Assignment 3. Enron scandal
Rise of the company
Enron was an American energy company based in Houston, Texas. It was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. In 1985, Kenneth Lay merged the natural gas pipeline companies of Houston Natural Gas and InterNorth to form Enron. In the early 1990s, he helped to initiate the selling of electricity at market prices and, soon after, the United States Congress passed legislation deregulating the sale of natural gas. The resulting markets made it possible for traders such as Enron to sell energy at higher prices, thereby significantly increasing its revenue. After producers and local governments decried the resultant price volatility and pushed for increased regulation, strong lobbying on the part of Enron and others was able to keep the free market system in place.
In just 15 years, Enron grew from nowhere to be America's seventh largest company, employing 21,000 staff in more than 40 countries.
In an attempt to achieve further growth, Enron pursued a diversification strategy. The company owned and operated a variety of assets including gas pipelines, electricity plants, pulp and paper plants, water plants, and broadband services across the globe. The corporation also gained additional revenue by trading contracts for the same array of products and services it was involved in.
As a result, Enron's stock rose from the start of the 1990s until year-end 1998 by 311% percent. By December 31, 2000, Enron’s stock was priced at $83.13 and its market capitalization exceeded $60 billion.
Demise of the company
But the firm's success turned out to have involved an elaborate scam.
Enron lied about its profits and stands accused of a range of shady dealings, including concealing debts so they didn't show up in the company's accounts.
As the depth of the deception unfolded, investors and creditors retreated, forcing the firm into Chapter 11 bankruptcy in December.