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The story of Enron Corporation's rise and fall out is based on personal interest, greed,

manipulation of economic data. The collapse of such a giant company affected thousands of

employees, investors and overall economy harshly in the 2000s. Enron scandal is big in terms

of economy and black-spot that brought to such big corporations working culture. A

notorious scandal like this is a perfect example of how political interest and money with

cunning tactics drive a man to insane to do irrational things.

Enron was formed by Kenneth Lay, who had been the CEO of Houston Natural Gas

and with the merger if Omaha-based InterNorth incorporated in 1985. Enron soon became the

2nd largest company in the Gas-pipe industry in America. A huge part of George Bush's

presidential campaign money came from Kenneth Lay, who had political interest for

upcoming projects in Enron. Deregulation of the energy market was the fuel of the money-

making engine of Enron.

In 1990 when Jeffrey Skilling joined the Enron Finance Corp. he flourished the

market with Mark-to-Market ideology in 1992 with SEC approval. Bets on future prices and

the help of Wall-Street investors and analysts, by paying them black-money to raise stock

price against asset value raised the Enron stock-prices tremendously against their competitors

or any other S&P 500 index. Skilling's off-the-book account practice fooled the investors and

creditors keeping debt blindfold at the same time.

Lou Pai, was the CEO of Enron Energy Services from 1997 to 2001, when he left the

company he cashed the $270 Million and left to Colorado and brought the property, land and

became the 2nd largest landowner in the country. Lou Pai escaped the company way earlier,

unlike Lay and Skilling federal prosecution Lou doesn't call for any trial or even as a witness

for the case against Enron executives and CEO. Selling commodity, acting against the fair

value of assets and making fraud balance-sheet where debts were hidden most of the time

hyped the Enron stock price in the 1990's era.


Andrew Fastow joined the fraud corporate race as a chief financial officer (CFO) of

Enron Corp. in 1998. Soon he created a network of fraud companies where Enron hide their

losses. Assets that were losing money were sold to partnerships, Enron listed these assets as

earning.

Apart from these big fraud players in Enron another accounting firm Arthur Andersen

LLP signed and passed the stamp of approval of Enron despite poor performance. Dabhol

Power Station in India was built with the combined effort of Enron and the state government

of India. The plant was shut down in a few years as Enron offered electricity at a higher price

which was around 2000 times higher than that of local board electricity prices. Enron's

broadband service plan ensuring high telecommunication service/bandwidth and Blockbuster

video-on-demand scandal did not helped to gain profit as expected in 2000. California

Electricity crisis in 2000 and 2001 created by Enron with the help of state government to

make a shortage of electricity in California and supply to the people at higher prices. Rolling

blackouts crisis and deregulation of the energy sector helped Enron lot.

When Enron's balance-sheet was questioned by Fortune Magazine employee Bethany

McLean in an article named "Is Enron Overpriced?" in March 2001, it opened up a lot of

issues to the readers questioning Enron's ethical behavior and economic practice. Soon Enron

went bankrupt losing share value price from $90.75 to $0.26 in a few weeks. Skilling sold off

his share $20 Million before bankruptcy. Enron investors lost billions in the pension scheme.

The company paid its creditors more than $21.7 billion from 2004 to 2011. Shady bookings

and fraud entry of cash-flow pinched the Enron liability.

After bankruptcy and in court trials:

 In 2002, Arthur Andersen found guilty in shredding Enron's financial documents. The

conviction was overturned on appeal but it turned the company into holding company

and in 2014 former group of partners created firm again named Andersen Global.
 Clifford Baxter, Enron's executive committed suicide in June 2002 before testifying in

court.

 Enron's founder and former CEO Kenneth Lay were convicted on six counts of fraud

and conspiracy and four counts of bank fraud. He died of a heart attack in 2006.

 Andrew Fastow pled guilty to two counts of wire fraud and securities fraud He

ultimately cut a deal for cooperating with federal authorities and served more than

five years in prison. He was released from prison in 2011.

 In 2006, Skilling was convicted of conspiracy, fraud, and insider trading. Skilling

originally received a 24-year sentence, but in 2013 it was reduced by 10 years. As a

part of the new deal, Skilling was required to give $42 million to the victims of the

Enron fraud and to cease challenging his conviction. Skilling remains in prison and is

scheduled for release on February 21, 2028.

 Shareholders lost $74 billion in the four years leading up to its bankruptcy, and its

employees lost billions in pension benefits.

 Lou Pai never charged with any fraud behaviour neither came as witnessed in the

trial.

 President George W. Bush signed a law named Sarbanes-Oxley Act in2002. The Act

heightened the consequences for destroying, altering, or fabricating financial

statements, and for trying to defraud shareholders.

So, what we learn in the end? Be Honest, unethical behaviour and practice in any industry

or work will always lead to its destruction and people around it.

Reference:

1. https://www.investopedia.com/updates/enron-scandal-summary/#enrons-energy-origins

2. https://money.cnn.com/2001/11/29/investing/q_enronanalysts/
3. http://www.creditpulse.com/accountingfinance/lessons-enron/enron-lesson-no-1-mark-

market-fair-value-accounting

4. https://www.washingtonpost.com/archive/business/2002/01/01/broadband-strategy-got-

enron-in-trouble/86ce87f6-33e6-4efe-900

5. https://corporatefinanceinstitute.com/resources/knowledge/other/enron-scandal/

6. https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=2308&context=faculty_scholars

hip