Enron Stakeholders
BA 215 Spring 2007
Enron Stakeholder Assignment
Enron was a dream come true for a lot of people, but it was also a nightmare waiting to happen for many more. I am going to examine the collapse of Enron from the management perspective. The three examples of Enron behaving badly that I am going to study are the incidents in Valhalla, the electricity trading in California and the conflict of interest between Andy Fastow and his special purpose entities (SPE). These are just a few cases that led to the failure of the "World's Leading Company." In 1985 Houston Natural Gas merged with InterNorth, of Omaha, Neb., to form Enron and Ken Lay was named chief executive officer. The company was basically a producer of natural gas and had control over enormous reserves throughout the oil belt. The Valhalla trading scandal was the beginning of the end for Enron. Enron acquired the Valhalla trading group through the merger. Valhalla did not produce oil, but bought and sold oil futures. It bought oil long if it thought the market would rise and short if it thought oil prices would fall (2). In January 1987, a security officer at Apple Bank in New York alerted Enron auditors of a strange set of transactions by two of the company's oil traders: Louis Borget and Thomas Mastroeni. The bank security man said that $100,000 transfers were coming from an Enron account at Standard Chartered Bank in Britain's Channel Islands. Transactions from the Channel Islands were a red flag to bank security men because the islands are a source of secret offshore bank accounts and frequently the address of convenience for firms of suspicious character. The transfers, signed by Mastroeni, came from a U.S. Enron account, then went to the Channel Islands and then landed in an account opened by Mastroeni at Apple. Stated simply, Borget and Mastroeni seemed to be writing checks to themselves (2). This new information was hard for Ken Lay to swallow for a number of reasons. First of all,
Enron Stakeholder Assignment
Enron was a dream come true for a lot of people, but it was also a nightmare waiting to happen for many more. I am going to examine the collapse of Enron from the management perspective. The three examples of Enron behaving badly that I am going to study are the incidents in Valhalla, the electricity trading in California and the conflict of interest between Andy Fastow and his special purpose entities (SPE). These are just a few cases that led to the failure of the "World's Leading Company." In 1985 Houston Natural Gas merged with InterNorth, of Omaha, Neb., to form Enron and Ken Lay was named chief executive officer. The company was basically a producer of natural gas and had control over enormous reserves throughout the oil belt. The Valhalla trading scandal was the beginning of the end for Enron. Enron acquired the Valhalla trading group through the merger. Valhalla did not produce oil, but bought and sold oil futures. It bought oil long if it thought the market would rise and short if it thought oil prices would fall (2). In January 1987, a security officer at Apple Bank in New York alerted Enron auditors of a strange set of transactions by two of the company's oil traders: Louis Borget and Thomas Mastroeni. The bank security man said that $100,000 transfers were coming from an Enron account at Standard Chartered Bank in Britain's Channel Islands. Transactions from the Channel Islands were a red flag to bank security men because the islands are a source of secret offshore bank accounts and frequently the address of convenience for firms of suspicious character. The transfers, signed by Mastroeni, came from a U.S. Enron account, then went to the Channel Islands and then landed in an account opened by Mastroeni at Apple. Stated simply, Borget and Mastroeni seemed to be writing checks to themselves (2). This new information was hard for Ken Lay to swallow for a number of reasons. First of all,
Cited: 1) Swartz, Mimi with Watkins, Sherron. Power Failure: The Inside Story of the Collapse of Enron. New York: Doubleday, 2003. 2) "Enron: A Pattern of Abuses.?" NewsMax Wires March 21, 2002 < http://www.newsmax.com/archives/articles/2002/3/21/60605.shtml> 3) Taylor, Chris. "California Scheming." Time May 20, 2002 4) "Enron: Endless Possibilities and the 2000-2001 California Energy Crisis" March 23, 2006 < http://www.users.cloud9.net/~bradmcc/EnronCalifCrisis.html> 5) www.investorwords.com