Rise Of Enron Essay

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Enron formed in 1985 when InterNorth merged with Houston Natural Gas, whose CEO Kenneth Lay would become the CEO of the newly formed Enron, who at its peak was worth 70 billion dollars. Lay held a Ph.D. in Economics. Lay was also a contributor to being granted deregulation and the ability to sell energy on the free market. It was this deregulation that caused Ken Lay to see the money he could make in energy and what ultimately caused Enron to form. This is what Ken Lay had dreamed of since he was a child, not wanting to be poor. And Enron was going to deliver this to him. After-all he had something the whole world needed (energy with a price that flowed and fluxed with the market). Combine this with his ability to create a market which allowed …show more content…

This would be the key to Enron’s enormous profits. Mark-to-market accounting allows the company to estimate the value of all long term deals. A given example being that Enron could state that they are going to sell 100,000,000,000KwH at $4 an hour. These numbers could be pulled out of thin air and no one would be any the wiser, all thanks to mark-to-market, and they could state this money on their books even if no money even comes in at all. This made Enron the first non-financial company to use this method. This should have been somebodies clue that they were doing something unethical. Originally, mark-to-market was allowed for use on long term energy contracts, but after realizing they could make an even bigger killing they decided to broaden the range of applications. Using mark-to-market, Enron signed into a 20 year (long term) contract with Blockbuster Video to start up a movie rental service online. Enron recognized $110 million as revenue from the service. After trying several prototype products the market just wasn’t there and Blockbuster cancelled the deal. Enron however wasn’t finished just yet and continued to mark down $53 million profits from the service. This should have been a red flag to someone as well. You don’t have to look too far to see that that can’t be legal or ethical …show more content…

Not only were thousands of people out of a job, everybody lost their pensions, investments, everything. People that were millionaires in Enron stock now struggle to get by. The man who knew when to get out was Lou Pai. He joined Enron in 1987. His job was to turn Enron Energy Services into the biggest trading firm in the business. After spending several nights and thousands of company dollars on strippers, he got one of them (Melanie Fewell) pregnant. Both got a divorce and Pai cashed out all of his Enron stock to the tune of $250 million dollars. This put 800,000 shares onto the market and the price fell from $90 to $53 a share. The fact that he sold his shares before Enron’s bankruptcy protection meant that he didn’t get caught for insider trading like the rest of the executives. It also sparked the creation of the Sarbines-Oxley Act of 2002. This act places more blame on the CEO of the company by placing section that reads: states that senior positions are required to sign off on the accuracy of financial reports. It also places a harder sentence on those that attempt to cover it up and destroy official documents by placing a second section that requires management and auditors to establish internal reporting methods that the company must

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