Enron is the story of the largest bankruptcy in the history of the United States. Through a variety of accounting tricks relating to partnerships, the company was able to inflate its profit and lower its debt. Enron executives earned millions through these partnerships and by selling stock before its demise while employees lost pension plans and retirement funds and stockholders lost value. In 1985, the merger of Houston Natural Gas and InterNorth of Omaha, Nebraska formed Enron Corp.
Enron began as a natural gas pipeline company but soon evolved nto marketing electricity and natural gas, delivering energy and other physical commodities and providing financial and risk management services to customers worldwide. Eventually, the company became the largest natural gas merchant in North America and the United Kingdom. Enron’s divisions included transportation and distribution wholesale services, retail energy services, broadband services and corporate services. Its Transportation and Distribution sector was named Enron Transportation Services and Portland General.
The services include Enron’s interstate natural gas ipelines, Transwestern Pipeline Company, and Enron’s 50% interest in Florida Gas Transmission Company. Their wholesale services included businesses around the world. Operations were in developed nations as well and developing nations. Enron, through its subsidiary Enron Energy Services, customers are able to manage their energy requirements and reduce their total energy costs. In November 1999, Enron launched Enron Online, which was the first global web-based commodity-trading site. On this site about $1. 5 billion worth of transactions are done every day.
The major executives that were involved in the Enron scandal include Kenneth Lay, Andrew Fastow, Jeffrey Skilling and Jeffrey McMahon. Kenneth Lay became the first Chief Executive Officer of Enron when it was first formed. He was previously the president of Fransco, a rival company. He was CEO from 1985 until February 2001 and remained chairman until the company’s collapse. In August 2001, he again became Chief Executive Officer. Lay can either be looked at as a manager who knew what was taking place and overlooked it or one that as completely unaware of the financial isrepresentation.
Andrew Fastow joined Enron in 1990 from Continental Bank in Chicago, Illinois. It is believed that Fastow created many of Enron’s partnerships. Skilling became the Chief Executive in February 2001 and resigned after only six months because of personal reasons. It is believed that Skilling created the deals along with Fastow to aid in hiding debt. Jeffrey McMahon was Enron’s treasurer and executive vice president of Finance. He was a former employee of Arthur Anderson, a public accounting firm that joined Enron in 1994.
He complained about the deals that Fastow created. Collapse of Enron Corporation Enron was a giant corporation which did not have a lot of financial resources on its own and depended on credit sources to finance its day-to-day operation. The companies worth depended upon its performance, which was reflected in Enron’s share prices. Enron set up partnerships using stock as funding which did not appear on the company’s balance sheet. These partnerships were set up as a Special Purpose Entity, which agreed to pay Enron if it investments declined in value.
As the investments eclined, payments were made to Enron and posted as profit. But in reality Enron was paying it self with its own money. When the price of Enron’s shares collapsed, so did its’ credit rating. The accessibility to cash was non-existent and Enron became unable to meet its credit obligations. Enron’s stock continued to suffer; its already low share prices were declining. Lack of obtaining credit, cash, help from the government, and possible merger opportunities, Enron was forced into bankruptcy.
The company was involved in horrible investments; they were buying incredible mounts of power plants, pipelines and other ventures that were over priced that were not going to bring a profit. Continuing this trend of growth, Enron became a factory for financial deeds that would increase its profit, hold or improve its credit rating, and drive up stock price. As its services became more complex and its stock rose, Enron created a assemblage of partnerships that allowed the company the ability to keep debt off the books. Enron was not an investment scheme; it was a strategic company, linked to the US government and to the energy policy.
Enron was a company that was extremely active in the domestic politics, in the political finance of the two major parties, and a player and participant in foreign markets and in the international energy politics. Enron’s generosity to Republican candidates in the United States combined with the offshore partnerships brought the true image of Enron to light. Enron was not a free market corporation, which is transparent, apolitical and honest. In fact it was exactly the opposite, Enron was a politicized and fraudulent company.
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 18 February 2017
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