What Happened in Enron Essay Example

What Happened in Enron Paper What happened In Enron and Arthur Andersen? United States seventh largest company Enron, with the slogan Ask Why was admired for Its innovation, but it all ended up In bankruptcy and criminal matters. The company filed for bankruptcy in December 2001. This was one of the worlds biggest corporate scandals In history. Aquas seventh largest firm had In over sixteen years increased its assets from 10 billion to 70 billion US. Dollars, and was by the stock market analysts from Wall Street hailed as the new economy model. Five years in a row, readers of Fortune magazine appointed Enron as The most innovative company in America. The companys director and founder (in 1985) was Kenneth Lay, who was the future business Idol. In his holidays, he played golf with former President Clinton while he made Enron the largest contributor to George W. Bushs career as Texas governor, and not least as U. S. President. As a former employee of the now defunct U. S. Deader energy commission, Acting Deputy Minister of Energy compared the Interior and economist for the Pentagon during the Vietnam War had Lay conditions for developing Its business In light of a lattice concept: aggressive deregulation, the removal of all regulatory and legal obstacles for appropriation and monopoly profits. Enron was dealing with natural gas. As oil prices fell during the ass, and natural gas (which had flourished in the wake of the oil crisis) was again threatened by falling oil prices, Lay found out that deregulation was the answer. We will write a custom essay sample on What Happened in Enron specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on What Happened in Enron specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on What Happened in Enron specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Large customers would no longer be bound by agreements with local, often public energy facilities, but could buy directly from producers, which in turn should have access to the pipe and conduit systems. Public monopolies were broken. Lay went directly to the Federal Energy Regulatory Commission (FARCE) and got the rules repealed. The result was more volatile energy prices. Now, Lay got his most innovative idea: to make natural gas and energy commodities in line with all other mass production. Natural gas was now controlled by electricity supply and the electricity market was deregulated to a large wholesale market. Lay went directly to the U. S. Congress, and Congress changed the rules. In 1994 Enron began trading with electricity next to the natural gas, where It became the largest supplier in the U. S. And in England. In 1997 it was also Americas largest electricity trading, as did the rear of public electricity companies, as the federal SPA. The U. S. Energy deregulation model became a global model. In country after country it was being Introduced. In 2001 , ten company only Ana 24 cays to go Dandruff Ana turned out to consist AT hot air. Investors lost everything. 20,000 employees lost their Jobs, health insurance and retirement savings, while managers such as Ken Lay and Jeffrey Killing walked out with nearly one billion U. S. Dollars. The senior people in the company had earned nearly 1 billion U. S. Dollars from the sale of company shares over the last two years. The founder and leader of the firm, Kenneth Lay, earned 123 million U. S. Lars in 2000 and 25 million in 2001 and then sold his Enron shares before the collapse and had a great profit out of it. At the same time he urged employees to buy shares, which would soon prove to be worthless, while he told them third quarter looks to be super, and predicted that its value would increase by 800% or more in Over the next decade. Employees would not touch the shares they had in the company, and many whose retirement savings we re ever $ 1 million worth in August 2001, were left with a life savings of only $ 4000 at Christmas 2,001 the. Many companies are working hard to develop a corporate culture and employee loyalty. This was obviously not the case with Enron. Thousands of workers ended up with an empty bank account and an uncertain future, this was the only reward for believing that they were part of a team. It is these experiences that will clearly show that the working class and the ruling class do not have common interests, no matter what the capitalists say otherwise! Unfortunately, the loss of Jobs in Enron will not be he last in the current economic crisis. Many other traditional companies such as Ford and Boeing have already announced major layoffs. Thats life under a system that puts profits before people. Enrons biggest mistake was their pride. In addition arrogance, intolerance and greed. People were blinded by greed. They could not see the dangers, said the former staff lawyer, Amanda Martin. Arrogance, intolerance and greed does not necessarily lead to fraud and embezzlement. But it did with Enrons management, and this lack of morality and common decency filtered down through the organization. The story of Enron started in 1985 in the U. S. IL capital, Houston, as director Kenneth Lay leaves the local Houston Natural Gas merged with a Nebraska-based company International North in the new company Enron to include to do business with 60,000 kilometers of natural gas pipelines in the U. S.. In record time, Enron is with wealth of buying U. S. Largest supplier of natural gas and power and from its impassions headquarters in a skyscra per in Houston a model around the world for how we should privative energy. Quarter after quarter, Enron comes with impressive cords, and the already gilded shareholders can only smile when the IT bubble burst in 2000. They are in tomorrows safest money machine But there are already starting to get cracks in the glass buildings glistening facade. T Tanat Enron should sell bandwidth in line with other groceries. Enron entered into a collaboration with video rental company Blockbuster to supply video on demand. The stock exchange cheered, and Enrons price rose 34 percent in two days. The problem was that the technology was never developed, and the agreement fell to the floor after a few months. But with the mark-to-market principle, one could record 53 million U. S. Dollars on a contract that had not brought a crown. The same was true for many of Enrons other activities around the world. Most gave either no profits or even losses, but the presumed earnings were already booked. And Enrons price rose and rose. As it turns out not to be enough, in 1999, Kenneth Lay gives COOP Fast authorization, at its own expense, with a stripe of Americas most respected financial houses to create a pair of funds. The task is to do business with Enron, so the turnover and the counting earnings can be kept up, and Fast also creates yet more sinister foundations and companies, where he parked Enrons worst deals. There is rejoicing at management of Enron, as power-hungry California the same year opened a vigorous appropriation of its energy market. It offers new opportunities for creative outlets, because Enron peoples better than the officials are able to maneuver at the intricate set of rules. Enron also begins massive online trading speculation in future energy prices to be sold free bandwidth on the internet and here is even a market for speculation in the weather. One of the few areas where Enron really made any money was in California. In 1997, Enron acquired Portland General, and gained access to Californians deregulated electricity market. The recipe for enormous profit was simple. The price of a commodity rises if demand exceeds supply. Enron reduced supply of electricity. This made the price of electricity rise, some days with 3-400 percent. The result of this attempt at a free energy market was that California was hit by power cut in the middle of winter, when electricity demand is lowest. Energy crisis cost the California taxpayers 30 billion dollars, while the electricity cuts earned two billion U. S. Dollars to Enron. But even this golden egg in length could not save Enron. Stock market analysts on Wall Street believed in everything Enron executives told them about Enrons huge profits now and in the future, until the reporter Bethink McLean in an article in Fortune in March 2001 questioned Enrons economic status with the simple question that no one could really answer How does Enron make money? Less than a year after, the house of cards fell together and pulled Americas oldest counting Tell Arthur Andersen Ana Its employees In ten Tall. President Bush said he would be entrepreneurial president. It surely was, but the company was Enron. He created the same alternate reality, the same bubble of hot air. But ultimately dotted the real reality bubble. As commentator Harold Emerson put it: When historians at a time, looking back at the Bush administration, it will give them headaches trying to figure out how a president could do so consistently fail out of so many cases especially considering that many of the cases was his own initiative. Ironically, Enron had the slogan Ask Why, but it did not seem serious until February 2001 when a Journalist at the business magazine Fortune, Bethink McLean, full of wonder analyzed where the glossy annual reports information on Enrons alleged revenue came from. The article was met with attempts at ridicule from Enron, but suddenly a woolly explanation of the company was released, and then finally began a barrage of questions. In October, Enron submitted an accounting of one billion deficit, and in November the company added that there had been an accounting fraud for billions in five years t took only 24 days before the bankruptcy was a fact. There was wealth of reports on how senior management staff in the last few months had sold Enron shares for astronomical sums to avoid personal losses. In the meanwhile, they recommended others to buy. So bankruptcy was also a criminal, and dozens of people began to talk about how they had long wondered what they really even contributed to, but not dared to ask why, because they had been afraid of the answers. In 2004, Fast, who had cooperated with the authorities on the investigation of the case, was sentenced to 10 years imprisonment and a fine of 140 million. R The others were Lay and Killing, who both declared their innocence to the very end, convicted of fraud. What happened in Arthur Andersen? Auditing firm Arthur Andersen was sued and convicted in 2002 for destruction of evidence concerning the fraud-hit energy firm Enron. Andersen shredded Enron documents, and prosecutors said it was to hide complicity in fraud. Arthur Andersen defended themselves by saying that the documents were irrelevant material of a type which were routinely destroyed. The head of Andersens Enron team, David Duncan, pleaded guilty and cooperated let attenuators In ten case galls t Nils 010 Tell. U. S. Supreme Court this week cited with regard to the Jury not sufficiently had taken a position on whether the document was scrapping with criminal intent. Andersen was Enrons auditor general, while other firms revised parts of the company. Among other things, was not Andersen auditor on the so-called partnerships that Enron used to hide its debt and how much of the fraud took place. When the Arthur Andersen fraud was revealed, it led to the break-up of the firm and to the following assessment by the Powers Committee: The evidence available to us suggests that Andersen did not fulfill its professional responsibilities in connection with its audits of Enrons financial statements, or its obligation to bring to the attention of Enrons Board (or the Audit and Compliance Committee) concerns about Enrons internal contracts over the related-party transactions. The deception was initially made possible by a grip that by the rest of the financial world was regarded as brilliant. Enron was permitted to use the accounting principle of mark-to-market, which means you can book future profits on the same day a trade s concluded, regardless of how little there since comes in. Externally, Enrons profits could then be what Enron said it was. It gave great opportunities for manipulation of accounts. Lessons from the rise and fall of Arthur Andersen and Enron Even if many have tried, capitalism is not so easy to keep under control. The Enron collapse is not the only scandal we have seen so far in capitalism and it is most likely not be the last one. Enron has given $1. 9 million to the national political parties, more than three quarters of it to the Republicans. It has spent additional millions on political antedates, so that two-thirds of our national legislators have benefited from Enron largesse to their campaigns. These same millions have given Enron access to the most respected politicians in America. Kenneth Lay had private meetings with Cheney to tell him what the nations energy policy should be. He submitted a list of names of who should be appointed to the Federal Energy Regulatory Commission. This is Just one of the lobbying example of many. We must take the big money influence out of politics. We also have the investors, who, like many other investors, were too mesmerisms by he promise of free money to actually examine Enrons cash flow statements before handing over their hard-earned cash. The stock market has a way of giving investors exactly want teeny deserve, anon when get-roll-quickly Investors Tallow ten palace AT so- called financial analysts who give BUY ratings on companies they dont even understand, what they might get is bankruptcy. Too many investors think the stock market is a giant take-away table of money. They underestimate risk and overestimate the potential for gain. Another lesson would be that the governments cannot deregulate everything. Most likely, businessmen will act in their own interest instead of listening to the public and what they want. The most important lesson would be that the relentless pursuit for profit is a major issue in our economic model. It can easily get out of control and people will get hurt. Additionally, regulations concerning subsidiaries and corporate spin-offs should be amended so that they the relations between parent and subsidiary are transparent and reflect the actual ownership position of the parent company. These are only few of the lessons learned from Enron, but with such a big disaster eke Enron, there are endless lessons to be learned.