Enron Accounting Fraud
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Enron Corporation was an energy company that dealt in the provision of energy and its products. It was based on Houston, Texas and was one of the leading energy companies in the world. However, in the year 2001, the company became insolvent. This rendered more than 22000 employees redundant. The company majored in electricity, communications, natural gas, paper and pulp.
The Enron scandal was one of the most publicized accounting frauds in America. This was in towards the end of 2001. During this period, it was established that Enron was giving a false financial picture. This means that, the financial condition the people gave was an institutionalized creative and systematic accounting fraud. The scandal raised questions about the accounting practices corporations indulge in to deceive their clients and shareholders. As a result, the entire business world was affected primarily since the dissolution of the Arthur Andersen accounting firm.
The financial fraud of Enron began in the 1990s with Jeff Skilling as the company CEO. Jeff was eager to exploit the growing deregulated energy market, and so he hired Andrew Fastow to manage the assets and liabilities of the firm. Andrew successfully established special-purpose entities SPEs, however, the liability did was not included in the business account books. Hence, the company was able to maintain its fundamental investment grade credit ratings as well as, its powerful growing stock price. Enron, over the years, grew wealthy and was declared the America’s leading innovative company. The company had a rosy reputation causing many to hail it. Trouble began when Daniel Scotto issued a report that urged investors to sell their Enron bonds and stocks at whatever cost.
This led to an enquiry on the organization where it was discovered that the company’s assets and profits were overstated, illegal or nonexistent. It was also revealed that the company’s debts and losses were never included in the firm’s financial statements. Instead, they were recorded as offshore entities. Moreover, transactions Enron had with other affiliated companies were used to hide the unprofitable things off the company books. As the cheating scandal unraveled, the price of Enron shares dropped drastically. Majority of Enron’s losses and debts were never included in the company’s financial statements.
Andrew Fastow pleaded guilty of conspiracy. He was among the Enron administrators that were charged in the fraud case. Others were Leah Fastow, Skilling, Lay, Cauesy and Raymond Bowen among other staff. Fastow was the chief financial officer of the company at the time of the conspiracy. Other members of staff who were charged include; Timothy Belden who at the time was the company's leading energy trader. David Birmingham, Giles Darby and Gary Mulgrew were bankers who were also implicated in the scandal. Skilling, the CEO, pleaded innocent to all crimes committed by Enron. However, he was seen as the mastermind of the whole operation.
His guilt was revealed again when he sold 39% of his company shares long before the business financial problems were disclosed. In 2006, a supreme court in Houston found him and Lay, the former CEO, guilty of conspiracy. They both claimed that Enron was a great and sound company that was being brought down by negative media statements and short sellers creating a market panic. Skilling maintained his innocence throughout claiming that he was never aware of any wrong practices in the firm.
Enron was forced to file for bankruptcy protection till November 2004 when it emerged from bankruptcy. Enron, under a new board of directors, became Enron Creditors Recovery Corp. the main objective of the company was to restructure and liquidate assets Enron possessed before failure. In 2006, Prisma Energy International Inc was sold to Ashmore Energy International Ltd, the present day AEI. Cross-country Energy Corporation and Portland General Electric were also companies under Enron that suffered because of the scandal.
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