The Idiocy and the Irony
Red flags were blinding as Enron learned about possible corruption with Enron Oil Trading in Valhalla, New York. After the merger between HNG and InterNorth, the Valhalla office, originally established by InterNorth seemed all but forgotten until quarterly and annual reports were due. Supervisors Tom Harding and Steve Sulentic were rarely on-site, preferring the comfort of offices in Houston. Louis Borget who established and operated the trading business was an autocratic manager, receiving excessive incentive payment for profitable performance. Between 1984 - 1986, Valhalla continued to report profits in the emerging oil trading industry. A call to Enron in Houston by Apple Bank would shatter the false sense of security regarding Valhalla. An ensuing investigation by Arthur Andersen, an accounting firm employed by Enron, failed to produce concrete evidence of misappropriation within Valhalla. Questionable practices were identified, but Enron failed to react appropriately to this information. CEO Lay was able to persuade key executives within Enron and the board of directors to keep running Valhalla offices, with minor changes in personnel. Mick Seidl, unhappy with Lay’s influence over the board, called Mike Muckelroy to investigate Valhalla. Muckelroy’s investigation would become the tipping point regarding Valhalla. With a secret set of books discovered, fraudulent trading entities identified and $1 billion of hidden debt revealed, this obscure office of 40 employees almost bankrupt the giant Enron Corporation. After the collapse of Enron in 2001, denial was identified as Enron’s modus operandi. This paper will examine the warning signs of Enron Oil Trading prior to the fall of Enron, highlight the inconsistencies and demonstrate and unwillingness of Enron to learn from their mistakes. Background
One of the most fascinating aspects of Enron is the question that still lingers in the minds of Americans: How did a Fortune 500 company, named “America’s Most Innovative Company” six years in a row, the seventh largest corporation in America, and the sixteenth largest company in the world with a reported $101 billion in revenues fall so fast? As news spread of the bankruptcy filing on December 2, 2001, more than twenty-thousand employees lost their jobs, $1.2 billion in retirement funds dissolved, $2 billion in pension funds disappeared. Past and present employees began to ask why they lost everything as top executives were paid bonuses of $55 million. The Enron scandal crushed one of the Big 5 accounting firms in the U.S.; Arthur Andersen. Shareholders lost $74 billion invested in Enron. More than a decade has passed and Enron continues to captivate and mesmerize America. The similarities between Enron Oil Trading in Valhalla, referred to as Valhalla throughout this paper and corporate Enron in Houston are startling. The easiest way to understand the fall of Enron, ignoring the complexity of operations, is to focus on the mistakes produced by Enron Oil. In the words of George Santayana, “Those who cannot remember the past are condemned to repeat it.” The idiocy of the situation is that Enron’s executives and directors never learned from those valuable Valhalla lessons. Even though stock analysts continued to recommend Enron as a worthy investment, the failure to learn from Valhalla meant that Enron would never be a successful corporation. As George Bernard Shaw states, “Success does not consist in never making mistakes but in never making the same one a second time.” The bewitching tale of Enron, its sudden rise to stardom and fall from grace will continue to live on in infamy.
InterNorth, Inc. was formed in 1979 as a holding company for Northern Natural Gas Company, Northern Liquid Fuels Company, Northern Petrochemicals Company, Northern Propane Gas Company and Northern Border Pipeline Company. Located in Omaha, Nebraska, it was...