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THE ENRON SCANDAL
FACTS OF THE CASE
Enron Corporation was an American energy, commodities, and services
company based in Houston, Texas. Enron’s predecessor was the Northern Natural Gas
Company, which was formed during 1932, in Omaha, Nebraska. It was reorganized
during 1979 as the main subsidiary of a holding company, Inter-North which was a
diversified energy and energy related products company. During 1985, it bought the
smaller and less diversified Houston Natural Gas company.
> Employed approximately 20,000 staff
> One of the world’s major electricity, natural gas, communications, and pulp and paper
companies.
> Revenues of nearly $40.1 billion.
Enron was almost universally considered one of the country’s most innovative
companies. The company continued to build power plants and operate gas lines, but it
became better known for its unique trading businesses.
Enron’s Line of Business Enron was originally involved in transmitting and
distributing electricity and natural gas throughout the United States. The company
developed, built, and operated power plants and pipelines while dealing with rules of
law and other infrastructures worldwide. Enron owned a large network of natural gas
pipelines, which stretched ocean to ocean and border to border.
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Enron Corporation represented one of the largest fraud scandals in history. As a
result of the fraud investigations, the company was forced to file for bankruptcy in
December 2001. Enron was “a provider of products and services related to natural gas,
electricity and communications to wholesale and retail costumers”
The sudden and unexpected collapse of Enron Corp. was the first in a series of
major corporate accounting scandals that has shaken confidence in corporate
governance and the stock market. Only months before Enron’s bankruptcy filing in
December 2001, the firm was widely regarded as one of the most innovative, fastest
growing, and best managed businesses in the United States. With the swift collapse,
shareholders, including thousands of Enron workers who held company stock in their
401(k) retirement accounts, lost tens of billions of dollars. It now appears that Enron
was in terrible financial shape as early as 2000, burdened with debt and money-losing
businesses, but manipulated its accounting statements to hide these problems. Why
didn’t the watchdogs bark? This report briefly examines the accounting system that
failed to provide a clear picture of the firm’s true condition, the independent auditors and
board members who were unwilling to challenge Enron’s management, the Wall Street
stock analysts and bond raters who failed to warn investors of the trouble ahead, the
rules governing employer stock in company pension plans, and the unregulated energy
derivatives trading that was the core of Enron’s business.
The Enron Scandal was characterized by greed and arrogance. Senior
Executives were involved in breaking the law through a series complicated financial
deceptions. The company’s accounts were manufactured to conceal substantial
financial losses. The Chief Executive took the decision that expense claims would be
processed without checking in order to save time and focus on performance. The
erosion of ethics took place gradually over time, and it became easy for staff to turn a
blind eye to poor practices. Some managers lied and altered the records of colleagues;
other used the whistle blowing system to submit negative views about people they
wanted to remove and to save themselves.
As Enron Collapsed, so did its pension scheme, taking with it the pension of
thousands of employees whose whole pension fund was in the company scheme. It
