Introduction about Enron

Intro about Enron

In 1985, Enron began as a natural gas company based in Houston operating a pipeline. The growth of the company was rapid, which was mainly facilitated by the deregulated market. Other than the energy industry, Enron went on extend its presence through others businesses such as broadband cable, newsprint, and fiber optics. The company’s stock price and prestige could only sore high. In early 2001 however, with a valuation of sixty billion dollars, the company’s downfall became imminent as it was declared bankrupt. Unprofessional accounting practices for disguising the company’s true financial position and venturing into unprofitable businesses are among the reasons that the company collapsed (Time.com, 2008).

One major reason behind the collapse of Enron Company is its deregulation. Within a corporate and commercial setting, the term regulation may have applied to the ability of the government to authorize and regulate commercial behavior and activity of the individual businesses the company’s executives applied- subsequently, they were granted government deregulation. The declaration of this deregulation meant that the company’s executives had the permission of maintaining agency over the report earnings released to employees and investors alike (BBC News, 2002). The maintained agency by the executives meant that Enron’s earning reports were extremely skewed. Consequently, the losses incurred by the company were not true in nature. Investors would go on to invest more in what seemed a profitable company.

Through the misrepresentation of earnings and annual reports and the continuous use of investors’ funds not privy to the real condition of Enron’s financial state, the company’s executives reported fraudulent revenues to the investors while embezzling funds from investments. This not only attracted more investors who desired to enjoy the financial gains of company, existing investors and stockholders ploughed in more funds to maximize their earnings. Subsequent to the discovery of the above crimes by the Company’s management, Enron announced in the year 2000 that a there was an existing critical circumstances with regard to natural gas supply within California. Since Enron was at the time an extremely revered company, California’s population was not moved much by these statements (Time.com, 2008).

Upon retroactive review however, economists and historians suspected that the company’s executives made up this crisis as a way of preparing for the discovery of their fraudulent activities in the company. Even though the company’s executives were enjoying returns received the investments, Enron itself was heading downhill towards bankruptcy. A summary of the Enron scandal and the company executives’ actions of embezzling is viewed as an unlawful activity involving unethical and unlawful attainment of funding and money by employee. Primarily, the embezzled funds, as colossal as they were, were intended for personal use by the executives, in lieu of what the company was on the brink of (BBC News, 2002).

Because of the fraudulent activities orchestrated by Enron’s executives, it was imminent that the company went bankrupt. The bankruptcy of the company prompted immediate investigations because the books of account did not translate to what the company had undergone (Time.com, 2008). Since the company’s book reports were not consistent with its current state, the only reasonable explanation was fraudulent activity within the company’s management. It was only later that investigations discovered that the executives were behind the entire masquerade.

The company’s investors sustained losses exceeding seventy billion dollars. Furthermore, the losses incurred cost both the employees and trustees two billion dollars. This total resulted from the misappropriation of funds, stock options, saving plans, and pension funds. The limited liability status as well as government regulation meant that only a small amount of the entire loss was recovered.

Reference:

Time.com. (2008). Behind the Enron Scandal. Accessed at http://www.time.com/time/specials/packages/0,28757,2021097,00.html

BBC News. (2002). Enron scandal at-a-glance. Accessed at http://news.bbc.co.uk/2/hi/business/1780075.stm