Enron

ENRON

In 2000 Enron was the world’s leading corporation in selling natural gas with an estimated worth in sales of around one hundred billion dollars and the company showed only signs of progressing. Within one year the company went completely bankrupt and forty of their top employees were arrested or are in jail awaiting trials. How can a multinational corporation with steadily increasing revenue take such a drastic fall into bankruptcy and how did no one see this coming? In the end Enron knew exactly what was in their future and hid it from the public by allocating their debt and with a loophole in their accounting, it turned out to be one of the biggest cover ups in the stock markets history.

In 1985 Houston Natural Gas merged with InterNorth, which became what we now know as Enron. In the following years they had become one of the world’s largest natural gas merchant’s and eventually branched out to coal and steel. Enron’s success exploded into the scene with catastrophic increasing sales and revenue that was competing some of the most powerful companies, such as Microsoft and Exxon Mobil. Between 1996 and 2000 their revenue increased from 13.3 billion to 100.8 billion (fowler). This was an astronomical increase and almost seemed too good to be true. As the company grew in size, power, and prestige, Enron began engaging in ever more complicated contracts and undertakings. Illegal, off-the-balance-sheet transactions and partnerships were helping to conceal Enron’s increasing debt problem. By the time investors, employees, and the public learned of the company’s crisis, the downward spiral was virtually unstoppable.

Although executives at Enron were ruthless entrepreneurs, they were very good and precise at what they did. Enron and their top executive’s main and only goal was to increase profit for themselves by any means necessary. Enron’s greatest tool for concealing their debt and in the end was their ultimate demise was called “mark to market accounting” (oppel). “Mark to Market Accounting” is not totally illegal if it is done correctly which is acknowledging future sales and revenue with a new operation or business venture. What the Enron executives did was when a new natural gas plant was still in production they would predict that their new plant will generate them one hundred million dollars over the next ten years. However instead of just using this number as a future goal they would register this as revenue for that year. This would greatly increase their numbers and allow their stock to rise and profits to be divided among the top executives. To the outside world Enron appeared to be very successful and a great investment when in fact they were digging their own graves.

Enron’s stock and reports annually improved without ever having debt. These great figures started to arise some questions of doubt of all of their success. With these questions people started to look into their books and analyzing all of their data in the reports to try and find some mistakes, and it did not take very long to do so. Government Accountants started to realize that their numbers did not add up to their profits and looked into the explanation of where the missing numbers went (Berenson). Like a house of cards, Enron crumbled to the ground.

Enron immediately went into a crises mode and started to sell all of the stock before the stock market realized that Enron was just a show of mirrors portraying success but with no records to show for it. Thousands of employees were fired