CHRISCHER L. ALANES
REACTION PAPER – THE ENRON SCANDAL
FACTS OF THE CASE
Enron Corporation was formed in 1985, led by Kenneth Lay, as a result from the merger of Houston Natural Gas and Internorth that specializes in natural gases and commodities. In 1990, the company hires Jeffrey Skilling to lead the trading of commodities under deregulated market and Andrew Fastow later that year (USA Today, 2002). Deregulation of the energy markets allowed companies to place bets on future prices, and Enron was poised to take advantage (Investopedia.com). Skilling developed a staff of executives that, by the use of accounting loopholes, special purpose entities, and poor financial reporting, were able to hide billions of dollars in debt from failed deals and projects (Wikipedia). The expose started on August 2001 when Sherron Watkins, an Enron Vice president, write and meet with Mr. Lay expressing concerns about Enron’s accounting practice to result to “Implode in wave of accounting scandal” and on October 2001, Enron reported a third quarter loss of $618 million and solicited help from the US government official which includes the Federal Reserve chairman, Alan Greenspan, Treasury Officer Paul H. O’Neil but they did not succeed on getting any help. (New York Times, 2013). In November 2001, Enron admitted it overstated its profits dating back to 1997 at $600M and agreed to be acquired by Dynegy at $9B but later was called off leading to Enron filing to bankruptcy under Chapter 11 of the United State Bankruptcy code on December 2, 2001. SEC also extends investigation to cover Andersen. The bankruptcy led to the layoff of 4,000 employees wiping out their pension plans (theguardian.com, 2006). The company was on Fortune's "Most Innovative" in the United States listing for several years running and reached #7 on the Fortune 500 list in 2000. Its bankruptcy in December 2001 was the largest such filing in United States history (tshaonline.org,...
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