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Rembrand Paul Pardo

Professor Smith
Scientific Foundations of Nutrition 1020
14 April 2019

Enron: The Smartest Guys in the Room

It is amazing how much the Enron Corporation stole from America and how long this
fraudulent company was able to stay as one of the best companies of the nation but even more
surprising is the fact that even with people knowing the wrong doings of the corporation they
stayed silent and even contributed to one of the biggest scandals in America. Enron was rotten
from its very beginnings. It seemed like Enron corrupted everything that it was involved in. Its
participation in the natural gas and electricity business and its relationships with many banks cost
Americans billions of dollars.
Nothing seemed right with this company from the very beginning. Kenneth Lay, founder
of Enron Corporation, tried to push deregulation and get the government out of the energy
business. Even the close relationship Kenneth Lay had with the Bush family was murky, this
relationship, which was denied when the truth about the company came to light, helped the
founder of Enron. George H. W. Bush made Ken Lay deregulator ambassador which helped the
whole fraud. One proof that this company was rotten from the beginning is the scandal of 1987.
Only two years after the merger between Houston Natural Gas and InterNorth in 1985 the
Valhalla scandal happened. Louis Borget, the president of the company then, and two oil traders
misappropriated money from Enron. They presented falsified bank records and diverted
company’s profit to personal accounts. Borget and his traders were manipulating earnings and
destroying daily trading records. Ken Lay knew all about this wrong doing and instead of
stopping it he encouraged it. This eventually led Louis Borget to prison, but the company was
rescued thanks to one of the executives of Enron, Mike Muckleroy. He bluffed the market and
saved the company from the Valhalla scandal. In an effort to continue making personally profit
Ken Lay found a new leader for his company, Jeff Skilling.
Jeff Skilling along with other people like Andy Fastow, made Enron appear as one of the
best companies in the U.S. and they also took the company to its destruction. Jeff Skilling had a
condition before joining Enron was that he would be allowed to use mark-to-market accounting.
This allowed Enron to book potential future profits on the very day a deal was signed no matter
the amount of actual money that came into the company. The leaders of the company could make
the world believe that Enron’s profit was as lucrative as they wanted. Another big contribution of
Skilling to this horrible corruption was his idea of a new way to deliver energy rather than be
bound by the physical flow of the pipe line. Enron would become a kind of stock market for
natural gas, transforming energy into financial instruments that could be traded like stock and
bonds. This way they could make money using the stock-market. They would “pump and dump.”
Top executives would push the stock price up and then cash it. If Enron could keep stock prices
up, they could continue the wrong doing.
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The higher the price the more attractive they were for the stock analysts and investors.
This fooled stock analysts. They were deceived by the high and constant stock price of the
company. They trusted the company’s illusion. They were willing to believe anything that Enron
would tell them, so they weren’t analyzing at all. Additionally, any analyst who didn’t buy or
trusted the company line became an enemy of Enron. This was the case of John Olson, one of the
only analysts who was skeptical of Enron’s profits. He got fired and the Chief Financial Officer
of Enron, Andy Fastow, rewarded the bank who fired Olson with two investment banking jobs
worth 15 million dollars.
All this illusion and trust from banks was the responsibility of Andy Fastow. He was the
CFO of Enron, and his job was to coverup the fact that the company was becoming a financial
fantasy. He kept the stock price up while hiding that the company was 30 billion dollars in debt.
He was doing this by using structured finance. Fastow created hundreds of companies to make
the debt disappear by giving those companies some of the debt. Moreover, these companies help
Jeff Skilling, Andy Fastow, and other executives misappropriate money from the company to
personal accounts. Fastow also used wall street’s greed. He made it possible for many banks to
invest in Enron by promising returns up to 2,000 %. At least 96 banks invested in LJM, one of
the companies that he created. Those banks knew about Enron’s practices and wrong doings, but
they were getting paid and didn’t do anything. Banks financed all fraudulent deals of Enron;
without them Enron couldn’t have made it as far as it did.
In 1997 the merger of Enron with Portland General Electric (PGE), forming Enron
Energy Services (EES), and put the company in the electric business. This gave EES access to
the newly deregulated market of California. When EES was facing 500 million dollars in loses,
in order to make its numbers the company caused rolling blackouts which raised the price of
electricity which created profit for the company. These blackouts caused wild fires, high
temperatures, traffic accidents, domestic accidents, and a cost of 30 billion dollars in the
American economy.
The corruption of Enron is one of the biggest in the nation and the damage that they
caused to America is very great. When it filed for bankruptcy in 2001 the company had
estimated losses totaling about 74 billion dollars. This company not only drove its employees
and executives to commit very unethical actions, but it influenced banks, analysts, other CEOs
and others to go along with manipulation, theft and the many other wrong doings.