The Enron Scandal

                                        The Enron Scandal

        The Enron scandal in 2001 was one of the most notorious white collar crimes in American history. By 2001 Enron’s executives embezzled funds funneling in form investments while reporting fraudulent earnings to investors, subsequently the discovery of the crimes were found in California with regard to the supply of Natural Gas. Due to the fact that the company was widely respected and the general populace were not wary about the validity of their financial statements. Executives of Enron enjoyed funds rendered from investments, while the corporation itself was approaching bankruptcy which is very unethical in any business setting.

         Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. In the early 90’s he helped to initiate the selling of electricity at market prices and soon after the United States Congress approved legislation deregulating the sale of natural gas, The result made it possible for traders such as Enron to sell energy at higher prices, which significantly increase its revenue. Enron became the largest seller of natural gas in North America by 1992, in an attempt to achieve further growth, Enron pursued a diversification strategy. The company owned and operated a variety of assets including gas pipelines, electricity plants, pulp and paper plants, water plants, and broadband services across the globe. The corporation also gained additional revenue by trading contracts for the same array of products and services with which it was involved. By December 31, 2000, Enron’s stock was priced at $83.13 and its market capitalization exceeded $60 billion, 70 times the earning and 6 times the book value which was pivotal in the industry and set them apart from all the rest.

        The down fall for Enron was their complex financial statements that were confusing to shareholders and analysts and its complex business actions and unethical practices showed that the company used accounting limitations to misrepresent earnings and modified the balance sheet to indicate favorable performance done by the companies accounting firm Arthur Andersen LLP, which was one of the five largest audit and accountancy partnerships in the world. Arthur Andersen earned 25 million in audit fees and 27 million in consulting fees, but their methods were questioned as either being completed solely to receive its lack of expertise in properly reviewing Enron’s revenue recognition, special entities, derivatives and other accounting practices. Enron hired numerous CPAs to search for loopholes and new ways to save the company money and ordinance with the accounting industries standards. The actions of the firm made them liable in the scandal as well. By the late 90’s Enron’s stock was trading for $90 per share but on the brink of the scandal plummeted to $0.67 per share, which was a devastating blow to shareholders.