A report on Enron bankruptcy

ENRON was the worlds leading energy company before bankruptcy in late 2001.it diversify its
investment upto 30 different products such as electricity, natural gas, communications, and pulp
and paper companies, with claimed revenues of nearly $101 billion in 2000. Enron employed
approximately 22,000 staffs . The Enron scandal, revealed in October 2001, eventually led to the
bankruptcy of the Enron Corporation.

Kenneth Lay, Founder, former Chairman and CEO. Jeffrey Skilling, former President, CEO and
COO. Andrew Fastow , former CFO was the key person for Enron bankruptcy.

Enron did not want to show any debt from taking over on its balance sheet. Many of Enron's
recorded assets and profits were inflated or even wholly fraudulent and nonexistent. Debts and
losses were put into entities formed "offshore" that were not included in the firm's financial
statements.

Chief Financial Officer (CFO) Andrew Fastow developed the special purpose entity which raised
debt guaranteed by Enron . The company elected to disclose minimal details on its use of special
purpose entities. Enron had used hundreds of special purpose entities to hide its debt. Enron's
balance sheet understated its liabilities and overstated its equity, and its earnings were overstated.

Andersen's auditors were pressured by Enron's management to defer recognizing the charges
from the special purpose entities. , Andersen attempted to cover up any negligence in its audit by
shredding several tons of supporting documents and deleting nearly 30,000 e-mails and computer
files.

Fastow formulated two limited partnerships LJM1 and LJM2 for the purpose of buying Enron's
poorly performing stocks and stakes to improve its financial statements.

When Skilling joined the company, he demanded that the trading business adopt mark-to-market
accounting. Mark-to-market accounting requires that once a long-term contract was signed,
income was estimated as the present value of net future cash flows.
 Enron are allowed to report the entire value of each of its trades as revenue. This approach was
considered much more aggressive in the accounting interpretation. The company use accounting
limitations to misrepresent earnings and modify the balance sheet to portray a favorable
depiction of its performance.

Enron loosed the biggest project in India. the Indian government assessed the project as being
excessively expensive and refused to pay for the plant and stopped construction. The plant
operator was unable to find alternate customers for Dabhol power due to the absence of an open
free market in the regulated structure of utilities in India.

By the late 1990s Enron's stock was trading for $80–90 per share, after revealed the Enron
scandal its stock ptice move to 40 cents in October 2001.

The combination of these issues later led to the bankruptcy of the company, and the majority of
them were perpetuated by the indirect knowledge or direct actions of Lay, Jeffrey Skilling,
Andrew Fastow, and other executives.

Fastow was initially charged with 98 counts of fraud, money laundering, insider trading, and
conspiracy, among other crimes. Skilling was convicted of 19 of 28 counts of securities fraud
and wire fraud and acquitted on the remaining nine, including charges of insider trading. Lay
pleaded not guilty to the eleven criminal charges, and claimed that he was misled by those
around him. Lay was convicted of all six counts of securities and wire fraud for which he had
been tried, and he faced a total sentence of up to 45 years in prison. However, before sentencing
was scheduled, Lay died on July 5, 2006.