The Enron Scandal Essay

3076 words - 13 pages

In 1930, Northern Natural Gas, a Nebraska-based gas pipeline company was founded and thus began The Enron Corporation as one of the worlds's leading energy companies. In December 2001, Enron filed the largest corporate bankruptcy claim in United States history. The company's collapse led to investigations of both Enron and Arthur Andersen, an accounting firm employed by Enron. Investigators were alerted to charges that Enron deliberately concealed its financial problems, misled investors, and failed to pay income taxes.Since January, 2001 Enron's image has been tarnished making their stock today worthless. With corrupt executives and the help of their auditing firm, Enron has been able to ...view middle of the document...

In 1992, Enron and three partners acquired control of a 4,100-mile pipeline in Argentina.Enron bought several gas businesses from gas leader Williams in 1993 and began its power marketing business as the global electricity markets began deregulating.In 1997, Enron bought its own electric utility, Portland General Electric (PGE). In 1998, Enron began power trading in Australia and became the first power marketer in Argentina. The company continued to expand purchasing power plants near New York City as well as buying more companies globally such as Wessex Water in the United Kingdom and companies in India and China. In 2000, Enron contributed its retail residential energy business to The New Power Company. This contribution was to compete in deregulated US markets.Enron also purchased international metals marketer "MG plc" in a 2 billion dollar deal, then sold Houston Pipe Line Company to American Electric Power in 2001. It also agreed to sell Portland General Electric (PGE) to another Oregon utility, Northwest Natural Gas. Later that year, the company announced that it would sell its Indian gas assets to UK oil and gas group and they also announced plans to sell their power plant in India.In 2001, Enron was in talks with a small rival company, Dynegy. The initial agreement of a twenty-two billion dollar deal was discussed however; Dynegy soon canceled the deal as Enron's credit rating and stock price continued to drop. Days after the agreement collapsed, Enron filed for Chapter 11 bankruptcy protection and filed a lawsuit alleging that Dynegy breached the merger agreement and contested the Northern Natural Gas option. In January 2002, Enron agreed to let Dynegy take control of the pipeline; however, Enron would have the option to repurchase the pipeline in June of 2002. (, 2002)Key Problems and IssuesThe Energy Financial Group ranked Enron the sixth largest energy company in the world. In January 2001, Enron's stock hit a closing high for the year at eighty-two dollars per share (Goldberg & Davis, 2001). Investors and analysts knew Enron's financial statements were very complicated, but because Enron did not show any big fluctuation in their earnings growth, no one wanted to question the company and took them at face value. On October 16, 2001, Enron reported that they were taking a major loss on their third quarter earnings. At this point, everyone began questioning their financial stability.Enron's third quarter losses were coupled to the ending of the relationship with a pair of investment partnerships that were created by Chief Financial Officer (CFO), Andy Fastow. The partnership LJM Cayman and LJM2 were formed using Enron's equity and outside capital. They were designed to help the company grow quickly without adding too much debt to its books or diluting the value of the company's stock.The CFO's relationship with these entities was a cause for concern because it put him on both sides of the deal representing himself as the...

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