Enron

ENRON CORPORATION

Enron is probably without a doubt the most talked about collapse in recent years. When Enron filed for bankruptcy in December of 2002, thousands of people lost their jobs and life-savings. The financial breakdown was marked by fraud. Lawsuits, still to this day are going through, while some convictions of former Enron executives and associates have already occurred.

Enron began its business in 1985. It began as a company that shipped natural gas through pipelines. Its role changed rather quickly, as it became one of the nation’s dominant energy traders. As the company grew in size, power, and reputation, Enron proceeded to engage in more complicated contracts and undertakings. Alleged illegal, off-the-balance-sheet transactions and partnerships were helping to conceal Enron’s growing debt problem. By the time investors, employees, and the public learned of the company’s crisis, the downward spiral was nearly unstoppable.

Insiders and high-level executives at Enron knew all along about the company’s financial secrets for quite some time. In August of 2001, former VP for Corporate Development Sherron Watkins warned Enron’s CEO of impending financial problems based on a “a wave of accounting scandals.” Two months after, in October, Enron officials announced that the company was actually worth $1.2 billion less than had previously been reported. This difference was due to inflated estimates of income and failure to include all the company’s debts in reports to the investors. It wasn’t until December that Enron filed for bankruptcy along with various questions and accusations. Enron’s top managers and its accounting firm (Arthur Andersen, LLP) have come under extreme examinations as investigators put together all the secrets that have come about to destroy the big energy company.

Top Enron executives have been charged with fraud. There have been many accusations of money laundering, and conspiracy. Arthur Andersen, LLP, the accounting firm was responsible for checking Enron, was convicted of obstruction of justice. Employees were involved in a massive destruction of files pertaining to Enron, preventing the court from seeing past financial records, transactions, emails, and other potential relevant documents. Andersen was responsible for checking Enron and for ensuring that its accounting practices remained according to regulations. Arthur Andersen was fined $500,000 and was placed on five years of probation. The first former executive to be convicted was Michael Kopper. Kopper pleaded guilty to charges of money laundering and wire fraud. It wasn’t until then that he decided to reveal to investigators the other people involved in the big time scandal. Kopper’s confession, supported by evidence and gathered by authorities indicated a defined system that hid Enron’s debt and made millions for insiders like Kopper, and CFO Fastow. Kopper and Fastow worked closely together. Fastow was indicted on seventy-eight counts of conspiracy.

Enron’s biggest problems arose from a group of partnerships called LJM. In 1999, Enron invested in a beginning Internet Company called Rhythm NetConnections. Enron wasn’t allowed to sell Rhythm’s stock despite its large amount of money on paper until fall. CEO Jeffrey Skilling wanted to be able to put the profit on paper, even though it was open to market fluctuation.

In late 2001, Enron revealed that it would incur losses of one