Enron: the Nigerian Barge Deal

Nine years later, Enron became one of the largest marketed companies of electricity in both The United Kingdom and North America. In December of 2000, Enron’s stock was priced at almost $90 per share. The company seemed to be a profitable business, but people did not know what was exactly happening inside the company because the executives had hidden their huge losses very well. The numbers on the books were not the accurate numbers. They even hired Arthur Andersen LLP to help them with the task of hiding billions in debt from failed deals and projects. Attorney General John Ashcroft said his company had helped Enron to destroy many documents. In November 1999, they created two limited partnerships, LJM Cayman. L.P. (LJM1) and LJM2 Co-Investment L.P. (LJM2), to help Enron hide its huge losses. These partnerships bought Enron’s poorly performing assets and risky investments to amend of Enron’s financial

In the early 1990s, a young company named Enron was quickly moving up Fortune magazine’s chart of “America’s Most Innovative Company.” As the corporate world began to herald Enron as the next global leader in business, a dark secret loomed on the horizon of this great energy company. Aggressive entrepreneurs eager to push the company’s stock price higher and a series of fraudulent accounting procedures involving special purpose entities were about to be exposed. In early 2002, the United States Justice Department announced its intent to pursue a criminal investigation into the once mighty company, Enron.

Michael Oxley. Enron’s shady business practices caught the attention of the government because of the

success and so took a risk into a market that had not yet fully taken

They were placing company’s in financial choke holds for future business propositions. With everyone wanting to be attached to the business of Enron they were able to get these company’s to close there eye and shake on fraudulent deals with the blind promises of financial success. Business performance was hidden from the worlds eyes, and passed off as success through undocumented lies and fraudulent business practices.

Ultimately, Enron became bankrupt. This scandal is the one of America’s largest investigations into a firm’s illegal accounting practices and attempt to conceal it from the shareholders and credit lenders. It was too late for Enron to keep quiet and the many accounting issues that they were going through were now about to be out in the open.

Moreover, we know that ENRON has been buying a big number of ventures that looked promising. We know that ENRON has also been creating off balance sheet entities in order to remove the risk of their financial statements.  Because of market-based accounting explained above, ENRON recorded all time high revenues. The company thus wanted to be involved in other areas. For instance, ENRON was buying or developing an asset – such as a pipeline – and then was expanding through a vertical integration (buying a retail business around that pipeline). This strategy required huge amounts of initial investments and was not going to generate earning or cash flow in the short term. If ENRON elected to present this strategy on its financial statements, it would have placed a big burden on the company’s ratios and credit ratings, and credit ratings investment grade was crucial for ENRON energy trading business. In order to find a solution to this issue, ENRON decided to look for outside investors who would like to make those deals with

Enron employed several highly qualified PHDs in mathematics, physics, and economics. Enron continued to enter into contracts with customers and utilized a group of skilled employees to interpret, manage, and confine the high risks Enron was taking. Enron’s attempt to create a collection of partners that would permit employees to shift debt and losses off of the books would soon come to an

The Economist states, “In America, well-policed stock markets, fearsome regulators at the Securities and Exchange Commission (SEC), stern accounting standards in the form of generally accepted accounting principles (GAAP), and the perceived audit skills of the big five accounting firms, have long been seen as crucial to the biggest, most liquid and most admired capital markets in the world.” The controversial subject of who is to blame for Enron’s fraud able to stay hidden for such an extended amount of time is distributed among three top employees mentioned along with other close working individuals from other companies.

In October, 2001, Arthur Andersen, the supervisor of the Enron account, found himself in deep hot water with the Enron Oil Company in Texas, as the SEC announced that an investigation into the accounting of Enron was pending (Ferrell, Fraedrich, Ferrell, 2011). On November 8, 2001, Enron was forced to present its financial statements of five years to which Andersen was the auditor (Ferrell, 2011). About five hundred and eighty-six million dollars in losses were ascertained and therefore, Enron, was forced into bankruptcy one month afterwards (Ferrell, 2011). By December 2001 Enron filed bankruptcy (Ferrell, 2011). This event triggered a domino effect and as Enron’s accountant, Andersen was charged for obstruction of justice.

Enron began as an energy company in 1985. After the deregulation of oil and gas in the U.S., Enron lost its’ exclusive rights to natural gas pipelines. The CEO, Kenneth Lay then hired a consulting firm to reinvent the company in order to make up lost profits. He hired Jeffery Skilling, who was in banking, specifically; asset and liability management. Under the topic “The Beginning Presages the End”, C. William Thomas (2002) writes: “Thanks to the young consultant, the company created both a new product and a new paradigm for the industry—the energy derivative.” When Skilling’s plans were very profitable, he was promoted to COO of the trading division. With this success, he hired Andrew Fastow; who became CFO Chief

Enron’s failure is not only because its executives’ unethical decision making, but also the problem of its organizational structure. Enron is a vertical structure dominated organization, they have specialized tasks for every employee and department, and their decision making is highly centralized. That leaves the potential opportunity for their executives to make wrongful decision without being found out.

Enron Corporation based in Houston, Texas, United States was an energy-orientated corporation, which was formed by the merging of Houston Natural Gas and Internorth. Enron was declared bankrupt in 2001 because of numerous factors, and it was known to be one of the largest corporate bankruptcies in the U.S.A. The cause of malfunction and fall of Enron can ultimately be defined but the lack of ethnical management, lack of ethnical guidelines and ruthless business and financial practices. Enron’s recipe for success was doomed to fail because of the cooks in charge of the kitchen

In the case of Accounting for Enron, the case concerned one of the largest corporate bankruptcies in the US history at the turn of the 21st century. It was Enron Corporation, a one time seventh largest most successful US company, sixth largest energy company in the world, valued at over $70 Billion; they filed for chapter 11 on December 2, 2001. Just the year before, Enron posted a 57% increase in sales between 1996 and 2000. And Enron shares hit a 52-week high of $84.87 per share in the last week of 2000 (O’Leary, 2002). As the story unfolds, investors lost billions of dollars and thousands of people lost

Most of the world has heard of Enron, the American, mega-energy company that “cooked their books” ( ) and cost their investors billions of dollars in lost earnings and retirement funds. While much of the controversy surrounding the Enron scandal focused on the losses of investors, unethical practices of executives and questionable accounting tactics, there were many others within close proximity to the turmoil. It begs the question- who was really at fault and what has been done to prevent it from happening again?