Enron Scandal 2001 Analysis Research Paper

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Analysis of Enron Scandal (2001)

Background of the Company

All through the course of the late 90s, Enron Corporation was widely acknowledged as one among the pioneering firms in the nation. The new-economy individualist seemed to ditch the mildewed, outdated factories with bulky physical assets, instead favoring e-commerce. While it constantly operated gas lines and constructed power plants, its popularity was owing to its distinctive trading businesses. In addition to the purchase and sale of electricity and gas futures, the organization developed entirely novel markets for peculiar "commodities" like Internet bandwidth, advertising broadcast time, and weather futures (Li, 2010).

Established in the year 1985, Enron featured among the top electricity, pulp and paper, natural gas, and communications corporations worldwide prior to declaring bankruptcy in the latter half of 2001. The company’s yearly revenues increased from roughly nine billion dollars in the year 1995 to more than one-hundred billion dollars five years later. However, in end-2001, the world witnessed a shocking revelation: the company’s supposed financial condition had, to a very great extent, been sustained by systematic, longstanding, innovative accounting fraud. Thomas (2002) claims that the dip in the firm’s stock price from the mid-2000 figure of ninety dollars per share to not even one dollar for a share during the close of the next year resulted in shareholders losing as much as eleven billion dollars. Further, the company reviewed its 5-year financial statement and reported losses worth 586 million dollars. Ultimately, it declared bankruptcy on 2nd December, 2001 (Li, 2010).

Summary of the Scandal

Among the nation’s most infamous commercial scandals, Enron’s scandal is informally regarded by both economists and historians as the case study blueprint when it comes to white collar crimes (i.e., non-violent offenses that are financially-based and mostly perpetrated by highly-educated offenders holding a prestigious post in the organization). In 2000, after the detection of Enron’s crimes, the company declared a critical situation in California concerning natural gas supply. As the organization was well-respected at that time, the American public wasn’t overly concerned about such an announcement’s validity (Laws, 2017).

An ex post facto analysis leads several economists and historians to believe that the corporation’s managers created the aforementioned crisis to prepare for the detection and exposure of their crime; while its managers were partaking of investors’ money, the organization itself was nearly bankrupt. Embezzlement – one of the listed crimes the firm’s executives were involved in – is defined as an offense entailing illegal, immoral acquisition of funds by a company’s personnel; generally, embezzled money is meant for corporate utilization and not personal use. Though organizational managers were pocketing investors’ money, the money was being appropriated from the organization, eventually leading to its bankruptcy (Laws, 2017).

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Executives’ actions caused the company to go bankrupt. Affected stockholders suffered over seventy billion dollars’ worth of losses. Moreover, they cost staff members as well as trustees over two billion dollars. The above sum supposedly resulted from misappropriated pension funds, investments, savings plans, and stock options. Owing to the…

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…of economic corruption for the entire Western world.

· As many as 4500 workers were suddenly left unemployed.

· Stockholders lost as much as $60 billion in a matter of some days; to many investors, it implied loss of old-age and retirement security.

· Enron workers’ pension fund was wiped out.

· Citizens lost their faith in the nation’s economic system.

· Financial market losses were one of the worst losses in stock value in a no-war era.

· Big 5 audit company, Arthur Anderson, ended up losing its accreditation.

· Banks were also believed to be involved in the scandal.

· Corporate financial reporting regulations were made far more stringent.

· The then-President Bush’s close association with Enron founder, Lay, meant the former was also greatly criticized (Ghosh, 2016).

Facts

The majority of Enron’s top executive team members were brought to court for fraud following its discovery in November of 2001.

1. At one point in corporate history, Enron was the 6th biggest global energy firm.

2. At its zenith, the company’s share value was 90.75 dollars (in August of 2000); this figure plummeted to a mere 0.67 dollars in January of 2002.

3. The top executives of the company cleverly sold their own stock in the company before Enron collapsed.

4. However, lower-level workers couldn’t sell stock on account of 401k restrictions; as a result, a large number of employees ended up losing their life’s savings.
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