How Enron Fraud

How Enron Fraud

Enron has involved in several illegal and unethical actions that all combined together caused it collapse in a very short time.

Enron has a lot of special purpose entities to hiding its financing debts and reveal only ‘bright side’ of performance that misleading investors. Firstly, its debts and the losses were not reported in its financial statements because much of its profits and revenue were deals with special purpose entities. Hence, it caused balance sheet understated liabilities and overstated its equity& earnings. Example is White- winged Dove that bought assets from Enron but transfer of assets is not true and should have been treated as loan due to financing from this special entity. It reflect by behavior of Andrew Fastow CFO of Enron, he creates a network of shell companies designed solely to do business with Enron for dual purposes of sending Enron money and hiding its increasing debts. He has a vested stake in these ventures and using them to defraud Enron millions of dollars. Fastow also using Wall Street Investment banks who’s invested its entities and conduct business deals with him. It is a manipulation by top executives toward financial performance data.

Enron seeks to beguile stock market analysts by push up stock prices and then cash in their multi- million dollar options in a process called ‘pump and dump’. Besides, it portrays itself through public- relation campaign that it is a profitable and stable while worldwide operations are performing poorly. One of the method used is it records nonexistent profits for its ventures using ‘Mark- to- market model accounting’. It requires once a long term contract was signed, income is estimated as the present value of net future cash flow. Analysts being given misleading reports due to difficulty of estimation on contract costs and variables during their analysis job performed. This treatment