Case Study Enron Scandal
CASE 3 Enron: Questionable Accounting Leads to Collapse
Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant Tilted ―E‖ in front, slowly revolving in the Texas sun. Enron‘s suggested to Chinese feng shui practitioner Meihwa Lin a model of instability, which was perhaps an omen of things to come. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt that had been concealed through a complex scheme of offbalance –sheet partnership. Forced to declare bankruptcy, the energy firm laid off four thousand employees; thousand more lost their retirement saving, which had been invested in Enron stock. The company‘s shareholders lost tens of billions of dollars after the stock price plummeted. The scandal surrounding Enron‘s demise engendered a global loss of confidence in corporate integrity that continues to plague markets, and eventually it triggered though new scrutiny of financial reporting practices. To understand what went wrong, we‘ll examine the history, culture, and major players in the Enron scandal . ENRON’S HISTORY The Enron Corporation was created out of the merger of two major gas pipeline companies in 1985. Through its subsidiaries and numerous affiliates, the company provided products and services related to natural gas, electricity, and communications for its wholesale and retail customer. Enron transported natural gas through pipelines to customer all over the United States. It generated, transmitted, and distributed electricity to the northwestern United States, and marketed natural gas, electricity, and other commodities globally. It was also involved in the development, construction, and operation of power plants, pipelines, and other energy-related projects all over the world, including the delivery and management of energy to retail customers in both the industrial and commercial business sectors. Throughout the 1990s, Chair Ken Lay, chief executive
Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant Tilted ―E‖ in front, slowly revolving in the Texas sun. Enron‘s suggested to Chinese feng shui practitioner Meihwa Lin a model of instability, which was perhaps an omen of things to come. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt that had been concealed through a complex scheme of offbalance –sheet partnership. Forced to declare bankruptcy, the energy firm laid off four thousand employees; thousand more lost their retirement saving, which had been invested in Enron stock. The company‘s shareholders lost tens of billions of dollars after the stock price plummeted. The scandal surrounding Enron‘s demise engendered a global loss of confidence in corporate integrity that continues to plague markets, and eventually it triggered though new scrutiny of financial reporting practices. To understand what went wrong, we‘ll examine the history, culture, and major players in the Enron scandal . ENRON’S HISTORY The Enron Corporation was created out of the merger of two major gas pipeline companies in 1985. Through its subsidiaries and numerous affiliates, the company provided products and services related to natural gas, electricity, and communications for its wholesale and retail customer. Enron transported natural gas through pipelines to customer all over the United States. It generated, transmitted, and distributed electricity to the northwestern United States, and marketed natural gas, electricity, and other commodities globally. It was also involved in the development, construction, and operation of power plants, pipelines, and other energy-related projects all over the world, including the delivery and management of energy to retail customers in both the industrial and commercial business sectors. Throughout the 1990s, Chair Ken Lay, chief executive