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A willful corporate Fraud and Corruption

The modern corporate crime of ENRON Corporation.

Fahad Saif
10/20/2013 1

What was Enron?
Enron was an American energy conglomerate based in Houston, Texas. During the 1990s, it was considered one of the most powerful and successful corporations in the world. Enron was created in 1985 through the merger of two natural gas companies at the behest of Houston executive Kenneth Lay. Lay remained the chief executive of Enron throughout its existence. Government deregulation of power utilities allowed Enron and similar companies to amass huge profits during the 1990s. Soon it was involved in a wide variety of industries, including electric power production, oil by-products, shipping, the Internet, and paper production. Numerous entities, including Fortune magazine, cited Enron as a model company for its high profitability and wideranging successes.

What was the business of Enron?

Once the seventh largest company in America, Enron was formed in 1985 when Inter-North acquired Houston Natural Gas. The company branched into many non-energy-related fields over the next several years, including such areas as Internet bandwidth, risk management, and weather derivatives (a type of weather insurance for seasonal businesses). Although their core business remained in the transmission and distribution of power, their phenomenal growth was occurring through their other interests. Fortune Magazine selected Enron as "America's most innovative company" for six straight years from 1996 to 2001. Then came the investigations into their complex network of off-shore partnerships and accounting practices.

What happened to Enron?

Enron shares traded as high as $85 before the fraud was discovered, but plummeted to $0.30 in the sell-off after the fraud was revealed. Shareholders received company payouts as compensation for their losses, but former company executives also settled to pay shareholders out of their own pockets. Enron was the first big-name account scandal, but it was soon followed by the uncovering of frauds at other companies such as WorldCom and Tyco International, and has become a symbol of modern corporate crime. Lay, Skilling, Fastow and more than a dozen other people were found guilty of crimes related to the Enron scandal. Arthur Andersen LLP, a major accounting firm, also shut down because of its connections with Enron. Between the two companies, almost 90,000 people lost their jobs. Enron employees lost more than $2 billion U.S. Dollars (USD) from pensions and corporate-backed savings plans; stockholders lost another $70 billion USD. Kenneth Lay died of a heart attack in 2006, before he could be sentenced; Skilling and Fastow were still in prison as of 2010.

Why did it happen?

Cracks began to appear in 2001. In August of that year, Jeffrey Skilling, a driving force in Enron's revamp and the company's CEO of six months, announced his departure, and Lay resumed the post of CEO. In October 2001, Enron reported a loss of $618 million its first quarterly loss in four years. Chief financial officer Andrew Fastow was replaced, and the U.S. Securities and Exchange commission launched an investigation into investment partnerships led by Fastow. That investigation would later show that a complex web of partnerships was designed to hide Enron's debt. By late November, the company's stock was down to less than $1 US. Investors had lost billions of dollars. On Dec. 2, 2001, Enron filed for bankruptcy protection in the biggest case of bankruptcy in the United States up to that point. (WorldCom's collapse would later steal that dubious honor.) Roughly 5,600 Enron employees subsequently lost their jobs.