Rise and Fall of Enron Research Paper Example | Topics and Well Written Essays - 1500 words

Rise and Fall of Enron - Research Paper Example Enron was an energy company that had the marketing of electricity and natural gas as its main activities.  Its’ revenues in 2000 were (supposedly) of $ 100 billion and the market value of the company exceeded $ 60 billion, which meant 70 times earnings and six times book value (Thomas, pp.41).  The company benefited from the deregulation of the energy market, facilitated by the company's own lobby in donations to political campaigns, but without the use of accounting gimmicks and management practices suspicions never had reached this level. Enron collapsed taking along with itself pension funds of its employees and other investors in the same category, a shortfall of at least $ 1.5 billion and dragging a debt of more than $ 13 billion.  For years, the company's directors maligned balance sheets, wiped the losses and inflated profits.  The magic book worked until the end of 2001.  Enron is the product of stunning deregulation of the energy sector.  It was a success and everyone wanted to invest in its actions as it was an excellent company with a higher rate of return, their investment valued up every month, even in times of crisis. The stock prices fell from a record high of $90 in 2000 to $0.60 at the end of 2001, after the scandal was revealed (Bratton, pp.1275). Trade operations of the company were based on complex financial transactions, most referring to businesses that would occur several years later, a practice that inflated their profits.  Operators placed the value of the company's shares way high, suggesting that before these future actions would even appreciate, without having to justify the markdown price, was the mark-to-market. Mark-to-market means considering a company’s assets so highly valued that it is possible to liquidate them at any time by the current market price.  The actions came to be worth about $ 85, behind the scenes; however, the company could only lose on failed projects internet and plants that never operated in India (Thomas, pp.50).   There is evidence that senior company executives were also involved in the fraud, as well as major banks.   The Securities and Exchange Commission initiated an investigation.  Enron was forced to redo their balance sheets for the last five years and admit that its profit in the period was $ 600 million lower than originally reported (Thomas, pp.44).   Auditors Fabricating the Facts The company’s auditor was Arthur Andersen, one of the key executives of the company, which contributed to concealing the scam, while, manipulating the revenue recognition principles.  Since being involved with the collapse of Enron, Andersen lost many prestigious clients. The company's employees took damage by losing their jobs; their savings in most cases were invested in Enron stock (Thomas, pp.46).  The tragic end of Enron shook the confidence of the American financial system.  According to the lawsuit filed by former shareholders, Enron hid th e injury and decreasing profits with the connivance of accounting firm, Arthur Andersen auditor (Healy & Palepu, pp.12).  Former Enron auditor approved fraudulent accounting practices and illegal schemes adopted to hide losses and then destroyed the evidence of the crime.   Involvement of White House   Enron was regarded as an innovator, admired (elected between 1996 and 2001 as one of the most admired companies according to  Fortune  magazine) and dynamic, and Kenneth Lay was a celebrity worlds of business (something that is not seen much in the post