Enron Scandal

In 1985, Enron was formed by Kenneth Lay after the merging of Houston Natural Gas and InterNorth. In the 1990s, Lay helped to initiate the selling of electricity at market prices. Markets made it easier for Enron to sell energy at higher prices, which caused the company to get richer. Enron was the largest merchant of natural gas in 1992. In November 1999, the creation of EnronOnline enabled Enron to develop, negotiate and manage its trading business. By 2001, Enron became a multinational company that owned and operated gas pipelines, pulp and paper plants, broadband assets, electricity plants, and water plants. Enron used Wall Street to transform energy supplies into financial instruments that could be traded online like stocks and bonds, these contracts would guarantee their customers a steady supply at expected prices, they introduced supply and demand to the energy industry, it was supposed to be good for the customer. They got so bigheaded which created an insurance risk, it was a complete failure. Enron began to hide their bad business practices.

The Enron Scandal happened in October 2001, it led to the bankruptcy of the Enron Energy Company which also led to the termination of Arthur Andersen, one of the largest audits and accounting partnerships in the world, it became known as the biggest audit failure in American History. Billions of dollars were hidden in debts from bad deals and projects due to accounting loopholes, special purpose partnerships and poor financial reporting. Faking their records, allowed Enron to look like they were growing and gainful therefore fascinated more investors. By the time the investors found out what was really going on they were broke and lost everything.

Shareholders lost nearly $11 billion dollars when Enron stock price hit a high of $90 per share; this is when the U.S. Securities and Exchange Commission began to investigate. Dynegy, an electric utility company tried to buy Enron at a discounted sale price in 2001, but the deal failed. Enron filed for bankruptcy soon after under the Chapter 11 of the U.S. Bankruptcy Code, it was the largest corporate bankruptcy in U.S. history.

Many of the executives were indicted and sentenced to prison. Arthur Andersen, the auditor of Enron was found guilty and the firm lost most of its customers which led to Arthur Andersen shutting down. The executives knew that the company was going under, but they would lie to the employees and shareholders, which encouraged the employees and shareholders to buy more of the Enron stock. Many families, employees and shareholders had their life savings in the stock. Stocks were sold by the executives before the stock price crashed. The executives made billions of dollars and everybody else lost profits. Even though the executive could have been honest, they were greedy because they knew they stood to lose billions. By 2002, most of Enron’s employees were unemployed. Beginning in 2006, Arthur Andersen was convicted of obstruction of justice and customers, families, shareholders and employees didn’t receive much in lawsuits, despite losing billions in their pensions and stock prices.

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