Enron Scandal: Who was Responsible and Why?
Background of Enron Scandal and Timeline of Events
Key Players in Enron Scandal
The Enron Scandal was the biggest accounting fraud in U.S., indeed worldwide, business history. The following paper gives a brief history of the events leading up to the scandal, a timeline for the events surrounding the uncovering of the scandal and the events following the public knowledge of the scandal. Key players in the run-up to the scandal are discussed, as are the people involved in the subsequent investigations.
Background of Enron Scandal and Timeline for Events
The collapse of energy giant Enron is the largest bankruptcy and one of the most shocking failures in United States corporate history. In a little over 15 years, Enron grew into one of the U.S.'s largest companies. It embraced new technologies, established new methods of trading in energy and seemed to be a shining example of successful corporate America. The company's success, however, was based on artificially inflated profits, dubious accounting practices, and - some say - fraud.
In the 1980s, energy corporations lobbied Washington to deregulate the business. Companies including Enron argued that the extra competition would benefit both companies and consumers. Washington began to lift controls on who could produce energy and how it was sold. New suppliers came to the market and competition increased, but the price of energy became more volatile in the free market. Enron saw its chance to make money out of these fluctuations. It decided to act as middle-man and guarantee stable prices - taking its own cut along the way. Kenneth Lay (Chief Executive, Chairman and Board Member of Enron) had been anxious to expand the business right from the word go. Jeff Skilling (Chief Executive, President and Chief Operating Officer of Enron), an ambitious thinker from the world famous consultancy firm McKinsey, offered a way to do this.
Skilling believed that Enron could profit from trading futures in gas contracts between suppliers and consumers - effectively betting against future movements in the price of gas-generated energy. Buyers and sellers use futures markets to get what they hope will be a better deal on commodity prices than they would do on the open market. Enron offered to do the same with gas, by buying and selling tomorrow's gas at a fixed price today. In the deregulated energy world, it appeared to make sense to many suppliers and industry consumers who took up the offer. The new Enron was emerging. In a few short years, Enron became a massive player in the U.S. energy market, at its height controlling a quarter of all gas business. Buoyed by the success, the company went on to create markets in myriad energy-related products.
Enron began to offer companies the chance to hedge against the risk of adverse price movements in a range of commodities including steel and coal. By the end of the decade, it had expanded its trading arm to include hedging against external factors such as weather risk. Enron was not the only company in the game, but through its Enron online trading arm, it was becoming the biggest on what was dubbed Energy Alley - 90% of its income came from trades.
Jeff Skilling wanted to rid Enron of its last physical assets, but the company was also expanding internationally, moving into water in the UK and power generation in India. One question that was already being asked before Enron crashed was this: how much influence did Enron have on Capitol Hill? Enron certainly wasn't the only company lobbying for energy deregulation, but deregulation helped Enron establish the trading markets that became its core business.
Directors built relationships with both Democrats and Republicans. Kenneth Lay himself had strong personal ties to two Republican presidents, George Bush Sr. And his son, George W. Bush. As Enron expanded, there was little scrutiny of how it was managing the expansion, and when it began to unravel, the questions began to pour in. Enron began the year 2000 with a plan to move into broadband internet networks and trade bandwidth capacity as the dot.com economy prospered. Enron's dynamic ideas, coupled with its stable old-economy energy background, appealed to investors and the share price soared.
It was one of the first amongst energy companies to begin trading through the internet, offering a free service that attracted a vast amount of custom. But while Enron boasted about the value of products that it bought and sold online - a mind-boggling $880bn (£618bn) in just two years - the company remained silent...
Enron Leadership Enron collapsed very quickly in November 2001, and its failure should have been a warning to serious dysfunctions in the entire corporate and financial system, but this did not happen. Its executives admitted that they had falsified its records going back for at least five years, although in reality they had been doing so since the 1980s. When the company filed Chapter 11 bankruptcy it laid off over 20,000
Enron (Movie) analysis The Smartest Guys in the Room-Enron The film is pitched around the America's seventh largest corporation that was in charge of distributing electricity and natural gas. The company was worth over 70 billion dollars in assets built over years with over 22,000 employees, it became bankrupt within 24 days. The employees lost their jobs and medical insurance, 1.2 billion in retirement benefits while the retirees lost 2 billion dollars
If I was a legislator, I will be doing this act and I will not be swayed or affected by friends and lobbyists alike. Response to Ji Woo Chai: Indeed, the Sarbanes-Oxley Act was able to put in place controls and measures to prevent the reoccurrence of the Enron scandal. However, there has to be more done because of what occurred before and during the financial crisis. Thus, there may
Enron could engage in their derivative trading strategy with no fear of government intervention because derivative trading was specifically exempted from government regulation. Due in part to a ruling by the Commodity Futures Trading Commission's (CFTC) chairwoman, Wendy Graham, derivatives remained free of regulatory oversight. Ms. Graham, wife of Texas senator Phil Graham, made this ruling 5 weeks before resigning as chairwoman of the CFTC and joining the Enron Board
THE PEOPLE BEHIND THE RISE AND FALL OF ENRON Kenneth Lay being one of the pioneers of Enron from its establishment in 1986, had lead the way of Enron's emergence as one of the leading company in the U.S. And eventually to its collapse and declaration of bankruptcy on December 2001. Kenneth Lay held the position as the CEO and chairman of Enron from 1986 to January 23, 2002. Lay is
Enron hid most of its debts by establishing several LLPs, with some of them being secretly ran by Andrew Fastow, CFO at Enron. By counting only the gains and losses of the companies, but not having to report the LLPs on its financial sheet, Enron's financial position seemed very good. Consolidating the statements would have defeated the purpose of Fastow because the goal was to dump debt, not to report
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now