Enron Downfall

Enron Corporation

“Enron Corporation was an American energy company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed around 21,000 people (McLean & Elkind, 2003) and was one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of $111 billion in 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years. It achieved infamy at the end of 2001, when it was revealed that its reported financial condition was sustained mostly by institutionalized, systematic, and creatively planned accounting fraud” (Wikipedia). After the scandal the lawsuit against Enron’s directors was settled when the directors paid large amounts of personal money. “In addition, the scandal caused the dissolution of the Arthur Andersen accounting firm, which had effects on the wider business world” (Wikipedia). Enron remains an asset-less shell corporation. The company emerged from bankruptcy in November of 2004 after its involvement in one of the most complex bankruptcy cases in the history of the United States. Since then it has become a well known symbol of willful corporate fraud and corruption. Enron sold Prisma Energy International Inc. which remained its only business, to Ashmore Energy International Ltd. On September 7, 2006. It’s likely that Enron will fall apart after the sale.

After the establishment of a brand new corporate headquarters in Omaha, Kenneth Lay was named CEO of the newly merged company. “Enron was originally involved in the transmission and distribution of electricity and gas throughout the United States and the development, construction, and operation of power plants, pipelines, and other infrastructure worldwide. However, within its first year after the merger, Enron was partnering in an oil well venture, with a company called Spectrum 7 whose chairman and CEO was George W. Bush, the son of then-Vice President George H. W. Bush. In 1998 Enron moved into the water sector, creating the Azurix Corporation, which it part-floated on the NYSE in June 1999. Azurix failed to break into the water utility market, and one of its major concessions, in Buenos Aires, Argentina, was a large-scale money loser. In April 2001 Enron announced its intention to break up Azurix and sell its assets” (Wikipedia). At first Enron had said that its wealth came from its marketing and advertising of power and communications bandwidth commodities, including exotic items such as weather derivatives (Wikipedia). From 1996 to 2001, Fortune Magazine named Enron “America’s Most Innovative Company.” Enron’s claim to fame came from its labor and work force that saw it as an overall great company that awarded long term pensions and benefits for its workers. The company also excelled in effective management until its exposure in corporate fraud. The truth was later uncovered that the companies assets and profits had been inflated or that they were fraudulent and didn’t exist in the first place.

Enron launched its first web based system for transactions in November of 1999. Enron online gave buyers and sellers the opportunity to buy, sell, and trade commodity products around the world. This business allowed users to work only through Enron. With time Enron eventually drained itself of cash, because of the huge amounts of cash that were needed to run Enron online. Combined with the need for money and the company’s waste of money in other areas like broadband and Enron energy services, Enron online was forced to shut down. Because of this the Enron global finance department was forced to come up with more creative financing moves to keep the company going.

The reputation of Enron around the globe declined because of its continual rumors of bribery and political pressure to secure contracts. “After a series of scandals involving irregular accounting procedures bordering on fraud, perpetrated throughout the 1990s, involving Enron and its accounting firm Arthur Andersen, it stood at the verge of undergoing the largest bankruptcy in history by mid-November 2001. A white knight rescue attempt by a similar, smaller energy company, Dynegy, was not viable. Enron filed for Bankruptcy