Summary: The Enron Scandal

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The Enron Scandal Enron Corporation, a name that resides in the memory of millions of people as one of the biggest scandals in American history. A company that will be viewed as not only a learning tool but an example of fraud for many years to come. From the rise of dominance to the total collapse many people are still feeling the effects of their bad dealings. It wasn’t until 1985 that Enron was formed and founded when Kenneth Lay merged the two companies Houston Natural Gas and InterNorth. Lay was amongst some of the people that got electricity to be sold at market prices. As a result of Lay and the others, The United States Congress lifted the regulations on the sale of natural gases. In doing so Lay and his company Enron where able to …show more content…
After just 9 short months Enron reported a revenue of $138.7 billion dollars placing them as one of the top grossing companies. When Skilling took over as CEO he insisted that the company would use market to market accounting. Shilling was quoted saying that this form of accounting should show the companies “true economical values”. Market to Market Accounting takes in to account the fair value of assets that tend to change over time. The reason why companies use this accounting is to get a current financial reading. However, it has been a topic of scandals amongst companies most notably …show more content…
In 1993 Enron and CalPERS together made energy investments which they ended up calling the Joint Energy Development Investments or as it’s known by many, JEDI. Skilling later on asked CalPERS to make another separate investment, which they agreed to do but only if they could get out of the JEDI dealings. With CalPERS leaving JEDI Enron would have shown debts on their balance sheet. CFO Andrew Fastow came up with special entity Chewco that only continued to build on and increase the debt of Enron.(3) With Chewco; Enron was able to acquire $383 million dollars in CalPERS investment. As a result, the Chewco entity kept the JEDI’s debt off the balance sheet. Upon discovery of the dealing in 2001 Enron was required to take away a large amount of the earnings they had claimed to have made by $405 million. Enron’s overall debt increased another $ 628 million dollars. Up until the scandals had been discovered Enron had been praised for their risk management.(4) It was a large part of why they were so successful to begin with, but ultimately their uses of special entities were what brought Enron

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