Enron’s story, world crisis and fall
Introduction
What kind of company was Enron?
Company dedicated to gas marketing, functioning as an intermediary buying gas from a network of producers to sell it to a network of distributors, having as profits the collection of high commissions assuming them the risk. This company went from being the seventh largest of energy to the largest worldwide had more than 21,000 employees quoting its price per share at $ 90.00.
How was Enron was born?
Enron was born in 1985 from the fusion of two companies in the gas area Natural Gas and Internorth being its president Kenneth Lay, this character described as someone of great business skills, and with the great benefit of the United States that released theGas market and for the 90’s there was a market deregulation. This undoubtedly was a political agreement with the government on duty where many economically favored surely came out.
Jeffrey Skilling,
Who would become the company’s CEO, a brilliant character of the Harvard MBA, arrived at Enron when Kenneth Lay uses a consulting firm (McKinsey & Company) to be advised, this set out as an objective that Enron grows more and more and thanIt will venture into new markets proposing the creation of the Gas Bank.
Enron Finance Corp,
Jeffrey Skillings proposes to venture into oil markets, energy plants, plastics, paper, steel getting a great variety of contracts that ensured future prices to obtain profits, with a great business vision and seize the market.worldwide owner of a series of polyduct and pipeline gas pipelines to the south of America, in countries such as Venezuela, Bolivia, Argentina, Brazil, Colombia and worldwide.
Enron became a giant in financial markets everyone wantedAnd other entities that quoted the Jeffrey Skilling Stock Exchange liked to surround himself with the best professionals presenting them with very good proposals job offers.
In 1999 Enron launza Enron online, entering broadband with a system of global transactions on the Internet so that their customers could see prices, perform transactions in the market. For the following year they decide to make three divisions of the company ENRON WHOLESALE SERVICE, to handle the product markets, their second division Enron Energy Services to provide advice on energy issues for companies and its third division Enron Global Service Service Generation and Supply of Electric Power.
Accounting records (Mark to Market)
For their accounting records they established a new method to which they called the Mark To Market system, creative accounting, where they basically accommodate the figures they were mail to operate with this accounting recorded at will they manipulate the data unlike the traditional accounting where income received is reported, To be able to achieve or have this skilling reach, andrew Fastow hires a finance expert especially in accounting carpentry, this used strategies such as creation of false profits bad movements made them makeup as a good creation of fictitious entities to make assets and liabilities transfers and liabilities. A character clearly without a label and very ambitious, one of his collaborators discovered Fastow’s financial potholes, which he warned about his Hazzllos sending a letter to management and the audit firm despite the juicy salaries I do not doubt in not being a participant of undue things.
To generate security confidence obtaining credit lines and as they traded in the stock exchange, they presented their financial statements with future income as current profits, with this system the flows of futures troops according to them immediately registered and with prices estimated by Enron executives, and as several companies had created many businesses among them, the market was going.
Their income grew from 2,000 million to 7,000 million dollars some companies such as Dynergy, Duke Energy, El Paso, Willimas, began to venture into this market with this competition their profits were affected, and Enron’s managers worked with more financial leverage. They borrowed to meet their needs and be able to continue with their juicy benefits.
The securities and exchange commission)
To be able to operate with the new accounting system, they required the approval of the SEC who intervened through its arthur Andersen auditor, (one of the five largest audit and accounting firms in the world) that apparently, as well as many Latin American countries shows that theCorruption exists worldwide even in very strong economies such as that of the United States, they declared that Enron’s financial statements presented correct data, who realized all irregularities and let them pass for a long time, their structure had societies with moreOf 3,000 companies, making it cumbersome to audit with operations worldwide, it is mentioned that many of these companies even mocked had names of movie characters, this being a sample of power or even control where they felt untouchable or have everythingA controlled government system.
World crisis and fall
The Merril Lynch Investment Bank for 1999 makes an agreement for the alleged purchase of a Enron of three power plants in Nigeria for 12,000 million dollars, but in reality it was a loan acquired by ENRON to inject cash flow which they in their accountingThey register it as income for the years 2000 and 2001 The price of energy falls through the global crisis, and the rumor that enronculates its benefits is rapid, its three divisions omitted the debts acquired from their financial statements.
Some media begin to question whether Enron was overvalued, many people began to doubt about true operations and the profitability of this corporation, by August 2001, their actions begin to fall at the price of 40.00 dollars per share, his CEO Jeffrey Skilling renounces, with Skilling’s departure everything becomes confusing, since he is the biggest maker of business policies everything is in the hands of Kenneth Lay, but could not continue handling the bubble that hadcreated of falsehood of the corporation.
For September of that same year, Enron’s shares are quoted at 28.00 dollars per share with this collapse in the shares uncertainty, speculation and lines of investigation are created, Enron I am looking for a buyer the Dinegy company showed purchase interest, even made a proposal for 8,000 million dollars, but then retired and notI make the purchase. The shares fall to less than 1 dollar for shares ($ 0.65/action)
The SEC will have investigation, and for December 2 Enron asks the United States government to enter Chapter Eleven, which is bankrupt protection, ENRON final debt of 67,000 million dollars,
After the discovery of Andersen fraud destroyed material files that were subsequently found crushed, coinciding with the collusion with Enron, being the end for this prestigious audit and accounting firm.
Conclusions
The minds of the brilliant people do not always act on good, this case makes us known the ambition of power and money people with high preparation perhaps with assured future, but with antietic actions they led them to prepare one of the most popular frauds at the levelWorld Cup, damaging the lives of thousands of people, all lost jobs, people who had deposited all their savings, all that lost by evil people who just wanted to enrich each other more and more. This is lived in all economies at all scale for many years and it is not necessary to practice.
The value of the information on time, Kenneth Lay took advantage of the knowledge of his relationship with the United States government and a sack of the deregulation of the gas market or perhaps rather agreements with the government to favor the company.
Something positive that left Enron, was the elaboration of the Sarbanes Oxley Law which aims.
Kenneth Lay, president of the company, was declared guilty with more than 28 charges sentenced to 45 years, and ended suicide, Jeffrey Skilling 24 years of sentence 15 years of fine pressure of 45 million dollars, Andrew Fastow declared guilty, six years of pressureAll the bad beginnings end badly, the justice of life passes an invoice and they arrive at them, their families have to suffer consequences.
We must have ethics in all the activities that some employees did not agree with the new accounting and knew that sooner or later it was going to collapse, the letter sent by an executive mentioning the irregularities served as protection when everything was discovered.
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