Topics: Enron, Enron scandal, Kenneth Lay Pages: 5 (1646 words) Published: October 29, 2014

The Illusion That Took the World by Surprise

Enron: The Smartest Guys In the Room is a movie about Enron and how it fooled the world into believing it was one of the most stable and profitable companies in the U.S. This is very sad because many people believed in the figures Enron was producing and entrusted their life saving in Enron stock. The scandal didn’t just affect a small group of people but 10’s of thousands of people lost everything, due to an illusion.

Kenneth Lay earning a Ph.D. in economics at the University of Houston joined Houston Natural Gas Co. as chairman and CEO. The company merged with InterNorth in 1985, and was later renamed Enron Corp. In 1986, Lay was appointed to chairman and chief executive officer of Enron. Lay was committed to do anything possible to see Enron succeed. In doing so he sentenced the company to scrupulous horrific death.

Jeff Skilling was hired as Chief Operating Officer of Enron Finance Corporation and became the Chairman of Enron Gas and Electric. Skilling was a visionary and seemed to have the deregulation game figured out. He used mark to Market accounting system to forecast projected earnings. This made stocks skyrocket and so they appointed Jeff Skilling to CEO or Enron.

Skilling then hired Andy Fastow. Fastow was hired from Continental a bank based out of Chicago and was already making big gains in the deregulation market. Lay and Skilling promoted Fastow to CFO ‘98. Fastow continued to create innovative illusions to boost stock prices.

Before the debacle known to most as the Enron scandal had gotten unraveled. Enron was considered to be the seventh largest company in the United States. Enron received the most innovative company for 3 years running by Forbes Magazine. They were at the forefront of utility deregulations, innovator’s in the natural gas and electric sectors and starting to dabble in the .com uprising and broadband. They were a company that could do wrong in analyst eyes the stock prices kept going up and up.

How they managed to do this is with a web of deceptive business practices designed to fool the market. One of these methods was to implement mark to market accounting which was Skillings reason for coming to Enron it would allow them to project future profits on todays business deals based on todays market pricing. Which would have been all well and good if the system wasn’t manipulated to fool analysts and shareholders. They did this by not correcting loses hiding debt and as well as putting a choke hold on the people of California. By causing power outages which increased the price of electricity to insane amounts.

The major tipping point is when the Bush administration decided to start deregulations and opened the door for Enrons lust for profits. The deregulation of the Utilities like electricity and natural gas is where Enron started and was its bread and butter. This allowed Enron to sell utilities to anyone for any price and since Enron owned the majority of infostructure they charge whatever they wanted. Jeff Skilling was hired to make as much money as possible and to find any loopholes in the deregulation market place to put Enron back into the black. He did just that making billions for the company at the expense of the customer California taking the biggest hit to Enron’s energy smorgasbord. California was left without power for days at a time while Enron filled its coffers. California suffered billions for what little power they received.

Another way that Enron could manipulate the system was with Andy Fastow creating as many as 250 separate partnerships to hide Enrons debts. This allowed Enron to make large purchases and to count it as a profit instead of a loss or expense. This further increased stock price because the company showed very little debt and more profit. This type of tactic is called cooking the books and lead Fastow in Prison for 6 years and 20 million in fines. These are just a few of the...

Cited: Brewer, Lynn. “Is There A little Bit of Enron In All of Us.” Journal for Quality & Participation. Spring 2007, Vol. 30 Issue 1, p26-28.
Gibney, Alex. Enron: The Smartest Guys In the Room. 2005. Film.

Goldman, Arnold, William D. Sigismond. Business Law: Principles and Practices, 8th edition. “South-Westen Cengege Learning”. Mason, OH. 2011. Print
Kershaw, David. “Evading Enron:Taking Principles Too Seriously In Accounting Regulation.” Modern Law Review. Wiley-Blackwell. July 2005, Vol. 68 Issue 4, p594-625. 32p
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