Enron Case Analysis

Enron’s top management, especially misled not only the board of directors he was able to misled the investor which bring about Enron filing for bankruptcy in 2001. In early, 2002 criminal investigation was open by US department of Justice into Enron’s collapse. The Security exchange commission (SEC) also opened the investigation into Arthur Andersen as well because they destroy and hide evidence of Enron’s financial statement. The role of the auditing giant Arthur Andersen in the collapse of Enron is incomprehensible to some. The accounting firm overlooked significant debts that are not the Enron’s financial statement. US department of justice found them guilty on federal charges that it obstructed justice by destroying thousands of Enron documents.
Arthur Andersen was also accused of destroying thousands of Enron documents that included not only physical documents but also computer and email files. Arthur Andersen was found guilty and was placed under probation for 5 years and ordered to pay $500,000 in fine.
History
The Genesis of Enron and History of the Natural Gas Industry
Before its collapse, Enron marketed electricity and natural gas, delivered energy and other physical commodities, and provided financial and risk management services to customers around the world.
Kenneth Lay founded Enron in 1985 by merging the natural gas pipeline companies of Houston Natural Gas and InterNorth to form Enron. As a result of the approval of deregulation of the sale of natural gas by US Congress, Enron was able to sell their products at a higher price and quickly emerged as one of the biggest companies in the US. It is also important to note that, they were little oversight put in place even while some cried for appropriate regulation, which through lobbying, Enron was against. The price was volatile and they control the price of the natural gas with little regulation or oversight by the
government.
By 1992, the company has become the largest seller of natural gas in North America. Enron wanted to generate more revenue or increase its growth. They got involved in a diversification strategy. The company bought or 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 with which it was involved.8
Most of these diversification strategies were funded with debt the company took on using large and complex corporate structures and partnerships. Because people were able were concerned with lack of proper oversight, they were able to exposed the debt-laden outside structures by overstating earnings and concealing their debts which brought led to the fall of Enron.
Corporate bankruptcy and SEC Investigation
Moving forward, by the end of 2001, the company had more than $38 billion in outstanding debts, which led to investigation by the US Justice department. In conclusion, the collapse of Enron has led to new regulations and legislation to promote the accuracy of financial reporting for publicly held companies. Most of the failed projects were financed largely on debts and were covered by the top management of Enron. It is fascinating that in just 15 years in operation, the company have grew to be the seventh largest American company on the Fortune 500 list. . Enron collapse is the biggest corporate bankruptcy ever to hit the financial world at the time. Enron was able to mislead the public by using some creative accounting to appear more powerful on paper than it really was. This led to the investigation from SEC and US department of justice indicting top management of Enron and Arthur Andersen. Current Status
Enron filed for Chapter 11 because of unethical behavior of its leadership and most of their employees lost their 401k.
Some investors that are misled lost chunk if not all of their investments. The public, investors, employees, pension holders and politicians were so outraged and wanted to why Enron's failings were not spotted earlier. Enron did not do these all alone, they have accomplice in the name of another giant accounting/auditing company called Arthur Andersen where they helped the firm overlooked significant debts that are not the Enron’s financial statement. They knew that Enron was over its head but they let the company conceal its debt over a long period of that which eventually led to the downfall of the company. The highlight of this section is that Enron’s top managements self interest, greed led to presenting the investors and board of directors misleading financial statements. Because of their greed and self interest, a crime was committed that led to prosecution of some of the Enron’s top managers. For example, Former Enron executive Michael Kopper pleads guilty to conspiracy to commit wire fraud and money laundering conspiracy. While Andrew Fastow Former CFO was charged with securities fraud, wire fraud, mail fraud, money laundering and conspiracy. To avoid another Enron, the US Congress passed a law called Sarbanes-Oxley Act 2002
(SOX).