Enron: The Terrible Scandal

Table of Contents:

Introduction Pg. 3

Enron’s Founding Pg. 3

Briefing of Scandal and Its Effects Pg. 3-4

How Enron Fooled Billions Pg. 4-5

Brief on the Positive Outcomes Pg. 5

People Affected and Conclusion Pg. 6

References Pg. 7

Today’s ever changing world of business leaves no room for unethical business practices. One of the most notorious and talked about examples of this includes the scandal of Enron. Enron used unethical business practices that caused their multi-billion dollar corporation to tumble, leaving thousands of workers without jobs or even their life-saved pensions. The tumbling also left investors deserving billions of dollars that may never be seen.

Enron was an energy giant that employed around 21,000 people. According to Wikipedia (2006, ¶1), “Enron was one of the world’s leading electricity, natural gas, pulp and paper, and communication companies, with claimed revenues of $101 billion in 2000.” Enron was founded by CEO Kenneth Lay, who in 1985, merged Houston Natural Gas Co. with Nebraska based Inter-North (Wikipedia, 2006, ¶4). Enron originally involved the conduction and distribution of electricity and gas throughout the United States. They were also involved with the development, construction, and operation of power plants, pipelines, and other infrastructure worldwide (Wikipedia, 2006, ¶5).

The collapse of the energy giant, Enron, is one of the largest bankruptcies and one of the most shocking failures in United States corporate history. It embraced new technologies, established new methods of trading in energy, and seemed to be a shining example of successful corporate America; but, the company's success was based on artificial, inflated profits, dubious accounting practices, and some say fraud. The firm's success turned out to have involved an elaborate scam. Enron lied about its profits and stands accused of a range of shady dealings, including concealing debts. According to Lerach, Coughlin, Stoia, Geller, Rudman, and Robbins LLP, who are attorneys, Enron inflated its earnings by some $591 million. The misrepresentation of financial standings caused Enron’s stock to trade as high as $90.75, which was considerably higher than it should have been (Lerach et al., 2002). According to Lerach et al., in 2001, when the scandal was revealed, Enron’s shares dropped to a devastating $0.30. This intricate mess of “cooking the books” paved the road to Enron’s 2001 bankruptcy filing. Not only was the company forced to file bankruptcy, but according to CBS News, “[this bankruptcy] left 4,000 people without jobs, wiped out five to ten billion dollars in pension funds, and left creditors deserving around $65 billion dollars.” As the depth of deception unfolded, investors and creditors retreated, forcing the firm into bankruptcy on December 2, 2001 (History, 2001).

For Enron employees and retirees themselves, the consequences were crystal clear from the day the company crumbled. To put it simple, they lost their savings. They watched their nest eggs evaporate. They lost trust in both the personal and fiscal sense of the word in the system. Millions of other workers around the country, who have been following the sad stories of Enron's employees, have grown anxious about their own accounts and their own retirement security.

How did it all happen? First of all, Enron matched employee contributions with substantial amounts of its stock and prohibited employees from shifting that company contributed stock to a different investment until the age of fifty (Wikipedia, 2006). Second of all, the company's culture actively encouraged accumulation of Enron stock. Enron's top management repeatedly promoted its stock through internal publications and communications. Leaving the question of legality aside for now, it is wrong for executives to enthusiastically recommend their company's stock into their savings. It is wrong for management to convey, in internal communications, that the company's stock is on the way up when they have reason to believe otherwise. That is not optimism. It is dangerous deceit.

As Enron's original divisions continued to rack up financial losses, company leaders devised new schemes to hide the