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Enron Fraud Scandal

Question :

Enron fraud scandal is one of the leading scandal in the history which have shaken the economy of the United States. This affected not only thousands of employees but also the shareholders and investors. This scandal awake the people and the shareholders to bring the transparency in the accounting so that fraudulent activities can be prohibited. The scandal have placed huge impact on the corporate sector which resulted in bankruptcy of Enron Corporation and dissolution of the Arthur Andersen LLP.

  • How the Enron fraud scandal was highlighted and came into limelight?
  • What was the decision of the criminal proceedings against the Enron corporation?
  • What was the aftermath of the Enron Scandal?
Answer :
Organization Selected : Enron corporation

The Enron Corporation was formed in the year 1985 after merger of the two companies Houston natural Gas and InterNorth. It was formed by Kenneth Lay. The headquarter of the company was in Houston, Texas. It deals in energy commodities and services and was a major natural gas, electricity, communication, natural gas and pulp and paper company. Before the scandal, the corporation have around 29000 employees and was also named as the America's innovative company for six continuous years. Over the years, it expanded its business plan so that it can increase its profitability. Kenneth Lay was the CEO of the company and Jeffrey Skilling was appointed as Chairman where he was responsible to engage the company in partnerships so that debts of the company can be easily concealed. Arthur Anderson was responsible for accounts and audits of the company.

Enron Corporate meltdown 2021

Timeline for downfall

When the corporation was formed, the natural gas and energies were under the monopoly of state. But after few time, this was de regularised and the companies were given freedom to operate freely and Enron Corporation took advantage of it and formed its trading website and began the online energy trading.

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After this, the company began investing in the trading ventures which was converted into the contracts so that this can be sold to investors. The person behind this idea was Jeffrey Skilling. The company started to invest in this venture and as the result the stock price took the hike and the Company was named as the most innovative company of America from 1996- 2001. simultaneously, the debts were grown inside the company but the management of the corporate were successful in hiding the same by setting multiple partnerships (special purpose entity) so that they can hide the losses and reflect the imaginary revenue.

The Executives also misrepresented the balance sheet in order to hide the losses so that the investors are not able to find out the actual soundness of the company. The executives were successful in showing the fraudulent earnings to investors so that they can invest more and more into th

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