ENRON Introduction Enron was the country’s largest trader and marketer for electric and natural gas energy. Its core business was buying energy at a negotiated price and later, selling the energy when prices increased. As an energy broker, Enron provided a service by allowing producers to negotiate a certain price while Enron took the risk that prices would fall below what it bought energy. Buyers of energy also benefited because Enron could ensure the supply of energy. In 2000 Enron was listed number five on the Fortune 500. What happened to the company which was among the most admired for vision and quality thinking? Enron was the company that held virtual assets and not the real assets, such as power stations, which were capital incentive with low returns and ongoing debt. The decline in the market starting in 2000 uncovered the financial structure on which Enron was built, eventually forcing the company into bankruptcy. The main reason was the Special purpose entities. As per law a company can create SPE for a particular purpose. The debt of the SPE is carried on the books of the creating company. However, it could be transferred to the SPE if an independent third party purchased a minimum of a 3 percent interest in the SPE. This financial structure became the favorite of Enron; it created more than 900 SPEs. During the 1990’s Enron set up special entities to transfer its debt off the balance sheet. Enron created businesses, sometimes joint ventures or partnerships. To capitalize these businesses Enron would find investors, sometimes; these were executives at Enron or friends. Sometimes there was no “investment”. The real structure violated the SPE statutory requirements. Enron used its working relation with Merrill Lynch ... ... middle of paper ... ...zations need somebody outside the company, constantly asking good questions in order to avoid ethical situations. Another important duty for board members is to have understanding of director’s activities to avoid conflict of interest. The main area of concern is investigating reports of ethical misconduct by directors. These investigations can be serious affairs requiring thoroughness and tact. Even if initial incidents appear to be frivolous, investigations can uncover serious ethical lapses. The board can have external investigators under corporate governance program to investigate all reports and conduct of directors. References Bohlman, H. M. (2005). The Legal Ethical and International Environment of Business. Thomson South Western . Scharff, M. (2005). WorldCom: A Failure of Moral and Ethical Values. Journal of Applied Management and Entrepreneurship .
Enron “Boosted profits and hid debts totaling over $1 billion by improperly using off-the-books partnerships; manipulated the Texas power market; bribed foreign governments to win contracts abroad; manipulated California energy market” (Brag, 2002, para. 9). The behavior exhibited by Enron’s former CEO Kenneth Lay showed that large and successful appearing companies are not exempt from human error. This human error caused unethical decisions to be made that adversely affected thousands of lives.
An ENRON Scandal Summary of the demonstrations of Embezzlement attempted by ENRON Executives may be characterized as the criminal action including the unlawful and deceptive achievement of monies and subsidizing by workers; regularly, finances that are stolen are expected for organization use in lieu of individual use. While the ENRON administrators were taking the speculation stores from clueless financial specialists, those assets were being stolen from the organization, which brought about the insolvency of the
Investors and the media once considered Enron to be the company of the future. The company had detailed code of ethics and powerful front men like Kenneth Lay, who is the son of a Baptist minister and whose own son was studying to enter the ministry (Flynt 1). Unfortunately the Enron board waived the company’s own ethic code requirements to allow the company’s Chief Financial Officer to serve as a general partner for the partnership that Enron was using as a conduit for much of its business. They also allowed discrepancies of millions of dollars. It was not until whistleblower Sherron S. Watkins stepped forward that the deceit began to unravel. Enron finally declared bankruptcy on December 2, 2001, leaving employees with out jobs or money.
Enron was in trouble because of something that almost every major corporation during this time was guilty of. They inflated their profits. Things weren't looking good for them at the end of the 2001-year, so they made a common move and they restated their profits for the past four years. If this had worked to their like they could have gotten away with hiding millions of dollars in debt. That completely admitted that they had inflated their profits by hiding debt in confusing partner agreements. Enron could not deal with their debt so they did the only thing that was left to do, they filed for chapter 11 bankruptcy. This went down as one of the largest companies to file for bankruptcy in the history of the United States. In just three months their share price dropped from $95 to below $1.
It was not until November 2001 that the shareholders of Enron filled a complaint worth $40 billion. These shareholders could not understand how Enron’s share prices would flop from $90.75 per split in mid-2000 to $1 as at the close of the month, November 2001. According to these shareholders, this was beyond the logics of stock market, which even in the most risky moments would not yield such poor results. This suit prompted the Securities a...
for rules and regulations. Ethics is the discipline dealing with what is good and bad and with a
Enron Corporation was based in Houston, Texas and participated in the wholesale exchange of American energy and commodities (ex. electricity and natural gas). Enron found itself in the middle of a very public accounting fraud scandal in the early 2000s. The corruption of Enron’s CFO and top executives bring to question their ethics and ethical culture of the company. Additionally, examining Enron ethics, their organization culture, will help to determine how their criminal acts could have been prevented.
Enron and Arthur Anderson were both giants in their own industry. Enron, a Texas based company in the energy trading business, was expanding rapidly in both domestic and global markets. Arthur Anderson, LLC. (Anderson), based out of Chicago, was well established as one of the big five accounting firms. But the means by which they achieved this status became questionable and eventually contributed to their demise. Enron used what if often referred to as “creative” accounting methods, this resulted in them posting record breaking earnings. Anderson, who earned substantial audit and consultation fees from Enron, failed to comply with the auditing standards required in their line of work. Investigations and reports have resulted in finger pointing and placing blame, but both companies contributed to one of the most notorious accounting scandals in history. There remains much speculation as to what steps could and should have been taken to protect innocent victims and numerous investors from experiencing the enormous loses that resulted from this scandal.
Many remember and know of Enron not because of its reputation but because this company filed one of the largest bankruptcies to ever occur in American history. Enron began its reign as a powerhouse company when congress passed legislation that deregulated the sale of natural gas and electricity which allowed Enron to excel among companies in this field. This increased Enron’s stock price up to $90 per share and made it appear to be one of the best companies for stockholders to invest their money into. Enron then decided to create offshore accounts commonly referred to as special purpose entities that would hinder any losses that the company was incurring and also deter taxes since international territories have different laws, and would show how much profit the company was making.
In the end, Enron could not keep itself afloat once it turned to fraud. Shareholders lost $74 billion, thousands of employees and investors lost their retirement accounts, and many employees lost their jobs. Lives were ruined. Lay died before serving time. Skilling got 24 years in prison. Fastow agreed to become an informant and therefore got less time in prison. The company filed for bankruptcy. Arthur Andersen was found guilty of falsifying Enron’s account and destroying evidence, and the firm failed. People still talk about the Enron scandal today, and accounting practices are now held to a higher standard in order to avoid a catastrophe like this again.
Conflict of interest is a big problem between Enron and its auditing firms. It is believes that Enron’s auditors was hide many information and external auditors never aware or hide the losses in Enron. From audit committees to transparency committees would increase the likelihood that a firm’s key business ricks are transparent to investors (Healy & Palepu 2003, p. 21). Besides, a transparency committee can also help with internal auditor appreciate its primary responsibility lies with the board, not for personal interest and pleasing the leader.
Enron was on the of the most successful and innovative companies throughout the 1990s. In October of 2001, Enron admitted that its income had been vastly overstated; and its equity value was actually a couple of billion dollars less than was stated on its income statement (The Fall of Enron, 2016). Enron was forced to declare bankruptcy on December 2, 2001. The primary reasons behind the scandal at Enron was the negligence of Enron’s auditing group Arthur Andersen who helped the company to continually perpetrate the fraud (The Fall of Enron, 2016). The Enron collapse had a huge effect on present accounting regulations and rules.
It revealed that the firm’s success was due to an elaborate scam ranging from shady dealings to concealed debts. (Enron scandal at-a-glance, 2002). The year of 2001 was pivotal in revealing the depth of this deception. In August that year the company’s CEO Jeffery Skilling announced his departure, having been CEO for six months. The unexpected resignation was followed by many stakeholders selling large amounts of Enron stocks as the price continuously dropped. It reached a point where it was selling less than a dollar from a peak price of $90 per share. (Folger, 2011) Following the month of October saw Enron report a loss of $618 million, its first quarterly loss in four years. (The rise and fall of Enron: a brief history, 2006. The SEC opens a formal investigation into Enron’s dealings so they can get an insight into the activities that took place that resulted in the company making the abnormal loss. All attempt to sell the shares of the company ceased as there was too much debt in the company that had not been disclosed. in December, Enron filing for bankruptcy protection with $38 million in outstanding debt (Folger,
Seen as Americas top electrical and natural gas corporate stable, Enron Corporation grew immensely since its humble beginnings in 1985. In the span of 15 years, Enron Corporation employed 21,000 workers in more than 40 countries and revenues that totaled to 111 billion. Enron had great success, even given the title of America’s Most Innovative Company for 6 consecutive years. However, what was greater than Enron’s success, was the fall of the company, widely known as the Enron scandal. The question is, what initially caused the collapse of Enron? This is an analysis of the significant players and factors that contributed to failure of Enron Corporation.
Enron had rose to the top by engaging in energy projects worldwide and speculating in oil and gas futures on the world’s commodities markets. They also provided financial support to some presidential candidates and members of the U.S. Congress. However, Enron had a secret. The corporation had created partnerships located in off-shore