record...
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...Technical Institute AC1320 02-22-2015 One of the 10 Worst Corporate Scandals of All Times From the 1990's until the fall of 2001, Enron was famous throughout the business world and was known as an innovator, technology powerhouse, and a corporation with no fear. The sudden fall of Enron in the end of 2001 shattered not just the business world but also the lives of their employees and the people who believed that their soar to greatness was genuine. Their collapse was followed by a series of revelations on how they manipulated their success. Introduction Enron shocked the world from being “America’s most innovative company” to America's biggest corporate bankruptcy at its time. At its peak, Enron was America's seventh largest corporation. Enron gave the illusion that it was a steady company with good revenue but that was not the case, a large part of Enron’s profits were made of paper. This was made possible by masterfully designed accounting and morally questionable acts by traders and executives. Deep debt and surfacing information about hiding losses gave the company big problems and in the late 2001 Enron declared bankruptcy under Chapter 11 of the United States Bankruptcy Code. Many factors affected Enron's surge to the top and its sudden fall. In this report we will discuss and present what we think were the main reasons of their rise and fall. Enron’s surge to the top From energy to trading Kenneth Lay was one of the key spokesmen when it came to deregulation of the...
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...THE COLLAPSE OF ENRON & THE INTRODUCTION OF THE SARBANES OXLEY ACT BY TREVOR GARRETT 02/25/2011 Abstract Enron Corporation was one of the largest energy trading, natural gas and Utilities Company in the world that was based in Huston, Texas. The downfall of Enron is one of the most infamous and shocking events in the financial world, and its reverberations were felt around the globe. Prior to its collapse in 2001, Enron was one of the leading companies in the U.S and considered among top 10 admired corporations and most desired places to work at. Its revenues made up US $139 to $184 billion, assets equaled $62 to $82 billion, and the number of employees reached more than 30,000 people in 20 countries around the world. While on the surface it seemed like the perfect Corporation, internally it had highly decentralized financial control and decision-making structure, which made it practically impossible to get coherent and clear view on corporations' activities and operations. Enron manipulated its books and assets to help it report steady profit growth to Stock Exchanges and Credit-rating agencies. Investors generally are not willing to pay as much for the stock of a volatile trading operation, and this gave rise to manipulations. This paper briefly describes the legal and ethical breaches by Enron, the key factors and events that led to its collapse and the passing of the Sarbanes Oxley Act as a consequence of such a catastrophe. The paper also discusses the key components...
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...Our case study discusses the rise and fall of one of the largest telecommunications corporations in the world, Nortel Networks Corporation. Nortel was one of the many early 21st century telecommunications companies that failed due to upper echelon management, a dysfunctional board of directors, inflated costs and earnings, and a smoke and mirrors illusion of stability. There were many avenues that could have been taken that would have prevented the demise and fall of the organization, but those roads were not traveled. Many argue that government intervention could have prevented the backlash and whitewater effect of Nortel’s bankruptcy, but due to corporate ties within the government and the Securities and Exchange Commission the many CEO’s continued to elude the government auditors and the stakeholders. From an ethical perspective, there were several factors that contributed to the rise and fall of Nortel. The initial CEO and founder of Nortel, John Roth, demonstrated altruistic behavior because he did want the company to profit, the investors to profit, as well as their primary stackholders. Nortel’s fall from grace came swiftly and on many fronts. Its market capitalization climbed to an all-time high of $398 billion in September 2000. Two years later, in August 2002, the amount had plunged to just $5 billion (Collins, 2011, pg. 536). In 2000, Nortel was Canada’s largest producing company and employed 93,000 people worldwide. Their research and development team was renowned...
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...ASSIGNMENT: LOCAL LAWSUIT Business Law April 23, 2012 LOCAL LAWSUIT Enron was a corporation founded in 1985, when a merger combined Houston Natural Gas and InterNorth (Thomas, 2002). Throughout the first years of Enron’s existence, they had many struggles. According to Salter (2005), the first five years had many “near death” experiences. Eventually Enron was able to prevail over their many “near death” experiences. In 1989, “Enron locked in its first fixed price contract to supply natural gas, to Louisiana aluminum producer” (Salter, 2005, p.2). They continued to promote and gain success by recruiting employees from MBA schools. Only the biggest and best were hired to maximize the success of Enron. Enron expanded to trading electricity in 1994. Since the breakthrough of trading electricity, Enron continued to grow a continued to become an incredibly successful corporation. However, due to unfortunate decisions both within and outside of the company Enron declared bankruptcy on December 2, 2001 (Salter, 2005). Workforce Enron was a company made up of the elite group of workers. Enron focused on hiring the “best and brightest traders” (Thomas, 2002, p.42) to maintain their status of being the top energy trading company. MBA schools were the sole focus of recruiting for Enron. However, there was a screening process that each recruit was required to go through. Enron screened for a sense of urgency, intelligence, a strong work ethic, and problem-solving ability...
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...ENRON: The Idiocy and the Irony Introduction Red flags were blinding as Enron learned about possible corruption with Enron Oil Trading in Valhalla, New York. After the merger between HNG and InterNorth, the Valhalla office, originally established by InterNorth seemed all but forgotten until quarterly and annual reports were due. Supervisors Tom Harding and Steve Sulentic were rarely on-site, preferring the comfort of offices in Houston. Louis Borget who established and operated the trading business was an autocratic manager, receiving excessive incentive payment for profitable performance. Between 1984 - 1986, Valhalla continued to report profits in the emerging oil trading industry. A call to Enron in Houston by Apple Bank would shatter the false sense of security regarding Valhalla. An ensuing investigation by Arthur Andersen, an accounting firm employed by Enron, failed to produce concrete evidence of misappropriation within Valhalla. Questionable practices were identified, but Enron failed to react appropriately to this information. CEO Lay was able to persuade key executives within Enron and the board of directors to keep running Valhalla offices, with minor changes in personnel. Mick Seidl, unhappy with Lay’s influence over the board, called Mike Muckelroy to investigate Valhalla. Muckelroy’s investigation would become the tipping point regarding Valhalla. With a secret set of books discovered, fraudulent trading entities identified and $1 billion...
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...Reading Summary: Enron and Arthur Andersen The article described the rise and fall of the Enron Company during the period of time that managed by several executives. The deregulation of public utility industries gives Enron chance to make profit by trading energy as commodity in the open market. Thus, Enron ranked the seventh largest of the Fortune 500 at the year of 2000. However, for the purpose of rise company shares and control current risk of company, Enron deals agreements with internal related companies, which is owned by Enron executives, in order to rise company value and increase stock price. These special purpose entities (SPEs) overvalued Enron’s share about 600million and finally drove company to bankruptcy. Three main aspects point out by author that indicates how Enron Company filed for bankruptcy. Firstly, rather than hedging its risk by entering into contract with independent third parties, Enron entering agreement with its own executives company to control risk level. Secondly, Enron’s Chief Financial Officer Andrew Fastow fully controls trading agreements between Enron and SPEs, which means he can make personal profits by cheat other investors. Thirdly, the accounting firm—Arthur Andersen, which have responsibility to providing allegedly unbiased and accurate financial reports to help investors decision making whether invest or not into a corporation. For the purpose of keep receiving huge amount of consulting and advising fees from Enron, Andersen auditors...
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...University ACC 557 Financial Accounting July 20, 2013 In recent years, there have been many ethical accounting breeches in large corporations that ended up costing investors and employees of the corporations a lot of money. Enron was a major player in many breeches, and ultimately was one of the key players for the SEC creating new guidelines and punishments for fraudulent behavior, the Sarbanes-Oxley Act. As of today, with the SOX act put in place for almost 11 years, there are still corporate breeches, Chesapeake Energy, Wal-Mart, Green Mountain Coffee, and Groupon are among the most recent (Rogers, 2012). I believe the SOX act helped prevent a lot of accounting illegalities and helped to protect the shareholders, but ultimately the act is not strong enough or covers enough to prevent it all. While more accountability is definitely held with the CFO, and CEO of corporations, as well as with outside accounting teams, the SEC is not going forward with investigations regarding independent CPAs or accounting firms (Benston & Hartgraves, 2002). Chesapeake Energy is a clear example; the CEO had taken out $1.1 billion in loans funded by Chesapeake in return for stake in the company (Driver & Grow, 2012; McKenna, 2012). The SEC has rules against taking out loans for stocks, but because it does not mention any areas related to stake in the company, it falls in a grey area that cannot be prevented by the SOX act or SEC (Driver & Grow, 2012). In section 402 of the SOX act, it...
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...InterNorth, Inc merged together to sell natural gas to most gas companies as well as businesses. This merge renamed the companies to Enron which was quickly grew as the largest natural gas company in the US. “Enron’s vision is to become the world’s leading energy company-creating innovative and efficient energy solutions for growing economies and better environment worldwide.” (www.thesmokinggun.com) Enron became a multibillion dollar company out of Omaha, Nebraska founded by Kenneth Lay, Andrew Fastow, and Jeffrey Skilling which relocated in Houston, Tx. In the late 90’s, the gas market changed from government regulations to competitions deciding on the price of energy. With the new change, Enron began selling its product to businesses as the intermediary instead of the primary supplier. Enron began trading contracts from suppliers and issued long term contracts to pipeline companies instead of buying and selling natural gas. The company began to see large increase in revenue and began investing in other businesses. This mass change within the company began the rise and fall of Enron. The rise and fall of the company was because of failure by unethical management decisions and business choice. Enron began borrowing money from to invest in new business projects to maintain its constant growth. To keep the earnings from the eyes of investors, Enron began to create partnership with other businesses that would allow their debts to remain off record which made the company look...
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...Enron: Case Study 1 The purpose of this paper is to formally address the Enron scandal that came out in late 2001. It will discuss a brief introduction to how Enron came to be such a large and powerful corporation and the decisions made which resulted in its ultimate downfall. While discussing these time periods, accounting issues such as the agency and horizon problems as well as agency costs and the manner in which they affected Enron will be dissected additionally. Lastly, an analysis of these issues and recommendations given in favor of preventing types of corruption like this will be listed out in detail. The company all starts with Kenneth Lay. Lay received a PhD in economics and was interested well ahead of the industry, in energy deregulation. He was promoted by George Bush Sr. to be named as Deregulations Ambassador at Large (Gibney, 2005). In 1990, Jeff Skilling joined Enron and turned the pipeline company essentially into an “energy bank”. This helped immensely for Enron in terms of establishing themselves as a very powerful corporation. “Enron was quickly transformed from a sleepy cash cow to a darling of Wall Street with a bounty of promising opportunities.” (Stewart, 2006). Enron’s misuse of mark to market accounting became step one of a few crucial mistakes that the company had made. “With a wave of accountants’ magic wands, Enron was authorized to record in a single year all the profit that would normally be booked over 10 to 20-year...
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...THE ENRON COLLAPSE The Androids Under Attack case was similar to the case of Enron Corporation. It was formed in 1985 from a merger of Houston Natural Gas and Internorth, Enron Corp. was the first nationwide natural gas pipeline network. Over time, the firm’s business focus shifted from the regulated transportation of natural gas to unregulated energy trading markets. The guiding principle seems to have been that there was more money to be made in buying and selling financial contracts linked to the value of energy assets that in actual ownership of physical assets. Until late 2001, nearly all observers including professional Wall Street analysts regarded this transformation as an outstanding success. Enron’s reported annual revenues grew from under $10 billion in the early 1009s to $101 billion in 2000, ranking it seventh on the Fortune 500. Starting in August 2001, when CEO Jeffrey Skilling resigned for no reasons, October 16, Enron reported its first quarterly loss in 4 years, taking charge against the earnings of $1 billion for poorly performing businesses. The reported third quarter loss was $618 million with the profit of $292 million a year earlier. On November 8, the company announced in a Securities and Exchange Commission (SEC) filing that it was restating its earnings since 1997 which had reducing them by $586 million. The coup-de-grace came on November 28, when major bond rating agencies downgraded Enron’s debt to below-investment-grade, or junk bond status. The...
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...Enron and Organizational Behavior The book I chose to read for my book report was The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron by Bethany McLean and Peter Elkind. The book was published by the Penguin Group and copyright (C) Fortune, a division of Time Inc., 2003. The Smartest Guys in the Room is about Enron’s rise and fall. Enron was created in 1986 from a combination of InterNorth and Houston National Gas which is basically a natural gas pipeline company. The Founder, Chairman, and CEO of Enron was Kenneth Lay who had a Ph.D. in economics and pushed for deregulation of government power because he believed that was the best way for a company to make money and become successful. In June 1990 Jeff Skilling joined Enron. Jeff Skilling was called a visionary and prophet because of his way of thinking and planning for the future. Ken Lay and Jeff Skilling shared the same interests and Lay wanted Skilling to start making Enron money with Skilling’s ideas. Skilling’s biggest idea was to find a new way to deliver energy rather than be bound physically by the pipeline. Skilling suggested that Enron would become a kind of stock market for natural gas and transform energy into financial instruments that could be traded like stocks and bonds. A year later in June 1991, Enron asked the Security Exchange Commission to approve their mark to market accounting. What is mark to market accounting? Mark to market accounting allowed Enron to book potential...
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