Enron Essay

1039 words - 5 pages

Enron Corporation (former NYSE ticker symbol ENE) was an American energy company that was originally involved in transmitting and distributing electricity and natural gas throughout the United States. It was founded in 1985 in Omaha, NB. The company later relocated to downtown Houston, TX and was based in the Enron Complex. Enron transformed energy into a commodity that could be traded like stock and bonds. Before its bankruptcy in late 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications and pulp and paper companies, with claimed revenues of nearly $101 billion in 2000. Fortune named Enron "America's Most ...view middle of the document...

Enron had not filed its financial statements for 1991 so they felt justified to use this new accounting methodology.

Mark-to-market accounting set the foundation and the tone for the financial and ethical demise of Enron. It is subjective and open to manipulation. According to McLean and Elkid in their book The Smartest Guys in the Room, "The Enron scandal grew out of a steady accumulation of habits and values and actions that began years before and finally spiraled out of control." From late 1997 until its collapse, the primary motivations for Enron’s accounting and financial transactions seem to have been to keep reported income and reported cash flow up, asset values inflated, and liabilities off the books.

Enron began “cooking the books” by recording profits from what over time might turn out to be losses while manipulating its stock price. Enron’s stock hit an all-time-high of $90 per share in August of 2000. At the same time, the executives that were aware of the company’s true yet hidden losses began to sell their stocks. These same executives told the general public and Enron’s investors to buy; the stock had potential to reach $130 to $140 per share. Analyst gave Enron either a “Buy” or “Strong Buy” rating but it was based on illusions.

These “hidden losses” were a result of Enron structured financing. The company created offshore accounts and entities that could be used for manipulation of the books. This provided ownership and management with full freedom of currency movement and the anonymity that allowed the company to hide losses. These entities made Enron look more profitable than it actually was. The company was actually $30 million in debt. This drove up the stock price and the Enron executives, using insider information, began to trade millions of dollars of Enron stock.
Unfortunately the Enron investors had no idea of the truth. Only the executives and insiders at Enron knew about the offshore accounts that were hiding losses for the company. Chief Financial Officer Andrew Fastow led the team which created these special companies that were used to hide debt. He used Enron stock as collateral and 96 bankers invested in Fastow’s synergistic corruption. He manipulated the deals...

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