Enron scandal Essay
Enron shocked the world from being “America’s most innovative company” to America’s biggest corporate bankruptcy at its time. At its peak, Enron was America’s seventh largest corporation.From the 1990’s until the fall of 2001, Enron was famous throughout the business world and was known as an innovator, technology powerhouse, and a corporation with no fear. The sudden fall of Enron in the end of 2001 shattered not just the business world but also the lives of their employees. Enron gave the illusion that it was a steady company with good revenue but that was not the case, a large part of Enron’s profits were made of paper. Their huge debts and information about hiding losses gave a big problem to the company and in the late 2001 Enron declared bankruptcy under Chapter 11 of the United States Bankruptcy Code. Kenneth Lay (Founder and CEO), Jeffrey Skilling (CEO) and Andy Fastow (CFO) found that Enron wasn’t making money so what they did is implemented along with the approval of Arthur Andersen the “future value accounting.”
This type of accounting was to predict the future profit that Enron was going to make and list it as part of there future profit to the shareholders. This creative accounting lead to Fastow to create “outside companies” that were directly involved with Enron to hide the losses the companies made. These companies were named after Star Wars characters. As Enron announced big numbers to Wall Street, people began to take notice of this company and started to buy shares of the company. Enron even encouraged their employees to buy shares of Enron and the price of Enron was going up to as high as $90. Enron executives were bullies to the investment companies. When a financial adviser questioned their firms regarding Enron stock, Enron would pay the firm to get rid of the employee. As Enron got bigger, the company was collecting more losses and hiding them well. Enron hit the top when their stock hit $90 and then things were starting to fall apart. A writer at Forbes magazine called Enron telling them that she was going to release an article about Enron and not releasing their financial statements. Enron executives flew to New York telling her not to release the article but the next week, Forbes released the article questioning Enron’s financial.